On Bread and Circuses:

Food Subsidy Reform and

Popular Opposition in Egypt

Ram Sachs

Advisor: Professor Lisa Blaydes Center for International Security and Cooperation

Stanford University May 21, 2012

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Abstract

In January 1977, Egyptian President Anwar al-Sadat faced tremendous public protest

after implementing relatively small changes to the country’s food subsidy regime. In

contrast, during the 1980s, and more aggressively in the 1990s, the government of Hosni

Mubarak implemented more consequential reductions to subsidies on core food items while

avoiding popular protest on a similar scale. I argue that the Mubarak regime engaged in

covert price increases, distribution controls, temporary policy reversals, and repression,

which allowed it to successfully reduce food subsidies without igniting regime-threatening

public opposition during this period. Following the January 2011 revolution, further reform

efforts are unlikely as the transitional democratic politics and the increased number of

political participants will block change in the short term.

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Acknowledgements

This thesis has served to unite my academic experience at Stanford. Four years of

preparation, and the past year of writing, have produced this exploration of food, politics, and

the Middle East. The CISAC Honors Program has provided a fantastic interdisciplinary

home for this pursuit.

I am thankful to Professors Blacker and Crenshaw for their guidance in this yearlong

process. I will fondly remember the quarterly presentations, Professor Blacker’s insistence

on concise language, and Professor Crenshaw’s direction on crystallizing the “puzzle”. My

fellow CISAC students were a cornerstone of the thesis experience, both in Washington and

on campus. We gained a community that understood the travails of literature reviews and

last-minute chapters, and the thrills of inside-the-beltway meetings.

At Stanford, Professor Blaydes provided the essential expertise on Egypt to guide my

research. After discussing Egypt in her office for the past year, I hope to one day eat my own

loaf of subsidized baladi bread from a Cairo bakery.

Finally, I would like to thank my parents, Anat and Avi, for their support throughout

the Stanford experience, and enduring the saga of aborted travel plans to the Middle East.

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Table of Contents

I. Introduction ................................................................................................................. 1

II. Literature Review ....................................................................................................... 3

III. Two Days in January 1977: The First Crisis in Subsidy Reform .............................. 25

IV. Subsidy Reduction in the 1980s............................................................................... 45

V. The 1990s: Repression, Extremism, and Economic Change...................................... 63

VI. The Food Crisis of the 2000s................................................................................... 69

VII. Conclusion: Assessing Reform in Contemporary Egypt ......................................... 75

VIII. Bibliography......................................................................................................... 79

Table of Figures

Figure 1: Incidence of Protests, 2004 - 2011.................................................................... 6

Figure 2: Cereal Prices and Riots in 2007 - 2008............................................................. 7

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Key Terms

Baladi: The simplest type of subsidized Egyptian bread, consisting of 82 percent

extraction. This bread serves as a staple of the Egyptian street.

Shami: Higher quality bread of 76 percent extraction flour. The type is often

included within government subsidy lists.

Fino: Highest quality bread, often baked in a Western style, consisting of 72

percent extraction flour.

Extraction Rate: The amount of flour produced from one pound of grain. Higher extraction

rate refers to the more inclusion of bran, endosperm, and germ,

contributing to a rougher texture.

A Note on the Thesis Title

The Ancient Romans served popular opinion by distributing free bread and public

entertainment during holidays. Modern Egypt has witnessed a similar dynamic, where food

subsidies have fulfilled populist desires. Management of expectations regarding food

subsidies often resembles a circus, where clowns and magicians divert the audience’s

attention.

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I. Introduction

“We need a radical shift in the way we deal with our bread subsidy system”

-Social Solidarity Minister Gouda Abdel Khaleq, September 20111

Since the economic crises of the 1970s, Egyptian officials have attempted to reform

the bloated food subsidies regime. The new call from the post-Mubarak government

emerges from the same basic prognosis: an untargeted subsidy is draining public coffers.

The government spends $5.5 billion annually on food subsidies that support both rich and

poor. In Cairo, bread often costs no more than 1 American cent. Humans are not the only

consumers of this heavily subsidized imported wheat: loaves are used in place of animal

feed. In an era of higher global food prices and low Egyptian production, the government

faces the choice of reform, resulting in higher consumer prices and popular discontent, or

continued expenditures on increasingly expensive imports. This thesis asserts that while the

1 El Dahan, Maha. "Egypt Inches towards Far-reaching Food Subsidy Reform." Reuters, 28 Sept. 2011. Web. 05 Dec. 2011. <http://www.reuters.com/article/2011/09/28/us-egypt-food-idUSTRE78R2SD20110928>.

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Egyptian subsidy system remains inefficient at alleviating poverty, reform and subsidy

pullback has still occurred, and often in a very aggressive fashion.

In 1977, Egyptian President Anwar al-Sadat faced tremendous public protest after

implementing relatively small changes to the country’s food subsidy regime. In contrast,

during the 1980s, and more drastically in the 1990s, the government of Hosni Mubarak was

able to avoid popular protest after putting into place considerably more consequential

reductions to subsidies on core food items. This paper argues that the Mubarak regime

engaged in covert price increases, distribution controls, and repression, which allowed it to

successfully reduce food subsidies without igniting regime-threatening public opposition. In

the 2000s, these coping strategies were used to dampen protests during global food price

spikes, but increased tensions forced Mubarak to rely on military forces to resuscitate the

subsidized bakery system. Following the January 2011 revolution, further reform efforts are

unlikely as transitional democratic politics and the increased number of participants in the

political system will block further change.

The following chapters will provide a chronological view of Egyptian food reform,

beginning with a review of relevant literature in Chapter 2. Chapter 3 will discuss the food

riots of January 1977, which dominate the history of Egyptian subsidy reform. Each of the

three subsequent decades will be discussed in Chapters 4, 5, and 6. The final chapter will

analyze the prospects for subsidy reform in post-revolution Egypt.

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II. Literature Review

The linkage between food and popular support is hardly a new phenomenon. In

Imperial Rome, emperors would provide grain to citizens, and an angry public would riot

against shortages.2 During the food crisis of 22 BC, Augustus cemented his political

influence by buying wheat for the public at his personal expense.3 Modern Egyptian regimes

have similarly viewed food as a tool for political loyalty.

This literature review will explore the linkages between protests, food prices, and

subsidy reform. The concepts outlined below will enable an analysis of Egyptian attempts at

reform from the 1970s onwards, drawing the connection between government policy, local

discontent, and the international context.

The Dynamics of Protest

This thesis will analyze the use of popular action in response to food prices and

subsidy changes. These actions emerge within the context of austerity protests.4 This phrase

typically refers to popular response to cutbacks in government outlays, especially for social

services. The term came to use during the 1970s, when international creditors forced

indebted governments to restructure expenditures. Walton and Seddon propose that these

events, whose more violent permutations have acquired the name IMF riots, include political

demonstrations, general strikes, and riots, driven by opposition to market regulation and debt

reduction policies. The first of these contemporary protests occurred in July 1976 in Peru,

2 Africa, Thomas W. "Urban Violence in Imperial Rome." The Journal of Interdisciplinary History 2.1 (1971): 3-21. 3 Harlan, J. R. "The Early History of Wheat: Earliest Traces to the Sack of Rome." Wheat Science, Today and Tomorrow. Ed. L. T. Evans, W. J. Peacock, and O. H. Frankel. Cambridge: Cambridge UP, 1981. 10-14. 4 Walton, John, and David Seddon. "Global Adjustment." Free Markets & Food Riots: the Politics of Global Adjustment. Oxford, UK: Blackwell, 1994. 1-22.

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followed by Egypt in January 1977. These events serve in large part as signaling

mechanisms, and as such, ought to be distinguished from revolutions.5 Revolutions aim to

change the status quo government, while riots and protests generally arise from specific

grievances.

Public demonstrations in authoritarian countries provide a useful reference for food

protests in Egypt. Authoritarian rulers fear the escalation of protests from signaling

mechanisms to regime threats. In hybrid autocracies, informational cascades allow the

message of a minority to resonate throughout the public sphere.6 Protests focusing on food,

rather the overthrow of the regime, serve as useful signals in political systems where

bureaucracies and state-controlled media often hide the impacts of public policy.

According to Bienen, authoritarian protests undergo the following stages:

1) Signaling Function: Protests enable dissatisfied citizens to publicize their

policy preferences. Participants must face political costs, such as detention.

2) Informational cues: from the size of the first protests can engage a critical

mass. If a critical mass appears, protesters gain further confidence in

challenging the existing political regime. Without a critical mass, the

protest movement recedes. At this stage, popular opinion judges the utility

of a regime.

3) Order is reestablished: or conversely, protests destabilize a regime.7

5 Hendrix, Cullen, Stephen Haggard, and Beatriz Magaloni. "Grievance and Opportunity: Food Prices, Political Regime, and Protest." International Studies Association Convention, 15 Feb. 2009. Web. 5 Dec. 2011. <http://www.kent.ac.uk/brussels/conference/documents/Food_prices-protests.magahaggahendrix_isa.pdf>. 6 Ibid., Kuran, Timur. "Sparks and Prairie Fires: A Theory of Unanticipated Political Revolution." Public Choice 61.1 (1989): 41-74. 7 Lohmann, Susanne. "The Dynamics of Informational Cascades: The Monday Demonstrations in Leipzig, East Germany, 1989-91." World Politics 47.1 (1994): 42-101.

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Most protests, particularly food protests, remain in the signaling phase. Their

relatively short existence means that most engage on focused policy issues, forcing

governments to consider policy changes. Bienen and Gersovitz outline an explanation for

food protests’ relative short life-span. First, subsidy protests are spontaneous and hard to

sustain. Next, protests lack an articulated agenda beyond annulling price increases.

Furthermore, there is usually little leadership, and if leadership exists, governments use these

occasions to shut down trade unionists or the opposition.8

These arguments ignore the role of common concerns, such as food, in uniting an

opposition. Organization to develop these protests, and a growing habit of taking to the

street, can enable more forceful future protests that threaten regime legitimacy.

A more compelling reason for the relatively short life span of food riots is that

subsidy cuts are often reversed with relative ease, by bureaucratic fiat.9 Subsidies are

budgetary priorities that can be shaped by determined interest groups. Protests by urban

residents near government centers can demonstrate popular will and change policy

calculations for regime survival. The government can easily placate protesters by renouncing

cuts.

The importance of protests as signaling mechanisms emerges from an analysis of

Egyptian policy choices prior to the 1977 riots. Hopkins outlines the four target groups

assessed before the 1977 food riots in Egypt: The government decided between cuts affecting

8 Bienen, Henry S., and Mark Gersovitz. "Consumer Subsidy Cuts, Violence, and Political Stability." Comparative Politics 19.1 (1986): 25-44. Kricheli, Ruth, Yair Livne, and Beatriz Magaloni. "Taking to the Streets: Theory and Evidence on Protests under Authoritarianism." (2011). <http://cddrl.stanford.edu/publications/taking_to_the_streets_theory_and_evidence_on_protests_under_authoritarianism/>. 9 Gutner, Tammi. The Political Economy of Food Subsidy Reform in Egypt. Rep. no. 77. International Food Policy Research Institute, Nov. 1999. Web. <http://www.ifpri.org/sites/default/files/pubs/divs/fcnd/dp/papers/dp77.pdf>.

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the military, industrialists, financial leaders, and the poor.10 The first three groups had

sufficient access to political leaders to shift the burden of reform to the Egyptian masses.

Protests in 1977 and 1984 provided an important channel of communication in the political

system. The elites’ seclusion from the masses, and a largely dysfunctional political system,

resulted in hidden or misleading signals from the poor.

The Relationship between Protests and Price

The literature is in agreement that protests coincide with higher price on the global

level. Statistical analyses of the food prices during the most recent peaks of high food prices

demonstrate an increased number of food protests. Lagi records food prices from 2004 to

2011, identifying price peaks coinciding with protests in 2008 and 2011. The study focuses

on protests incidents in Africa and Asia during the 2004 – 2012 time frame.

Figure 1. Incidence of protests, 2004 - 2011. Protests increase in frequency past a threshold level at 210

points on the FAO price index.11

10 Hopkins, Raymond F. "Political Calculations in Subsidizing Food." Political Calculations in Subsidizing Food. International Food Policy Research Institute. Web. <http://www.ifpri.org/sites/default/files/pubs/pubs/books/ppa88/ppa88ch07.pdf>. 11 Lagi, Marco, Karla Z. Bertrand, and Yaneer Bar-Yam. "The Food Crises and Political Instability in North Africa and the Middle East." New England Complex Systems Institute, 28 Sept. 2011. Web. <http://necsi.edu/research/social/food_crises.pdf>.

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Similar analysis by Brinkman and Hendrix focused on cereal prices during 2007 and

2008, analyzed on a monthly scale, reveals a similar trend.

Figure 2. Cereal Prices and Riots in 2007-2008. An increase in the FAO cereal price index from 150 to

250 resulted in a sharp and limited increase in riots during May and August 2008.12

Underlying these analyses is the increasing globalized nature of modern food

systems, which exposes consumers and producers to price pressures beyond the local

market.13 Food riot literature discusses previous changes on the scale of food systems in the

case of the European states in the 1700s. During that time, locals were increasingly angered

at the loss of food to a national market, often under growing central control and taxation.14

In these cases, a smaller harvest in other regions had adverse affects on the price and

availability of food in producer markets.

12 Brinkman, Henk-Jan S., and Cullen S. Hendrix. "Food Insecurity and Conflict: Applying the WDR Framework." World Bank Development Repot 2011. World Bank, 2 Aug. 2010. 13 Bonanno, Alessandro. From Columbus to ConAgra: the Globalization of Agriculture and Food. Lawrence, KS: University of Kansas, 1994. 14 Tilly, Charles, and Gabriel Ardant. "Food Supply and Public Order in Modern Europe."The Formation of National States in Western Europe. Princeton, NJ: Princeton University Publishing, 1975. 380-455.

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The research on modern foot protests, noted above, largely ignores local

differentiation. While the literature generally agrees about the positive relationship between

global food prices and protests, policy disparities within each country cause producer and

consumer prices to vary substantially from global indices.15

National Government Policies

The agricultural industry is significantly impacted by government policies through

both budgetary actions and trade policies. Budgetary support directly impacts consumers

through subsidies on basic commodities. Under this lower price structure, consumers will

consume more of these subsidized products.16 Agricultural producers also benefit from a

wide variety of budgetary support, including infrastructure investment, research and

development, and direct reimbursement for production.

Trade policies emerge as an important determinant of local food costs. Countries

may choose to pursue export taxes and bans to reduce local prices. This was the case in

2008, when Ukraine, seeking to blunt local consumers from higher world prices, instituted

wheat export bans. For importing nations, like Egypt, tariff structures remain important. The

Egyptian government has responded to past food crises by lowering tariffs, which may

reduce government revenues but lowers domestic food prices.

In sum, general studies focusing purely on the relationship between global price and

rioting provide a reassuring affirmation of an intuitively understandable phenomenon.

However, these studies fail to fully explain the dynamics within the local environment.

15 Alston, J. M., J. M. Beddow, and P. G. Pardey. "Agricultural Research, Productivity, and Food Prices in the Long Run." Science 325.5945 (2009): 1209-210. 16 Besley, Timothy, and Ravi Kanbur. "Food Subsidies and Poverty Alleviation." The Economic Journal 98.392 (1988): 701-19.

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While the basic commodity price appearing to consumers in Egypt is decoupled from

international rates, Egypt’s low food self-sufficiency does expose government budgets to

swings in international food prices.

