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US nixes additional aid
Tensions between usually staid strategic partners
Egypt and the United States emerged in August after an Egyptian
state security court’s sentencing of human-rights campaigner
and American University in Cairo (AUC) professor Saad Eddin Ibrahim
on July 29, following his conviction on charges of embezzlement,
accepting foreign funds without authorization and tarnishing Egypt’s
image abroad. A subsequent threat by the United States on August
15 to withhold $200 million in additional aid to Egypt in protest
against Ibrahim’s conviction irked the Egyptian government
greatly, prompting Foreign Minister Ahmed Maher to tell reporters
that “Egypt does not accept pressure and will not bow to pressure,
and everyone knows that.”
The US administration’s move does not threaten to cut into
any of Egypt’s current $2 billion annual USAID allotment, guaranteed
to Cairo under the Camp David accords. It does, however, prevent
the granting of an additional $130 million sought by Egypt this
year after Congress approved an increase of $200 million in aid
to Israel for its sideshow in the war on terrorism. Traditionally,
the United States maintains aid to Egypt at two-thirds of the amount
given to Israel.
“Egypt is a close friend and an important ally,” Sean
McCormack, a White House spokesman, said. “The United States
will meet its Camp David aid commitments.” However, he added,
“at this time, we are not contemplating any additional funds
beyond that commitment.”
The political impasse comes on the heels of increasingly vocal criticism
from the United States and the World Bank of Egypt’s financial
sector, particularly the dominating presence of state-owned financial
institutions. USAID country director Willard Pearson, speaking at
a conference in May on policy challenges facing the Egyptian economy,
urged the government to privatize its public banks and its public
shareholdings in joint banks. “Investors would welcome a signal
from the government that it intends to reduce its ownership of the
financial sector,” Pearson said, warning that Egypt risked
losing valuable local and foreign private investment if state control
over the financial sector was not dismantled. Pumping money into
Egypt via USAID programs and donors, he stressed, cannot solve the
problem. Rather, it requires a fundamental change in public policy.
The latest report from the US embassy in Cairo on the state of the
Egyptian economy – not surprisingly – concurred, expressing
dissatisfaction with the pace of financial reform in Egypt and criticizing
the government strongly for failing to follow through on legislation
from the late 1990s that would allow the privatization of the country’s
“Big Four” public sector banks.
The World Bank is similarly critical. Its latest Country Assistance
Strategy (CAS) report emphasized the inefficiency of continuing
state ownership of banks and insurance agencies. “The dominance
of the publicly owned institutions in the Egyptian economy and their
inability to match the performance of their international and private
counterparts has limited the scope and depth of the financial markets
and its development,” the report read.
Unfortunately, the explicit linking of US economic aid with concerns
about Egypt’s human-rights performance looks more likely to
hinder than help compliance with demands for reform in the financial
sector. In its current mood of defiance, Cairo will not be inclined
to heed any foreign, and especially American, advice.
One Washington insider described the US response to the Ibrahim
verdict as “ill advised,” but added that the current tension
would be merely a short-term blip in what remains a solid and mutually
beneficial relationship.
Adam Morrow
With additional reporting by Magdi Ebeid
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