Countries Ease Egypt's Debt
Cairo's contribution to the Gulf war pays off. DEBT FORGIVENESS
INTERNATIONAL creditors are moving to ease Egypt's debt burden and to extend fresh credit to the most populous Arab nation.Although the United States and Persian Gulf nations have already canceled some $14 billion in debt in response to Egypt's support of the Gulf war effort, Cairo's official debt still stands at roughly $36 billion. Egypt's economic planners are still calculating billions of dollars of Gulf war-related damages, including lost earnings from Egyptian workers in Iraq and Kuwait, a sharp decline in tourism revenues, and fewer Suez Canal receipts. At a meeting in Paris this week, some 30 representatives from various governments, regional banks, and Arab funds pledged fresh money to help ease Egypt's budgetary and balance-of-payments constraints. "Egypt can count for the next two years on external assistance flows of about $4 billion on average, per annum," a World Bank official announced in Paris on Wednesday, after the three-day meeting. Among those represented at the meeting were the US, France, Spain, Germany, Britain, Italy, and Japan all were represented, as well as the European Investment Bank, the African Development Bank, the Islamic Development Bank. Washington started Egypt's good fortune last December when, as a reward for Cairo's contribution to the US-led coalition against Iraq, the Bush administration forgave a $7.1 billion military debt. Before Congress approved President Bush's request for the write-off, Egypt was the nation's biggest debtor, owing $12 billion. The Gulf Cooperation Council (GCC) - Saudi Arabia, Kuwait, the United Arab Emirates, Oman, Qatar, and Bahrain - also thanked Egypt for its support by cancelling another $7 billion in Egyptian debts. These and other promises of Western debt relief summoned Egyptian President Hosni Mubarak's political courage to undertake tough economic reforms. The following steps have followed in rapid succession: * By April, Cairo committed to reforms long-awaited by the International Monetary Fund and the World Bank: lower subsidies for bread and meat and a new income tax. * By May, the IMF and Egypt signed a stand-by agreement providing the country financial assistance. * In May, Egypt's bilateral creditors (national governments) agreed in principle to write off another $10 billion in government-to-government loans over the next three years. An Egyptian Embassy official in Washington says a delegation from his country will tour world capitals, beginning Monday, to negotiate these write-offs. Egyptian negotiators may visit the US as early as next week, he says. * Two weeks ago the World Bank voted to extend Egypt $300 million in structural adjustment support which will help the government to reduce its budget and balance-of-payments deficits, help lift trade barriers, and stabilize prices. An $84 million loan was also approved to finance expansion of the country's natural gas industry. The bank also issued a $140 million credit for a new social fund to help Egypt absorb the costs of 670,000 workers who fled back home from war in Iraq and Kuwait. 'OUR creditworthiness will increase as we implement our economic program. Sound policies, including reform of the public sector and privatization, will have encouraged the debt forgiveness," says Maurice Makramallah, Egypt's minister of state for international cooperation. The IMF's financial help is based on Egypt's progress toward reforms, he says, and will be extended in stages, not all at once. IMF managing director Michel Camdessus' statement in Cairo two months ago that the IMF's vote of confidence in Egypt will mean that "many official aid donors, both bilateral and multilateral, will feel more confident about extending their assistance to Egypt" was successfully put to the test at the meeting in Paris this week. Egypt expects additional economic aid from her rich oil-producing neighbors. In Damascus, Syria, last spring, the GCC announced its intention to lend $10 billion to $15 billion to poor Arab states, including Egypt and Syria, over the next decade.