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U.S. to Relieve Egypt of $1 Billion Debt

The Obama administration is nearing an agreement with Egypt’s new government to relieve $1 billion of its debt.
By Elad Benari
First Publish: 9/4/2012, 6:14 AM

Egyptian President Mohammed Morsi
Egyptian President Mohammed Morsi
Reuters

The Obama administration is nearing an agreement with Egypt’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 told the New York Times on Monday.

The announcement comes nearly 16 months after the U.S. first pledged to help Egypt’s failing economy.

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, the report said.

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, the still-unfinished transition in Libya, the showdown over Iran’s nuclear program and the war in Syria.

Officials told the New York Times that given Egypt’s influence in the Arab world, 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 President Mohammed Morsi won the presidency in June and overcame a constitutional showdown with the country’s military rulers.

Morsi and the Muslim Brotherhood have since made it clear that the struggling economy is their most urgent priority, and American officials told the New York Times they have been surprised by how open 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 told the newspaper, referring to leaders of the Muslim Brotherhood.

The report also added that 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 organized.

The officials and executives will urge the government to make changes in taxation, bankruptcy and labor laws to improve the investment climate, said the report.

“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.

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. According to the New York Times, the $1 billion in debt relief proposed by Obama has been cobbled together from money from assistance programs that has not been spent over the last few years.

In addition to help Egypt’s economy, the U.S. has also assisted the country with military aid. In March, U.S. Secretary of State Hillary Clinton indicated she would open the way to resuming $1.3 billion in annual military aid to Egypt.

The move freed up $250 million in economic aid that had never been in serious question. Clinton also waived requirements on whether Cairo is making progress towards democracy to allow for “the continued flow of foreign military financing to Egypt.”

The United States has also said it intends to give the Muslim Brotherhood government in Egypt more aid to fight Sinai terror. Former senior IDF officer and Algamor Terror Victim chairman Meir Indor has warned that doing so is a bad move, since history shows that Islamists use such aid to attack the West.