March 25 (Bloomberg) -- Cairo University echoed with cheers in June 2009 when President Barack Obama addressed his audience with the Muslim greeting, assalamu aleikum, peace be upon you.
The goodwill didn’t last. Four years later, Egyptians increasingly assail the U.S. for backing Islamist President Mohamed Mursi, the nation’s first democratically elected leader, as they did when Hosni Mubarak ran Egypt with American support.
In Cairo’s Tahrir Square, blood-red letters on a white banner read: “Obama Supports The Dictator Mursi.” A sign on the speakers’ platform adds: “Down with Mursi, America’s agent.”
Obama’s talk of a “new beginning” between Muslims and the U.S. has been swamped in Egypt by economic dysfunction and political polarization between Islamist and secular leaders. As investors flee and Egyptians suffer, what the president called a “cycle of suspicion and discord” has delayed financial aid and left Egypt drifting toward bankruptcy.
“People are frustrated here, full of anger, especially youngsters,” said Anwar Sadat, the nephew of the Egyptian president assassinated in 1981 and the leader of a minor opposition party. “The truth is we are in trouble.”
In the U.S., lawmakers who doubt Mursi’s commitment to democracy are concerned that new arms shipments could be turned against Israel. In Egypt, the president welcomed in 2009 with a cry of “Barack Obama, we love you,” is now seen by many as just another leader who puts American interests above Egypt’s needs. A Gallup survey released March 13 showed Egyptians disapprove of U.S. leadership by a 62 percent to 17 percent margin.
Optimism that Mubarak’s overthrow would bring the country’s 83 million people a better life is unraveling. As part of a broad cost-cutting initiative, the government announced March 19 plans to effectively ration supplies of subsidized bread, a dietary staple, and cooking fuel. A similar move sparked deadly riots during an abortive 1977 economic-liberalization campaign.
Mursi’s failure to deliver stability and rising living standards also has buffeted investors. Egypt’s benchmark EGX30 stock index is down more than 20 percent since the January 2011 uprising that toppled Mubarak. The premium investors demand for holding Egyptian government debt has roughly doubled. And foreign investment has sagged to $2.1 billion from its $13.2 billion peak five years ago.
The U.S. has a big stake in Egypt’s transition. The North African country and Jordan remain the only Arab nations with formal peace treaties with Israel, and the Egyptian military polices the strategic Sinai Peninsula. Egypt grants preferential passage to the U.S. Navy through the Suez Canal, giving American warships in the Mediterranean a shortcut to the Persian Gulf. Mursi and the Brotherhood have repeatedly said they would honor Egypt’s international agreements.
Both the prospects for democracy in the Arab world’s most-populous nation and the U.S. goal of defusing regional tensions hinge on Egypt’s economy. Gross domestic product has grown less than 2 percent the last two years, its slowest pace in two decades. Unemployment is 13 percent, and inflation has almost doubled since November to 8.2 percent, according to the central bank.
Chronic violence and polarization has undercut growth efforts, prompting Mursi yesterday to say he may have to take action “to protect this country.”
Though Egypt is the fifth-largest recipient of American foreign assistance, more than 80 percent of the $1.56 billion total U.S. aid goes to the Egyptian military, including F-16 fighters and M1A1 tanks manufactured by General Dynamics Corp.
This year’s help also was delayed. Only this month did the U.S. release $250 million in economic support. Since Mursi’s June 2012 election, Congress has grown increasingly skeptical of Egypt’s embrace of democracy and reliability as a security partner. Lawmakers’ worries mirror those of many Egyptians who say the U.S. isn’t doing enough to curb the Islamist government’s authoritarian leanings.
Mursi’s Nov. 22 claim of temporary immunity from judicial review and his efforts to seize control of the independent labor movement and punish journalists have sparked talk of renewed dictatorship. Senator James Inhofe of Oklahoma, the top Republican on the Armed Services Committee, in January labeled Egypt’s president “an enemy.”
In a March 5 interview with NPR, Secretary of State John Kerry described U.S. economic aid as “minuscule,” adding: “We could pay a much higher price down the road if Egypt is in turmoil and chaos and the region feels those implications.”
