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Egypt Military Aid to Be Paid by U.S. for Strategic Goals

The Obama administration has decided to release military aid for Egypt that has been in question since the country acted to prosecute U.S. and Egyptian pro-democracy workers.

The U.S. gives Egypt $1.3 billion a year in military aid that must be spent on U.S. goods. Weapons the Foreign Military Financing pays for include General Dynamics Corp. (GD) M1A1 tanks that are assembled outside Cairo and Lockheed Martin Corp. (LMT) F-16 fighter jets built at Fort Worth, Texas.

The administration will “disburse security funding as needed to meet contractual obligations, and we will maintain the flexibility to make adjustments” if conditions require it, State Department spokeswoman Victoria Nuland said yesterday in an e-mailed statement.

The administration has been reviewing whether Egypt complies with a congressional requirement to certify that the government is promoting freedoms and rights, or whether it should receive a waiver on national security grounds. Secretary of State Hillary Clinton will announce the waiver decision today, citing national security interests, Nuland said.

The decision reflects the Obama administration’s “overarching goal: to maintain our strategic partnership with an Egypt made stronger and more stable by a successful transition to democracy,” Nuland said.

The certification provision was pushed by Democratic Senator Patrick Leahy of Vermont, chairman of the Senate Appropriations Committee foreign operations subcommittee, which oversees State Department spending.

‘Contradictory Message’

“I’ve made a a statement every single day for five days that it would be a mistake” to release aid for Egypt, Leahy said in an interview yesterday at the Capitol.

“I know Secretary Hillary Clinton wants the democratic transition in Egypt to succeed, but by waiving the conditions we send a contradictory message,” he said in a statement.

“The Egyptian military should be defending fundamental freedoms and the rule of law, not harassing and arresting those who are working for democracy,” Leahy said. “They should end trials of civilians in military courts and fully repeal the Emergency Law, and our policy should not equivocate on these key reforms.

The Egyptian government is pressing criminal charges against 43 pro-democracy workers from four non-governmental organizations for illegally accepting foreign funds and operating without a license.

Thirteen of them, including the son of U.S. Transportation Secretary Ray LaHood, were allowed to leave Egypt this month after a standoff that underscored the uncertainty of U.S.-Egypt ties since protests forced President Hosni Mubarak from office last year.

‘Appropriate Decision’

The administration briefed lawmakers before announcing the decision on permitting military aid

‘‘They said they would release some of the money to help the Egyptian Army to remain stable,’’ Senator Lindsey Graham, a Republican from South Carolina, said yesterday in an interview. ‘‘This is an appropriate decision.’’

Nuland said that, while Egypt has more work to do to protect human rights and the role of social activist groups, the country ‘‘has made more progress in 16 months than in the last 60 years, including free and fair parliamentary elections and the transfer of legislative authority to the new People’s Assembly.’’

In addition, Clinton will certify that Egypt is meeting its obligations under its peace treaty with Israel, Nuland said, which will permit the release of about $200 million in economic aid.

Contract Liabilities

Egypt’s upheaval has scared away investors and tourists, draining the nation’s foreign-exchange reserves. Egyptian officials are talking with the International Monetary Fund about Egypt’s request for a $3.2 billion loan to help carry the economy through the current fiscal year.

The State Department decision has a practical side, saving the federal government from paying contractors’ termination fees for canceled contracts, as would be required by terms of financing agreements.

The U.S. provides Egypt and Israel with military assistance under a cash-flow arrangement that lets the nations make purchases in one year and pay for them over succeeding years rather than all at once, according to the U.S. Government Accountability Office.

‘‘Cash-flow financing benefits Egypt in that it can receive more defense goods and services than it can under other financing arrangements,” the agency said in a 2006 report.

Tank Kits

“The U.S. government would be liable for the payments” if Egypt were unable to pay for contracts because the Pentagon executes the awards on Egypt’s behalf, the GAO said.

General Dynamics and subcontractors have 107 employees in Ohio, Florida, and Pennsylvania manufacturing M1A1 kits of tank parts that are shipped to Egypt and assembled outside Cairo into complete vehicles.

The company is working under a $395 million contract awarded in November for parts deliveries to start in July, according to spokesman Pete Keating. The co-production program began in 1988 as part of the Camp David peace accord.

Keating said “its correct that if the contract was terminated there are clauses that allow General Dynamics and other supplies to recover some of the costs from the U.S. government.”

To contact the reporters on this story: Roxana Tiron in Washington at rtiron@bloomberg.net; Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net

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