Mechanisms for Food-Related Protests

In Political Order in Changing Societies, Huntington argues that political instability

arises from tensions within the political systems, particularly unfulfilled popular

expectations, social change, and political mobilization of dissatisfied groups.17 Drawing on

this explanation, the academic literature debates the drivers of riots through both the rational

response theory and moral economy arguments. These mechanisms are important for

understanding the groups mobilized against subsidy reform in Egypt.

The rational response theory favors an approach to riots as rebellions of the belly

based on direct linkage to economic grievances. Bohstetd describes these riots as dependent

on events like harvest failures, unemployment, depressions as the principal causes of riots.18

Affected groups riot in order to bolster their material well being by redistributing food,

changing existing political structures, and forcing government action.19 Grievance literature

ties protest to the relative deprivation theory, where the poor take to the streets in opposition

to prosperity among specific groups.20

Walton and Seddon dismiss this argument as insufficient as “it fails to explain the

process in which people decide how and when to act”.21 Tilly asserts that food riots in

17 Huntington, Samuel P. Political Order in Changing Societies. New Haven: Yale University Press, 1968. 18 Bohstedt, John. Riots and Community Politics in England and Wales: 1790-1810. Cambridge, MA: Harvard University Press, 1983. 19 Walton and Seddon 24. 20 Gurr, Ted Robert. Why Men Rebel. Princeton, NJ: Published for the Center of International Studies, Princeton University Press, 1970. 21 Walton and Seddon 31.

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France often occurred as harvests improved, rather than during the depth of famine.22 While

one might excuse the grievance model for its limited explanations, Lichbach further

undercuts this approach with analysis countering that unequal income distribution is a strong

determinant of political unrest.23

Clark asserts that price discrepancies, rather than absolute prices, drove European

protests.24 These discrepancies could be described on the geographic scale, between town

and countryside, on the moral scale, between the “fair” conception of price and the market

status, or the temporal scale, referencing past price trends. Before discussing theories of

moral economy, it is important to note that Clark’s analysis elucidates the most recent food

research along the price-riot nexus. The previously noted research demonstrates that a slow,

gradual increase would remain unproblematic, but a sudden inflation in food prices, as

witnessed in the past decade, drives popular anger. The spike in prices during the last

decades may have stronger roots in the popular memory of affordable bread, rather than the

actual economic impact of higher prices. Bienen and Gersovitz’s analysis of previous

decades’ food riots underlines the connection linking protests to immediate and large

increases (at least 25%) in food prices.25

The shouts of dignity and fairness resonated from the town squares of 18th century

England to Tahrir Square. In The Moral Economy of the English Crowd in the Eighteenth

Century (1971), Thompson opposed the tendency of rational response theory to connect data

22 Tilly, Louise A. "The Food Riot as a Form of Political Conflict in France." The Journal of Interdisciplinary History 2.1 (1971): 23-57. 23 Lichbach, Mark I. "An Evaluation of "Does Economic Inequality Breed Political Conflict?" World Politics 41.4 (1989): 431-70. 24 Clark, Peter. "Popular Protest and Disturbance in Kent, 1558–1640." The Economic History Review 29.3 (1976): 365-82. 25 Bienen and Gersovitz 1986.

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in economic history, such as unemployment rates, with popular protest.26 Instead, Thompson

argues for a greater understanding of the social norms. He explains food riots in the 18th and

19th century as a result of changing market practices that disrupted accepted social patterns.

During this time, Adam Smith argued for free corn trade, among other liberal ideas.27

Market practices, liberated from protectionist local regulations, helped develop a national

market for agricultural products. While benefits accrued from more efficient distribution of

bountiful harvests, an insufficient harvest would ripple across a nation. The local tradition of

social norms and obligations was exchanged for a more unified domestic market in food.28

Tilly (1971) demonstrates in a similar analysis of seventeenth century French food riots.

Reduced government regulation broke up the extremely local paternalism and noblesse

oblige that had previously provided for the poor. The formation of a national market in grain

eroded local control and stability.

In the modern context, the moral economy argument relates to a perceived decline in

living standards and attachment to a particular foodstuff. In 1905, rioters in Santiago, Chile

protested food prices for cultural reasons: Increasing meat prices reduced access to only the

richest residents.29 An emotional attachment to a certain foodstuff is also apparent in the

most recent food riots. Italians launched ‘pasta protests’ in response to the 2007 price peaks,

which had raised prices of the basic staple by 30%. The perceived overpricing of cottage

cheese, a staple of the Israeli breakfast, sparked demonstrations in the summer of 2011 that

26 Thompson, E. P. "The Moral Economy Of The English Crowd In The Eighteenth Century." Past and Present 50.1 (1971): 76-136. 27 Smith, Adam. "Digression concerning the Corn Trade and Corn Laws." Wealth of Nations. 28 Walton and Seddon 72. 29 Orlove, Benjamin S. "Meat and Strength: The Moral Economy of a Chilean Food Riot."Cultural Anthropology 12.2 (1997): 234-68.

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quickly evolved into countrywide protests against the high cost of living.30 In developed

economies, food prices hardly affect the household budget. Instead, consumers view

cherished food items as proxies for social well-being. Egyptians may also view the heavily-

subsidized baladi bread as a marker for social welfare.

Sharp counters the moral economy argument by accusing Thompson of understating

the “pain, desperation, and anger [the poor] felt in times of depression and scarcity.”31

However, in cases of true hunger, it is unlikely that political action would result, as popular

protest would not fulfill immediate individual needs.

Other authors note the role of community dynamics and the state in these

mechanisms. Snyder and Tilly reject the grievance-based approach, pointing to changing

relations between individuals and coercive power of the government as a determinant force

in protest.32 Borrowing from literature on civil war, Fearon and Latin demonstrate that it is

political opportunity that determines the rise of opposition.33

Hendrix similarly focuses on political structure as an important element of food

protests.34 In a study of different regime types, hybrid autocratic regimes face more political

protest during food price fluctuation than do democracies or full autocracies. The authors

define a hybrid regime as one with formal democratic institutions like elections, but run by a

single party. Examples include Mexico under the PRI and the subject of this thesis, Egypt.

30 Golan, Galia. "The Domestic Impact on Israel of the “Spring,” “Summer,” and September." Middle East Program: Occasional Paper Series. Woodrow Wilson International Center for Scholars, 2011. Web. <http://wilsoncenter.net/sites/default/files/Domestic%20Impact%20on%20Israel.pdf>. 31 Sharp, Buchanan. In Contempt of All Authority: Rural Artisans and Riot in the West of England, 1586-1660. Berkeley: University of California, 1980. 32 Snyder, David, and Charles Tilly. "Hardship and Collective Violence in France, 1830-1960." American Sociological Review 37.5: 520-32. 33 Fearon, James D., and David D. Laitin. "Ethnicity, Insurgency, and Civil War."American Political Science Review 97.01 (2003): 75. 34 Hendrix et al. 2009.

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Food Subsidies and Egyptian Society

While tariffs and trade policy do play some role in determining the price of food in

Egypt, consumer subsidies have historically had the largest impact. Consumers, rather than

producers, are the key constituencies for Egyptian political leaders. As a result, consumer

subsidies and their withdrawal determine the relationship between protests and food prices in

Egypt.

Thomson posits that the Egyptian subsidy system emerges out of the aims of

government development policies and the characteristics of the Egyptian population.35

Subsidies provide food supply at a stable price level, alleviating hunger and maintaining

human capital. Egypt’s high degrees of urbanization and population concentration provided

the opportunity for an interventionist state to develop a subsidized commodities distribution

and bakery network.

Egyptian government policy has viewed industrialization as the key development

strategy. The government attempted to support new industry by ensuring low wages by

maintaining a low cost of living. Food, the most basic commodity, emerges as a primary

means of managing these costs.

While agreeing that economic forces play a role in setting subsidies, Hopkins

discounts the development-driven argument by highlighting that “political leaders value

tenure in office.” Instead, he argues that political calculations “are usually decisive and that

they fully explain the expansion and contraction of state intervention in the food system.”36

These political calculations are focused on regime survival. A careful balancing of political

35 Thomson, Anne. "Egypt: Food Security and Food Aid." Food Policy 8.3 (1983). 36 Hopkins 1988.

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support and opposition to food subsidies determines a regime’s propensity towards reform or

further entrenchment.

Hopkins outlines the origins of subsidies as one of three factors: social welfare goals,

external international factors, and the political impacts of subsidy policies. It is important to

note that social welfare, in his critical view, arises primarily from ideological calculations by

socialist and populist leaders.

This model fits well for the Egyptian case. As in other former British colonies, the

external pressure of World War II brought about a system of food rationing to control the

supply and price of basic goods. Following the end of hostilities, Egypt maintained these

controls. Nasser’s socialist ideology and cheap American wheat enabled the expansion of the

food subsidy system.

Hopkins’ argument emerges as particularly salient in Egypt’s experience of dictators

concerned about public opinion of certain groups, rather than extensive economic reforms.

While emerging for war exigencies, food rationing became embedded as a citizen’s right and

While emerging for war exigencies, food rationing became embedded as a citizen’s right and

blame fell on the government for price increases.

Vocal constituencies become a central element in a political analysis of food

subsidies. Subsidies can instill support for the regime by providing “material side payments”

to these constituencies and providing a “diffuse symbolic fulfillment of a social contract.”37

These arguments combine the rational response and moral economy theories of food protests.

Singerman, writing in 1995, explains that:

“The Egyptian Government's policies of political exclusion have gone hand in hand with their public commitment to provide for the basic needs of the population... the

37 Hopkins 1988.

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government maintains its legitimacy by providing goods and services to the population."38 Sadiki has defined this arrangement, prevalent in the Arab World, as demuqratiyat al-

khubz39, in which bread or other basic commodities are the currency for regimes to buy

popular support.40

Food subsidies are particularly attractive to rulers worried about large urban

populations, who have a propensity to politically organize and instigate policy change.

Urban areas contain civil servants and urban labor, which often form the strongest non-

military interest groups. In many decolonized nations, the large low-income urban class

worked for the government. Subsidies targeted towards these groups strengthen the link

between government and population. The “selectorate”, made up of the subset of the

population that threatens regime rule, is thus coopted.41

It is important to note that price controls also negatively impact agricultural

producers. The Egyptian food system, particularly wheat controls, has substantially reduced

producer incentives. Between 1950 and 1980, domestic wheat production grew by only 76%

while overall consumption grew nearly 450%.42 Imports financed through government

purchase and food aid provided the bulk of this difference. As demonstrated later in this

chapter, PL-480 food aid and its provision of cheap American wheat encouraged the shift in

consumer demand.

38 Singerman, Diane. Avenues of Participation: Family, Politics, and Networks in Urban Quarters of Cairo. Princeton, NJ: Princeton UP, 1995. 39 The phrase can be literally translated as “democracy of bread.” Thought often used to refer to other social service provisions, the phrase’s focus on the food-governance link highlights its importance. 40 Sadiki, Larbi. "Towards Arab Liberal Governance: From the Democracy of Bread to the Democracy of the Vote." Third World Quarterly 18.1 (1997): 127-48. 41 Bueno de Mesquita, Bruce, Alastair Smith, Randolph M. Siverson, and James D. Morrow. 2003. The Logic of Political Survival. Cambridge, MA: MIT Press. 42 Thompson 1983.

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The Role of Food Aid

Egypt received extensive food aid from the United States through the Public Law 480

program, which in turn solidified the Egyptian demand for bread and built government

capacity for distribution. Food thus became deeply political, involving both domestic

political consideration and Egypt’s foreign policy orientation.

The Egyptian government has maintained these stable prices through extensive

imports and the Public Law 480 food aid program. During earlier decades, food aid

comprised more than 50% of food imports, reducing pressure for budgetary reform.43

Egypt’s government was able to fully develop the subsidy system, and later extend its

survival, using food subsidies.44

The role of Public 480 aid in Bangladesh demonstrates the impact of food aid on

recipient nations. Public Law 480 helped bolster the rationing system of the then-East

Pakistan, dramatically changing local diets. Bengalis moved from a traditional rice diet,

produced locally, towards higher wheat consumption, enabled by American farms. This

evolution exposed Bangladesh towards greater dependence on foreign food sources.45

A similar trend can be witnessed in Egypt. Income growth and population do not

fully explain the 450% rise in consumption for wheat during the thirty years preceding 1977.

During the post-war era through the 1970s, Egypt maintained stable nominal bread prices. In

real terms, prices declined, driving an increase in consumption.46

43 Thompson 1983. 44 Hopkins 1988. 45 Ahmed, Raisuddin, Steve Haggblade, and Tawfiq-e-Elahi Chowdhury. Out of the Shadow of Famine: Evolving Food Markets and Food Policy in Bangladesh. Baltimore: Johns Hopkins UP, 2000. 46 Alderman, Harold, Joachim Von Braun, and Ahmed Sakr. Egypt's Food Subsidy and Rationing System: a Description. Washington, D.C.: International Food Policy Research Institute, 1982.

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The Political Economy of Economic Reform in Egypt and Developing Economies

The era of economic reform in Egypt began in October 1974, when President Anwar

Sadat announced the new policy of Infitah. The “opening” of the Egyptian economy

included allowing direct private investment, reducing state intervention in the economy, and

partnering with international finance organizations.47 Sadat’s new orientation marked a

dramatic policy shift from the import-substitution and self-sufficiency promoted under

Nasser.

Conditions placed on the government of Egypt by creditors, mainly Western nations

and international organizations, slowly pushed forward this economic liberalization. These

programs included privatization of state enterprises, foreign exchange adjustments, and

subsidy reform.

The literature on economic reforms, and the requirement for their success, will guide

the subsequent analysis of Egyptian food subsidies from the 1970s to the present. Haggard

and Webb outline the successful elements of an economic reform policy.48 The literature on

policy design largely aligns with the same general framework, but provides differing

diagnoses on the challenges of implementation.

Successful reform programs generally share the following characteristics:

1. Acting without delay builds public credibility. Rapid implementation following the

formulation and announcement of reforms strengthens the potential for success. In

cases where macroeconomic balances are not as severe, slower reforms may also be

successful.

47 Abdel-Khalek, Gouda. "Looking Outside, or Turning Northwest? On the Meaning and External Dimension of Egypt's Infitah 1971-1980." Social Problems 28.4 (1981): 394-409. 48 Haggard, Stephan, and Steven B. Webb. "What Do We Know About The Political Economy Of Economic Policy Reform?" The World Bank Research Observer 8.2 (1993): 143-68.

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2. Instituting reforms at the onset of a new administration allows shifting political blame

to previous leaders and ensuring sufficient time for the full implementation of the

reform package.

3. Reforms result in both gains and losses to social groups. Bundling reform measures

can better distribute the impacts of reform. In addition, compensation is an important

means of winning the support of a negatively impacted group.

Given Egypt’s closed political structure until January 2011, it is also important to

discuss economic reform within the context of authoritarian states. Many economists view

states with strong executives or limited checks-and-balances as successful implementers of

reform. Pinochet’s liberalization of the Chilean economy, later reaffirmed by democratic

elections in 1989, takes a prominent place among supporters of the “authoritarian

advantage.”49 However, neither autocracies nor democracies are immune to the challenges

faced by reformist governments.

Reform efforts require commitment and perseverance, as the benefits of liberalization

may only bear fruit after several years. The delayed rewards of policy adjustment raises the

barrier for leaders beholden to public opinion. The election cycle of democracies may

impede strategic longer-term thinking. In contrast, long-lasting authoritarian regimes may

include the distant benefits to immediate policy calculations.50

In less-developed countries, income disparities and social stratification emerge as a

primary area for conflict. Alesina and Tabellini demonstrate that greater inequality leads to

49 Rodrik, Dani. "Understanding Economic Policy Reform." Journal of Economic Literature 34.1 (1996). 50 Haggard and Webb 1993.

