US suspicions of Morsi government appear to ease, as Washington nears a $1 billion aid package with Egypt, which has suffered a sharp fall in foreign reserves since 2011's uprising The Obama administration is close to a deal with Egypt's new government for $1 billion in debt relief, a senior US official said on Monday, as Washington seeks to help Cairo shore up its ailing economy in the aftermath of its pro-democracy uprising. US diplomats and negotiators for Egypt's new Islamist president Mohamed Morsi - who took office in June after the country's first free elections - were working to finalize an agreement, the official said. Progress on the aid package, which had languished during Egypt's 18 months of political turmoil, appears to reflect a cautious easing of US suspicions about Morsi and a desire to show economic goodwill to help keep the longstanding US-Egyptian partnership from deteriorating further. The United States was a close ally of Egypt under ousted autocratic president Hosni Mubarak and gives $1.3 billion in military aid a year to Egypt plus other assistance. President Barack Obama ultimately called for Mubarak to step down as he faced mass protests in early 2011 but the US president was criticized for taking too long to assert US influence. Washington, long wary of Islamists, shifted policy last year to open formal contacts with the Muslim Brotherhood, the group behind Morsi's win. Morsi formally resigned from the group after his victory. Analysts say that one way the United States could influence the direction of policy in Egypt, a nation at the heart of Washington's regional policy since a peace treaty was signed with Israel in 1979, would be through economic support as Cairo tries to stave off a balance of payments and budget crisis. According to a recently published research paper by the Congressional Research Service, it has been noted that in the weeks following Mubarak's resignation the Obama administration provided $100 million of support for Egypt's economy and $65 million for its political transition. Obama first pledged economic help for Cairo last year. Obstacles remained to completing the debt relief deal - which is reported to involve a mix of debt payment waivers and complicated "debt swaps" - and it was not immediately clear when an agreement might be announced. In July of this year, US Secretary of State Hillary Clinton met Field Marshal Hussein Tantawi, Egypt's ex-defence minister and military council chief, and unveiled plans for $250 million in loan guarantees to Egyptian small and medium-sized businesses, as well as setting up a US-Egypt enterprise fund with some $60 million in capital. But even as the negotiations proceeded in Cairo, Washington has also signaled its backing for a $4.8 billion loan that Egypt is seeking from the International Monetary Fund and which it hopes to secure by the end of the year to bolster its stricken economy. IMF chief Christine Lagarde visited Cairo last month to discuss the matter. Egypt's military-appointed interim government had been negotiating a $3.2 billion package before it handed power to Morsi on June 30. Morsi's government then increased the request. Lagarde said the IMF would look at fiscal, monetary and structural issues, promising that the IMF would be a partner in "an Egyptian journey" of economic reform. Egypt's officials have tapped into the country's once extensive reserves to support the local currency, which is struggling from a severe drop in foreign currency inflows from tourism and investment. Consecutive governments since March 2011 have sought outside financial support, touring Arab Gulf countries and international summits. More recently, Qatar pledged to deposit $2 billion in Egypt's central bank, out of which $500 million were transferred two weeks ago. The bulk of pledges from other countries such as Saudi Arabia, Kuwait, the UAE and the European Union remain unmet.