The U.S. outlay is dwarfed by Egypt’s needs. Since the revolution, Egyptian reserves have dwindled to $13.5 billion from $36 billion, leaving in government coffers enough money to cover perhaps three months of imports.
In Cairo earlier this month, Kerry called economic improvement “paramount, essential, urgent.” Yet the $250 million in economic assistance that the U.S. is giving Egypt this year is less than one-third the $815 million it provided in 1998, when the economy was growing at 7.5 percent and reserves were 50 percent larger.
“This is the best we can do at the moment,” said Steven Cook, a senior fellow at the Council on Foreign Relations. “I don’t know what’s worse: delivering a paltry sum that’s not going to make much of a difference or delivering nothing at all.”
Michele Dunne, who was on President George W. Bush’s National Security Council staff, said policy toward the Arab nation has been on “auto pilot” since 2011.
“We should be doing more economically for Egypt, but it’s not a question of just throwing cash budget aid at the Egyptian government,” she said. “They’ll just blow through that in a month.”
The U.S. is expanding the Qualifying Industrial Zone program, which allows Egyptian companies to export goods to the U.S. on a duty-free basis so long as they use a specified percentage of Israeli components. Dunne said the U.S. could do more to expand trade.
In January, the country imported $136.9 million worth of Egyptian goods, less than half as much as in the same month three years ago.
Magdi Tolba, chairman of clothing exporter Cairo Cotton Center, has felt the decline. Macy’s Inc., the second-largest U.S. department store chain and his biggest customer at about $20 million in annual orders, stopped doing business with Cairo Cotton in January 2011 amid the anti-Mubarak protests.
Tolba, 55, has cut his 3,900-worker payroll to 3,000. He said U.S. officials should have promoted stability in Egypt by encouraging companies to trade.
“The U.S. government could have done more to stop the violence by supporting the economy,” he said.
More important is a $4.8 billion International Monetary Fund loan, which the government has been negotiating for months. Public resistance to the tax increases and subsidy cuts that the fund says are needed to put the economy on sound footing has delayed final agreement.
The fund’s seal-of-approval is critical to unlocking $14.5 billion more in aid from other donors and reassuring investors.
“There is significant willingness from the U.S.A. and other countries to help Egypt, but in the end, aid is of limited value unless Egypt’s government sets the right conditions to maximize the aid which it receives,” said Angus Blair, founder of the Signet Institute, a Cairo-based regional research group.
In Cairo’s Garden City neighborhood the American embassy is girded by barbed-wire obstacles and helmeted Egyptian riot police. Tear gas often wafts over the compound’s high walls. On March 9, two protesters died in clashes in nearby Tahrir Square after a court acquitted most of the police officers charged in the February 2012 deaths of demonstrators in Port Said.
At home, the Obama administration has faced opposition to smoothing Egypt’s post-revolutionary path. A 2011 Obama promise to forgive $1 billion in Egyptian debt is stalled in Congress. Republican lawmakers, such as Senator Rand Paul of Kentucky, have opposed additional funds for Mursi, who referred to Jews in 2010 as “the descendants of apes and pigs.” He later said the remarks were in response to Israeli actions toward Palestinians, an explanation which did little to stem U.S. outrage.
U.S. help, already conditioned on Egypt’s continued adherence to its 1979 treaty with Israel, should be tied to democratic milestones, such as preserving an independent judiciary and a free press, some in the Egyptian opposition say.
“What we need is a commitment to democracy,” said Amre Moussa, a leader of the National Salvation Front. “But democracy is not just the ballot box.”
Egypt could soon become a bigger headache for Obama. The government is appealing a court ruling that invalidated Mursi’s call for parliamentary elections next month, leaving the political landscape unsettled.
Amid such tumult, there are limits to U.S. influence.
“There’s a storm going on within Egypt with profoundly high stakes for all concerned,” said former State Department official Jon Alterman. “Our ability to move that storm is very small and our ability to be heard over it comes and goes.”
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