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Egypt Says Tension With U.S. a ‘Glitch’ Between Allies

Nov. 15 (Bloomberg) -- Egypt’s outreach to other nations, including Russia, isn’t a consequence of fraying ties with the U.S., nor is it meant to supplant relations with Washington, the North African nation’s deputy premier said.

Egypt has had “excellent” relationships with the West, including the U.S., for decades and Cairo’s push to deepen ties elsewhere shouldn’t be seen as a “zero-sum game,” Ziad Bahaa El-Din, who also serves as international cooperation minister, said in an interview yesterday.

Egypt and Russia have said they’re negotiating an arms deal that would be their biggest since the Cold War. The U.S stopped some military aid to Egypt last month, after the ouster of President Mohamed Mursi by the army in July was followed by a crackdown on the Muslim Brotherhood and allied Islamists that left more than 1,000 dead and hundreds imprisoned.

“There was a sense that the transition was grossly misunderstood and misrepresented in the U.S.,” Bahaa El-Din said in his office in Cairo. “It’s a glitch in a 30-year relationship.”

The military-backed interim government has veered from friendships forged with Qatar and Turkey under Mursi, who’s now on trial for inciting violence. It found new financial backers in Saudi Arabia, the United Arab Emirates and Kuwait, which have pledged more than $12 billion in aid.

‘More Equitable’

Egyptian officials say the funds from the three Gulf nations will help pay for stimulus plans aimed at reviving an economy growing at its slowest pace in two decades.

“We are trying to balance financial discipline and macro-economic stability with activating the economy to create jobs,” Finance Minister Ahmed Galal said in a separate interview in the capital. “We want to be doing it in a way that’s more equitable.”

Egypt will cut its budget deficit to 10 percent of gross domestic product in the fiscal year ending in June, from 14 percent a year earlier, Galal said. The government will introduce new sales and real-estate taxes and reduce subsidies on goods including fuel, he said.

The Gulf money has offered Egypt a cushion at a time when foreign reserves are still about 50 percent below their end-December 2010 levels, and after several bids to secure a loan from the International Monetary Fund ended without an agreement. Bahaa El-Din said there wasn’t “an immediate pressing urgency to enter into an agreement” with the IMF.

S&P Rating Increase

Standard & Poor’s today raised Egypt’s long-term credit rating to B- from CCC+, citing increased support from its regional allies.

“The upgrade reflects our view that the Egyptian authorities have secured sufficient foreign currency funding to manage Egypt’s short-term fiscal and external financing needs,” S&P said in a statement. “We expect support from bilateral lenders to continue over the medium term as the Egyptian authorities try to address the country’s political and economic challenges.”

The renewed ties with Russia echo the alliance born of the socialist fervor of the late 1950s and 1960s under Egypt’s then-President Gamal Abdel Nasser. Russian Defense Minister Sergei Shoigu and Foreign Minister Sergei Lavrov were in Cairo yesterday to meet their counterparts Abdelfatah al-Seesi and Nabil Fahmy, the highest-level contact between the two countries since Mursi’s overthrow.

“We look forward to strong, stable and continuing relations with Russia,” Fahmy said.

F-16 Jets

The U.S. has given Egypt about $1.5 billion a year, mostly to the army, as a byproduct of the U.S.-brokered Camp David agreement of 1978, when Egypt split from Arab allies and agreed on a separate peace treaty with Israel. Last month, President Barack Obama suspended aid including $260 million in cash and deliveries of F-16 fighter jets, helicopters and tanks.

“I look at the suspension or restrictions on aid and other things certainly as temporary measures,” Bahaa El-Din said.

Egypt is seeking as much as $2 billion of Russian weaponry, including MiG-29 fighter planes, air-defense systems and anti-tank missiles, according to Ruslan Pukhov, a member of the Russian Defense Ministry’s advisory board. It may get financing from an unidentified Persian Gulf country to buy the arms, the Palestinian newspaper Dunia al-Watan reported Nov. 6.

Mursi ‘Threat’

Egypt received Soviet military assistance during the 1973 Arab-Israeli war, and the Soviets financed infrastructure projects such as the Aswan Dam to irrigate land and supply electricity.

Nasser’s successor Anwar Sadat set the regional power on a pro-U.S. track that was consolidated under Hosni Mubarak. Popular protests toppled Mubarak in 2011 as the so-called Arab Spring swept the region.

Persistent unrest since then has deterred foreign investors and tourists. Mursi’s trial, which began Nov. 4, has sharpened the divide, as the Islamist challenged the court’s legitimacy and maintained he’s still president. Mursi said this week, in a statement read by his lawyers, that stability won’t return until the “coup” is reversed.’

Such comments represent a “threat to continue to incite violence,” Bahaa El-Din said. “It’s one which will not be accepted by anybody around here.”

The interim government plans to amend the constitution, put the new one to a referendum and then hold parliamentary and presidential elections by early next year.

Bahaa El-Din said Egyptians are “extremely keen on returning to a state of normality.”

To contact the reporters on this story: Tarek El-Tablawy in Cairo at teltablawy@bloomberg.net; Mariam Fam in Cairo at mfam1@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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