The US government has provided Egypt with loan guarantees to issue $1.25 billion of bonds in international capital markets, reports Gamal Essam El-Din In a boost to both the private sector and reforms aimed at economic liberalisation, the United States Embassy in Egypt recently announced the details of guarantees made by the US government acting through the United States Agency for International Development (USAID). The guarantees, said US Embassy officials, were aimed to help Egypt issue $1.25 billion of bonds in international markets. US officials told Al-Ahram Weekly that in 2003, on the eve of the war in Iraq, the US administration had offered three of its key allies -- Egypt, Israel and Turkey -- "special supplemental assistance" to help them rid out the effects of the war and move forward with economic reform. Egypt's supplemental assistance, said the officials, included the allocation of $300 million in immediate cash transfers and loan guarantees for $1.25 billion of bonds. Egypt has already disbursed the $300 million. "As for loan guarantees," said the US Embassy, "this took some time because it was first imperative the Egyptian government implement some basic economic and financial reforms." The last two years of successful economic and financial reform initiatives, including addressing foreign exchange imbalances and distortions, preparing a new budget in line with internationally-accepted accounting standards and improvements to the business environment, led to the Egyptian economy growing at a real rate of 4.9 per cent in the fiscal year ending June 2005. According to Bloomberg Egypt's stock market has been one of the best performers in 2005, with the Cairo and Alexandria Stock Exchange (CASE) index registering a 110 per cent year-to-date dollar adjusted increase. The 10-year bonds, issued on the back of these successes, are rated AAA and Aaa by Standard and Poor and Moody respectively. Priced at a coupon of 4.45 per cent or 31 basic points over the 10-year US Treasury standard, they were massively oversubscribed in the second half of September and have since been widely distributed to international investors. Morgan Stanley acted as sole book-runner and manager on the transaction. In normal cases, and without US government loan guarantees, the interest rate on the bonds would climb from 4.45 per cent to 11 per cent, say US officials. The value of loan guarantees is estimated at $135 million. "All the Egyptian government is going to pay," explained the officials, "is the principal plus the low interest rate." Although the US government has made the guarantees more or less unconditional, embassy officials say the proceeds from the bonds will be used mainly to help Egypt meet its WTO (World Trade Organisation) obligations. "The US government has stipulated only that the proceeds of bonds not be used in financing foreign military purchases," said US officials. During a recent visit to Washington, Minister of Finance Youssef Boutros-Ghali said "the loan guarantees demonstrate continued US support for Egypt's reform agenda". "Egypt," said Boutros-Ghali, "is embarking on important structural transformations and this financing will reduce our overall cost of borrowing."
