Mubarak's fall was one of the most exciting moments in the Middle East in a long while. But I'm not sure that anything we are seeing now is cause for optimism. In a nutshell, here's the problem:
1. Egypt faces impossible choices: I will spare you a diatribe on Egypt's budget and debt dynamics. Suffice it to highlight that on the eve of Egypt's revoltution, the country had a budget deficit of 8% of GDP, depended on Tourism for 20% of its foreign exchange earnings and had expenditures that look like this:
Government Expenditures as % of GDP
You are reading this right: the government spends 6.1% of GDP subsidizing fuel (5.1%) and food (1%). In his last action in office, Mubarak raised wages, so the 7.1% spent on wages is now higher than it used to be. But oil prices have also risen globally since then, as have food prices. My point? The government is facing a much bigger bill than is implied by the chart above, and must cut subsidies - but this is likely to get people rioting again!
2. No one knows what Egyptians want: Everyone agrees that Egyptians want democracy, but what else do they want? What are their economic priorities? We don't know, because the country has never been a democracy. To appreciate the depth of this mystery, you need to look no further than the Twitter feed of Wael Ghonim, one of the admirable curators of the Egyptian revolution. A couple of days ago, he was asking people via twitter to suggest topics for him for an editorial he was invited to write.
It is heartwarming that a leading activist is listening to the crowds, but it is also worrisome that the demands of Egyptians are not immediately obvious even to himself! Predictably, the reponses were conflicting:
Yes, it is good to see some people want freer trade, but some people want more government spending from a government that can't even afford to maintain its current spending!
I don't envy the economic policy makers in Egypt. They are damned whatever they do.