Despite their political differences on Iraq and democratisation in the Middle East, Egypt and the United States last week agreed to boost economic and trade relations. Gamal Essam El-Din reports Economic and trade relations between Egypt and the United States received a big boost in the last few days. On 3 June, Minister of State for Foreign Affairs Fayza Abul-Naga and US Ambassador to Egypt David Welch signed an agreement granting Egypt $300 million of additional cash transfer assistance. In the presence of Prime Minister Atef Ebeid, Welch explained that "the grant is part of the assistance package voted by the US Congress last year to assist countries whose economies were affected by regional unrest," Welch said, adding that "the grant more than doubles Egypt's annual cash transfer funding." Israel, Turkey and Jordan received similar US assistance, but observers say the money allocated to Egypt was long held back because of Egypt's poor record on democratisation. According to Welch, the grant is a reward for reform steps already taken and for additional reform commitments made in the area of trade, fiscal, and monetary policy. Welch pledged continued US support for Egypt's economic reform programme, noting that the US is prepared to offer up to $2 billion in loan guarantees based on the outcome of ongoing efforts. The loan was promised during a visit President Mubarak paid to the United States in April. Economic experts think that America's financial support for Egypt will help strengthen the stabilisation of the Egyptian pound against the dollar and encourage the government to embrace bolder reform steps in the areas of trade, fiscal and monetary policies and investment. Chairman of parliament's economic committee, Said El-Alfi, told Al- Ahram Weekly that there is no doubt the new US financial assistance will provide the government with a big boost as it moves forward on the path of greater privatisation and liberalisation. "The assistance will also shore up the government's finances and foreign exchange reserves, thereby leading to a greater reinforcement of the pound's stabilisation against the dollar," said Al-Alfi. In a speech before the American Chamber of Commerce (AmCham) on 31 May, Welch lauded the most controversial economic decision taken by the Ebeid government in January 2003 -- floating the pound. "The pound's depreciation, in many ways, accomplished exactly what the economic textbooks say such a step should do. Exports and local production became more competitive, imports became more expensive, the trade-deficit dropped substantially and the balance of payments improved," Welch said. All of this, Welch predicted, would be even more in Egypt's favour in 2004. According to Welch, the pound depreciation made non-oil exports grow 14 per cent in dollar terms last year, with the merchandise trade deficit shrinking sharply. Besides, he added, Egypt ran an overall balance-of-payments surplus in 2003 for the first time since 1997. Welch recommended that one of the country's big state-owned banks be put up for sale as soon as possible. "Few steps the government of Egypt could take in 2004 would more emphatically signal its commitment to a free market economy than concrete steps towards privatising one or more of the state-owned banks," Welch said, pointing to the fact that "the recent sale of the government share in Cairo Barclays is a good sign, but more remains to be done." Welch also recommended that the privatisation programme be revived. "From 1996 to 2000, the privatisation programme brought in, on average, over LE2.5 billion annually. However, in the last three years combined -- since 2001 -- it was under LE400 million," Welch said. Welch also suggested that the government adopt comprehensive customs and tariff reform in terms of introducing improvements in commercial dispute resolution and bankruptcy procedures. On 1 June, the US and Egypt also finalised an agreement establishing Qualifying Industrial Zones (QIZ). Welch, addressing AmCham, explained that the QIZ agreement is an opportunity offered under US law for trade preferences to the US that have some content from Israel (around 11 per cent) as well as any of the neighbouring countries who participate. Welch, however, indicated that there is not yet a government-to-government agreement to pursue this. "I'm reasonably hopeful that we will see progress in the coming weeks and months on this possibility, which, if it happens, will be very good because QIZs, which are in place presently only in Jordan, have meant a great deal for Jordanian exports to the US," Welch argued. To Egyptian economic decision-makers, the finalisation of the QIZs agreement is the first step towards finalising a free trade agreement (FTA) between Egypt and the US. Welch indicated that the conclusion of an FTA requires a genuine sentiment of economic reform in Egypt. The QIZ agreement, however, received sharp criticism from leftist opposition because it means more economic cooperation and commercial exchange between Egypt and Israel.
