ANALYSIS-Egypt in political clinch as economic cliff looms
CAIRO, Feb 19 (Reuters) - Two years after a pro-democracy uprising, Egypt resembles a rickety bus rolling towards a cliff, its passengers too busy feuding over blame to wrench the steering wheel to safety.
Foreign exchange reserves are dwindling. Tourism is moribund. Investment is at a standstill. Subsidised diesel fuel and fertiliser are in short supply, while the cost of subsidies is swelling the budget deficit unsustainably.
The Egyptian pound has lost 14 percent of its value since the 2011 revolt. Dollars are scarce. An IMF loan that could unlock wider aid is on hold. Unemployment is rising. Public security has deteriorated, and arms smuggling is rife.
With little regard for the looming economic cliff, politicians in the most populous Arab nation are trading blows over an Islamist-tilted constitution, political violence and an alleged power grab by the Muslim Brotherhood.
To President Mohamed Mursi and his supporters in the Freedom and Justice Party, the Brotherhood's political arm, this is just a tough home stretch in Egypt's delayed transition to democracy.
With the strongest national machine, they confidently expect to win parliamentary elections in April or May, completing their conquest of the new democratic institutions, then set about reforming the country along conservative Islamic lines.
"We are going through a bottleneck," said Essam Haddad, the president's national security adviser. "We'd like to get through this bottleneck as quickly as possible, and without cracking the bottle."
Cash injections from Qatar, the Brotherhood's main foreign backer, are holding the country's head just above water, and Haddad says a big informal economy will keep Egypt going.
IMF LOAN UNSURE
Others are less sure. U.S. ambassador Anne Patterson warned this month that the dearth of foreign currency could cause food and fuel shortages and put social stability at risk in a country where two-fifths of the population lives on less than $2 a day.
Contacts with the International Monetary Fund continue by telephone and email, but there is no sign of an IMF mission returning to Egypt to conclude a $4.8 billion loan agreement vital to stabilise the economy.
The IMF demanded in December that Egypt amend its economic adjustment programme to qualify for the loan. Diplomats say an IMF deal could unlock up to $12 billion in funding from a range of sources including the World Bank, the European Union, the United States and Gulf Arab countries.
Haddad made clear the government would not risk implementing before polling day the unpopular subsidy cuts and austerity measures required by the global lender.
"It is very well known by the IMF that nobody would do such an action just before the elections," he said. "However, our message is very clear. These reforms are essential for the economic recovery. There is no other choice."
Some liberal opposition leaders, who have failed to pressure Mursi into amending disputed articles in the constitution or replacing a weak cabinet led by pale Prime Minister Hisham Kandil with a national unity government, are now offering a pact on a platform of economic priorities.
Hassan Malek, the Muslim Brotherhood's top business leader, played down that idea, saying opposition politicians Mohamed ElBaradei, a former U.N. nuclear agency chief, and Amr Moussa, a former head of the Arab League, were only speaking for themselves and could not deliver their National Salvation Front.
The leftist Popular Current party of Nasserite firebrand Hamdeed Sabahi, a key member of the NSF, and hardline Islamist Salafi parties have distanced themselves from the IMF programme.
Malek said in an interview the economy was going through a sticky patch because the transition to democracy launched by the 2011 revolt that toppled former President Hosni Mubarak was not yet complete and institutions were not working fully.
"The Egyptian economy is not going to collapse," he said.
Malek is trying to lure home Egyptian billionaires and Mubarak-era economic reformers, some of whom had their assets seized or were convicted in absentia after the uprising.
The opposition intelligentsia in Cairo and young street activists who spearheaded the anti-Mubarak uprising and feel their revolution has been confiscated, denounce what they call a growing "Brotherhoodisation" - a drive to infiltrate and control all institutions.
In one example, veteran al-Ahram journalist Hani Shukrallah, a respected commentator, blamed Brotherhood pressure on the government-owned media group for his enforced retirement. The paper's new management denied political motives.
Yet there is little sign of any monopolisation of state power or civil society so far. It looks more like the kind of rotation of elites that occurred in Turkey when the mildly Islamist AK party won election a decade ago.
The armed forces and to some extent the Interior Ministry and security services remain autonomous power centres that appear to have reached a modus vivendi with Mursi based on mutual non-interference rather than being under his thumb.
A vibrant independent media forced the president's son this week to forgo a job with a state-affiliated company by raising accusations of nepotism. Shrill late-night television talk-shows offer a wide range of trenchant opinion.
The judiciary is still full of Mubarak-era holdovers who show little inclination to do the Brotherhood's bidding. Neither the government nor opposition parties control the young street.
And a clumsy effort to gain more sway over the religious authorities failed last week when senior Muslim scholars picked an apolitical Islamic lawyer as Egypt's top cleric in preference to the Brotherhood's preferred candidate.
Haddad said any talk of Brotherhoodisation was "black propaganda trying to exclude a whole sector of society". He noted that Brotherhood members had been excluded from many state institutions and the armed forces under Mubarak.
Ziad Bahaa el-Din, a former investment authority chief who is now vice-president of the opposition Social Democratic party, says the Brotherhood, like past Egyptian rulers, is trying to secure its grip on power before tackling the country's problems.
"This has happened ever since (Ottoman pasha) Muhammad Ali slaughtered the Mamluks in the early 19th century," he said in an interview. "(Gamal Abdel) Nasser locked up the Muslim Brothers and the Communists in 1954. (Anwar) Sadat locked up his opponents in 1971.
"The difference now is that people's acceptance is no longer there. You cannot control public opinion, and the kind of economic problems we are facing cannot be postponed for a couple of years," he added.
Dan Kurzer, a former U.S. ambassador to Cairo now teaching at Princeton University, said Egypt was only in "round three of a 15-round heavyweight contest".
Among the players in the ring, he sees the Brotherhood, the military, the internal security forces, the revolutionary street, and what he called "the fourth heavyweight - old regime loyalists who may be off balance, in jail or in exile but who will be energised if the economy collapses".
(Writing by Paul Taylor; Editing by Will Waterman)