WASHINGTON — The United States is close to a deal with Egypt's new government for $1 billion in debt relief as part of a U.S. and international assistance package designed to prop up the country's faltering economy and aid its transition to democracy.
A team of senior U.S. diplomats has spent the last week in Cairo finalizing the agreement, which has been delayed by Egypt's political turmoil and caution in Washington about rewarding its newly elected Islamist leadership. Egypt's debt to the U.S. exceeds $3 billion.
Senior American officials said Monday a final announcement is expected later this month.
U.S. President Barack Obama first pledged economic help for Cairo last year. Obstacles remained to completing the debt relief deal - which is reported to involve a mix of debt payment waivers and complicated "debt swaps."
The negotiations come as a trade delegation with representatives from nearly 50 U.S. businesses considering investment in Egypt is set to arrive at the end of the week. Under Secretary of State Robert Hormats, a former Goldman Sachs executive, will lead the group, which includes regional directors of companies such as Google, Boeing, Xerox and General Electric.
Economic turmoil
Egypt's Muslim Brotherhood-backed president, Mohamad Morsi, has said his first priority is to create jobs and shore up the country's struggling economy, which took a huge hit following the chaos of the 2011 revolution. The once-lucrative tourism industry, a major source of foreign currency, was particularly devastated.
Egypt's Central Bank has used up nearly two-thirds of its $36 billion foreign currency reserves to prop up the Egyptian Pound, The Wall Street Journal reported.
Two weeks ago, Morsi asked the International Monetary Fund for a $4.8 billion loan package. Saudi Arabia and Qatar have provided emergency support and China offered a $200 million loan.
Beyond the debt relief and IMF assistance, U.S. officials have proposed $375 million in financing and loan guarantees for American financiers who invest in Egypt, and a $60 million investment fund for Egyptian businesses.
Mutual suspicion
Under ousted president Hosni Mubarak, Egypt was one of America's top security partners in the Arab world and received an annual $1.3 billion in military aid.
While these programs have continued, much of Washington's non-military assistance for Egypt was put on hold after the January and February 2011 uprising that toppled Mubarak.
American funding for pro-democracy civil society groups in Egypt led to a crisis at the end of last year when Egyptian security officials raided the offices of several organizations, arresting their staff and accusing them of attempting to undermine the government.
The election in June of an Islamist government - followed by political upheaval and some unsettling international moves - raised additional questions about Mr. Morsi's reliability as a U.S. ally.
An evolving relationship
But American and Israeli officials have since sought to assure U.S. congressional leaders that ensuring stability in Egypt at a time of turmoil and change across the Middle East is vital to Western interests.
They have argued that persistently high unemployment could undermine Morsi's government. With Egypt seen as hugely influential in the Arab world, its economic recovery and political stability could exert a positive influence on other countries currently in flux, officials say.
While U.S. assistance has provoked suspicion among some Egyptian Islamist groups, the Muslim Brotherhood and Morsi have made it clear that fixing the country's $25 billion budget shortfall is their most urgent priority.
Hormats has praised Mr. Morsi’s early steps. “The groundwork has been set with a new political leadership, a new level of energy and new opportunities to reform,” he said in Cairo on Wednesday.
The Egyptian leader's scathing public criticism of Syrian President Bashar al-Assad during a visit to Tehran last week, which angered Iranian leaders, has also helped ease U.S. concerns.