On Egypt's new cabinet lineup

Some notes about Egypt’s new cabinet, appointed yesterday, seem in order. The shuffle had been expected but postponed several times, and despite Prime Minister Hisham Qandil’s pledge to make the shuffle a purely technocratic one, the presence of new Muslim Brotherhood figures in cabinet posts and the absence of any opposition politician suggests a consolidation of the Morsi administration’s grip on the government. For months, Brotherhood officials had complained of resistance in the administration, including from cabinet members. Of course, the previous cabinet had been appointed jointly by SCAF and Morsi — at the time a necessary compromise.

The official reason for the change stems from recent resignations by some minister and the government’s need to address the perceived mishandling of the economic crisis facing the country. A full list of new ministers is in this Ahram article. The following points are worth noting:

• PM Qandil retained his position as expected, despite reports that Brotherhood strongman Khairat al-Shater could be in line for the position. As I suspect another cabinet shuffle is likely after the upcoming parliamentary elections, Shater could still come in at a later point — say the end of the Egyptian financial year in June. But he is also more valuable in the shadows of the Brotherhood, having re-asserted his authority in December as the key link between the group and their Salafi allies, on which the Brothers appear to increasingly rely, and as a potential kingmaker during the candidate selection process of the Freedom and Justice Party. The key latent tension between the Brotherhood and the presidency is in the Morsi-Shater relationship, with the latter’s seniority in the movement having been trumped by Morsi’s election. But Shater’s control over both the MB and his links to the Salafis during the constitutional crisis (notably his role in mobilizing them during the Ettihadiya protests) now boost his role.
• The ousting of Minister of Finance Momtaz al-Saeed is not surprising, considering his public statements often contradicted those of the administration. The choice of El-Morsi al-Said Hegazy as his replacement is somewhat puzzling considering the gravity of Egypt’s economic predicament, however. As Rebel Economy notes:

Is a public finance professor who specialises in Islamic finance really the CV that jumps out at you for Egypt’s critical post of finance minister?

Not really.

• Also, in the LAT’s coverage:

“There is no chance for the president’s reshuffle to bring back people’s trust in the government and economy,” said Magdy Sobhi, a political economist with the Al Ahram Center for Political and Strategic Studies. “While the new finance minister has done extensive research on Islamic finance, he has no political or governmental experience. You have severe budget constraints and debt. The country is in a terrible economic situation.”

• I say give a man a chance to prove himself, but ultimately I think this government would have been better served by a MinFin veteran — even if these competent folks are holdovers from the YBG era. At least until you can get Mohammed ElErian interested in the job.
• With the conclusion of an IMF deal increasingly urgent, the government must now repair the damage done by Morsi with his late December policy reversal on the introduction of new revenue-raising taxes. Once again, the Brotherhood is going full steam ahead in trying to secure the deal, making a mockery of the president’s call for “social dialogue” on economic reform issues. There will not be any such dialogue worthy of the name. They will probably try to negotiate some changes in the steps they were going to take, and will probably benefit from the backing of the US at the IMF in allowing this, since Egypt’s macro-economic stability is a high priority in Washington (unlike, say, the constitution or human rights issues). Merrill Lynch recently noted in its Egypt research:

We expect the Freedom and Justice Party (FJP) to ask for the recent tax increase package to be watered down or delayed for post-elections. We think there is enough IMF shareholder support and interest in the near-term stability of Egypt that negotiations will likely reach a timely agreement shortly. We also think authorities are aware of the precariousness of the situation, the need for a rapid IMF loan to stem a large, potentially disorderly, devaluation and the likelihood for the current controlled EGP weakness experiment to hold only for a limited period. Should Egypt fail to seal a deal shortly or delay it for too long, a hard landing would ensure, along with a large EGP devaluation. Given our base case that the IMF deal is finalized within a month, we see EGP weakness in the near-term, though at a slowing pace.

Remember the worst case scenario is a catastrophic, unplanned run on the pound that takes it below the LE7:$1 level, which could wipe out Central Bank reserves as Egyptians run to convert their pounds to dollars and euros. We’re not that far off from that, with the markets seeing Morsi’s panic over the tax policy and the postponement of an IMF deal as a sign of low confidence in Egypt’s future. For investors, foreign buyers of Egyptian securities, ratings agencies etc. sealing a deal has become synonymous with taking Egypt seriously again. More on the economic bad news by Dan Murphy for CSM here.

• The Minister of Interior has been replaced — unsurprisingly after his forces’ scandalous failure to protect Brotherhood offices that were attacked and arsoned and his ministry’s general state of semi-rebellion. His replacement, however, is one of his deputies, showing that Morsi is not ready or interested to take on the Interior Ministry from the outside. General Mohamed Ibrahim was formerly in charge of prisons (hardly a ringing endorsement) and his appointment, I’m told, is seen as a failure among some in the Brotherhood. I can’t say I’m surprised that another police officer is taking the helm at Lazoughly, though.
• Three Muslim Brothers have taken cabinet positions, including senior leader Mohammed Bishr as Minister of Local Development. This, in my view, is the most important of the three appointments, giving the Brotherhood control over local government ahead of municipal elections (probably next year). Bishr is a MB heavyweight. Also interesting to see the Internal Trade ministry go to a Brother, considering its strategic importance in ensuring that whatever changes made to subsidy policies do not create problems or supply shortages — the most likely trigger of an “uprising of the hungry” some fear.
• The absence of any prominent non-MB figure is hardly surprising. Morsi is clearly not interested in reaching out, as we saw in the recent constitutional debacle, and I doubt he’d find a taker among opposition leaders. Even though I think that is what should happen.