Egypt’s new military-backed administration has pleased investors by appointing experienced economic policy makers to a cabinet whose cohesion will be sorely tested in the coming months.
Over the past few days, trained economists and technocrats have been given key ministerial posts in the government that is replacing the administration of President Mohamed Mursi, deposed nearly two weeks ago in a move that polarized Egyptian society.
Taken together, they appear to form the country’s most high-powered economic team since its February 2011 revolution ushered in a series of unstable cabinets which were chosen as much for ideology and political expediency as for expertise.
The new cabinet’s credentials will not alone ensure that Egypt can overcome problems such as crumbling state finances, a big trade deficit and rising inflation - but the team’s very existence may go some way to restoring business confidence.
“I think they are smart enough to deal with the new outcomes on the ground,” Mohamed Kotub, director of asset management at Naeem Financial Investments in Cairo, said of the new ministers.
He predicted the cabinet would focus on restoring public security, boosting tourism and luring foreign investment back to Egypt - key demands of the business community which many felt were ignored by Mursi’s government.
The range of views it contains is aimed at allaying anger over the overthrow of the democratically elected Mursi, but could store up trouble as it considers how to tackle crippling subsidies and currency woes.
Mursi’s cabinet was short of relevant experience. Two of his finance ministers, for example, had academic backgrounds studying Islamic economics - of limited immediate use in an economy where Islamic banking plays only a tiny role, and which is facing a balance of payments crisis.
Mursi’s last finance minister, Fayyad Abdel Moneim, made his academic name researching subjects including “economic functionaries in the Islamic state at the time of the Prophet and the Righteous Caliphs”.
Also, post-revolution governments in Egypt had trouble attracting experienced technocrats because they feared being tainted by an unpopular ruling military council or by the Islamist ideology of the Muslim Brotherhood.
The new cabinet appears to have overcome this, including ministers who can speak the language of investors, foreign and local. Some also have administrative experience needed to push economic policies through a sluggish state bureaucracy.
New Prime Minister Hazem el-Beblawi, who is to steer Egypt until parliamentary elections planned in about six months, ran Egypt’s Export Development Bank for 12 years and went on to work at regional economic agencies in the Middle East.
Ahmed Galal, managing director of the Cairo-based Economic Research Forum since 2007 and for 18 years a researcher at the World Bank, was appointed finance minister on Sunday.
Ziad Bahaa El-Din, who is a member of the leftist Egyptian Social Democratic Party, will be deputy prime minister; he has a doctorate in banking law from the London School of Economics and ran Egypt’s investment authority between 2004 and 2007.
Egypt’s interim authorities have not been able to ignore ideology and horse-trading in choosing their economic team. Inan effort to reduce political tensions, they have had to take care to appear inclusive of a range of opinion.
Ashraf al-Arabi, a U.S.-educated economist who served as planning minister under Mursi, handling unsuccessful negotiations on a $4.8 billion loan from the International Monetary Fund, was given the same post in the new government.
“As individuals I believe the interim governments can handle the priorities, but the biggest challenge is how they will deal with the challenges as a team,” said Kotub at Naeem Financial.
Within minutes of his appointment on Monday, Arabi appeared to raise the possibility of disagreement within the cabinet by telling reporters that the time was not right to reopen talks with the IMF, because $12 billion in aid pledged by Egypt’s Gulf allies would carry it through coming months.
It was not clear whether Arabi was speaking on behalf of the entire cabinet or simply giving his own opinion; Beblawi has not said publicly whether he wants a quick IMF deal, which could help to attract foreign investors back to Egypt.
Many economists think an IMF loan is in any case unlikely before the next parliamentary elections, because it would come with politically explosive commitments to economic reform that an interim government would struggle to provide.
"It would have been extremely difficult anyway to achieve an IMF agreement soon," said William Jackson, emerging markets economist at Capital Economics in London. Arabi’s comments were “just a realistic assessment”, he added.
The new cabinet will grapple with other tough policy decisions in the next few months. One is how to begin reforming Egypt’s wasteful system of fuel and food subsidies, which is undermining state finances; Egypt needs to find a way to cut overall spending without hurting the poorest people.
Another dilemma is currency policy, which the cabinet is expected to discuss with the central bank. After depreciating nearly 15 percent against the dollar to around 7.0 in the past 18 months, the Egyptian pound has strengthened slightly since last week as the new government has been formed.
With Gulf aid flowing in, authorities may be tempted to spend some of the money to halt further depreciation, to limit inflation and try to restore investor confidence by creating a contrast with the pound’s performance under the Mursi regime.
But such a policy would risk draining Egypt’s foreign reserves, and could hurt the economy by keeping the pound overvalued. Capital Economics estimated a fair value for the pound, which would help Egyptian exports recover, of about 7.50.
For now, however, many businessmen seem willing to give the new cabinet the benefit of the doubt.
“We’re bullish on the new cabinet, especially because most of them come from a strong economic background,” said Ashraf Akhnoukh, a senior trader at CIBC brokerage in Cairo.
“The main problem is building consensus about policies and showing some sort of results to the public. They don't have the luxury of taking their time - Egypt needs short-term results and long-term goals.”