19

polarization of society, particularly during points of policy change.51 These groups, with

hardened opinions, may begin a “war of attrition,” with little desire for compromise.

Subsequent studies by Alesina and Drazen demonstrate that in more unequal societies, a

longer delay occurs before stabilization and reforms are implemented.52 An argument may

emerge that authoritarian regimes are more free from these rent-seeking groups prevalent in

democratic processes. However, Olson demonstrates that “decreased turnover and political

competition result in more entrenched interest groups.”53 Authoritarian regimes have greater

coercive force to suppress dissent, but policy implementation may be less informed as public

debate is stifled. Only select interest groups may have the sufficient resources and access to

opine on policy, thus excluding significant portions of the public interest. On the topic of

these entrenched interest groups, Ranis and Mahmoud assert, “resistance to vested interests

can be overcome only when the system has no other ways of avoiding the required

adjustment.”54 This element comes into play during Egypt’s reforms in the 1980s and 1990s.

Richards highlights extensive economic rents as the key differentiator between Egypt

and other countries attempting reform.55 Egypt’s use of oil revenues, remittances, and most

critically, strategic rent, serves as an escape hatch for the regime. Strategic rent refers to the

extensive aid agreements between the United States and Egypt, which grew dramatically

following Egypt’s peace treaty with Israel. While Egypt shares the characteristics of other

less developed countries in its large and ineffective government and powerful interest groups,

51 Alesina, Alberto, and Guido Tabellini. "External Debt, Capital Flight and Political Risk."Journal of International Economics 27.3 (1989): 199-220. 52 Alesina, Alberto, and Allan Drazen. "Why Are Stabilizations Delayed?" American Economic Review 85.5 (1991): 1170-88. 53 Olson, Mancur. "Autocracy, Democracy, and Prosperity." Ed. Richard Zeckhauser. Strategy and Choice. Cambridge, MA: MIT, 1991. 54 Ranis, Gustav, and Syed Akhtar. Mahmood. The Political Economy of Development Policy Change. Cambridge, MA: B. Blackwell, 1992. 55 Richards, Alan. “The political economy of dilatory reform: Egypt in the 1980s.” World Development. 19.12 (1991): 1721-30.

20

it is these three rents that decouple government budgets from the domestic economic

situation. Given Egypt’s declining oil revenues and unstable remittance flows, strategic rent

has become the most dependable external support for the government. The country’s foreign

policy orientation has enabled a closer relationship with the United States, increased access

to aid, by extension, increased bargaining power with international lending organizations.

Multiple and competing goals, including strategic interests and economic agreements,

complicate the relationship between loan providers, aiming for better government

accountability, and the recipient state. The United States - Egypt relationship, which

intertwines foreign aid and American regional goals, has undercut efforts towards aid

effectiveness through conditionality. Rodrik notes, “promises of aid, even when tied to

economic improvements, can result in groups delaying stabilization until aid reduces…

costs” for the groups in question.56 The use of strategic rent may exacerbate the social

gridlock caused by inequality. In the following case studies of failure, one is likely to

witness the effect of aid in dissuading the follow-through of reform. As noted economic

Jeffrey Sachs explains, “Aid is only helpful once a government is committed to reform”.57

Providing conditional-based aid to a government that lacks sufficient will or intent to reform

may only result in disappointment for the donor.

As a final note to this section, price fluctuations of subsidized food commodities will

likely to provide added incentive for reform. Ranis and Mahmoud demonstrate that reform

efforts in less developed countries can be tied to world price shifts for primary products and

56 Rodrik 1996. 57 Sachs, Jeffrey. “Life in the Economic Emergency Room.” The Political Economy of Policy Reform. Ed. John Williamson, 1994.

21

business cycles in developed economies.58 Given Egypt’s exposure, via import dependency,

to world food prices, reform will likely be intertwined with these commodities’ fluctuations.

Applying Economic Liberalization Lessons to Food Subsidy Reforms

The integration of concepts in economic liberalization and food subsidies reform

serves as a final step towards developing an analytical baseline for the following case studies.

Hopkins compares food subsidies reform in developing countries using Egypt and Sri

Lanka as opposing examples. Hopkins criticizes the ineffectiveness of Egyptian reform,

particularly in 1977, over the following issues: “First, government actions were neither well

prepared nor undertaken in a way that promoted acquiescence. Second, the Egyptian

government was divided over the issue. And third, the government was less legitimate than

was the Sri Lankan government.”59

This framework provides three criteria for explaining relative success and failure:

First, public outreach and preparation ensure public consent. Second, bureaucratic and

political unity ensures implementation. Third, regime legitimacy, distinct from this policy

action, is an important element towards strengthening implementation.

Beyond these three reasons, we must also include some measure of public confidence

in government functions. For public consent, the withdrawal of subsidies must rebalance the

social contract with some other form of positive government involvement. The public must

believe that in some form, its economic status will improve. An ineffective government

58 Ranis and Mahmoud 1992. 59 Hopkins 1998.

22

promising to cut a seemingly effective program draws the ire of a public dissatisfied with

previous reforms and changes.60

A leading scholar of the Egyptian subsidy system, Tammi Gutner, highlights

government commitment to reform, public perception towards reform, and strategic

implementation of reform as key determinants of success.61 Her analysis dovetails with

existing economic reform literature, but tailors recommendations to the Egyptian political

context and food subsidy reform.

Gutner agrees that government commitment to reform is strongest after elections,

when legitimacy is strongest. New regimes can demonstrate popular support among

entrenched constituencies or against groups angered by the cuts.62 Long-lasting regimes that

attempt cuts, but lack popular legitimacy, face greater challenges. Regime change

engineered by a small military cohort (Sadat-Mubarak, for example), may not maintain

legitimacy to implement reform.

In contrast to previously cited authors, Gutner explains that an incremental approach

towards subsidies prevents individuals groups from linking up in opposition and instead

“spreads the burden of adjustment.” This represents an important distinction from the

literature on economic liberalization, which usually cautions against gradualism in favor of

bundling. Gutner thus targets her advice to the authoritarian context of the Egyptian political

system, where the regime can determine policy without extensive public consultations.

In addition to defusing tension through gradual reforms, public outreach is another

successful tactic. Public perception towards reform often revolves around issues of equity.

60 Graham, Carol. Safety Nets, Politics, and the Poor: Transitions to Market Economies. Washington, D.C.: Brookings Institution, 1994. 61 Gutner 1999. 62 Alderman 1991.

23

Dialogue with middle class groups can engage actors in ensuring that the withdrawal of

subsidies to the better off does not result in protests. Governments can provide an economic

vision in return.63

Compensation, originally broached during the economic reform discussion, is

particularly important for food subsidies reform. Compensation helps offset the increased

cost of food. Gutner cites Pakistan’s approach, where government salaries increased or taxes

were lowered when subsidy withdrawal occurred. However, this approach has major failings

for individuals in the informal economy: Minimum wage or government salary increases do

not apply to many poor urban constituents.

The preceding literature review has discussed the theoretical context of food riots and

reform efforts. When discussing Egypt, the literature primarily focuses on the 1977 food

riots with only passing mention to other incidents. This following chapters will apply

theories and understandings about food riots and reforms to the range of incidents since

1977. Drawing together these incidents will reveal a progression of Egyptian policy

responses, demonstrating how reform of the food subsidy system takes place within the

larger political context.

63 Nelson, Joan M. Fragile Coalitions: The Politics of Economic Adjustment. New Brunswick, USA: Transaction, 1989.

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25

III. Two Days in January: The First Crisis in Subsidy Reform

The Riots and Aftermath of January 18 – 19, 1977

The origin of Egypt’s challenge with food subsidy reform emerges from the aborted

reforms of January 1977. The government’s abrupt announcement of policy changes

interlocked with existing social complaints to create the riots and demonstrations that

engulfed Egypt for two days. As a result of these events, the Egyptian government retreated

in its reform efforts. In later years, reform was dominated by a more cautious and gradual

approach to prevent a reoccurrence of mass popular unrest. The riots of 1977 provide the

essential starting position for understanding how the Egyptian government accomplished

later subsidy reform.

The following chapter first introduces the economic and political background to

contextualize the aborted reforms and popular opposition. Subsequent sections describe the

events of the January 1977 and their implications both for reform and Egypt’s domestic and

regional standing. The final section covers subsidy changes and reform efforts later in the

decade.

The Beginnings of Infitah: The Open Door Policy

Anwar Sadat came to power in 1970 with the heavy burden of economic challenges

and the need for modernization. Nasser’s Egypt had created a government-dominated

economy with excessive and growing external imbalances and debts. Sadat’s decisions to

turn rightward, towards Western capitalism, riled Nasserites and left-wing Egyptians.

26

The shift of power between establishment Nasserists to the new capitalists supportive

of liberalization naturally upset the existing social balance. Egyptian left-wing critic Nadime

Lachine characterizes the Nasser regime as a “new bourgeoisie” to replace the pre-1952 rural

and urban capitalist alliance. Army officers, professionals, and mid-level bureaucrats

dominated this class.64 The state expropriated the means of production, leading to a socialist

outlook and central planning. In contrast, Sadat embraced private capital, particularly from

abroad, as a key towards reforming the economy. Waterbury highlights Law 65 of 1971 as

the first step towards securing foreign investment with a loosened corporate tax regime and

the autonomy of joint ventures.65 A marked shift from the nationalization campaigns of

Nasser can be seen by the 1974 decision by the Highest Court of Appeals “declaring all

confiscation and sequestration of private property illegal.”66 Thus, Sadat realigned economic

policy towards the West, creating a more robust framework of property rights protection and

private capital investment.

Separate from ideological considerations, subsidies ballooned prior to the January

1977 riots due to global macroeconomic changes. In particular, the increase in world oil

prices impacted the cost of petroleum and all goods transported in the economy. In 1972, by

consequence, food security became a major policy issue, as world grain prices increased

from $60 to $250/ton. The infitah era, Waterbury states, “marks a sharp break with the

socialism of the 1960’s, at which time consumer subsidies first gained some importance.”67

Until 1977, the Egyptian government had largely resolved to insulate the Egyptian people

from this inflation.

64 Lachine, Nadime. "Class Roots of the Egyptian Regime." MERIP Reports 56 (1977): 3-7. Print. 65 Waterbury, John. The Egypt of Nasser and Sadat: The Political Economy of Two Regimes. Princeton, NJ: Princeton UP, 1983. 129. Print. 66 Lachine 1977. 67 Waterbury 218.

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Semblances of Political Liberalization

While the Open Door policy markedly reshaped the economy and threatened existing

institutional and social interests, Sadat also began pursuing political liberalization.

During the early transition years of the regime, Sadat demonstrated a desire to realign

Egypt away from the one-party system of Nasser, dominated by the Arab Socialist Union

(ASU). In May 1977, Sadat told a crowd of Nasserite students, “What does Nasserism

mean? It turned out that we must reintroduce the detention camps, custodianship, and

sequestration. We must revert to a one-opinion, one-party system, abandon democracy, and

adopt Marxism.”68 The ASU and its leadership represented a competing power base to

Nasser’s successor.

The Corrective Revolution of 1971 enabled Sadat to take control of ASU functions

and distance his rivals. After increasing opposition and an attempted coup attempt by Ali

Sabri and other figures of the ancien regime, Sadat dismissed Sabri from his position as Vice

President and demoted his co-conspirators. Rivlin characterizes this period as “the ousting of

the leftists,” given Sadat’s increasing focus on private capital.69 Waterbury characterizes

Sadat’s perception of the left as his primary source of opposition. “In retrospect it appears

that Sadat must have anticipated most of his political opposition from the left in the form of

Nasserists, Marxists, and assorted radical student. He may have overestimated their

potential, but given the disturbances of 1972 and 1973 that is understandable.”70 These

68 2 May 1977 Press Review, Foreign Broadcast Information Service Database, Cairo Domestic Service in Arabic 69 Rivlin, Paul. The Liberalization of the Egyptian Economy: An Examination of the Decision-making Process. Tel Aviv: Shiloah Center for Middle Eastern and African Studies, Tel Aviv University, 1981. 7. 70 Waterbury 359.

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disturbances, led by students immersed in Nasserist ideology, opposed the increasingly

obvious change of official ideology.

Sadat’s standing among the Egyptian public rose following the 1973 October War,

which helped disperse the anti-Sadat student sentiment of the previous two years. In April

1974, Sadat issued the October Paper, which rejected the single party governance of the

previous decades.71

The new political outlook incorporated platforms (manabir) into the ASU. By 1976,

Sadat organized politics through three groups, representing the “Right” (Liberal Socialist

Organization, Al-Ahrar Al-Eshtarakyeen), “Left” (National Progressive Unionist

Organization, al-Tagammu ), and “Center” (Egyptian Arab Socialist Organization, Tanzim

Masri Al-Araby Al-Eshtraky). The subsequent parliamentary election that year tilted heavily

rightwards. The centrist party, openly supported by Sadat, won 280 of 352 seats. A strong

contingent of 48 Independents successfully won office, but the designated parties of the

“Right” and “Left” won merely twelve and two seats, respectively. Waterbury characterizes

this period, including the fall of 1976 and the first two weeks of January 1977, as “the

heydey of Sadat’s liberal experiment”.72

While Egypt desperately required an infusion of foreign aid to cover its balance-of-

payments deficit, timing for reform was key. Subsidy announcements were only made

following the 1976 elections.

In Waterbury’s judgement, Sadat was more open to political diversity than Nasser,

but ultimately, Sadat “reverted to the Nasserist style he nominally abhorred.”73 In large part,

this was undoubtedly due to the events of 1977, which pushed against the political

71 Beattie, Kirk J. Egypt during the Sadat Years. New York: Palgrave, 2000. 167. 72 Waterbury 366-367. 73 Waterbury 354.

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liberalization of the earlier decade. Sadat’s liberalization likely intended to undermine the

Arab Socialist Union, the vanguard of Nasser’s rule, but also raised expectations regarding

political openness and change.

Following the election, Sadat strengthened the reformist elements within the

government. In November 1976, a cabinet reshuffle focused on bringing more reform-

minded players into the cabinet.74 Ironically, these changes actually highlight the ongoing

disagreements among the elite on ongoing liberalization and proposed changes to the subsidy

system.

Financial Decisions, International Creditors, and the Road to January

During the entirety of the Sadat era, Egypt suffered an increasing budget deficit and a

significant balance-of-payments challenge from excessive imports. Hirst and Beeson

calculated that in 1973, national debt stood at 1.25 billion Egyptian pounds (EP), with an

additional 2 billion Egyptian pound military debt to the USSR. Each subsequent year saw a

significant rise in the annual deficit, from 249.8 million EP in 1973, 670 million in 1974, to

1,386 million in 1975. In the second half of 1976, Egypt witnessed 1.25 billion EP deficit.75

The increasingly deteriorating situation forced Prime Minister Mamdouh Salem to confront

the budget imbalance.

In order to close the deficit, the GOE had three options: tax the rich, cut military

expenditures, or rely on external borrowing.76 Egypt’s tax collection rates are notoriously

low, and given the Infitah reliance on bourgeois support, taxes would not fit within the GOE

policy orientation or capacity. Despite ongoing American shuttle diplomacy on Arab-Israeli

74 Feiler 193. 75 Hirst, David, and Irene Beeson. Sadat. London: Faber and Faber, 1981. 123. 76 Ansari, Hamied. Egypt, the Stalled Society. Albany: State University of New York Press, 1986. 185.

30

peace, the continued threat of war with Israel discarded any possibility of cutting military

expenditures. As a result, external borrowing became the most viable option. Egypt’s two

most appealing sources of funding were the oil-rich Arab states and Western finance

agencies under the guise of the United States.

