1987), p.170.
and the United States had not been adequately thanked. Did the critics want Israel to monopolize Washington's attention once more?43
Occasionally a more apologetic note crept into the press. A published interview with Egypt's ambassador to the United States, Abd al-Ra'uf al- Raydi, in late 1986, sought to convey the difficulties under which Egypt laboured. Egypt lacked the influence which Israel enjoyed, said the ambassador, and the American press was highly critical of Egypt's economic demands. Moreover, foreign aid had no important constituency in the United States, and was becoming increasingly unpopular. This theme was echoed by an al-Ahram report, one year later, which also explained how the American president's hands were tied by Congress when it came to aid levels and debt renegotiation; there was, Congressional sources were reported as saying, little likelihood th at the conditions applied to Egypt's aid package would be relaxed or that Egypt could expect the same treatm ent as Israel received.44
As negotiations with Washington dragged on fruitlessly, it became clear th at the debt problem could not be resolved in a bilateral framework, and th at Egypt would have to submit to the scrutiny of the IMF. If its economic programmes were approved by the IMF, the United States would be willing to discuss debt rescheduling in a multilateral forum, with Egypt's other principal creditors. Though many in the government accepted th at some of the reforms demanded by the IMF were necessary, justifying IMF- mandated reforms to the public would be a difficult matter. With the exception of the Wafd, the opposition parties were united in the belief that Egypt's dealings with the IMF had to be seen in the context of Egypt's
43 These themes recurred in Al-Musawwar, 1 Feb. 1985 (in FBIS-MEA, 8 Feb. 1985), 15 Feb. 1985 (in FBIS-MEA, 22 Feb. 1985) and 27 Feb 1987 (in FBIS-MEA, 4 March 1987).
44 See al-Gumhuriyya, 14 August 1986, and article by Ezzat al-Sa'dani in al-Ahram, 5 May 1987, respectively.
progressive 'satellisation' by the United States. In return for aid, they alleged, Washington sought to impose reforms which conflicted with Egypt's national interests and even threatened the country's independence. To such charges, the government replied th at conditions in Egypt were in no way similar to those prevailing at the time of the Khedive Ismail, when foreign financial intervention had robbed Egypt of its independence. Economic rationalisation was urgently required; the reformist policies now under way were of Egypt's making, though they might resemble those suggested by the IMF. Had not Nasser himself signed the first IMF agreement?45
Up to a point, the Egyptian government could use the vociferous objections of the opposition to bolster its case th at reform should not be too rapid; it could also rely on the assumption that, though Washington might withhold part of the cash transfer to 'encourage' reforms, the United States would stop short of bankrupting Egypt. American aid was, after all, linked to a broader political motive, as a 1987 GAO report on American economic assistance to Egypt, for example, made explicit:
Funding is kept at this high level [i.e., $815 million in ESF funds alone] for political purposes - peace in the Middle East. While Egypt does have substantial economic needs, the consensus of development experts was that US assistance to Egypt would range from $100 to $200 million if it was based solely on economic need.46 Presumably, the United States would not insist upon measures which risked undermining its interest in regional stability. Cairo therefore persistently reminded its American benefactors th at it should not be asked to do too much too quickly. The expensive subsidies on foodstuffs, transport and utilities, unbeloved of the IMF, were of vital importance to lower- and
This paragraph is based on the editorial by Tawfic Aclimandos in Rp6, No.24/25 (3/4e trimestre 1986), p.101. A good example of the government’s IMF argument is the al-Akhbar editorial of 3 May 1987, cited in FBIS-MEA, 5 May 1987.
middle-income earners; outside observers were reminded of the dangerous food riots which had followed IMF-imposed subsidy cuts in 1977, and which Egyptian policymakers remembered all too well.47
But reiteration of the dangers of over-hasty reform did not induce much flexibility on Washington's part. Negotiations on the reduction of the military debt continued fruitlessly during 1985 and 1986. At the end of
1986, President Reagan wrote to Mubarak, suggesting, inter alia, a Congress-approved solution to the military debt problem. The main proposal involved a reduction of the interest rate, from 13 to 7.5 per cent, for several years; the difference would be added to major repayments beginning in 2009. Congressman David Obey later told a Congressional hearing that, while Egypt stood to save some $200 million in interest payments, it would have to make a balloon payment of $3.2 billion in 2009, and similarly large payments in subsequent years. But, Obey said, he knew of no one who believed 'that Egypt's economy is going to grow fast enough between now and 2009 to be able to make a series of multi-billion dollar payments at the end'.43
In the event, Mubarak turned down the suggestion. He pointed out th at Egypt would end up paying interest of $9.5 billion on its original borrowings of $4.5 billion, and that the lumping together of Egypt with 36 other countries, whose debt was to be similarly dealt with, raised questions about the nature of the special relationship'. Moreover, he found unacceptable the other contents of Reagan's proposal, which reportedly included requests that joint military exercises be resumed, and th a t Cairo take serious steps to revive the Egyptian-Israeli normalisation process and
T. Aclimandos, editorial comment in Rpe, No.24/25 (3/4e trimestre 1986), p.101. United States Congress. House. C'ttee. on Appropriations. S'committee on Foreign Operations and Related Agencies. Foreign Assistance and Related Programs:
Appropriations for 1988, Hearings, 6 May 1987 (Washington: USGPO, 1987), p.514.
to persuade King Hussein to negotiate directly with Israel.49 This is a good illustration of the extent to which the debt question had become bound up with other policy areas, including the complex of Egyptian-Israeli ties.50
In May 1987, after two years of discussions, Egypt obtained an IMF credit package of $325 million, whose conditions the United States had deliberately sought to have watered down. Egypt was required to devalue its currency, to raise domestic interest rates by several points and to lower its budget deficit. No mention was made of subsidies. As a consequence of this agreement, the Paris Club - eighteen creditor countries, including the United States - established a framework to reschedule some $6.5 billion in Egypt's public debt. This covered arrears accumulated until December 1986, and civilian and military interest payments falling due between 1 January 1987 and 30 June 1988. The rescheduling was for a period of ten years, including a five-year grace period.51 As part of the Paris Club framework, the United States agreed to defer a portion of Egypt's FMS debt, at reduced interest rates of 7.3-8.9 per cent.52
An American sceptic pointed out th at the whole rescheduling package was only a stopgap measure: in time, Cairo would have to borrow more, to cover payments due during the rescheduling period, and the cycle would repeat itself. Creditors would continue to apply pressure on Egypt to undertake reform in return for debt relief, whilst Egypt tried vainly to promote productive investment.53
49 For details, seeASR, 1986, p.486 and ASR 1987, pp.400-1.
50 Egyptian-US military ties, and Egypt's relations with Israel, are dealt with below