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US planning $1 billion debt relief for Egypt

 
 
 
 
 
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The Obama administration has decided to provide about $1 billion in debt relief for Egypt, a senior official said Saturday, in the boldest U.S. effort yet to shore up a key Middle East ally as it attempts a democratic transition.

The aid would be part of a major economic aid package that also includes trade and investment incentives, officials said. It is intended to help stabilize Egypt after demonstrations forced out longtime President Hosni Mubarak on Feb. 11.

While the Obama administration has been preoccupied of late with the war in Libya and protests in Syria, it sees Egypt as even more critical for U.S. interests. Washington has long regarded Egypt as a moderating influence in the Middle East. With one-quarter of the world’s Arabs, Egypt could emerge as a democratic model in the region — or, if its revolution fails, a locus of instability or extremism.

Economic assistance for Egypt and Tunisia is “fundamental to our capacity to support their democratic transitions,” a senior State Department official said on the condition of anonymity. He said that officials were in the midst of “intense policy formulation” but that the economic package wasn’t finished. Parts of it will need congressional approval.

The largely peaceful uprisings in Egypt and Tunisia have battered the countries’ economies. Tourism has collapsed; interest rates have jumped. Economic growth in the two countries is expected to plunge as much as four percentage points from last year, according to the International Monetary Fund. The squeeze comes as those nations’ interim governments are trying to create jobs to satisfy the young protesters’ demands.

“We are at a crossroads here,” said an Egyptian official who has been involved in talks with Washington, and who spoke recently on the condition of anonymity. “If we go wrong, it will be too late [for the United States] to come later and say, ‘We’ll start helping now.’ ”

The Egyptian finance and planning ministers visited Washington last month to seek forgiveness of the country’s $3.6 billion debt. Egypt pays about $350 million a year to service the debt, which it incurred buying American farm products.

In recent weeks, Egyptian officials have been frustrated by the lengthy U.S. interagency process to consider economic aid, and a cool reaction from a Congress ensnared in a budget-cutting battle. On Saturday, Ambassador Sameh Shoukry said through an aide that Egypt appreciated the U.S. efforts but would not react to news of the debt relief until his government was formally notified.

Robert Hormats, the U.S. undersecretary of state for economic affairs, is in Egypt to discuss what form the relief would take: outright debt forgiveness, loan guarantees or debt swaps, which would convert the loan into aid programs, the senior administration official said.

The administration has had “quiet consultations” with lawmakers who would need to approve the assistance, and is trying “to anticipate the questions and concerns in this budget climate,” said the senior official, who like others spoke on the condition of anonymity because the assistance has not been announced.

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