Egypt had an extensive aid relationship with the wealthier Gulf states. Pan-Arab

support for Egypt, a front-line country in the fight against Israel, intended to bolster its

strategic position. Feiler highlights the year 1976 as a major turning point in policy, when

the individual Arab states began funneling funding through the Gulf Organization for the

Development of Egypt (GDFE). Managers of this fund evaluated Egyptian requests for aid,

and added the primary condition that Egypt accept IMF reforms. Upon its founding its July

1976, the GDFE received only $2 billion in funding, much less than the $12 billion requested

by Sadat.77 In October 1976, the GDFE, a consortium of Arab countries, refused to provide a

$1-1.2 billion loan to fund Egypt’s balance of payments deficit.78 In this context, Egypt’s

situation was clearly dire, as its balance of payment gap stood at around $4 billion in 1975.79

The Western finance agencies remained the next appealing options. However, the IMF took

a strong approach against Egypt’s widely-applied subsidies on basic goods.

Throughout this period, posturing on Egyptian national sovereignty became common.

Minister of the Treasury Muhammad Zaki Shafi stated: “We will not bow to any pressure,”

even while Egyptian officials repeatedly traveled abroad with requests for aid.

77 Feiler, Gil. Economic Relations between Egypt and the Gulf Oil States, 1967-2000: Petro Wealth and Patterns of Influence. Brighton, England: Sussex Academic, 2003. Print.166. 78 Adams, Richard H. Self-targeted Subsidies: The Distributional Impact of the Egyptian Food Subsidy System. Washington, DC: World Bank, Poverty Reduction and Economic Management Network, Poverty Division, 2000. Print; Feiler 139. 79 Waterbury, John. Egypt : Burdens of the Past, Options for the Future. Bloomington: Indiana University Press, 1978. 307.

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Riots in the Street: A Popular Uprising and the Official Response

In January 1977, Egypt complied with IMF negotiators and undertook a first step

towards reducing subsidies. The Egyptian food subsidy system has three types of bread and

flour – 82 percent extraction, know as baladi, 76 percent extraction, know as shami, and 72

percent extraction, know as fino. In 1977, the price of lower-grade baladi and shami bread

remained untouched. Meanwhile, price increases were announced for high-grade fino bread

(50 percent increase), 72 percent grade flour (67 percent), sugar (4 percent), rice (20 percent),

tea (canceled subsidy), butane cooking gas (46 percent), gasoline (26-31 percent), and

cigarettes.80 While the most essential commodities remained unchanged, the public

responded with extreme opposition.

Following the announcement of the subsidy cuts on January 17, thousands took to the

streets in major Egyptian cities, representing a major affront in Egypt’s repressive political

system. In Cairo, 2,000 – 4,000 protestors riots.81 In Alexandria, 20,000 people marched.

Authorities placed a nighttime curfew over major cities and set up barricades.82 Local

newspapers highlighted the damage done to private property and institutions through fires

bombs and crowd violence.83 The government suspended studies at universities and schools

for two days.84 In sum, 79 were reported killed and 566 injured during the rioting, with

around 1,250 arrested.85

80 Alderman, Harold, and Joachim Von Braun. Egypt's Food Subsidy Policy: Lessons and Options. Washington, D.C.: International Food Policy Research Institute, 1986.

81 Daines, Victoria, John Walton, and David Seddon. Free Markets and Food Riots: The Politics of Global Adjustment. Oxford: Blackwell, 1994. Print. 184. 82 19 January 1977 Press Review, Foreign Broadcast Information Service Database, Paris AFP in English 83 19 January 1977 Press Review, Foreign Broadcast Information Service Database, Cairo MENA in Arabic 84 19 January 1977 Press Review, Foreign Broadcast Information Service Database, Cairo Domestic Service in Arabic 85 24 January 1977 Press Review, Foreign Broadcast Information Service Database, Cairo Domestic Service in Arabic. Tanner, Henry. "A Stringent Decree Put to Vote in Egypt." New York Times 11 Feb. 1977. Print.

32

Official Response to Riots: Rhetorical Explanations and Attacks

The government engaged in a multi-pronged approach towards confronting popular

protest. On media outlets, officials reiterated the need to reform the subsidy system to

protect the poor and resuscitate state finances. Simultaneously, blame for violence was

firmly placed on left wing elements and the Soviet Union, rather than legitimate popular

sentiment.

On January 18, Deputy Prime Minister Kaysuni, Minister of the Economy Hamid Al-

Sayih, Minister of Finance Salah Hamid, and chief editors of the country’s leading

newspapers participated in a televised debate on the proposed reforms. Kaysuni argued that

in order to overcome the “severe and profound” economic situation, Egypt must directly

confront in deficit. Interestingly, in a relatively closed authoritarian government, Kaysuni

argues that GOE must submit an “honest budget” that “refrains from making promises that

we cannot keep… we cannot deceive the people.” In essence, openness appears to be the

underlying strategy for this first preliminary round of subsidy cuts. The GOE leadership

publicly disclosed and discussed these subsidy changes, and engaged in a well-publicized

campaign to explain its eventual decision.86

As the leader of these reforms, Kaysuni argues that in Egypt’s hierarchy of interests,

subsidy cuts were the best option. The Egyptian budget, in his conception, was divided along

three main objectives. The budget protects military and investments targeted towards social

and economic development, while targeting the allocations for expenditure items. Kaysuni

appealed to nationalist sentiment, asking rhetorically how the military, “on which we pin our

86 19 January 1977 Press Review, Foreign Broadcast Information Service Database, Cairo MENA news service in Arabic

33

hopes for the liberation of our lands,” could face cuts in its one-fourth stake of the national

budget. In hindsight, this ironic appeal highlights not nationalist sentiment, but the integral

role of the military in Egyptian public life. Within a year, Sadat will have traveled to

Jerusalem, and in 1979, signed a peace treaty with Israel.87

Kaysuni attempts to differentiate the elements of subsidy reform from the anger of the

masses. In his view, “the toiling masses” will be unaffected by the reforms, which will

instead cut into the “huge profits” of commodity dealers. Salah Hamid attempts to reiterate

that basic commodities, such as bread, meat, and lentils, will be unaffected. The “toiling

classes” remain an important element throughout this discussion, in attempt to paint these

reforms as populist attempts.88

Finally, in an important note given the aforementioned discussion regarding foreign

creditors’ role in these reforms, Kaysuni “denies… this decision was made under pressure

from any foreign source such as the IMF.”89 This statement underlines the desire from the

GOE to maintain the semblance of independence, although continuing to rely heavily of

foreign infusion of aid and loans.

On January 18, Dr. Fu’ad Muhyi ad-Din, Minister of State for People’s Assembly

affairs, during the plan and budget committee meeting, stated, “The government is ready to

join in making an objective review of the price list announced yesterday in such a way as not

to affect the toiling classes.” In the same report, Vice Premier Kaysuni mentioned the further

discussions of prices among assembly members would be taken into consideration.90 This

87 19 January 1977 Press Review, Foreign Broadcast Information Service Database, Cairo MENA news service in Arabic 88 19 January 1977 Press Review, Foreign Broadcast Information Service Database, Cairo MENA news service in Arabic 89 19 January 1977 Press Review, Foreign Broadcast Information Service Database, Cairo MENA news service in Arabic 90 19 January 1977 Press Review, Foreign Broadcast Information Service Database, Cairo MENA news service

34

quick questioning of the policy, emerging from the highest reaches of the elite, only served to

further embolden protests in the following day.

The Arab Socialist Party statement, released on January 19, appeared to further

highlight splits within the elite. The party’s parliament “announced its disapproval of

commodity price increases that would harm broad masses of the people.” In contrast to

Kasyuni’s attempts to differentiate these commodity cuts from the “toiling masses”, the party

statement instead takes on the populist narrative. The General Federation of Students issued

a similar call to “revise” the recent decisions on raising prices, appealing to the People’s

Assembly to stop the reforms.91

A statement from the Interior Ministry on the evening of January 18 sets up the

government’s assault on violent protests as the work of leftist agents. The statement places

blame on Communist and Marxist elements for attacks and violence in Cairo, Helwan, and

Alexandria. In particular, the statement singles out groups calling themselves “Nasserites.”

Given Sadat’s uneasy relationship with the legacy of his predecessor, such as a statement

identifies these groups as highly subversive. A related statement issued by the Ministry of

the Interior on the morning of January 19 warned that “communist-led demonstrations”

would be fired upon.92

On January 22, newspapers ran papers highlighting a plan to burn Cairo, discovered

in the hands of the banned Communist Labor Party. These reports portrayed a far-reaching

conspiracy with “command committees” present in several Egyptian provinces.93

91 24 January 1977 Press Review, Foreign Broadcast Information Service Database, Paris AFP 92 19 January 1977 Press Review, Foreign Broadcast Information Service Database, Cairo Domestic Service in Arabic 93 24 January 1977 Press Review, Foreign Broadcast Information Service Database, Cairo Domestic Service in Arabic

35

The government not only used the riots to harass leftist elements, but also publicly

assailed wealthier Arab nations from skirting their obligations to Egypt, which had so

fiercely championed Arab nationalism. The Arab Socialist Party statements calls on other

Arab nations to remember their commitments to Egypt’s continued war effort. Egyptian

author Naguib Mahfouz highlights officialdom’s anti-Arab feelings: “Why should our

nationalism create hunger and suffering only? …I implore with all my strength that we

abandon the Arabs if they have decided to abandon us.” Trade unions all moved to support

the government, calling for calm and a halt to disturbances.94

By the afternoon of January 19, Prime Minister Salim suspended the decision on

commodity prices. On January 20, the People’s Assembly Plan and Budget committee,

composed of Kaysuni and other relevant figures, decided on the cancellation of all increases

in the commodities to their status prior to January 17.95

The regime quickly attempted to consolidate the official line away from the

conflicting statements emerging from Parliament, political parties, and individual officials.

Reports in the subsequent days aimed to portray the regime as united, highlighting President

Sadat and Vice President Mubarak meeting with leaders of state institutions. Letters of

support are noted from King Khalid of Saudi Arabia and Sudanese President Numayri. On

June 23, a new $20 million US-Egyptian loan agreement is announced, forming part of the

$1 billion aid for the US to Egypt.96 These attempts appear calculated to reaffirm regime

stability.

94 24 January 1977 Press Review, Foreign Broadcast Information Service Database, Cairo Domestic Service in Arabic 95 24 January 1977 Press Review, Foreign Broadcast Information Service Database, Cairo Domestic Service in Arabic 96 24 January 1977 Press Review, Foreign Broadcast Information Service Database, Cairo Domestic Service in Arabic

36

Sadat only publicly addressed the nation via radio on February 3, two weeks

following the outburst of riots. He repeatedly highlights the role of “institutions” in quelling

the recent riots, and reiterates government accusations against the left. Specifically, he

accuses new members of the Leftist party, Tagammu, recently formed in the semi-pluralist

electoral system, of supporting civil disturbances as agents of the Soviet Union. The

President reminisces about previous conflicts with political rivals, and strongly regrets not

full purging communist elements. He highlights the riots as a fully-designed attempt to

weaken Egypt’s negotiating position with Israel, by demonstrating the disconnection between

Sadat and his people. In a nod to the country’s populist sentiment, Sadat rescinds taxes on

the very poor and requires a declaration of all wealth for the rest of society. Simultaneously,

the government prohibits strikes, congregations, or sit-ins which threaten the national

economy – a broad definition fitting for post-crisis repression.97

A scheduled referendum of the Presidential Decrees occurred on February 10, with

99.4% of voters in support.98 These efforts aimed to reassert government control over Egypt,

and reaffirm the people’s backing of Anwar Sadat. The New York Times viewed the regime

as striking in two directions, attempting to “salvage… Sadat’s policy of political

liberalization while at the same time readying the tools by which any political challenge to

the President could be repressed.”99

In the aftermath of the riots, the left-leaning plank in Egyptian politics found itself

attacked by the Sadat loyalists. The party’s head, Khaled Mohiedin, attempted to defend his

organization in a press conference. The New York Times reported that major local

97 4 February 1977 Press Review, Foreign Broadcast Information Service Database, Cairo Domestic Service in Arabic 98 Nohlen, Dieter, Michael Krennerich, and Bernhard Thibaut. Elections in Africa: A Data Handbook. Oxford: Oxford UP, 1999. 336. 99 Tanner, Henry. "A Stringent Decree Put to Vote in Egypt." New York Times 11 Feb. 1977. Print.

37

newspapers had rejected printing his statements. The party had opposed the referendum on

Sadat’s proposed clampdowns following the riots, making itself the most prominent

organization to oppose the President during the period of national reconsolidation.100

Contemporary Analysis and Historical Revision

Contemporary analysts highlighted the most immediate and apparent reasons for the

riots, while later scholars placed the events of 1977 within the context of transitions in social

classes.

The Al-Ahram daily argued in January 1977 that “the perpetrators of these incidents

exploited the prevailing climate of democracy in which the authorities restrained themselves

up to the last moment, permitting peaceful demonstration until the nature of the plot became

clear. Hence, strict firmness was inevitable.”101 The climate of democracy may have

increased these protests. In the spirit of openness and press liberalization, the straightforward

policy presentation by Kaysuni and the public opposition may have expanded further than it

would have been under a more repressive system.

Tawfiq al-Hakim, appearing in a January edition of Al-Ahram, explains that protests

erupted for both mismatched expectations and a procedural reason: First, the high cost of

living led to popular expectations of price reductions, rather than increases. Second, the

announcement had occurred before the proposal was submitted to the People’s Assembly.

100 Ibid. 101 24 January 1977 Press Review, Foreign Broadcast Information Service Database, Cairo Domestic Service in Arabic

38

Proper discussion, according to Hakim, would have lessened the shock of subsidy

withdrawal.102

Journalist Henry Tanner, writing on January 24, observed that the riots demonstrated

the newly-robust influence of the Egyptian masses. He asserts that, “Egypt’s poor… are no

longer prepared to take foreign policy success and internal political reform as a substitute for

the improvement of their personal living conditions.” Furthermore, Tanner raises the

dilemma of continued political liberalization in the midst of opposition, reporting that several

members of the official Leftist party were arrested.103 This analysis foreshadows later efforts

by the Government of Egypt to push through reforms during a time of repression. The Sadat

regime chooses to halt political liberalization, and instead bolsters consumption with further

funding for subsidies.

The regime had placed blame for the riots on Communist agitators, but Soliman

argues civil servants and those who expected to join the civil service (e.g. university

students) mustered the 1977 riots.104 The urban poor who joined the fray were not the

primary drivers, but may have contributed to its violent nature.

As has been demonstrated previously, the regime failed to adequately argue for the

distinction between these cuts, aimed at non-essential products, and the basic commodities

needed by the poor. Soliman overlooks the “messaging” component of the form’s

implementation, instead arguing that the subsidy reform was important for its symbolic

nature. In his analysis of budget data, the subsidy cuts amounted to only $28 million. The

102 19 January 1977 Press Review, Foreign Broadcast Information Service Database, Cairo Domestic Service in Arabic 103 Tanner, Henry. "Egyptian Riots Have Seriously Sadat’s Freedom of Action at Home and Abroad." New York Times 25 Jan. 1977: 3. 104 Soliman, Samir, and Peter Daniel. The Autumn of Dictatorship : Fiscal Crisis and Political Change In Egypt Under Mubarak. Stanford, California: Stanford University Press, 2011. 59.

39

cutbacks represented the decline of the civil servant, the Nasser era’s elite class, into their

lower-middle class status.

