Stratfor’s Bhalla: Egypt Collapse Unlikely
February 07, 2013
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Egypt is one of the most important Middle Eastern countries, and its transition to an Islamist government headed by the Muslim Brotherhood’s Mohammed Morsi has been fraught with difficulties. And the stakes are high. The prospect of the protests to Morsi’s moves to get the Egyptian economy moving again descending into complete chaos threatens the peace treaty it has with Israel and could even derail the global recovery.
The recent performance of the Market Vectors Egypt ETF (NYSEArca: EGPT) reflects all the turmoil. The still-small $36 million fund—the only exchange-traded fund targeting Egypt—has bled some 12 percent of its value in the past three months, and suffered outflows of assets as well. It was one of 2012’s top-performing ETFs, but is now just 5 percent higher in the past year.
But as messy as Egypt’s current situation seems to Western eyes, there’s a silver lining in the shaping of a new government that understands what needs to be done and who it can count on, according to Reva Bhalla, an analyst at Austin, Texas-based Stratfor, the geopolitical consultancy founded by George Friedman. Bhalla, an expert on Middle Eastern, South Asian and Latin American affairs, told IndexUniverse’s Cinthia Murphy that things aren’t as bad as they seem. Still, that doesn’t mean they won’t get worse before they get better.
IU.com: There's a lot going on in Egypt these days, and it seems the government could collapse there. Why is it that Egypt is so difficult to govern right now? What's the main challenge?
Bhalla: There was a lot of expectation, particularly from the financial world, watching Egypt in this severe economic distress. Egypt, of course, is going to have to cut public spending, cut its public sector, liberalize its market, hike taxes and take an IMF loan and basically absorb the pain of austerity.
But when we look at the situation, we look at the political constraints first and foremost. So, to understand why Egypt is so seemingly ungovernable right now, we have to take a look at what is going on in the Muslim Brotherhood’s mind first. There's a lot of rhetoric about what the Brotherhood actually represents, but it’s actually quite pragmatic in a lot of its views and it knows that coming into power is going to be a difficult process.
There's a big difference between being opposition and actually taking responsibility once you're in power. It was easy for them to go out and protest and try to de-legitimize the government when Mubarak was still in power. This is a whole different ballgame now.