CAIRO—Last month, the Muslim Brotherhood received a phone call from the International Monetary Fund. Egypt was hurtling toward economic collapse, and IMF officials had decided they couldn’t push ahead with a $3.2 billion loan without buy-in from the country’s new political heavyweights.
After 80 years as an underground movement with many members in jail, the Brotherhood found itself at a historic moment. Its decision would likely make or break a loan package believed vital by many Western officials and by Egypt’s own business community.
There has been deep distrust in Egypt of the IMF, fueled by a general suspicion of Western meddling and foreign invasions in the 18th and 19th centuries to collect debts. Many Egyptians believe that the Western-style economic reforms of recent years enriched a handful of wealthy regime cronies and did little for regular people.
David Degner for The Wall Street JournalEssam El-Haddad, a foreign-policy adviser.
Yet the Brotherhood recently ended up giving tentative approval to the $3.2 billion IMF loan. “All of a sudden, we found ourselves for the first time and after a very, very short learning process, asked to take a position that would affect everybody’s lives,” said Essam al-Haddad, the Brotherhood’s new senior adviser on foreign affairs.
Since the Brotherhood was legalized after the toppling of President Hosni Mubarak last February, the group has tried to remake itself. A year ago it was a secretive group dominated by elders who had spent much time in Egyptian jails, and little time in Western capitals. Today, after winning a plurality of the seats in recent parliamentary elections, it stands at the cusp of being Egypt’s new ruling class.
Hard reality is steering that transformation. Confronted with a badly sinking economy, the Brotherhood doesn’t have the luxury of harping endlessly about Zionist conspiracies, American hypocrisy, or bikini-clad tourists—not if it wants to put Egypt back together again.
Tourism revenue dropped by at least one-third since the uprising, according to government statistics. And billions of dollars of annual foreign investment—which peaked at $13.7 billion in 2007—were almost entirely choked off.
“Egypt is running smack into an economic wall,” said Karim Sadek, a managing director at Citadel Capital, a Cairo-based private-equity firm.
The Brotherhood in Egypt
See a timeline of the Muslim Brotherhood.
A Gallup poll conducted between April and December of last year showed 54% of Egyptians placed jobs and economic development as their top priority, while less than 1% cited implementation of Islamic law. The results were consistent across all political parties, even Islamist ones.
“Their supporters want the economy fixed, not religious solutions,” said Dalia Mogahed, head of the Abu Dhabi Gallup Center, which conducted the poll.
Skeptics worry that once the Brotherhood is entrenched in power, the group’s social agenda will come back to the fore. They say that could particularly be the case if the Egyptian economy continues to decline.
“It’s a big fear that, if they can’t fix the economy, they’ll try to instead clean up society,” said Heba Morayef, an Egypt researcher with Human Rights Watch.
Indeed, there are competing views in the movement on how closely to tie itself to the West. Even as some Brotherhood members have courted Washington, the movement’s Deputy Supreme Guide, Rashad Bayoumi, recently excoriated U.S. Ambassador Anne Patterson for having a “miserable past” in her previous posting in Pakistan. His comments were widely reported in the Egyptian press.
Then there is the Salafi Nour Party, a hard-line Islamist party, which won a surprising 27% of the vote in the recent parliamentary elections. With the Salafis threatening to undermine the Brotherhood’s traditional Islamist base, members may fear opening up too much to the West.
“Do you trust the Muslim Brotherhood? I don’t know,” said a senior Western diplomat. “They have different faces. They are conservative, they are historically anti-Western, but they are also very strategic and don’t seem interested in rocking the boat at the moment.”
For now, many Brotherhood members are on a charm offensive. In recent weeks, they have attended a cocktail party at the residence of Ambassador Patterson and been feted as guests of honor at a British Embassy reception for U.K. companies doing business in Egypt. Some Brotherhood members even criticized the military-backed government’s recent crackdown on foreign-funded nongovernment organizations, including the indictments of 16 American civil society workers.
The crackdown on the groups, accused of working illegally in Egypt to destabilize the country and receiving illegal foreign funding, plunged U.S.-Egypt ties to their lowest point in decades.
The Brotherhood has received multiple delegations of foreign investors, including J.P. Morgan Chase & Co. and Morgan Stanley. The Brotherhood is meeting with executives from leading U.S. corporations that operate in Egypt, including oil and gas producer Apache Corp., Coca-Cola Co., General Electric Co. and General Motors Co.
The meetings are part of a broad, tentative rapprochement between the West and the Islamist forces coming to power as part of the Arab Spring. Advocates of engagement with the region’s Islamists have maintained that integrating these movements into politics is the surest means of moderating them, and now that thesis is suddenly being tested on a broad stage.
There was an earlier test. In 2002, Turkey’s Islamist Justice and Development Party came to power after a year in which that country’s economy had shrunk by 5.7%, inflation had soared 55%, and the Turkish lira had lost 51% of its value.
The Islamic party oversaw the implementation of a stringent IMF austerity package, opened up the country to foreign investment, and sold off state-run companies. In the decade since, Turkey has seen consistent growth and is one of the strongest emerging markets in the world. The party also changed Turkey’s foreign policy, shifting away from its former close allies in Israel and the West.
The Brotherhood frequently cites the Islamist party in Turkey as a governance model it hopes to emulate.
Leading the charm charge for the Brotherhood is a new crop of polished Brotherhood businessmen. They wear tailored suits and Burberry ties, tote leather-encased iPads, and speak fluent English.