Waterbury largely agrees with the class-based transition. “The truly depressed

stratum,” he asserts, “…are the 2 million or so civil servants on fixed salaries who are kept

afloat only by large annual cost-of-living bonuses and holding two jobs.”105 These, rather

than the leftists of Sadat’s accusations, were likely the driving factor for the riots. The

subsidies threatened the livelihoods of a highly urban class reliant on the state’s provision of

affordable food.

Beyond the discussion of the relatively educated urban classes, the subsidy cutbacks

also threatened the poorest Egyptians with a revision of the social contract. Subsidy cuts

included some discussion of wage increases, ignoring Egyptians with informal jobs or those

unemployed. An estimated 25% of Egypt’s work force was unemployed or underemployed,

and thus particularly vulnerable to commodity price rises even with official salary

adjustments.106

Because of this incident, the Egyptian government clearly came to believe that frank

and public discussions on the subsidy issue could not pass in Egyptian public life. Following

the events of January 1977, the Egyptian government adopted a more restrained and gradual

approach towards reform.

105 Waterbury, John. The Egypt of Nasser and Sadat : the Political Economy of Two Regimes. Princeton, N.J.: Princeton University Press, 1983. 42. 106 Howe, Marvine. "Egypt Weighs Food-Aid Cuts Again." New York Times 19 Aug. 1977: A4.

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Implications of the January Riots

The Egyptian government had effectively demonstrated the domestic constraints for

reform. International creditors, sufficiently concerned for Egyptian instability, became more

forthcoming in funding.

The reticent leaders of the Gulf states agreed to provide more lenient financial terms

for Egypt. Arab financial ministers arrived in Egypt two weeks following the start of the

riots, assessing the situation with their Egyptian counterparts. In April, the countries

announced a $1.474 billion grant to Egypt’s central bank, as well as delayed repayment of

existing loans and delayed withdrawal of funds from the Egyptian Central Bank, totaling

close to $4 billion.107 Further funding from the IMF and the United States continued

following the riots, particularly following Sadat’s visit to Jerusalem in late 1977. In the week

following the riots, the IMF announced a $140 million loan.108 On February 1, the Carter

Administration informed Congress that it would reallocate $190 million in aid funds for

immediate disbursal to Egypt, which was seen as “a major gesture of support.”109 In

negotiation with the IMF and international creditors, Egypt could now leverage this historical

incident to loosen terms for loans and financial support.

In the years following the riots, the government expanded financial support for the

subsidy system to avoid passing increased global costs to the Egyptian consumer. In 1977,

subsidies accounted for 15.5% of government expenditures. By 1980/81, that figure rose to

107 Feiler 144. 108 Adams, Richard H. Self-targeted Subsidies: The Distributional Impact of the Egyptian Food Subsidy System. Washington, DC: World Bank, Poverty Reduction and Economic Management Network, Poverty Division, 2000. 109 "US Plans to Bolster Aid to Egypt by $190 Million to Ease Unrest." New York Times 2 Feb. 1977.

41

20.5%.110 The government could not confront this major outflow from the treasury, hobbled

by fears of instability.

The cost of subsidies increased not only due to increasing prices, but also because of

an expanded subsidies regime. Sadat began to finance imports of chicken and beef while

further increasing subsidies. Public sector workers, a major urban interest group, received a

new system of bonuses given on national holidays. Finally, Sadat brought rural consumers

into the government-run food subsidy system by ordering the Ministry of Supply to expand

subsidized flour coverage to rural areas.111

The riots also fundamentally undercut the more glorious perception of Egyptian

success. The 1977 riots highlighted the regime’s weakness, as Sadat consistently battled the

pan-Arab popularity of the Nasser regime.112 Domestically, Egypt could no longer view

itself on an upward trajectory. Hamied Ansari notes that, “the euphoria in the wake of the

October War and the economic promise of the Open Door policy died suddenly amid the

Food riots of 18 and 19 January 1977.”113 Sadat clearly aimed to regain public trust in the

regime through increasing hand-outs targeted towards specific groups.

Beyond domestic perceptions, Egypt’s looming bankruptcy and the regime’s limited

flexibility in the domestic arena for cutting spending likely caused additional pressure to find

alternative revenue sources. By negotiating a peace agreement with Israel, Sadat was able to

sidestep domestic reform pressures and access growing funds from the West, and the United

states in particular. Several scholars, including Arie Kacowicz, notes that, “paradoxically,

looming economic bankruptcy had been a critical factor in driving Sadat to choose war in

110 Soliman and Daniel 58. 111 Sadowski, Yahya M. Political Vegetables? Businessman and Bureaucrat In the Development of Egyptian Agriculture. Washington, D.C.: Brookings Institution, 1991. 160. 112 Feiler 193. 113 Ansari 185.

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1973 and peace in 1977-79. By 1977 Egypt was in a critical economic situation, exacerbated

by the rising expectations from the ‘open door’ economic policy introduced after 1973.

Hence, the link between the foot riots of January 1977 and Sadat’s visit to Jerusalem in

November of the same year, though not linear, should not be underestimated.”114

Within the context of domestic contestation and weakness, Sadat’s visit to Jerusalem

may be seen as a means of realigning the domestic conversation away from economic

challenges towards a foreign policy achievement. By visiting Jerusalem, Sadat attempted to

achieve not only the “international fame” that his foreign minister, Ismail Fahimi, stated he

craved, but also to reassert Egypt’s distinct geopolitical identity.115 Sadat embarked on a

policy of “Egypt First,” where Egyptian benefits from peace outweighed any damage the

agreement dealt to the pan-Arab cause.116 Fouad Ajami notes that, “Sadat could hope to

compete with his predecessor in Egypt proper, but in the Arab world his predecessor was

larger than life.”117 In fact, these domestic travails, coming on the heels of the Arab’s 1976

rejection of loan pleas, may have further accentuated Sadat’s sense of Egyptian nationalism.

Karawan advances an alternate argument connecting Sadat’s perception of Soviet

involvement in the January riots to the Jerusalem visit. Sadat’s anti-Sovietism arose from his

perception of Soviet support for his domestic rivals. For example, Ali Sabri, Sadat’s rival in

succession to Nasser, was widely perceived to hold implicit Soviet support, or at the very

least, preference.118 In 1972, Sadat expelled Soviet advisors and began seriously embarking

114 Kacowicz, Arie Marcelo. Peaceful Territorial Change. Columbia, S.C.: University of South Carolina Press, 1994.134. 115 Fahmy, Ismail. Negotiating for Peace In the Middle East. Baltimore, Md.: Johns Hopkins University Press, 1983. 283-90. 116 Karawan, Ibrahim A. "Sadat and the Egyptian–Israeli Peace Revisited." International Journal of Middle East Studies 26.02 (1994): 249-266. 117 Ajami, Fouad. The Arab Predicament: Arab Political Thought and Practice since 1967. Cambridge: Cambridge UP, 1981. 94. 118 Karawan 249-266.

43

on the Open Door policies. Sadat’s blame on leftist and communist elements fits the

atmosphere of heightened Egyptian-Soviet tensions and decisions to strengthen the alliance

with the United States. Karawan conducted a personal interview with Deputy Prime Minister

Hassan al-Tuhami, who summarized the connection:

“The January riots had shown us the deliberate intentions of the Soviet Union to bring the regime down. The local communists moved all over the country, repeating the same slogans and using the same tactics. But we know that local communists cannot do anything by themselves, and without the orders, or at least approval, of the Soviet Union. The response of the president was a decision to kick the Soviet Union and its agents out of the area.” 119

Furthermore, the visit can be seen as a subversion of the Carter’s administration’s

attempts to include the Soviet Union as a cosponsor of the Geneva conference. The

surprising initiative realigned Egypt from a participant to a driver of the peace process. In

this position, Sadat could better exclude the Soviet Union from regional peace discussions.

Subsequent Subsidy Reform in the 1970s

Attempts to cut back on subsidies following the January 1977 riots occurred slowly

and meticulously, with trial balloons floated and little substantial action taken.

In August 1977, the Egyptian government announced that Prime Minister Mamdouh

Salem would convene a government committee to study a proposal for food subsidy cuts.120

The proposal appears not to have progressed any further, but instead served as reintroduction

of a controversial topic into the public sphere.

In December 1978, the government engaged in a new program to increase the prices

of nonessentials and luxuries. On December 29, cigarettes increased by 5 cents, to 42 cents

119 Karawan 249-266. 120 Howe, Marvine. "Egypt Weighs Food-Aid Cuts Again." New York Times 19 Aug. 1977: A4.

44

per pack, lower grade gasoline increased by 4 cents, to 37 cents a gallon, and premium

gasoline increased by 3 cents to 65 cents per gallon. Other measures, including raising the

prices of beer, soft drinks, and color television sets, were expected to increase in the near

future as well. In addition, Western economists began hinting at other means of reducing the

burden of subsidies, including limiting the number of ration card holders.121 The timing of

this announcement occurred during the midst of peace talks with the Israelis. In much of the

Cairo press, the conversation was dominated by foreign policy. The 1977 subsidy reform

announcement occurred during a momentary lull for Egyptian foreign affairs, and followed

an election where domestic issues became prominent. In contrast, the minor December 1978

announcement occurred while Egyptian eyes were focused on the prospect of peace and self-

rule in the Sinai.

By December 1979, the Egyptian government’s strategy for the following decade was

becoming clear: The government would focus on withdrawing the easier subsidies and price

controls first, and restrict access to ration cards. Under this new policy, the government

determined that:

• The prices of goods sold on ration cards, including cooking gas and staple foods,

would remain constant. The government faced particular budgetary pressure for

cooking gas, as Gulf producers have cut off supplies following the peace treaty with

Israel. Previously, the government paid concessionary rates of $50 to $192 per ton.

Under new contracts from Mediterranean suppliers, the government began to buy gas

for $490 per ton.

• Sugar in private stores would increase by 16 cents per pound (3 cent increase).

121 "Egypt Raises Some Prices but Holds the Line on Food." New York Times 30 Dec. 1978.

45

• Regular Gasoline prices would increase 60 cents per gallon (11 cent increase);

Premium Gasoline would increase 71 cents per gallon (11 cent increase).

• Local Cigarettes would increase 47 cents (4 cent increase); Foreign Brands would

increase 87 – 92 cents, (8 cent increase). 122

During this period of policy change, wage adjustments in the public sector played a

calming role. The government proposed for monthly wage increases in the public sector and

public companies from $4.30 for unmarried workers to $14.30 for married workers.

The dynamic between subsidy policy change and popular response, already

perceptible in the late 1970s, would continue to dominate Egyptian food subsidy reform in

the following decades. Stealth reform and other calming mechanisms would emerge as key

elements of any subsidy withdrawal process. These strategies aimed to avoid a repetition of

the January 1977 riots, which continued to loom over the any prospective reforms.

122 Tatro, Earleen. "Egypt's Proposed Budget For 1980 Sets Off Price Increases for Most Items." New York Times 26 Dec. 1979.

46

47

IV. A Slow Period of Change: Subsidy Reduction in the 1980s

Hosni Mubarak ascended to power in 1981 following the assassination of his

predecessor, President Anwar Sadat. The Mubarak regime successfully reduced food

subsidies during the 1980s through largely covert policy changes and distribution controls.

As in 1977, the government responded to protests with both repression and retreat from

policy changes. While the subsidy reductions were largely minimal, these policies

demonstrate the tenuous steps undertaken by the regime to reduce the food subsidy bill. This

chapter will also include Egypt’s relationship with the International Monetary Fund (IMF),

and the means by which it received loan guarantees and approvals without fully complying

with requirements for subsidy reform. The successful management of the IMF relationship,

using American leverage, enabled Egyptian leaders to determine the pace of domestic

reform, enabling less abrupt and more covert implementation.

Conceptualizing Reform in the 1980s

In contrast to outside analyses faulting the regime for continuing an efficient subsidy

system, the record from the 1980s demonstrates high sophistication in balancing fears of

social unrest, outside pressure (mainly from the IMF), and an internal recognition of the need

for reform. The legacy of the 1977 riots, in addition to continued media scandals over food

prices, reinforced the government’s fear of open reform.

Sadowski describes three primary strategies by which the Mubarak regime changed

the subsidy regime without inflaming public opinion: Distribution controls, cash

compensation, and reform by stealth. Distribution controls, aimed at limiting access to

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goods, enabled the government to attempt more sophisticated targeting strategies. Cash

compensation, in the form of higher wages, remained a promising means of placating urban

workers with formal employment. A final subset of reforms, “reform by stealth,” covers the

remaining reforms. By changing policies, adding options, and recalibrating prices and

quality, the government encouraged shifts in consumption patterns more beneficial to the

budgetary bottom line.

The snail’s pace of reform was not sufficient to stem the rising tide of import

expenditures. Towards the end of the 1980s, food prices rose substantially, while Egypt’s

main commodity export, oil, suffered from the low prices caused by OPEC overproduction.

In the mid-1980s, wheat sold for $70/$80 per ton. By July 1988, Egypt paid $149 per ton for

wheat, with prices increasing to nearly $300 by the next year. Simultaneously, outside

support for wheat declined. The United States had previously provided Egypt with

concessional loans totaling $2.7 billion in the previous decade. During times of low prices,

the United States government supported agricultural exporters through such foreign deals.

However, during times of high prices, few government policies are needed to support

agricultural interests, and instead, recipient governments like Egypt needed to buy wheat on

the open market.123 The increasing prices also affected other staples. Corn rose $84 to $132

per ton, cooking oil rose from $458 to $790 per ton, and sugar from $171 to $270 per ton.124

These prices drove Egypt back into the hands of international creditors, and by extension, the

International Monetary Fund (IMF). The dynamics of these interactions will be discussed in

depth later in this chapter.

123 Singerman and Hoodfar 1996. 124 “Mubarak 23 July Revolution Anniversary Speech” 21 July 1988 Press Review, Foreign Broadcast Information Service Database.

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The country’s food subsidy system, while seeming irrational to both international ad

domestic observers, actually contained measures directly targeting products towards the poor.

Subsidized foods, at the onset of the decade, included a whole range of goods for both daily

sustenance and more special occasions. In 1980, subsidized foods included bread (baladi,

shami, and fino), flour, sugar, rice, tea, edible oil, beans, lentils, macaroni, coffee, sesame,

shortening, imported cheese, frozen meat, fish, egg, and chicken.125 This extensive list

included sources of animal protein, a highly expensive expenditure. By 1995, the subsidy

regime only covered baladi bread, wheat flour (82% extraction), edible oil, and sugar.126 The

poor consumed these “inferior” goods, particularly the coarse bread, whose subsidy was

maintained through the reform process until the present day.

Khouri describes the perception of food prices in Egypt as a scale, with bread and

meat on opposite ends.127 Bread represents the cheapest product, while meat the most

expensive. Thus, the prices of goods are judged within the hierarchy of household

expenditures, rather than on an independent basis.

Playing Around with Bread Size: Changes at the Margins

The Egyptian government’s “reform by stealth” took advantage of small, gradual

changes to increase public acceptance of changes to the bread subsidy. The loaves available

at bakeries served as a dietary staple infused with expectations. Provision of bread

125 Adams, Richard H. Self-targeted Subsidies: The Distributional Impact of the Egyptian Food Subsidy System. Washington, DC: World Bank, Poverty Reduction and Economic Management Network, Poverty Division, 2000. 126 ʻAbd al-Khaliq, Judah, and Karima Korayem. Fiscal Policy Measures In Egypt: Public Debt and Food Subsidy. Cairo: American University in Cairo Press, 2001. 127 Singerman, Diane, and Homa Hoodfar. Development, Change, and Gender In Cairo: a View From the Household. Bloomington: Indiana University Press, 1996.

