Feb 142011
Authors: McClatchy-Tribune

WASHINGTON — Amid calls in Washington for sharp cuts in foreign aid, the Obama administration is seeking an emergency financial package for Egypt, fearing that further strains on its economy could thwart Cairo’s fledgling reform effort almost before it begins.

U.S. officials have been working with international partners to seek pledges for a package, probably worth several hundred million dollars, as well as money to help build political parties and other democratic institutions, say U.S. and foreign diplomats.

Public anxiety over Egypt’s struggling economy, including high unemployment and rising prices, was one of the key drivers of an 18-day uprising that toppled former President Hosni Mubarak, who resigned on Friday. Now that Mubarak is gone, analysts say Egyptians may be overly optimistic in expecting rapid economic improvements.

Michele Dunne, a Mideast specialist who has advised the Obama administration on Egypt in recent weeks, said the economy is “one of the greatest vulnerabilities for a country that’s in a transition like this.”

The Egyptian finance ministry has estimated that the unrest cost the economy about $310 million a day, and some private analysts have estimated that investors have been withdrawing investment at a rate of about $1 billion a day. Annual economic growth of 5 percent was predicted for Egypt before the demonstrations; now the consensus is closer to 1 percent.

Dunne, now with the Carnegie Endowment for International Peace, said if Egyptians have unreasonable expectations about economic opportunities and instead conditions worsen, “it could really sour relations between people” and the transitional government.

U.S. officials, who have been consulting widely on Egypt in recent days, declined to discuss their aid goals in details, saying they are in the early stages of discussions. They said they expect international development banks may also play a part in the aid.

The U.S. currently gives Egypt about $1.5 billion per year, most of it going to the Egyptian military.

The push for more aid comes at a difficult time for the United States and many allies, who are already struggling with severe austerity budgets. The Obama administration is trying to prevent Republicans from imposing steep cuts on foreign aid.
Secretary of State Hillary Rodham Clinton met with House Speaker John Boehner, R-Ohio, on Monday and expressed her concern about proposed reductions for the State Department and aid programs. Clinton said she hopes that as Congress considers “the national security and economic consequences of these cuts, they will chart a different course.”

The U.S. must promote stability in countries such as Egypt or “we will pay a higher price later in crises that are allowed to simmer and boil over into conflicts,” Clinton said.

Yet the overthrow of Mubarak has been welcomed by Democrats and Republicans, and some analysts predict there will be bipartisan support for at least some increase in Egypt’s aid.

“I think they’ll feel this cause is worth it,” said Stephen McInerney, executive director of the Project on Middle East Democracy.

Maja Kocijancic, a spokeswoman for Lady Catherine Ashton, the European Union’s foreign affairs chief, said the EU is considering the possibility of aid, perhaps through loans by the European Investment Bank, an EU international finance arm.
President Barack Obama, in a statement last weekend, said the United States was committed to offering aid that was needed by Egypt “to pursue a credible and orderly transition to democracy, including by working with international partners to provide financial support.”

The aid discussions have come at a time when the administration has been reaching out to allies in the Middle East, Europe and elsewhere, trying to work out a common position on how to encourage democratic change in Egypt.

U.S. officials and allies have been closely watching Cairo’s new military leadership take a series of steps, including some that have raised concerns among the anti-government protesters.

The military leaders have resisted pressure to end the emergency law that limits rights, and they have given mixed signals about how long they would retain Cabinet members who were part of the Mubarak regime. Some demonstrators have been upset that the military has sought to clear out the remaining protesters from central Cairo.

But Clinton praised the military leaders and offered a strong endorsement of their actions to date, which include announcements that they would dissolve the parliament, draft amendments to the constitution, and set elections for six months from now.

In an appearance on Capitol Hill with Boehner, Clinton said “the steps they have taken so far are reassuring,” and that “thus far they’ve demonstrated a seriousness of purpose and a commitment to pursuing the kind of transition that we hope will lead to free, fair elections.”

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