Much more than $1.5 billion is at stake if Egypt-US tensions are not defused, writes Niveen Wahish Every couple of years, there is tension between Egypt and the United States, involving US threats to cut financial assistance to Egypt. But this time the dimension of the dispute is broader, says political science professor Mustafa Kamel El-Sayed. El-Sayed explained that while former governments were opposed to direct funding of civil society organisations, they never investigated offices or launched a campaign against US institutions in Egypt. Furthermore, this time a number of US citizens under investigation by the prosecutor-general's office have been banned from travelling. If the situation is not contained, members of the US Congress have threatened to put an end to financial assistance that Egypt has been receiving from the US for over 35 years. Egypt receives an annual sum of $1.3 billion in military assistance and $250 million in economic assistance from the US. El-Sayed is not concerned about the $250 million in economic assistance. He believes that is not a large sum, considering revenues from sources such as the Suez Canal reached $5.5 billion in fiscal year 2010- 2011. But what he thinks should be of concern to the Supreme Council of the Armed Forces (SCAF) is the loss of military assistance. "That is an important amount of money, especially with the depletion of Egypt's foreign reserves and the economic slowdown. It will be a burden to provide $1.3 billion to purchase military equipment," El-Sayed said. It is not only a question of money or equipment. El-Sayed explained that the arms entail a certain military doctrine with special training needed, which means additional costs. He added that the SCAF is putting the US administration in a difficult position with Congress. The professor went on to say that while the US administration would probably like to maintain good relations with Egypt -- as well as the influence that comes with being a donor country -- Congress is unlikely to continue allowing this kind of violation of US interests in an election year. Even if the US administration has the authority to allow the aid to continue regardless, El-Sayed said, Congress will likely start placing harsher restrictions on aid approval. Akrum Bastawi, a specialist in international economic relations and advisor to several governments, including Egypt's, expressed a similar viewpoint. "This is probably the most serious public crisis in Egyptian-US bilateral relations since the Achille Lauro affair in 1985." Bastawi went on to say that "even though that affair was a low point, both countries found a way to move forward and most likely, they will do so again." The expert added that Washington and Cairo have nevertheless already crossed the point of no return in terms of the core dynamics that drive their bilateral relationship. "The fundamentals of how the relationship is structured, the unspoken rules of how Egypt and the US agree to operate both in public and behind the scenes, even tacit understandings on regional security are no longer what they once were," he said. "All of this is still evolving." Bastawi expects that US aid to Egypt and its military regime will most likely come to an end within a decade, or at least take on a very different form. This is "because a democratic, accountable Egyptian government will not survive the ballot box if there are going to be regular threats. And US taxpayers will simply not put up with what they perceive as an ungrateful recipient of their assistance, even if the reality is not quite like that," he said. Bastawi expects that in the short-run, tensions between Egypt and the US will likely be resolved, "simply because there are too many immediate interests at stake on both sides." On an election year, the Barack Obama administration cannot politically afford to allow this problem to play out for much longer, Bastawi said. "At the same time, over 87 per cent of US Congress seats are being contested in local elections later this year, and Egypt is starting to become a foreign policy topic in campaign trail rhetoric among hundreds of different candidates," the expert added. "Some candidates have gone so far as to equate Egypt with Iran under Khomeini, which in the US, is definitely not a plus for Egypt's image," he said. Bastawi also pointed out that in Egypt, weak economic conditions, coupled with "the relatively fragile security situation, just do not add up to the minimum political ingredients needed to comfortably sustain a public stand-off of this magnitude with a major world power, whether Egypt's concerns are legitimate or not." Moreover, Bastawi said that the real danger in cutting aid is in the political message it sends. "There is a genuine risk of alienating Egypt, which is just starting to explore a new global and regional political identity for itself, not to mention exploring a new domestic system of government, one that hopefully balances the populism that has accompanied the first steps of democracy with the realpolitik of international relations," he said. Moreover the expert does not think that it would serve long- term US foreign policy interests for Egypt to reconsider its sourcing for military equipment, nor would it serve the interests of US defence contractors who benefit from a US- equipped Egypt's continuing need for spare parts, maintenance and systems replacement. Nor does he believe that the $250 million in economic assistance is so critical as to be deemed indispensable, but "it is certainly technically useful in that it is presented in the form of technical expertise." Bastawi does not approve of popular calls to boycott US products in retaliation to threats. "This is the kind of area where leadership is required in Egypt, to come out and take a stand against this kind of escalation, because boycotting US products over the current stand-off will generate more animosity and yet have insignificant impact on US businesses and, by extension, US policy," he said. Bastawi further pointed out that most US products sold in Egypt are benefiting not just consumers, but the Egyptian young men and women who work in the supply chains to bring the products to the market. This applies whether the products are manufactured under licence in Egypt or are imported and transported by Egyptian drivers and loaders and so on. So the people who would be hurt most directly by any cuts are Egyptians. Second, "Egypt needs to graduate from the group of countries that does not know how to have a serious dispute with a partner, to one that does, without making things worse," Bastawi said. The boycott game, he pointed out, can always be played by both sides. El-Sayed agrees with this reading. He said that, "at the moment, Egypt should not try to provoke unnecessary problems with any country, not only the US." El-Sayed said that tensions with the US could also have negative repercussions on Egypt's attempts to acquire financial assistance from other donors, as well as multilateral financial organisations such as the International Monetary Fund (IMF) and the World Bank. The US and Germany, the two countries whose organisations suffered the NGO raid, both have significant votes within the IMF, said El-Sayed. "That could slow down approval for loan packages to Egypt," he said. To Bastawi, "there is little doubt that while no formal linkages are expected to be made to the dispute with the US, both the IMF and the World Bank are highly unlikely to be empowered to carry out any meaningful transactions without requiring conditionalities that are ultimately related not just to the economy and fiscal discipline, but also to elements of democracy and governance." He anticipates that the negotiation process between Egypt and the IMF or the World Bank "will be polite, but slower and more electrically charged than usual." In fact, World Bank chief Robert Zoellick was recently quoted as saying: "If we do provide initial financial support to the government in general, we will want... to make sure it's transparent, that it relates to some of the changes that people were calling for or a broader social accountability. And there'll be tensions with that." Earlier this month Egypt requested a $1 billion loan from the World Bank for development programmes. And it is also negotiating a $3.2 billion loan from the IMF. Initiated in 1975, USAID became the largest donor programme operating in Egypt. USAID funds, were stipulated in the Camp David Peace accords as a prime tool of US foreign policy in the Middle East, aimed at consolidating peaceful relations between Egypt and Israel. According to the USAID website, economic assistance to Egypt has reached $28.6 billion since 1975. El-Sayed believes that the extent of good to which USAID money was used very much depended on Egypt as well. In fact, as Bastawi put it, USAID in Egypt has, on balance, had a positive effect on the country's overall development, especially in the area of infrastructure, although he said that there are other areas where impacts were mixed, including in agriculture for example. However, Bastawi pointed out that any failures cannot simply be blamed on USAID, "Egyptians had enough involvement during the Mubarak administration to make things work or fail," he said. Nonetheless, El-Sayed believes that Egypt should prepare for the day when it has to do without USAID. Starting 1998, Washington began downsizing its economic assistance to Egypt, until it reached its current level of $250 million.
