U.S. tries to line up aid to help stabilize Egypt

As anti-government protests threaten additional change across the Middle East, the Obama administration and its allies have been quietly collaborating on plans to shore up Egypt’s fragile transition government with a transfusion of economic aid.

U.S. officials, eager to demonstrate they are helping stabilize a country that has been a bulwark of American interests in the region, are soliciting contributions to an emergency financial package for Egypt, fearing that further strains on its overtaxed economy could kill the fledgling reform effort and lead to a new round of chaos.

In the four days since President Hosni Mubarak stepped down in the face of a public uprising, U.S. officials who helped facilitate his exit have been working to put together a package that will probably total several hundreds of millions of dollars, as well as funds to help build political parties and other institutions, U.S. and foreign diplomats say. The United States currently gives Egypt about $1.5 billion per year, most of it going to the Egyptian military, the most respected institution in the nation.

Public anxiety over Egypt’s struggling economy, including high unemployment and rising prices, was one of the key forces driving the 18-day uprising that toppled former Mubarak. Now that the authoritarian leader is gone, analysts say Egyptians may be overly optimistic in expecting rapid economic improvements.

Michele Dunne, a Middle East specialist who has advised the Obama administration on Egypt in recent weeks, said the economy is “one of the greatest vulnerabilities for a country that’s in a transition like this.”

The Egyptian Finance Ministry has estimated that the unrest cost the economy about $310 million a day, and some private analysts have estimated that investors have been withdrawing funds at a rate of about $1 billion a day. Before the protests, Egypt was expected to have 5% annual economic growth; now the consensus is closer to 1%.

Dunne, with the Carnegie Endowment for International Peace, said if Egyptians have high expectations about economic opportunities and instead conditions worsen, “it could really sour relations between people” and the transitional government.

U.S. officials, who have been consulting widely on Egypt in recent days, declined to discuss their aid goals in details, saying they were in the early stages of discussions. They said they expect international development banks may also play a part in the effort.

The push for more aid comes at a difficult time for the United States and many allies, who are already struggling with severe austerity budgets. The Obama administration is trying to prevent Republicans from imposing steep cuts on foreign aid.

Secretary of State Hillary Rodham Clinton met with House Speaker John A. Boehner (R- Ohio) on Monday and expressed her concern about proposed reductions for the State Department and aid programs. Clinton said she hoped that as Congress considers “the national security and economic consequences of these cuts, they will chart a different course.”

The United States must promote stability in countries such as Egypt or “we will pay a higher price later in crises that are allowed to simmer and boil over into conflicts,” Clinton said.

Mubarak’s overthrow has been welcomed by Democrats and Republicans, and some analysts predict there will be bipartisan support for at least some increase in Egypt’s aid, to ensure its stability as well as that of neighbor Israel and other Middle East states.

“I think they’ll feel this cause is worth it,” said Stephen McInerney, executive director of the Project on Middle East Democracy.

Congressional Republicans, and especially those in the House, have made it clear they intend to target overall foreign aid for reductions, at a time when both parties are looking for ways to reduce the projected $1.6 trillion federal deficit.

Clinton wrote a letter Monday to Republican Rep. Harold Rogers of Kentucky, chairman of the House Appropriations Committee, complaining that the committee’s proposal for foreign affairs funding for the next fiscal year was would reduce the State Department and U.S. Agency for International Development budget by 19% from the amount sought by the administration, and would reduce funding for humanitarian aid by 41% from 2010 spending.

She wrote that such cuts would be “devastating to our national security” and would damage U.S. leadership around the world.

However, there remains considerable Republican support for a number of U.S. national security missions overseas, including those in Afghanistan and Pakistan, and lawmakers say it is unclear how much Republicans would want to cut the civilian aid related to those efforts.

A spokeswoman for Catherine Ashton, the European Union’s foreign affairs chief, said the EU is considering aid for Egypt, perhaps through loans by the European Investment Bank, an EU international finance arm.

President Obama, in a statement last weekend, said the United States was committed to offering aid to Egypt “to pursue a credible and orderly transition to democracy, including by working with international partners to provide financial support.”

The aid discussions have come at a time when the administration has been reaching out to allies in the Middle East, Europe and elsewhere, trying to work out a common position on how to encourage democratic change in Egypt.

U.S. officials and allies have been closely watching Cairo’s new military leadership take a series of steps, including some that have raised concerns among the Egyptian protesters.

The military leaders have resisted pressure to lift the emergency law that limits rights, and they have given mixed signals about how long they would retain Cabinet members who were part of the Mubarak regime. Some demonstrators have been upset that the military has sought to clear out the remaining protesters from central Cairo.

But Clinton praised the military leaders and offered a strong endorsement of their actions to date, which include announcements that they would dissolve the parliament, draft amendments to the constitution, and set elections within six months.

In an appearance on Capitol Hill with Boehner, Clinton said “the steps they have taken so far are reassuring,” and that “thus far they’ve demonstrated a seriousness of purpose and a commitment to pursuing the kind of transition that we hope will lead to free, fair elections.”

paul.richter@latimes.com