Pandering won't solve Egypt's economic woes

It has been difficult to know just what Egypt's new military leaders stand for as they find their political footing, but one thing they have been apparently willing to stand against is the status quo.

Last week, the United States threatened to cut $1.3 billion to Egypt's military if the country did not remove travel bans on at least 19 Americans accused of operating illegal pro-democracy organisations on Egyptian soil. Then on Wednesday, the Egyptian government fired back, vowing to "apply the law" and push ahead, come what may.

If the Americans have indeed done something wrong then the Egyptian authorities are well within their rights to prosecute them. The question now becomes whether the perceived benefits of standing up to Uncle Sam are worth the near-term economic pain.

Politically, going forward with the trials despite US threats could help Egypt reassert its standing at home and abroad, especially after decades of kowtowing to western whim under Hosni Mubarak. But Egypt's current government should also beware of the risks associated with populist pandering. There are pragmatic costs to principled stands. Today it is military aid; tomorrow it could be humanitarian assistance, especially if members of the US Congress see fit to trim Egypt's sails.

Egypt's economy may be too weak for such hard politics. A sluggish economic outlook has forced Cairo back to the International Monetary Fund after rejecting it, and the county's foreign currency reserves have fallen to $10 billion from a peak of $36 billion before the revolution.

To be sure, Egyptian leaders must respond to public sentiment, but some demands are more emotional than rational. The sentencing of Egypt's biggest film star, Adel Imam, to three months in jail for "defaming Islam", is just one example of what appears to be score-settling to seek political support. In Egypt, as in any nascent democracy, acquiescence by elected officials to political interests - Islamist, secular or otherwise - can prove destructive.

Egypt does need new friends, and regional allies can fill this role. As UAE Foreign Minister Sheikh Abdullah bin Zayed said recently, GCC states would be willing to commit financial aid to the new Egyptian government as long as its leaders adhere to their IMF and World Bank commitments. But new relationships take time to forge.

Disastrous fiscal policies contributed to the removal of the Mubarak regime; progressive ones are needed if the country is to prosper. For that to happen, a balance between political independence and pragmatic economic policies must be struck.