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French Version

America's economic assistance program to Egypt needs to be refocused

US aid should stimulate the process of reform
About $25.5 billion has been invested in the Egyptian economy thus far

This article is an excerpt from the oral testimony given by Ambassador Edward S. Walker recently before the House Committee on International Relations. He addressed the committee to review America's economic assistance program, as administered by the Agency for International Development (AID) in Egypt and to consider its objectives and effectiveness.

Overall, the United States has invested about $25.5 billion in Egypt's economy. Since 2000, by agreement with Egypt, the program has been reduced by about $40 million each year so that in 2003 funding was at $615 million. It will level off at $407.5 million by 2009. The figures, however, do not tell the whole story. For our assistance program was already declining significantly over the years due to inflation. If we wanted to maintain our program at the 1979 level of $1.1 billion, adjusting for inflation over the years, our outlay today would be around $4.5 billion.

The point here is that the impact of our Agency for International Development (AID) dollars has been substantially reduced and our leverage to encourage economic, political and social reforms equally reduced. I raise this because there is a danger of expecting too much of our AID program. I also raise it because our resources have declined, so if influence and reform are our objectives, then logic would indicate that the scope of our programs should have contracted as well - we should have narrowed our focus so that our remaining programs would be larger and have greater impact.

In fact, until the most recent USAID/Egypt program review called for by the House Committee on Appropriations, which stressed greater focus of our program, AID was continuing to cover seven strategic objectives relating to major sectors of the Egyptian economy and society. Since our program incorporates a five year strategic planning cycle, by the end of the five years in 2008, we would be stretching a program of $415 million to cover all the strategic objectives.

We need to have a better concept of what we are trying to do and what we can possibly do with the resources at hand. Frankly, I don't know what the US objective is. Are we trying to alleviate poverty? Are we trying to build the middle class? Are we fostering upward mobility? When I look at the AID program I see a Chinese Menu - a little of this and a little of that. I don't see a focused program and I surely don't see priorities that could make a substantial difference.

Today, we need to see our AID program in a broader policy context. No matter how much money the AID Director can conceivably have available in today's budget climate, he or she cannot change the pace or direction of reform except at the margins. What set aside the period of the mid-nineties, when I was Ambassador in Egypt, and when reform, by all accounts, was in its heyday in Egypt, was the commitment at the very top of the Administration to reform. If we are serious about reform and if we really mean it when we call for democracy and economic and social change, then we cannot leave the problem to our AID directors or our ambassadors or Assistant Secretaries. It will take genuine commitment and persistence from the president and vice president, as well as from the Congress.

There are two other aspects of the AID program in Egypt that deserve close scrutiny. The program as it is structured devotes about 30 percent of its funds, or $200 million, to the Development Support Program (DSP) which is a cash grant in return for meeting negotiated reform targets. A second $200 million is directed to the Commodity Import Program. That leaves about $200 million for all other programs combined. The DSP grants, although a good idea, have some inherent weaknesses. One weakness was pointed out by the Program Review - that the reforms negotiated with the Egyptians covered a wide gamut of issues and thus lost focus. The Review recommended focus on "one or two key economic reform areas." A second proposal by the Review suggests that if outcomes agreed with Egypt for negotiated reforms are not met, then the funds should be reprogrammed to fund other USAID projects in Egypt.

Both of these proposals have met resistance by the government of Egypt. And that raises an important question as to whether or not Egypt is operating under a US entitlement, or should the program be linked to US interests and objectives. If the cash transfer is earmarked and obligated, as currently is the case, and cannot be reprogrammed, then our ambassador and AID director have limited leverage in both program design and implementation. In short, whose money is it? The AID Review proposal to permit reprogramming such funds to other AID projects in Egypt would go part of the way toward resolving this problem, but AID might also want to look at authority to reprogram such funds to other AID programs in the Middle East.

While I was in Egypt, I was an advocate of the Commodity Import Program. It is a seductive program in that it supports US business sales to Egypt, establishes supplier relationship with US companies, and then lets us use the money twice - once for Egyptian firms to buy the products using low cost short term loans from AID funds and then again by the government of Egypt once those loans are paid back. It is a popular program with its beneficiaries in Egypt and in the US. The Program Review suggests downsizing it to $150 million by 2009 and this makes sense. However, AID needs to take a hard look at the program, who it benefits, and the controls over the government of Egypt's use of the proceeds.

In this case the money does already belong to the Egyptian government. One problem with this is that US objectives are no longer the guiding principal in the allocation process. In addition, the loans provided to Egyptian businessmen tend to be driven more by sales of American products than by AID's reform agenda, not a bad thing, but not a recognized purpose of the AID program. AID needs to take a hard look at how this program might be restructured to direct it more closely to AID's objectives.

I believe the AID Review has moved the program in the right direction but there is further work to do. Part of this work will have to be driven by Congress. Our objective should be a tighter more tailored program which takes account of limited resources. It shouldn't be considered an entitlement, nor should it be seen as a mechanism for enforcing reform. Egypt has to take ownership of its own reform program, but we need to continue to stimulate that process.

Ambassador Edward S. Walker, Jr. is President of the Middle East Institute. He has served as Assistant Secretary of State for Near Eastern Affairs, and as Ambassador to Israel, the Arab Republic of Egypt, and the United Arab Emirates, and Deputy Permanent Representative to the United Nations

Beirut,09 13 2004
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