President Morsi of Egypt met with Palestine Authority President Abbas on July 18, 2012. The two discussed issues involving both countries., a photo by Pan-African News Wire File Photos on Flickr.
To Back Democracy, U.S. Prepares to Cut $1 Billion From Egypt’s Debt
By STEVEN LEE MYERS
New York Times
WASHINGTON — Nearly 16 months after first pledging to help Egypt’s failing economy, the Obama administration is nearing an agreement with the country’s new government to relieve $1 billion of its debt as part of an American and international assistance package intended to bolster its transition to democracy, administration officials said.
The administration’s efforts, delayed by Egypt’s political turmoil and by wariness in Washington about new leaders emerging from its first free elections, gained new urgency in recent weeks, even as the United States risks losing influence and investment opportunities to countries like China. President Mohamed Morsi chose China for his first official visit outside of the Middle East, although a spokesman said the crisis in Syria was the main issue driving the visit.
In addition to the debt assistance, the administration has thrown its support behind a $4.8 billion loan being negotiated between Egypt and the International Monetary Fund. Last week, it dispatched the first of two delegations to work out details of the proposed debt assistance, as well as $375 million in financing and loan guarantees for American financiers who invest in Egypt and a $60 million investment fund for Egyptian businesses.
The assistance underscores the importance of shoring up Egypt at a time of turmoil and change across the Middle East, including the relatively peaceful uprisings in Egypt and Tunisia, Libya’s unfinished transition, the showdown over Iran’s nuclear program and the war in Syria.
Mr. Morsi has called for President Bashar al-Assad of Syria to leave power and end the bloodshed there, while China, along with Russia and Iran, has been a supporter of Mr. Assad as his military assaults opposition strongholds and civilians.
Given Egypt’s influence in the Arab world, the officials said, its economic recovery and political stability could have a profound influence on other nations in transition and ease wariness in Israel about the tumultuous political changes under way.
The administration’s revived push came after Mr. Morsi won the presidency in June and overcame a constitutional showdown with the Egypt’s military rulers.
Mr. Morsi and his Islamic movement, the Muslim Brotherhood, have since made it clear that the struggling economy is their most urgent priority, brushing aside reservations about American and international assistance and outright opposition to it from other Islamic factions.
American officials say they have been surprised by how open Mr. Morsi and his advisers have been to economic changes, with a sharp focus on creating jobs.
“They sound like Republicans half the time,” one administration official said, referring to leaders of the Muslim Brotherhood, which was long banned from office under the former president, Hosni Mubarak, a close American ally.
Hoping to capitalize on what they see as a ripening investment climate, the State Department and the U.S. Chamber of Commerce will take executives from nearly 50 American companies, like Caterpillar and Xerox, to Cairo beginning Saturday as part of one of the largest trade delegations ever. The officials and executives will urge the government to make changes in taxation, bankruptcy and labor laws to improve the investment climate.
“It’s important for the U.S. to give Egypt a reason to look to the West, as well as the East,” said Lionel Johnson, the chamber’s vice president for the Middle East and North Africa.
From the start of the popular uprisings in Tunisia and Egypt in 2011, President Obama and others argued that the United States and the rest of the world needed to address the poverty and joblessness that fueled popular anger and opposition to authoritarian governments in the region.
The assistance that Mr. Obama first pledged in a speech at the State Department in May 2011 has been slow in coming, because of the political turmoil and street unrest in Egypt, the sluggish bureaucracy in Washington and anger in Congress over the prosecution by Egypt of American nongovernmental organizations that promote democracy.
The delay has frustrated officials who fear that the United States has risked missing an opportunity to reshape a relationship that for decades was focused more on arms sales and security than on economic prosperity for a broad group of Egyptians.
“Our goal is to send a very strong message to Egypt that the government understands it’s not just about assistance,” Deputy Secretary of State Thomas R. Nides, who will travel with the Chamber of Commerce delegation, said in an interview. “It’s about growth and business.”
Egypt’s economy is increasingly precarious, with dwindling foreign-exchange reserves and nagging unemployment. The instability that followed the toppling of Mr. Mubarak devastated tourism, one of the country’s greatest sources of foreign currency.
Saudi Arabia and Qatar have stepped in to provide emergency infusions totaling $3 billion, while China offered Mr. Morsi a $200 million loan for Egypt and signed investment contracts in agriculture and telecommunications.
The director of the International Monetary Fund, Christine Lagarde, took the unusual step of attending the opening negotiations for its $4.8 billion loan, underscoring the urgency of Egypt’s crisis and the international community’s determination to help. A year ago, when the military leaders dominated the transitional government, Egypt refused to even discuss a loan.
Egypt’s new prime minister, Hesham Qandil, said he hoped the loan would be completed by the end of the year. Officials from this week’s delegation have remained in Egypt to hammer out the details of the American debt assistance, which they said would be completed in conjunction with the International Monetary Fund program.
Egypt’s debt to the United States exceeds $3 billion, most of it from a program called Food for Peace that offered loans to buy American agricultural products after the Camp David peace accords with Israel during the Carter administration. The $1 billion in debt relief proposed by Mr. Obama has been cobbled together from unspent money from assistance programs.
The administration is negotiating whether to waive some debt payments altogether or allow “debt swaps,” in which the money that would otherwise pay down the American debt is spent on training and infrastructure projects in Egypt intended to attract private investment and create jobs. Congress has attached conditions to American assistance in Egypt, requiring Secretary of State Hillary Rodham Clinton to certify, among other things, that the country continues to abide by its treaty with Israel.
American and Israeli officials, including Michael B. Oren, Israel’s ambassador to the United States, have sought to assure members of Congress that assistance should proceed, despite reservations about the Muslim Brotherhood’s political rise. They have argued that persistently high unemployment, especially among women and young people, could undermine Mr. Morsi’s government, causing further instability in Egypt and beyond. Robert D. Hormats, the under secretary of state for economic affairs, who led last week’s delegation, lavished praised on Mr. Morsi’s early stewardship. “The groundwork has been set with a new political leadership, a new level of energy and new opportunities to reform,” he said in Cairo on Wednesday.
Egypt also had some requests for the United States. Mr. Qandil, the new prime minister, raised the State Department’s longstanding travel warning for Egypt, which notes “the continuing possibility of sporadic unrest.”
Mr. Qandil asked Mr. Hormats to emphasize that disruptions were limited to small parts of the country.
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