50

represented a primary connection between the citizenry and regime. Thus, tweaking this

system required finesse.

In May 1983, a parliamentary discussion on raising the price of bread from 1 to 2

piastes provoked a national outcry. Instead of pushing through complete reform, the

government circumvented the public process by theoretically maintaining consumer choice,

while in actuality, pushing the populace toward the decided policy. In 1981, the government

began providing a two piastre bread made of higher quality wheat, while simultaneously

reducing the quality and availability of the one piastre staple.128 Other sources note this

change happening in earnest in 1983 and 1984 when prices rose and the government-

mandated size of baladi bread decreased from 168 to 160 grams.129

Small changes continued to occur. In 1986, the government reduced the size of the

two piaster loaves, reducing the standard weight from 160 grams or above to only 135 grams.

In 1988, the quality of loaves further declined, as the government reduced wheat content in

loaves by 20 percent. These measures resulted in savings of 1 million tons of wheat,

translating to 350 million Egyptian pounds.130 The process of reduction appears to have

continued over several years. In 1988 and 1989, the price of bread increased to five piasters,

while bread size was reduced to 130 grams.131

Corruption remained a challenge for all subsidized products. The open market prices

for subsidized goods were much higher than the government price. Naturally, a secondary

informal market developed for goods bought cheaply at government cooperatives and

subsidized bakeries. The government subverted these black markets by creating new

128 Singerman and Hoodfar 1996. 129 Adams 2000. 130 Singerman and Hoodfar 1996. 131 Adams 2000.

51

products to capture the unauthorized market and increasing surveillance. Thus, government

tinkering with the bread system attempted to confront corruption.

In 1989, Egypt faced a bread crisis, with long lines and increasing prices. Bakers had

diverted flour for use in higher-priced types of bread, primarily tabaqi loaves, which were

sold on the open market. In response to this trend, Minister of Agriculture Yusuf Wali

created two official tabaqi loaves, costing less than the bread at open market. As a result of

the increased product offering, the government recaptured part of the subsidized flour

leakage and encouraged consumer demand to migrate toward more expensive subsidized

bread.132

The Distribution System: Withdrawing the Availability of Subsidies

The government attempted to cut back on subsidies without explicit policy changes

by limiting the reach of subsidized goods. In 1981, the Ministry of Trade and Supply began

limiting the number of ration cardholders. These initial reforms took on common sense

approaches – the names of people abroad or the deceased were removed from public rolls.

The government also began to attempt to discriminate provisions based on income.

Householders of higher net worth, including investors, owners of buildings, shops, or cars,

and proprietors of more than 10 feddans of land were divided into a separate category than

the poor, who maintained fully subsidized green ration books. Partially subsidized red ration

books failed to take root, as by 1994, only 3 percent of the Egyptian population had

transferred to the limited subsidy group.133

132 Singerman and Hoodfar 1996. 133 Adams 2000.

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During the 1980s, the Egyptian government continued to maintain some subsidies on

non-essential consumer goods, such as cigarettes. In July 1986, the government attempted to

confront the black market by establishing a two-tiered distribution system. Poorer

neighborhoods received cheaper but lower quality goods, while better-off neighborhoods

benefited from more availability of goods at higher prices. The discrepancy led to informal

means of distribution in poorer areas, where supplies were diverted and often sold at higher

prices. Managers allocated limited supplies of goods by selling under the counter, charging

more for skipping queues, and selling goods in advance to legions of women peddlers who

would resell at higher prices.

Attempts to limit the number of Egyptians on the subsidy rolls had largely failed by

the end of 1994. 78 percent of the population remained on ration books. Far more effective

in reducing actual subsidy expenditure was the pullback in the goods covered by public

subsidies.134

Civil Disorder: Recurrences of 1977

Sporadic protests linked to increases in food prices and shortages reaffirmed

government suspicions of overly ambitious liberalization. The government response aimed

to reduce the motivation for protest, by reverting temporarily to previous policies, and

controlling opposition figures through arrests and political repression.

In September 1984, workers in Kafr el-Dawwar rioted over price increases. This

industrial city in the Nile Delta holds significance as a historical hotbed of the Egyptian labor

134 Ibid.

53

movement.135 A 30 percent unannounced hike in the price of cooking oil and pasta, the

disappearance of the one-piaster loaf, and an increase in wage deductions of social security

led workers to refuse wage packets in protest.136 Violent demonstrations eventually resulted

in three killed and 26 wounded.

This government response followed the established to relieving social pressure:

retreat followed by repression. President Mubarak calmed protesters by intervening directly

to rescind the price increases and promising to halt any further increases.137 Mubarak

promised to limit the “new and improved” two-piaster loaves to higher income areas, while

poor areas would maintain availability of the one-piastre standard baladi bread. Reporters on

the ground noted the difficulty of finding the cheaper loaves in poorer urban districts

throughout the country.138

Simultaneously, the regime arrested leftist leaders. In Minya, seven local leaders of

the National Progressive Unionist Party (NPUP) were arrested.139 On September 29, as the

government publicized the role of extremists in fomenting these revolts, Interior Minister

Kamal Hasan ‘Ali announced an extension of the Emergency Law by almost two years.140 In

October, security forces arrested leftists, student activists, workers, and other affiliates of the

NPUP throughout Egypt on charges of coup plotting.141

135 El-Hamalawy, Hossam. "Egypt: Revolt of the Hungry." Egypt: Revolt of Hungry. Socialist Worker, 17 Feb. 2005. Web. 12 Mar. 2012. <http://www.socialistworker.co.uk/article.php?article_id=10705>. 136 Miller, Judith. "Egyptians Worry Despite Riot's End." New York Times 7 Oct. 1984: 17. 137 “Mubarak Prohibits Further Price Increases.”1 October 1984 Press Review, Foreign Broadcast Information Service Database, Cairo MENA news service in Arabic. 138 Miller 1984. 139 "Egypt August 1986." Keesing's Record of World Events 31: 33817. 140 “ Ali on Extending Emergency Law by 19 Months.” 29 September 1984 Press Review, Foreign Broadcast Information Service Database, Cairo MENA news service in Arabic. 141 “Authorities Reportedly Arrest Communist Group” 16 October 1984 Press Review, Foreign Broadcast Information Service Database, Al-Sharq Al-Awsat.

54

These events occurred in the background of a parliamentary election in May 1984.

The results of those elections favored the National Democratic Party, which won 72 percent

of the vote. The NPUP came in fourth, with only 4 percent of valid votes.142

The regime responded to the popular opposition by first placating the public. Once

the situation calmed, a larger purge against organizers took place. Increases in social security

contributions and the price of cigarettes were maintained, while the price of commodities

loaded with significance, such as bread, pasta, and cooking oil, were reduced. In the midst of

these events, diplomats noted the Mubarak regime’s success in using subtle tactics to raise

subsidies.143

Less violent popular responses over price reforms created further challenges for the

government. In May 1985, the government relaxed price controls on fruits and vegetables in

an attempt to stimulate production. However, prices skyrocketed and newspapers and

parliamentarians fanned the flame of scandal. Media reports point to an increase in prices of

200 to 300 percent over wholesale costs. Sadowski notes the concentration of the vegetable

and fruit market in Cairo as a key reason for this price inflation, as businessmen from three

villages in Upper Egypt monopolized 70 percent of the city’s produce market. By

September, the government reasserted control over vegetable prices. The failure at reform

stemmed from the concentration present in the distribution system.144

In 1986, a police mutiny in Cairo and its suburbs rocked the foundation of the

Mubarak regime. Up to 17,000 conscripts committed arson and destruction against luxury

hotels, nightclubs, and restaurants, with over 100 killed. Circulating rumors about extension

of conscription from two to three years, and continued mistreatment and abuse, had riled the

142 "Egypt September 1984." Keesing's Record of World Events 30: 33124. 143 Miller 1984. 144 Singerman and Hoodfar 170.

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conscripts. Most worryingly for the Mubarak regime, the riots came from the ranks of the

Central Security Force, established in 1968 and expanded after 1977 to deal with

demonstrations. The Army’s deployment in the streets of Cairo reasserted order, but the riots

underlined the fragility of Egypt’s social stability.145

In May 1988, riots in the working class Cairo district of Ain Shams revealed popular

dissatisfaction with a deteriorating standard of living. Conflict between security forces and

radical Islamists, many from the extremist group Jamaat Islamiya, erupted in clashes

following Friday prayers. One diplomat noted that for the first time since 1977, “ordinary

people have taken to the streets in large numbers to protest and to confront authority.”146

These protests occurred within the larger context of a perceived decline in living standards

for poor Cairenes. In contrast to previous occasions, where leftist elements were blamed in

the media, in this case, fundamentalist Islamists became the main focus of investigations.

In 1989, bread shortages led to protests in Minya and Bani Suwayf. In January 1988,

prices per bushel of wheat had stood at $2.90 and by July, prices rose to nearly $4.00 per

bushel.147 Demonstrators in Minya especially protested the rise of the fino loaf prices.148

Minya had witnessed clashes between Islamic fundamentalists and the government during

the previous months, and the Interior Minister had closed down al-Rahman Mosque, a

headquarters of Islamic groups. Papers reported arrests in Port Said, Cairo, and other

provincial cities over protest against rising bread prices.149 Supply Minister Jalal Abu al-

Dhahab noted that the seven prices for flour led to the bread crisis, encouraging pilfering in 145 Rogg, Margaret L. "Egypt Says Police Rebellion Is Quelled." New York Times 28 Feb. 1986: A3. 146 "Islamic Radicals' Appeal Seems to Be Gaining in Egypt." Los Angeles Times, 18 Nov. 1988. Web. 12 Mar. 2012. <http://articles.latimes.com/1988-11-18/news/mn-756_1_islamic-radicals>. 147 Singerman and Hoodfar 1996. 148 “Demonstrations Over Bread Prices in Al-Minya” 6 February 1984 Press Review, Foreign Broadcast Information Service Database, Al-Wafd. 149 “Arrests Reported for Protests Over Bread Price” 10 April 1989 Press Review, Foreign Broadcast Information Service Database, Al-Wafd.

56

the black market. He asserted that the largest portion of leaked flour from the subsidized

bread system goes to fodder, whose price is higher than that of flour.150

Newspapers covered the issue as a human-interest story. The Ministry of Supply

publicized arrests of bakers, and prison areas were set aside for bread offenses.151 Other

media outlets noted the spread of shortages to villages.152 In response, the government made

a well-publicized push to exert control over distribution networks.153 The government

attempted to assert its success by publicizing that “the phenomenon of crowds outside the

bakeries… have disappeared.”154

Beyond these specific incidents, newspapers during the mid-1980s took a very

publicized stance against the price increases. Staples like kushari had increased in prices,

likely in connection to the liberalization of vegetable and fruit prices during the previous

year.155 Al Sha’b newspaper asked, “will a plate of kushari turn into a tourist dish?”

reflecting the increasing prosperity and social cleavages from Egypt’s opening to the West

while the “popular classes” bore the brunt of increasing prices.156 Official newspapers often

used their pages to respond to critiques from more critical press outlets. Al Sha’b ran

everyman perspectives in 1986 on a “treasonous” increase in tea prices. In response, the

official Al Ahram published an explanation from the Minister of Supply citing distributional

150 “Supply Minister on Flour Prices, Bread Crisis” 18 April 1989 Press Review, Foreign Broadcast Information Service Database, Al-Akhbar. 151 “Paper Reviews Bread Crisis” 4 April 1989 Press Review, Foreign Broadcast Information Service Database, Al-Sha’b. 152 “Shortages Spread to Villages” 10 April 1989 Press Review, Foreign Broadcast Information Service Database, Al-Ahrar. 153 “Governorate Moves To Control Bread Distribution” 5 April 1989 Press Review, Foreign Broadcast Information Service Database, Al-Akhbar. 154 “Government Bread Control Decreases Bakery Crowds” 17 April 1989 Press Review, Foreign Broadcast Information Service Database, Al-Wafd. 155 Singerman and Hoodfar 1996. 177. 156 Abu Liwaayah, Muhammad. "Will a Plate of Kushari Turn into a Tourist Dish?" Al-Sha’b 12 Aug. 1986: 3.

57

problems and a strike in India as the source of the shortage, which had resulted in higher

prices.157

Managing External Relations: Egypt and the International Monetary Fund

During the late 1980s and early 1990s, the International Monetary Fund (IMF)

engaged in economic liberalization throughout the developing world. For countries facing

economic crisis and government deficits, the IMF can provide loans. In addition, agreements

signal good financial standing to creditors and donor countries, enabling access to

international financial markets. IMF agreements included structural conditionality

agreements, requiring reform of pricing policies, trade liberalization, taxation, and

government expenditure.158 These policies create domestic challenges between groups

favoring the status quo and government officials cognizant of the need for economic

solutions.

Egypt’s relations with the IMF were dramatically marked by the 1977 riots.

Immediate adjustment measures, with the scaling back of food subsidies, were seen to lead

directly to major protests. From that point onwards, Egyptian leaders reticently received

economic advice focusing on liberalization. The government leveraged Egypt’s strategic

position and relationship with the United States to pressure the IMF for lenient terms.

157 Singerman and Hoodfar 1996. 177. 158 Bird, Graham. "The International Monetary Fund and Developing Countries: A Review of the Evidence and Policy Options." International Organization 50.03 (1996): 477.

58

In September 1988, Mubarak reiterated the Egyptian position: “We need economic

reform, but I’ve told the IMF that this reform must be in line with our social and economic

situation and standard of living.”159

Momani provides a useful characterization of the major IMF agreements during this

period: 1987 and 1991 are both relatively lenient, while the 1993 and 1996 agreements were

relatively strict.160 In 1987, the Egyptian government managed to exclude price increases on

bread as a loan condition, and furthermore, failed to fully implement the agreed reforms. As

a result, the second tranche of loans were denied. In 1991, Egypt again failed to implement

reforms, but all tranches of loans were disbursed, likely as a reward for Egypt’s support of

the United States during the First Gulf War.161

Momani proposes three frames to understand IMF dynamics. The functionalist model

argues that staff members conduct IMF negotiations with purely economic considerations in

mind. The bargaining model portrays negotiations between debtor state and the IMF fund as

a negotiation on an individual level. In this frame, the links between Egyptian government

officials and Egyptian-born IMF officials play an important role in the final result. The

political model determines that the outcome of IMF-debtor negotiations are shaped by

member countries.162 These models emerge through the study of the IMF-Egypt relationship.

159 Daines, Victoria, John Walton, and David Seddon. Free Markets and Food Riots: The Politics of Global Adjustment. Oxford: Blackwell, 1994. 160 Momani, Bessma. "American Politicization of the International Monetary Fund." Review of International Political Economy 11.5 (2004): 880-904. 161 The American and Egyptian responses to the Gulf War are discussed below in the section covering the 1991 agreement. 162 Momani, Bessma. IMF - Egyptian Debt Negotiations. Cairo: American University in Cairo Press, 2005. 4.

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Negotiating the 1987 Agreement

In 1985, Egypt’s economic situation had severely declined. The boost from Sadat’s

Infitah and the inflow of foreign capital had largely subsided, while the large trade deficit

ballooned. Talks between Egypt and the IMF began in earnest in April 1985. Later that

year, the Egyptian government pledged changes in price control, promising to raise energy

and water prices.163 However, the changes proved to be more symbolic than effectual.

Energy prices increases were restricted to gasoline, while there were no increases in cooking

oil, kerosene, or diesel fuel. These goods, with a large budgetary impact, would have

impacted poorer Egyptian households.

