To be sure, an IMF deal could help jumpstart the moribund economy. Politics have stymied any such agreement since 2011, however. Last December, the government declared that it would move forward with austerity measures, but when backlash from the announcement threatened passage of the constitutional referendum a few days later -- a vote essential to the MB's power-consolidation agenda -- Cairo hedged on its commitment. In response, the IMF made its loan contingent on approval by the future parliament, a condition the government agreed to because it believed a new legislature would be in place by June.
To reach that target date, the MB attempted to force through an electoral law, but the Supreme Constitutional Court deemed it legally inconsistent and noncompliant with the new constitution in a February 18 ruling. The government ignored that finding and continued with plans to call for elections, only to have the law struck down by the Supreme Administrative Court two days later.
Given the time required to redraft and pass the law, as well as the intervening month of Ramadan, parliamentary elections seemingly cannot be held before October. As a result, Egypt will be unable to secure the IMF loan until year's end at the earliest -- six full months after the promised austerity measures are slated to kick in, the effects of which the loan money was supposed to alleviate.
With the loan that far off, the economy will face grave challenges this summer. The government will struggle to cover pensions, salaries, and remaining subsidies, and any number of nightmares could materialize: prices of consumer goods succumbing to hyperinflation; the U.S. dollar vanishing from banks and exchange offices; bank runs leading to bankruptcy; unprecedented losses on the stock exchange; lack of liquidity for new or existing projects; a lower credit rating that further drives away foreign investors; a drastic increase in petty crime; increasing layoffs; and the ever-looming prospect of a hunger revolution. Indeed, at the rate Egypt's economy is deteriorating, the much-debated IMF loan would likely keep the country afloat for only a few more months at most -- it is by no means clear that the money would catalyze much greater foreign assistance as Cairo expects.
This heightened potential for failure has not led the Brotherhood to the logical solution of finding political compromise or implementing much-needed economic and security reforms. In fact, the Morsi government shows no sign of changing the very methods that fueled the crisis, and its negotiating pitch has effectively been reduced to a threat: "Egypt is too big and too important for the United States to allow it to fail. Enough talk of reforms -- give us the money now without preconditions or risk the country failing on your watch." In short, the MB is holding Egypt for ransom, leaving Washington with a handful of dangerous options.
Current U.S. support for Cairo is tied to America's three main interests in Egypt: the Suez Canal, military cooperation, and the peace treaty with Israel. Given that each of those interests is secured by the independent Egyptian military, backing the Morsi government holds little advantage for Washington. If anything, it opens the Obama administration to unnecessary criticism on the domestic and foreign fronts.
If Washington pushes the IMF to expedite the loan under the current economic and political conditions, it will not succeed in stabilizing the country or restoring investor confidence. Rule of law is key -- a loan without necessary reforms would be money wasted on propping up a failing government for a few more months, further entangling Washington with the Morsi administration at a time when the latter's long-term survival is increasingly costly and doubtful.
A more effective option is to support the IMF's demands and make clear that Egypt's welfare depends on Morsi's ability to compromise with the opposition. Without such measures, Egypt is simply too big for outside actors to save. The funds required to jumpstart the economy as is would be similar to those needed for the reconstruction of Iraq, which neither the United States nor the EU can afford at the moment. If Morsi's government survives the summer, and if the eventual elected parliament approves the IMF austerity measures, Cairo could then receive its all-important loan. In the meantime, Washington can rest assured that its strategic interests are being secured by the Egyptian military.