Mr. Haddad, the Brotherhood’s foreign-affairs adviser, earned an M.B.A. in England and has impressed Western diplomats, investors and Egyptian businessmen with his grasp of economic and global affairs.
Another new face is Hassan Malek, a furniture importer who is heading the Brotherhood’s Businessman Development Association, which will try to boost foreign investment.
David Degner for The Wall Street JournalThe Brotherhood’s Business Development Association meets with a Turkish delegation.
How much sway these pragmatists will ultimately carry in an organization long dominated by conservative elements remains to be seen. But Mr. Malek’s rise suggests that some of the movement’s heavyweights are firmly behind the recent pro-West and pro-business outreach. Mr. Malek is the right-hand man and longtime business partner of Khairat Shater, the Brotherhood’s second in charge, and a leading candidate for prime minister if the Brotherhood tries to form a government down the road.
Mr. Malek and Mr. Shater were released from prison in March 2011. A few weeks later, Mr. Malek received an anxious phone call from J.P. Morgan Chase. “The Muslim Brotherhood will meet us?” the caller nervously asked, according to Mr. Malek’s account. Of course he would, said Mr. Malek.
“We had lots of questions for them,” said Mr. Malek. “Will you deal with us? How will you invest in Egypt? What are your criteria for where and how much you invest? What is your analysis of our economy?” A J.P. Morgan official confirmed the meeting. The problem is that almost everyone’s analysis of the Egyptian economy is pretty grim right now. Short of cash, the military government turned to local banks for loans and began spending down Egypt’s $43.7 billion stockpile of foreign reserves. Those reserves now sit at $13.6 billion, less than three months’ worth of imports, according to the central bank.
As ratings firms downgraded Egypt four times over the past year, the government has had to pay wary lenders steadily higher interest rates, which have jumped to 15% from 9% a year ago. As they heard such appraisals, said Ahmed Heikal, chairman of Citadel, the private-equity firm, “the Brothers became very sensitive to the concerns of institutional international investors.”
One concern was what the Brotherhood’s Islamist agenda might do to tourism, an industry worth $13 billion a year to Egypt and employing 11% of the work force. During the recent campaign for parliament, some Brotherhood candidates advocated banning alcohol sales and forcing Western tourists to cover up on Egypt’s beaches.
When Essam el-Eryan, a member of the movement’s leadership bureau, met with an influential Egyptian business association in January, he was bombarded with worried questions about the future of tourism in Egypt, according to several people present.
A few weeks later, in early February, Mr. Eryan met with tourism operators. He had a surprising message: “He said very clearly: beer and bikinis are OK,” a businessman who attended recalled. Mr. Eryan couldn’t be reached to comment.
No one believes the Brotherhood is suddenly pro-bikinis and beer. But it is hard to find a member willing to publicly denounce such vices nowadays. “We can’t tell people how to dress when they can’t put food in their stomach,” said Mr. Haddad.
The group has toned down its public stance on America as well. When Washington tapped Ms. Patterson to be the new ambassador to Egypt shortly after the uprising last year, Mr. Malek strode up to her the first chance he got at a reception at the Turkish ambassador’s house and asked for a meeting at the U.S. Embassy. She agreed.
The relationship between the U.S. and the Brotherhood has grown. Before the uprising, the Brotherhood rarely met U.S. officials and when it did it was with low-level diplomats. In the past year, U.S. officials and Brotherhood officials say there have been dozens of meetings between the two sides.
After the movement’s parliamentary win, Ms. Patterson visited the movement’s supreme guide, Mohammed Badie, at the organization’s modest headquarters in Cairo’s Manial neighborhood.
If Washington is softening its view on the Brotherhood, there are signs the Brotherhood is hearing more of what Washington has to say. At the cocktail party at Ms. Patterson’s residence in mid-January, a half-dozen leading Egyptian businessmen pressed two skeptical Brotherhood members, Messrs. Haddad and Malek, on the need for Egypt to accept the IMF loan, according to several people present. The members didn’t partake when cocktails were served, but they impressed those in attendance.
“They kept asking, ‘Should we go for the IMF loan or not,’ and of course, we were all saying, ‘Yes, yes, yes!’ ” recalls Hisham Fahmy, the director of the American Chamber of Commerce in Egypt. “And they were like, ‘OK, why?’ ”
As for the Brotherhood, the IMF loan began looking more like a lifeline than a Western plot. “There was real skepticism inside the group” about any money coming from the IMF, said Mr. Haddad. “On the other hand, we also know we need IMF expertise in how to reform our economy, how to close tax loopholes, deal with budget deficits, etc.”
As they prepared for the IMF meeting, the Brotherhood’s economic and political leaders hunkered down in late January in their headquarters, according to Mr. Haddad, who said he was there. For hours they hashed out one of the first big policy positions the group would take.
The Brotherhood came out in support of the loan in principle. Members said they had yet to be given access to the government’s books, without which they didn’t feel they had sufficient information to take a definitive position.
That satisfied the IMF, and a loan package is now widely expected to be approved within weeks, say people familiar with the negotiations.
“It’s been an extreme crash course for us and it came to a head that day,” said Mr. Haddad. “Remember, for 60 years we were working underground and now we’ve come out into the light and are staring directly into the sun. We’re all blinking and rubbing our eyes, like the Chilean miners. To adapt to this takes time and we don’t have time.
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