Mideast change may start in Iran

JERUSALEM (MarketWatch) -- Two years after the Arab masses took to the streets, mayhem’s end is nowhere in sight.

In Cairo, the Arab world’s heartbeat, Egypt’s first freely elected government relegated the economy to the back burner to pursue a politics of divisiveness.

President Mohammed Morsi’s attempt in November to impose himself on the judiciary resulted in renewed street violence, and the subsequent referendum over a new constitution was shunned by two-thirds of the electorate. Egyptians’ effort to vote with their feet indicated that the government had spent much of its hard-earned political capital sooner than expected -- and for the wrong cause.

As argued here last year , the Islamists are in a social position to address Egypt’s pressing economic needs because they can deliver the poor masses, who will bear the brunt of the draconian measures their economy demands.

Alas, in his first six months in office Morsi made no meaningful economic move, focusing instead on expanding his authority.

The markets, meanwhile, given reason to suspect that the economy was being neglected, responded with alarm. The pound, which on the eve of Morsi’s clash with the judiciary traded at 6.1 to the dollar, has since dropped to 6.39, as opposed to 5.8 in the last days of the Mubarak era. Meanwhile, S&P downgraded the nation’s long-term credit rating to B-, the level of Greece.

The government’s lack of economic drive is evident in a more than 50% decline in foreign-currency reserves since the revolution, and in the central bank’s announcement last month that the reserves have dwindled to $15 billion, the minimum necessary to purchase the country’s essential imports. Talks with the International Monetary Fund about a long-awaited $4.8 billion loan have been suspended after the government backed off a plan to raise taxes.

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