Debt worries stymieing U.S. financial aid to help Arab nations in transition

The Obama administration's efforts to use foreign aid to help Middle East and North African nations undergoing democratic transitions have been stopped short by a Congress focused on paring federal debt and other spending priorities.

The administration is weighing a request from the new government in Egypt to forgive a debt of $3.3 billion, and another appeal from the fledgling administration in Tunisia to forgive a far smaller debt, about $7 million. But the budget battles raging in Washington have made debt relief unlikely, officials said.

U.S. lawmakers not only have shut the door on new spending to stabilize countries rocked by the so-called Arab Spring. They have resisted proposals to shift money from other foreign aid programs.

Administration officials say such aid offers a way to shape historic change sweeping the region. They fear steep economic declines could cripple nascent democracies in Cairo and Tunis, where popular uprisings toppled dictators this year, and could turn their populations toward Islamist groups that threaten U.S. strategic interests.

Opponents say they support democracy in the Arab world but won't necessarily pay for it.

"There's just no appetite to spend more money," said Rep. Jason Chaffetz (R-Utah), who serves on the House Budget Committee. "When we can't pay our own bills, it's difficult to justify nation-building in foreign countries."

The resistance in Congress reflects in part the influence of "tea party" members and other conservatives who long have opposed foreign aid and who nearly forced the U.S. government to close last week in a bruising fight over budget cuts.

Some lawmakers are skeptical because audits have shown that billions of dollars were squandered over the last decade to prop up governments in Iraq and Afghanistan. Others, including Sen. Richard G. Lugar (R-Ind.), ranking member of the Senate Foreign Relations Committee, said the administration hasn't made a persuasive case for new spending.

Lugar held up for several weeks a State Department effort to funnel $20 million from an aid program into direct economic support for Tunisia. Lobbyists for the American University in Cairo and the Lebanese American University, independent schools founded by Americans, had argued that the money should not be shifted from their scholarship programs.

The pushback in Congress has frustrated administration officials and spurred them to search for other sources of aid. They have tried — with limited success — to enlist other major donors, including European countries and international financial institutions such as the International Monetary Fund and the World Bank.

They also have discussed trying to persuade European countries that have seized bank accounts and other assets from allegedly corrupt officials in Egypt's former regime to use the money to help the new government in Cairo.

"These are pivotal countries in a pivotal region," a senior Obama administration official said. "Their stability is crucial."

But the administration has been blocked at almost every turn.

Sens. John F. Kerry (D-Mass.), John McCain (R-Ariz.) and Joe Lieberman (I-Conn.), with White House support, last month proposed a sweeping aid package for the infant democracies, modeled on a $10-billion program used to stimulate business growth in Eastern Europe after the Cold War.

The proposal has met strong resistance from appropriators in Congress, aides say.

Administration officials also have considered redirecting some of the $1.3 billion that Egypt receives annually in U.S. military aid. But some lawmakers fear that would mean cutting sales of U.S. military hardware. Many also worry that the move might require cuts in military assistance to Israel. Such aid to the two nations has been linked since the early 1980s.

Administration officials also are exploring whether they could cancel Egypt's $3.3-billion debt. The debt is mostly from U.S. wheat sales to Egypt before President Hosni Mubarak was ousted in February.

Some Egyptians argue that Cairo should not be required to pay debts accumulated under the former regime, noting that in 2004 the U.S. forgave Iraq $4 billion in debts accumulated under Saddam Hussein.

Rep. Gary L. Ackerman (D-N.Y.) argued that forgiving Egypt's debt would encourage European nations, which are owed about $9 billion, to follow suit. "It's big, it's fast, it's meaningful," he said in a congressional hearing last month.

But a senior Senate aide said debt relief "would be hard for Congress to swallow."

The American response has come as a jolt to the region.

When Secretary of State Hillary Rodham Clinton visited Cairo on March 15, she announced that the administration would provide $90 million in emergency economic assistance and would seek $60 million more from Congress for a special enterprise fund.

"When you're talking about what a superpower can do, you expect big numbers," said Hisham Fahmy, chief executive of the American Chamber of Commerce in Egypt. He said Egyptians compared the offer to the far larger sums that the U.S. spends in Afghanistan, "and they were surprised."

Israel's government fears that economic instability in the region could lead to security threats.

Israel's prime minister, Benjamin Netanyahu, last month called on Washington and its allies to create an economic Marshall Plan to help stabilize Egypt and Jordan. And Israeli President Shimon Peres made a direct plea to President Obama for such economic aid during a White House visit this month.

Stephen McInerney, executive director of the Project on Middle East Democracy, a private research and advocacy group based in Washington, said the U.S. budget crisis has dealt a heavy blow to efforts to help Arab nations struggling to emerge from years of dictatorship.

"If this had happened any other time in the last 15 years, the government would probably have stepped forward with assistance on a far larger scale," he said. "This could have serious consequences for U.S. interests. But there just doesn't seem to be the will to address it."

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