Other IMF staff recommendations proved difficult to implement, as Egyptian officials

such as Finish Minister Salah Hamed called on policymakers to recognize Egypt’s “great

social and political constraints”.164 In 1986, the macroeconomic situation became

increasingly pressing, as reduced revenue from oil exports, tourism, and remittances further

impacted Egypt’s financial health. Donors from the Arab World refused to provide

additional funding, and the Paris Club, composed of financial officials from the largest

economies, declined to provide aid. As a result, the Egyptian had to return to the IMF.

During this period, the IMF continued to press for further liberalization. Discussions

revolved around the pace and content of reforms. Choosing the price rises for goods

remained an essential issue, as the Government of Egypt aimed to avoid a repetition of the

1977 riots.

While the government tentatively increased interest rates, lowered energy subsidies,

and unified the systems of exchange rates, all in response to IMF pressure, the government

163 Momani 2005. 11. 164 Momani 2005. 12.

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simultaneously reaffirmed national sovereignty. In December 1986, Mubarak reiterated to

the public, “the government made no concession” to the IMF. Simultaneously, government

officials and Mubarak himself had visited European capitals, urging for further financial

support and promising reform in the longer term. The Egyptian government adopted an

attitude of public opposition to the IMF while simultaneously engaging with donors states to

weaken IMF requirements.

The Egyptian government attempted to lengthen the implementation of any reform

plan, most likely in order to avoid rapid reforms. The well-publicized changes of 1977 had

led to instability, and a fast-paced IMF reform plan would require a similarly abrupt

implementation approach. For example, while IMF representative Shaalan wanted an

increase in energy prices to 60 percent of international levels immediately in 1987, the

Egyptian government preferred to focus on the longer term, aiming to bring prices to

international levels by 1991/1992. This strategy of delay was blasted by IMF staffers, who

asserted that, “delay in the adoption of key reforms will neither reduce the magnitude of the

problem nor ease the political difficulties.”165 The IMF staff, while cognizant of the “social

and political implications” of reforms, rejected Egyptian proposals to delay.

The Egyptian government clearly adopted a strategy of longer-term gradual change.

The extended time frame for reforms would empower the Egyptian government to control the

pace of reform. Maintaining local control of reform, in spite of outside pressure, became a

key component of Egyptian policy towards IMF agreements.

In the 1987 Egypt-IMF agreement, Egypt achieved its goals of establishing a five-

year timeline, through 1991/1992, for reforms in energy prices, the financial system, and

165 Article IV Consultation Document, IMF – Egypt, 1986.

61

currency rates. Egypt also designated several basic goods, such as wheat, rice, sugar, and

cotton, as exempt from subsidy reform.166

Egypt was a special case for the IMF and global creditors, given its geopolitical

situation. In an unpublished speech given on May 15, 1987, Executive Director Shaalan

noted the need for “a broader perspective for evaluating the adequacy of adjustment

policies.”167 This language brought non-economic factors into consideration when the

executive voted to accept the more lenient Egyptian Letter of Intent in May 1987. In an

internal 1987 IMF memo, the External Trade and Relations department decried the program

as resulting in ineffectual reform and a “non-viable balance of payments.”168 As noted by the

Executive Director, “it would not be prudent, for Egypt but also for the Fund, to test the

limits of social tolerance.”169 The ramifications of social unrest in Egypt on the Mubarak

regime took precedence over a firm IMF stance.

The 1987 agreement presented a victory to the Egyptian government. The IMF

provided a $327 million Stand-By Credit arrangement, allowing the government to access

IMF reserves, and strengthened lender confidence. As expected, the Paris Club subsequently

agreed to reschedule $7 billion in Egyptian debt. Thus, while IMF support remained

minimal, the Egyptian government could garner the support of its creditor states.

During the following year, Egypt made tentative progress to liberalize the economy,

but measures continued to fall short of the agreed amounts. A 20 percent increase in public

wages occurred while the government implemented some proposed increases in energy and

other consumer prices. In response, the IMF terminated the agreement in 1988, blocking the

166 Momani 2005. 18. 167 Momani 2005. 19. 168 Ibid. 169 Ibid.

62

release of a second tranche of the Stand-By Credit Agreement. The IMF Executive Board

cited Egyptian “procrastination” as the source of tension.170

Negotiating the 1991 Agreement

The lack of agreement between the IMF and the Egyptian government continued to

plague negotiations for a new Stand-By Agreement following 1988. Egypt faced marginally

successful attempts at realigning prices, but in large respects, gaps remained in IMF

expectations and commitments from the Egyptian government. In March 1989, the US

government blocked aid totaling $230 million contingent on the full implementation of

economic reform.171 This disagreement changed rapidly following the onset of the 1990 Gulf

War, when the United States took stronger action to support its ally.

Egypt sided with the United States in the fight against the Hussein regime. Egypt

faced ramifications from the war, including a decline in remittances from the Gulf States,

reduced Suez Canal tolls, the cost of armed deployment to the battle theater, and loss of trade

with the Gulf. Egypt contributed 35,000 troops to the war effort, representing the largest

Arab force and the third-largest force overall.172

The US Embassy in Cairo directly linked IMF negotiations to Egypt’s standing in

relation to the Gulf conflict. In a communiqué, the embassy noted that an Egyptian

government representative urged the US government to issue a joint proclamation by creditor

nations to reschedule debt and meet the finance gap. As a result, the IMF would not “lose

face” from lessening the requirements for a Stand-By Agreement. In response, the State

170 Momani 2005. 24. 171 Momani 2005. 28. 172 "Background Note: Egypt." U.S. Department of State. Web. 13 Mar. 2012. <http://www.state.gov/r/pa/ei/bgn/5309.htm>.

63

Department asked the Embassy to convey to President Mubarak that, “we remain committed

to helping you reach an agreement with the IMF and are in touch with them.” The United

States brokered multiple meetings between the IMF and Egyptian representatives. As

Europeans blocked aid, due to failure to repay loans, the Egyptians sounded the alarms, and

American representatives sensed the pressure.173 Secretary of State James Baker and Foreign

Minister Abdel Meguid held meetings with the IMF negotiations as a primary agenda item.174

Although in 1989 the Egyptian government increased consumer prices, IMF negotiators

remained unsatisfied at the pace of reform.

The Gulf War led President Bush to forgive Egypt’s extensive military debt, totaling

nearly $7 billion.175 The debt forgiveness occurred before the finalization of any IMF

agreement, underlining the divergence of American policy towards Egyptian economic

reform from the fundamental economic analysis espoused by the IMF.

The Egyptian government submitted a Letter of Intent in March 1991 that outlined

reforms in the currency and taxation regimes. However, the regime left ongoing issues of

implementation untouched, particularly the reduction of subsidies. In spite of these issues,

the United States continued to support the Egyptian positions. Secretary of State James

Baker pledged support during his tour of the Middle East.176 Meanwhile, congressional

leaders inquired about State Department efforts to push forward negotiations. By May 1991,

the IMF executive board had signed on to a new agreement, one which largely followed the

contours of Egyptian expectations. Egypt had yet again taken control of the IMF negotiation

process, and while it would later fail to fully follow through in the agreement, small progress

173 Momani 2005. 35. 174 Momani 2005. 33. 175 Momani 2005. 37. 176 Momani 2005. 41.

64

was made towards liberalizing its economic system. The government had agreed to

reductions in the budget deficit, introduction of a 10 percent sales tax, increasing energy

prices, liberalized interest rates, and more privatization. A vague promise also referenced a

decrease in consumer subsidies.

After signing the agreement, the Egyptian government had challenges in following

through with both cutting government spending while increasing living costs. Mubarak had

already communicated a 29 percent pay rise to public service workers, directly contradicting

the goals of the agreement for reducing the fiscal deficit. From the Egyptian perspective, this

wage increase served as cash compensation for the upcoming increases in cost of living.

Subsidy reform in the early years of the Mubarak era was marked by a gradual

implementation of covert changes and distribution controls. The regime’s successful

management of the IMF relationship forestalled any abrupt changes to the subsidy system

forced by international lenders. Domestically, the government engaged in selective policy

retreat and repression to calm popular anger. As a whole, the Egyptian government set the

gradual pace of reform. In the 1990s, an aggressive repression campaign would embolden

the government to make further cutbacks.

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V. The 1990s: Repression, Extremism, and Economic Change

Egypt in the 1990s witnessed increasing economic liberalization concurrent with

resurgent political repression. These changes took place under the guise of fighting Islamic

extremism, with expectations that economic freedom would lead to greater political openness

in the longer term. The climate of repression not only targeted violent extremists, but also

more moderate Islamists and other opponents to the regime. Under expanded government

powers and reduced openness, the regime concurrently suppressed opposition to further

economic liberalization and subsidy rollback. In contrast to previous decades, protests

against the more dramatic subsidy reductions were relatively muted.

Aggressive Subsidy Withdrawal

Following the economic crises of the 1980s, Egypt embarked on a more aggressive

restructuring of the subsidy regime. While the number of goods removed may have been less

than in past years, the removed goods were more central to daily consumption. In 1990/91,

frozen meat was excised. Egypt underwent an even larger subsidy reform in the following

year, as the government withdrew coverage for fish, tea, and fino bread. In 1992/93, the rice

subsidy was removed, with shami bread removed in the following years. By 1995, the

subsidy regime covered only baladi bread, wheat flour (82% extraction), edible oil, and

sugar.177

177 Adams, Richard H. Self-targeted Subsidies: The Distributional Impact of the Egyptian Food Subsidy System. Washington, DC: World Bank, Poverty Reduction and Economic Management Network, Poverty Division, 2000.

66

The government also continued its program of alternatives, in addition to full-scale

withdrawal. In 1994, the Ministry of Trade and Supply again reduced the number of ration

cardholders by canceling the names of people who were abroad or deceased. The

government also attempted to change the bread recipe with little public awareness. In 1996,

the government announced plans to reduce wheat imports by adding Egyptian-grown corn

into subsidized flour.178 The government implemented these changes gradually, without

informing bakers the exact contents of the government-supplied sacks. In Egypt, private

operators generally baked bread, while the government mandated and provided the necessary

flour mix.

In contrast to the previous decade, the popular response to these changes failed to

garner sufficient domestic or international attention. The larger environment of political

repression, discussed later in this chapter, overshadowed food subsidy issues.

An Increasing Commitment to IMF Reforms

The reduction in political liberties enabled the government to pursue a more

aggressive economic liberalization strategy supported by the IMF. The greater success and

follow-through in implementing these reforms highlight the effectiveness of political

deliberalization. The 1993 and 1996 Egypt-IMF agreements underline the new cooperative

relationship between the regime and international creditors as Egypt gained confidence in

implementing reforms.

In contrast to the 1987 and 1991 agreements, the 1993 and 1996 agreements were

relatively strict. In a Letter of Intent from the Egyptian government to the IMF released in

January 1993, the government reviewed the difficult commitments made and implemented, 178 Jehl, Douglas. "Egypt Adding Corn to Bread: An Explosive Mix?" New York Times 27 Nov. 1996: A4.

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including increasing domestic energy prices, reducing food subsidies (including sugar), and

other liberalization efforts. In contrast to the previous haggling and political maneuvering,

Momani notes, “The Egyptian government complied with every prior action before the

commencement of the [1993] agreement.” Decreased spending on subsidies, primarily tea,

fish, pesticides, and fertilizers, were an important component of these reforms.179 Within the

context of increased repression and reduced political openness, the government had greater

leeway to implement these reforms. As a result, Egypt was able to access IMF resources and

gain the confidence of international lenders.

By the time of the 1996 IMF agreement, food subsidies had already been decreased

substantially, leaving little room for further cutting. The agreement focused on privatization

and macroeconomic policy. Momani identifies this period as encompassing actions and

strategies signaling “commitment” to economic reform.180

Repression Against Islamic Fundamentalism and Opposition to the Regime

Egypt witnessed a dramatic increase in Islamist violence in the early 1990s. In

previous decades, al-Gama’a al-Islamiya and related groups had previously targeted Copts,

leftists, and most prominently, President Anwar Sadat. The levels of confrontation reached

new heights in the middle part of the decade. Between 1992 and 1997, 741 attacks occurred,

resulting in 1,442 deaths and 1,779 injuries. In contrast, the previous two decades had

witnessed 143 incidents resulting in around 120 deaths.181

179 Momani, Bessma. IMF - Egyptian Debt Negotiations. Cairo: American University in Cairo Press, 2005. 51. 180 Ibid. 60. 181 Wiktorowicz, Quintan. Islamic Activism: a Social Movement Theory Approach. Bloomington, Ind.: Indiana University Press, 2004. 84.

68

One school of scholars links these violent events to the deliberalization of the

political process. Hafez and Wiktorowicz outline the shift in government policy towards

fundamentalists: the 1980s saw attempted cooptation and permissiveness, while policies in

the 1990s reflected the perception of a failure in marginalizing fundamentalists, and

increasing use of violent repression. The political inclusion of the more moderate Muslim

Brotherhood and the expansion of Islamist social services in the face of government retreat

aimed to constrain the most radical elements.

Hisham Mubarak termed this strategy “permissive repression,” where only the most

confrontational actions resulted in state responses.182 For example, small-scale sectarian

conflict in Upper Egypt resulted in relatively little state repression. Meanwhile, the militant

group al-Gama’a al-Islamiya continued to develop further legitimacy within poor urban

districts through social welfare networks, providing food and basic supplies during holidays.

In 1992, sectarian clashes, attacks on tourists and a prominent intellectual provoked

the deployment of soldiers in Upper Egypt to contain demonstrations between the police and

the Islamists. By December, the government sent 16,000 soldiers into the Imbaba slum in

Cairo, with additional deployments in outlying provinces during the following months.183

This escalation was matched by a withdrawal in political liberties.

The reduction in positive and negative political liberties began in 1992, conceivably

as a response to the increasing violence. Negative political liberties, protecting society from

the interference of rulers, declined as the regime attempted to combat the organization

network of Islamist groups. The legal process became dramatically harsher, as the regime

tried civilians in military courts, imposed more death penalties, and detained political

182 Ibid. 74. 183 Ibid. 78.

69

opponents. A press law, passed in 1995, placed a five-year sentence and high fines on the

printing of “rumors” and “mendacious information” against the state.184

Positive political liberties, understood as public participation and representation,

declined in each successive election between 1987 and 1995. The ruling NDP first increased

its share of parliament from 68% to 79%, reaching 94% after 1995. Repression, widespread

arrests, and opposition boycotts contributed to these results. More prominently, even

alternative representative bodies, such as the syndicates, were placed under greater regime

control. Union elections, with relatively low participation rates, were vulnerable to an

opposition takeover with a relatively small but motivated contingent. In response, the NDP

parliament established minimum turnout rules. If turnouts requirements were not achieved

after three attempts, regime administrators would lead the union board.185

These developments, particularly control over union apparatuses, highlight a more

broad-based repression beyond simply rooting out violent extremism. The closing-off of the

political process aimed to reduce other means of expressing anti-regime grievance, often

driven by economics. In 1977, trade unions and other civil society groups had taken a strong

public stance against the price increases and supporter the riots. A similar role could have

emerged for trade unions during the continued IMF reforms and price liberalizations. The

changed press laws and union elections had little direct link to the violence extremism in the

rest of Egypt. In contrast, these laws attacked the very source of negative publicity to

economic reforms that the Egyptian regime had feared since 1977.

184 Kienle, Eberhard. "More than a Response to Islamism: The Political Deliberalization of Egypt in the 1990s." Middle East Journal 52.2 (1998): 219-35. 185 Al-Jarida Al-Rasmiyya. Law 100/1993, 18 February 1993. Law 26/1994, 14 April 1994. 31. Law 142/1994, 31 May 1994.

