US rewards Egypt after promising economic reforms

U.S Secretary of State John Kerry shakes hand with Egyptian President Mohammed Morsi during their meeting in Cairo on March 3. Photo by: U.S. State Department

The United States is ready to deliver about $250 million in economic aid to Egypt after the latter vowed anew to take economic reforms.

Much of the money is part of President Barack Obama’s pledge to relieve Egypt of up to $1 billion in debt and finance development projects.

On his stop March 3 in Egypt, U.S. Secretary of State John Kerry said the aid would support Egypt’s “extreme needs” and the decision was made after Egyptian President Mohammed Morsi promised to reopen negotiations on a loan package with the International Monetary Fund.

“We do believe that in this moment of serious economic challenge, that it’s important for the Egyptian people to come together around the economic choices and to find some common ground in making those choices,” Kerry said during his trip to Egypt. “It is important, even urgent, that the Egyptian economy gets stronger and that people have jobs and have opportunity and that the energy of this country can be focused on a more prosperous future.”

About $190 million of the $450 million debt relief fund, which was frozen last year by Congress, would be injected into Egypt’s budget. In 2011, after former President Hosni Mubarak resigned due to pressures from protesters, Obama committed to unload Egypt’s debt by pledging $1 billion in aid.

“The remaining $550 million in debt relief pledged by the Obama Administration, according to the State Department, is still under consideration but it has not been notified to Congress,” according to a Feb. 26 report from the Congressional Research Service.

As part of Obama’s promise, the United States would infuse $60 million into the Egyptian-American Enterprise Fund, a nonprofit nonstock corporation that will be led by a fund manager and overseen by a board of directors comprising three Egyptians and six Americans. The company would finance small- and medium-sized enterprises.

The aid package was unveiled to help Egypt as it faces sliding currency reserves and soaring budget deficits.

The Islamist government suspended talks last year with IMF on a $4.8 billion loan due to violent protests. The lending giant seeks to address Egypt’s deficit by reducing wasteful spending, raising revenues through tax reforms, and changing monetary and exchange rate policies, among others.

For this year, Obama has requested $1.55 billion in bilateral aid to Egypt, consisting of $1.3 billion in military aid and $250 million in economic aid. In 2009, United States and Egypt agreed on informal U.S. commitments of $250 million in economic aid per year with no end date, according to CRS.

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    John Alliage Morales

    As a staff writer, John Alliage Morales covers the Americas, focusing on the world's top donor hub, Washington, and its aid community - from Capitol Hill to Dupont Circle, Foggy Bottom to the downtown headquarters of USAID, the World Bank and Millennium Challenge Corp. Prior to joining Devex, Alliage worked for a variety of news outlets including GMA, the Philippine TV network, where he conducted interviews, analyzed data and produced in-depth stories on development and other topics.