He argues that initiating reform is facilitated by an independent or autonomous executive, while consolidating reform requires the support of institutions, such as legislatures and even interest groups. The application of such criteria in Egypt’s case is a little problematical. Although the country was ruled almost continuously by authoritarian regimes since 1952, reform proceeded only slowly, and generally only when the economy was in extremis. A fruitful focus of research in Egypt’s case, therefore, would be what circumstances made the ruling autocrat risk the change that a significant economic reform would inevitably bring. Some answers are attempted in this book, but the matter requires more exhaustive examination.
The Role of the Foreign Patron
A factor that complicates the political-economy response, and one that probably occurs more frequently in developing-country dictatorships, is the role played by a foreign patron. In Egypt’s case, the latter was the Soviet Union in President Nasser’s era and is the United States at the present time. The interests of the foreign patron and its attitude toward the client country’s political economy can be quite complex, and the interplay of their interests and powers can be a major determinant of political-economy outcomes. The general experience is that if the patron has to decide between pressing the client to adopt reform policies or to support him in resisting reform because of a fear that otherwise the client will lose office, the patron will opt for support even if the client is undeserving. The attitude of the patron is epitomized most colorfully in the remark attributed to President Franklin D. Roosevelt in Time magazine (November 15, 1948) concerning the Nicaraguan dictator Anastasio Somoza: “Somoza may be a sonofabitch, but he is our sonofabitch.”
The client dictator wants the patron’s unconditional support. The patron may be willing to support the client, but may want the client to adopt certain reforms. However, sensing that these might not be welcome and would therefore damage the bilateral relationship, the patron may seek indirect ways of influencing the outcome.
Let me give two examples from Egypt’s experience of this complex relationship and the political-economy outcomes to which they led.
At the height of the January 1977 bread riots in Cairo, I had a discussion with Hermann Eilts, the U.S. ambassador to Egypt, who was the best-informed diplomat I have met in Egypt.21 He urged the World Bank to press Egypt on subsidy and other reforms, because Egypt desperately needed such reforms. He suggested that the World Bank make the disbursement of the Bank’s loans conditional on actions on subsidies and the budget. I answered that the World Bank was disbursing only $60 million while the United States was disbursing about $600 million. Would the United States hold back even a penny of this amount if Egypt did not go in for the recommended reforms?
The ambassador responded that the United States believed President Sadat to be a force for moderation in the Middle East, and that so long as he continued to be such a force he merited the United States’ support. Translation: So long as Egypt adhered to its peace treaty with Israel and refrained from creating any nuisance that would interfere with the West’s access to Middle East oil, it would get the money no matter what it did or failed to do in the way of economic reform.
I replied that the laws of physics did not permit the tail to wag the dog, and neither did the laws of arithmetic suggest that a hint to hold back some part of $60 million would terrify the Egyptians into taking the recommended actions, especially as they knew that at least $600 million would be available and that the United States was pressing the G-7 and other countries to join the aid program for Egypt in order to increase the total amount. (The first Consultative Group for Egypt, consisting of about twenty-five aid donors, in fact met later that year and pledged $3.4 billion in aid for the coming year.) I could not therefore in good conscience recommend to the World Bank’s management to join the IMF with any hints to withhold disbursements, particularly as Egypt had been fulfilling its contractual commitments on the World Bank’s projects. After some further discussion, Ambassador Eilts accepted my position.22
Thus, on the one hand the United States agreed that the policies proposed by the international financial institutions (IFIs) were necessary to deal with Egypt’s economic predicament. On the other hand, publicly agreeing with these institutions might harm the United States’ bilateral relationship with Egypt. The solution seemed to be to urge the IFIs from behind the scenes to press Egypt on reform while publicly remaining “understanding” of the country’s difficulties.
The Egyptians sensed the Americans’ dilemma, and were quite prepared to take advantage of it. Ministers said that the cabinet would trumpet the “understanding” statements in order to glue the United States to its public posture. The Americans understood that abandoning a position that Egyptians applauded as being sympathetic would drain much of the popularity that the United States had garnered because of its (well-publicized) helpful stance. The political costs of a retreat would be too great.
The presence of the patron also enabled Egypt to play the “American card” in its dealings with the IFIs, in which the United States was the principal shareholder. Several examples of Egypt’s co-opting the United States to pressure the IMF are documented by Richards (1991) and in various issues of the Middle East Economic Digest.23 Some instances are also described in later chapters of this book.
A telling example is provided by the experience of the Consultative Group of aid donors for 1979. In September of that year it appeared that the World Bank was reluctant to hold a meeting of the Consultative Group for Egypt. I was invited to join a discussion between Hamed al-Sayeh (the minister of economy) and the United States ambassador (Alfred Atherton) at which the minister asked the ambassador to have Robert Strauss (at the time President Carter’s special envoy to the Middle East) call on the World Bank’s president, Robert McNamara, and prevail on him to hold a meeting of the Consultative Group within that calendar year. The minister drew attention to the fact that meetings of the Group had been held in 1977 and 1978. Not holding one in 1979, after the Camp David Accords between Egypt and Israel,24 and in response to which the Arab countries had cut off their aid to Egypt, would send an unacceptable political signal, namely, that the West also had abandoned Egypt. In these circumstances, how could the public accept a continuation of Sadat’s pro-West policy? As matters turned out, Robert Strauss’s intervention was not required. That evening Ambassador Atherton telephoned to let me know that Assistant Secretary of State Richard Cooper had called McNamara, who had assured him that a meeting of the Consultative Group would take place before the end of the year. The meeting was held in Aswan on December 20.
The result of this interplay of interests between donor and patron was that the signals from the United States could often appear ambiguous. This sometimes led to confusion on the Egyptian side as to what was really wanted, but more frequently to Egyptian policymakers dissecting the United States’ messages and highlighting elements that conformed to their own views and would buttress their own position.
Egyptian officials had also become more adept at getting the United States to put political pressure on the IFIs to moderate their conditions. Hamed al-Sayeh said that the cabinet had realized it should not jump to accept IFI prescriptions. If direct discussions failed to convince the IFIs of Egypt’s concerns, then it was the “absolute duty” of Egyptian policymakers to use the route through the U.S. State or Treasury Department to make the IFIs understand what the feasible boundaries of reform were. He added that after the experience of the 1977 bread riots, Egypt’s policymakers were adamant that it would be “insane” on the part of donors to insist on, or for Egypt to agree to, major subsidy cuts. He had little doubt on whose side the United States would come down if it had to choose between maintaining its Middle East policy or subscribing to the purism of the IMF’s economic ideology.
A
