Egypt’s Muslim Brotherhood is sliding towards ruin, what response should US offer?

The economic facts are stark: Egypt's official foreign currency reserves in February were $US13.5 billion, which would cover a little less than three months of imports. But U.S. officials say that accessible, liquid reserves total only $US6 billion to $US7 billion. Already, imports are harder to find, including the raw materials needed by Egyptian manufacturers. The Egyptian stock market tumbled 5 percent early this week, sensing danger ahead.

And what is the government of President Mohamed Morsi doing to halt the economic decline? Not a lot. Morsi has been dithering for a year in negotiating a roughly $5 billion rescue package from the International Monetary Fund that Egypt desperately needs. He is delaying because he doesn't want to make the reforms the IMF demands, including reductions in subsidies, which take 25 per cent of Egypt's budget. (Debt service and public-sector employment account for another 50 percent, leaving just 25 percent to invest in the economy.)

The wolf is two or three months from Egypt's door, top US officials believe. Meanwhile, the country is facing increasing political turmoil, with riots Tuesday in Port Said that left 50 wounded.

Welcome to Phase 2 of the Arab Spring, which we might call the "reality check." The US and its allies made a bet two years ago that if the Muslim Brotherhood took power in Egypt, it would be forced to deal with the responsibilities of governing - such as negotiating loans with the IMF and adopting economic reforms to woo investors. These economic realities are now enveloping Morsi. But so far he hasn't shown the leadership the U.S. had hoped.

So what are American policy options, as Egypt nears the brink? Some critics of Morsi argue that the US should let him fail. That's certainly the view of Egypt's secular opposition, along with conservative regimes in the Gulf. They hope that Egyptians will reject Morsi and his party in parliamentary elections that begin in late April.

U.S. policy isn't quite so "sink or swim." The White House has been encouraging Morsi and the IMF to come to a deal before it's too late and the economic damage gets worse. One good move is a new U.S. "Enterprise Fund" for Egyptian small- and medium-sized businesses that will start to distribute its first $US60 million this month.

When Secretary of State John Kerry met Morsi privately in Egypt last weekend, he is said to have warned that Egypt must make choices soon, and that it shouldn't expect any last-minute rescue from Washington. But it's clear Washington wants Morsi to succeed, fearing that the alternative would be chaos or a military coup.

The Egyptian military is indeed waiting in the wings, and some generals are all too eager to intervene. The U.S. wisely opposes any such military takeover.

Two wild cards are in play in Egypt's economic game. First, the country is roughly $US6 billion to $US7 billion in debt to international oil companies; so far, Cairo is managing to float this debt, but it's a stretch. Second, Morsi has been able to avoid tough decisions partly because of emergency assistance from Qatar, which has pumped about $US7 billion into Egypt's foreign currency reserves. The US message to Qatar should be: Stop enabling Morsi's flight from economic reality.

The Obama administration's continuing bet on Muslim democracy is evident in Turkey, as well as Egypt. Kerry visited Ankara, too, as part of his first diplomatic foray abroad, and he bluntly criticised Prime Minister Recep Tayyip Erdogan for his "objectionable" attack on Zionism. It was noteworthy that the mercurial Erdogan didn't fire back at Kerry; indeed, their discussions in Ankara are said to have included the possible path to a reconciliation between Turkey and Israel. This rapprochement is a long shot, given recent strains. But as Turkey finds itself surrounded by trouble - with an unstable Iran, Iraq and Syria on its borders - a revival of ties with Israel may look more attractive.

The Arab revolution rolls on, and President Obama continues his cautious embrace. Perhaps the biggest surprise is that a Muslim Brotherhood government in Egypt has a better relationship with Israel today than does Turkey, a traditional ally of Jerusalem. This may be Morsi's best card with Washington - that whatever his failings as a leader of Egypt, he isn't making trouble for Israel.