70

The broad-based definition of terrorism was also used against leftists and their strikes.

Supporters of tenant farmers fighting eviction and increased rents faced the same charges as

those previously applied to Islamist group members.186

The 1990s involved relatively little opposition to the final and most drastic reductions

in basic staple subsidies. The repressive environment of the Egyptian political system

dampened the more widespread opposition present during the previous decade. A more

closed political environment, driven by fears of violent extremism and opponents of

economic policies, reduced the potential for subsidy changes to dramatically rouse the

Egyptian public.

186 Al-Hayat, 19 June 1997.

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VI. A Rising Tide Does Not Lift All Boats:

The Food Crisis in the 2000s

Egypt’s successful liberalization of the food subsidy system, which reduced coverage

to only four goods, exposed citizens to greater fluctuations in world markets. This period

differs from previous decades’ pattern of reform, as the regime held subsidies relatively

constant. Instead, popular dissatisfaction emerged from high world food prices.

The food subsidy system, which had contained 20 goods in 1980, was reduced to

baladi bread, wheat flour (82% extraction), edible oil, and sugar. The limited coverage,

coupled with shortages of covered goods, forced average Egyptians to resort to private or

black markets. Thus, Egyptians were greatly exposed to global food price trends. Among

the symptoms of these changes were increased industrial unrest and the 2008 bread crisis. In

the latter case, rather than rely solely on repression or compensation, the government

marshaled the armed forces to take over the bakery system, further strengthening the

military’s role in society.

Global Changes, Local Impacts

Egypt faced the same global challenges as other nations during the dramatic rise of

food prices from 2006 to 2008. The three primary commodities relevant to basic sustenance,

wheat, rice, and maize, tripled in real terms in the first six months of 2008, only to fall to 1.5

72

times their 2005 prices during the latter half of the year.187 As highlighted in Chapter 1,

these increases drove protests throughout the developing world.

The underlying causes for price increases included income growth, biofuel

production, and reduced investment in agriculture. In the short term, the volatility witnessed

in 2008 resulted from export bans by producing countries, speculative financial markets, and

higher transport costs.188

Egypt certainly felt the impacts of rising food commodity prices. In September 2007,

the Central Agency for Public Mobilization and Statistics announced that food prices had

increased 12.4 percent over the previous year, including a 37.6 percent increase for

vegetables.189 By March 2008, the Central Agency for Public Mobilization noted increases

in the consumer food basket of 24 percent in urban areas and 27 percent in rural areas.

Vegetable oil increased by 45 percent, and bread prices increased by 48 percent. For a very

poor populace, with over 20 percent living under $2 per day, such price increases proved

disastrous for maintaining social stability.190

Egypt had witnessed little growth in the preceding years. The World Bank reported

that overall poverty in 2004-2005 grew and returned to 1995-1996 levels. In 2008, bread

subsidies cost around $2.74 billion per year, a greater amount than spending on health and

education.191

187 Naylor, Roz, and Walter P. Falcon. "Food Security in an Era of Economic Volatility." Population and Development Review 36.4 (2010): 693-723. 188 Trostle, Robert. Global Agricultural Supply and Demand: Factors Contributing to the Recent Increase in Food Commodity Prices. Rep. no. WRS-0801. Economic Research Service of the USDA. 189 Beinin, Joel. "The Militancy of Mahalla Al-Kubra." Middle East Research and Information Project, 29 Sept. 2007. Web. 18 May 2012. <http://www.merip.org/mero/mero092907>. 190 "Arab Republic of Egypt Data." World Bank. Web. 18 May 2012. <http://data.worldbank.org/country/egypt-arab-republic>. 191 Slackman, Michael. "Egypt’s Problem and Its Challenge: Bread Corrupts." The New York Times, 17 Jan. 2008. Web. 18 May 2012. <http://www.nytimes.com/2008/01/17/world/africa/17bread.html>.

73

The 2008 crisis was also preceded by an earlier change in currency value, which

forced the government to increase subsidies once again. In 2003, the government floated the

Egyptian pound, resulting in a depreciation of more than 30 percent. Imported wheat became

more expensive, driving consumers towards the subsidized baladi bread. In response, the

government introduced two types of bread: a 10-piastre bread (to complement the 5-piastre

baladi) and fino bread under a smaller subsidy. In April 2004, the government increased

subsidies to cover seven goods in response to public pressure. While theoretically coverage

increased, supply issues continued to limit availability, particularly when market prices rose.

Bread and Conflict: Increasing Tensions

By January 2008, widespread shortages, long lines, and fistfights in the street made

international headlines. The Mubarak government, already hobbled by accusations of

widespread corruption and incompetence, was further undermined by its inability to provide

the Egyptian people with daily sustenance.

Corruption within the provisions sector provided the main source of complaints

against the regime. The system’s structure naturally encouraged corruption. Bakers bought

government-subsidized 25-pound sack of flour for 8 Egyptian pounds (around $1.50 at 2008

prices). Bakers would then sell bread at the government-mandated price, earning $10 in

profit, or would sell the bag on the black market, earning $15. Bakers who were certified as

“faithfully” using the flour received an additional refund of $1 after three months, resulting

in a bonus of around 18,000 pounds ($3,300). By colluding with bakers selling flour on the

black market, inspectors could easily augment their low salaries.192

192 Ibid.

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Rigid supply quotas also hobbled the government bread system. Egyptians can buy

officially unlimited quantities of subsidized bread, but each bakery faces a daily quota for

flour provision. These limits were passed along to the consumer as restrictions on the

number of loaves that can be purchased.193 Salevurakis highlights interviews with average

Egyptians who described the difficulty of finding bread after the early morning hours.194

Mahalla al-Kubra, a major industrial city, was a source of major labor conflict during

the 2000s. Tensions increased particularly from 2006, when strikes in Mahalla spread to

industrial centers in other cities.195 In April 2008, at the height of global food crisis, workers

in Mahalla launched an expanded strike that encompassed larger concerns about inflation and

low salaries. Protestors burned two schools, and over 150 demonstrators were hurt.

Protestors in Cairo and other cities joined the call for a general strike. In Cairo, stores were

closed and students protested at three universities.196

These events converged with the long lines and shortages throughout Egypt. Fights at

bakeries left at least seven dead during this period.197 Al Jazeera and local news sources

highlighted the sense of injustice for victims of this violence and the widespread inflation.198

Government Response to Food-Driven Labor Unrest

193 Ghonaim, S. "Cabinet Studies Latin American Experience in Rationalizing Subsidies." Al-Ahram [Cairo] 27 Mar. 2005. 194 Salevurakis, J. W., and Sahar Mohamed Abdel-Haleim. "Bread Subsidies in Egypt: Choosing Social Stability or Fiscal Responsibility." Review of Radical Political Economics 40.1 (2007): 35-49. 195 Beinin, Joel. "The Militancy of Mahalla Al-Kubra." 196 Slackman, Michael. "In Egypt, Technology Helps Spread Discontent of Workers." New York Times 7 Apr. 2008: A6. 197 "Egyptians Riot over Bread Crisis." The Telegraph, 8 Apr. 2008. Web. 18 May 2012. <http://www.telegraph.co.uk/finance/economics/2787714/Egyptians-riot-over-bread-crisis.html>. 198 Al Jazeera English. "The Casualties of Egypt’s Food Crisis." YouTube. Web. 11 April 2008. <http://www.youtube.com/watch?v=Nl_VrbgsjE0>.

75

The direct government response to the Mahalla riots was a recycling of past

strategies. Thousands of riot police confronted protesters and arrested 200. Private media

channels, which had broadcast images of the riots, were raided by government forces.199 In

his annual May Day speech a few weeks later, Mubarak announced wage increases of 30

percent to help Egyptians cope with increased prices.200 To calm public anger, the state-

owned Al Ahram announced the arrests of 12,000 people for selling flour on the black

market.201

The strategies of repression, blame, and increased public sector wages were old tricks

of Egyptian regimes. The next step, calling in the military to take over production and

distribution, took the crisis in a new direction. In March 2008, Mubarak promised to end

bakery lines by directing the army to bake bread.202 The military aimed to improve the

production and distribution. The military, which already has extensive commercial interests,

increased its popularity through its perceived competence in providing for the country’s daily

sustenance. These measures, along with additional funding for subsidies, appeared to calm

widespread public anger.

By this point in Egypt’s liberalization, the government and the average Egyptian were

most connected through the bread subsidy. Failing social services and the reduction in

guaranteed government jobs had broken Nasserite expectations for the state’s role in society.

The failure to provide bread during a time of crisis underlined the civilian government’s

weak capacities. In this light, dissatisfaction over food prices likely undercut Mubarak’s 199 Al Jazeera English. "Media Crackdown in Egypt." YouTube. Web. 8 June 2008. <http://www.youtube.com/watch?v=vUZ1HcHuauY>. 200 Saleh, Heba. "Food Price Crisis Bites in Egypt." BBC News. 05 Mar. 2008. Web. 18 May 2012. <http://news.bbc.co.uk/2/hi/7381766.stm>. 201 "Egyptians Riot over Bread Crisis." The Telegraph, 8 Apr. 2008. 202 York, Elisabeth. "West Backs Gradual Egyptian Transition: Ally's Stability Hinges on a Secretive Military." The New York Times. 06 Feb. 2011. Web. 18 May 2012. <http://www.nytimes.com/2011/02/06/world/middleeast/06military.html>.

76

legitimacy. Mubarak’s subsequent tactical response to the bread crisis may have also

reinforced popular affection for the military. Chants of “The Military and the People are One

– Hand in Hand” abounded during January 2011, highlighting faith in the military as possibly

the sole effective and legitimate government institution. These effects of high food prices

may have driven the 2011 Egyptian Revolution, but a singular cause cannot fully explain the

events in Tahrir Square, or their timing. Widespread anger over food prices fits in to larger

social concerns over corruption, government ineffectiveness, and the future of Egypt.

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VII. Future Reforms After the 2011 Revolution:

Assessing Contemporary Egypt

The preceding historiography of Egyptian food policy arose out of questions

regarding food and revolution. The thesis has largely focused on analysis of past events,

describing the relative success of the Mubarak regime in confronting food-based protest

through covert price increases, distribution controls, and repression. The reforms of the

1990s, and continued stability through the 2000, demonstrate successful management of

public opposition.

Although the prospects for future reforms exceed the strict limits of this thesis, the

previous history of food reform and public response provide a window into future

possibilities. Further reforms of the food subsidy system towards a cash transfer program are

unlikely under the current political instability. In the competitive democratic process, the

composition of political actors and rise of veto players limit further reform. Previous

strategies, such as covert changes and repression, will be harder to implement in the more

open political system.

Egyptian leaders have continued to recognize the role of bread in driving popular

opinion and public finances. Noor Ayman Nour, a prominent pro-democracy activist and the

son of an Egyptian presidential candidate, recently asserted that, “Bread can be the fire-

starter or the fire extinguisher of a revolution.”203 Food has thus served well in political

rhetoric, but more importantly, it can determine a new government’s financial viability.

203 Cunningham, Eric. "Egypt's Bread Revolution." Salon, 10 Apr. 2012. Web. 04 May 2012. <http://www.salon.com/2012/04/10/egypts_bread_revolution/>.

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The ongoing weakness of Egypt’s economy impacts its ability to finance the food

subsidy bill, which topped $5.5 billion last year. Since January 2011, reserves have fallen

from $36 to $15 billion, raising concerns about available funding for imported wheat and

subsidized fuel.204 The continued, although slowing, decline in the Egyptian economy will

require Egypt’s rulers to seek outside support, as negotiations continue with the IMF and

outside creditors. Current subsidies on energy and food, which account for 28 percent of the

government’s $96 billion budget, will likely emerge as a priority area of reduction for

international lenders.205

The internationally-recognized solutions for Egypt involve greater poverty-based

targeting and conditional cash transfer system to encourage system-wide efficiency. Such

programs have emerged as effective tools for social welfare in Latin America. These

proposals can utilize a variety of proxies for targeting needy Egyptians, whether

geographically, by increasing funding for worse-off governates and increasing distribution in

poor neighborhoods, or by identifying eligible individuals. Conditional cash transfer

programs require households to meet requirements such as regular health checkups and

children’s school attendance, thus confronting key challenges in the developing country

context.206 The popular fear amidst these reforms is that the government will simply use

these changes as a pretext for a continued retreat from social services. Average Egyptians

may prefer the current imperfect system to the uncertainty of subsidy changes.207

204 "Egypt's Foreign-Currency Reserves Fall To $15.1B." Wall Street Journal, 2 Apr. 2012. Web. 4 May 2012. < http://online.wsj.com/article/BT-CO-20120402-712594.html>. 205 Bradley, Matt. "Egypt's Brewing Crisis: Subsidies." Wall Street Journal, 22 Mar. 2012. Web. 4 May 2012. <http://online.wsj.com/article/SB10001424052970204059804577228984285910816.html>. 206 "Conditional Cash Transfers." Safety Nets and Transfers. World Bank. Web. 18 May 2012. <http://go.worldbank.org/BWUC1CMXM0>. 207 Ahmed, Akhter U., Howarth E. Bouis, Tamar Gutner, and Hans Lofgren. The Egyptian Food Subsidy System Structure, Performance, and Options for Reform. Rep. no. 119. Washington, D.C.: International Food Policy Research Institute, 2001.

79

Within the domestic context, a new government is unlikely to take on the food

subsidy challenge. The orientation of the dominant political parties and public opinion

reduces the potential for change. The Muslim Brotherhood will find it difficult to rethink the

food subsidy, as even its leadership, composed of business owners, has adopted the

democratiyyat al-khubz208 mentality to court voters. In recent decades, the organization has

both combined political and social activities, which it has used to its advantage during the

last electoral cycle. During November 2011, the Brotherhood leveraged its charitable muscle

to provide discounted meat and vegetables.209 The appeal of such campaigns is apparent:

Food comprises 40 percent of Egyptian expenditures.210

At this stage of democratic development, voters are driven by tangible benefits

provided by politicians. A voter education activist in Ismailia explained:

“The price of sugar, the price of rice — that’s what voters care about. If Islamists

can deliver on that, they’ll succeed. If not, they’ll be voted out in the next

election.”211

The structure of the political system will further exacerbate these trends, as the new

government may have an Islamist parliament, independent president, and unpredictable

judiciary. Each of these institutions represents an independent center of power capable of

blocking change.

208 See Chapter 1 for a discussion on democratiyyat al-khubz. 209 Fadel, Leila. "Muslim Brotherhood Sells Cheap Food Ahead of Holiday and Egypt Parliament Vote." Washington Post. 5 Nov. 2011. Web. 4 May 2012. <http://www.washingtonpost.com/world/middle_east/muslim-brotherhood-sells-cheap-food-ahead-of-holiday-and-egypt-parliament-vote/2011/11/05/gIQAQD2PqM_story.html>. 210 Natella, Stefano and Giles Keating. Credit Suisse Emerging Consumer Survey 2011. <https://www.credit-suisse.com/news/doc/media_releases/consumer_survey_0701_small.pdf> 211 Kristoff, Nicholas. "Democracy in the Muslim Brotherhood's Birthplace." The New York Times. 10 Dec. 2011. Web. 4 May 2012. <http://www.nytimes.com/2011/12/11/opinion/sunday/kristof-Democracy-in-the-Muslim-Brotherhoods-Birthplace.html?_r=1#>.

80

Political groups will need to join together to address the budgetary challenge of food

subsidies, as each group will fear its rivals capitalizing on rumors of possible reform. When

voters judge economic performance, the price of bread and basic goods will resonate more

strongly than GDP figures and a balanced budget. In the near future, political power must be

consolidated before a grand reformist bargain can be devised.

81

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