The potential contractual fallout from suspending aid became a key concern at the State Department in spring 2012 as officials were deliberating whether then-Secretary Hillary Rodham Clinton would sign a waiver to override conditions imposed by Congress that could have held up Egypt’s aid package, two former administration officials said. It was only then that some officials began to grasp the magnitude of the problem.
“Egypt is changing, and our relationship with Egypt is changing,” said a former administration official who was involved in Egypt policy and who spoke on the condition of anonymity to express reservations about the way the military aid program for Egypt works. “It’s increasingly volatile, it’s increasingly fluid. In a country where there is so much unpredictability, being in a situation where we have our hands tied fiscally seems to be a terrible policy stance.”
Last year, a draft memo prepared for lawmakers who were angry at a crackdown on U.S.-funded pro-democracy organizations in Cairo that was sanctioned by the Egyptian military highlighted the possible impact that a suspension of aid could have on U.S. defense contractors.
“Without the exercise of the waiver, funds would not be available to continue payments on current contracts, which would have a potentially devastating impact on the current pipeline of U.S. produced defense articles, an impact that is not readily reversible,” the draft memo warned. The final draft submitted to Congress flagged the issue, albeit in less dire language. Clinton ultimately signed the waiver.
The administration believes it would have a number of options to wind down contracts if it had to suspend aid, according to a senior administration official.
Warnings about mechanism
Egypt started acquiring U.S. defense equipment after it signed a peace treaty with Israel in 1979, ending decades of enmity that included three major wars. Eager to forge a strong bond with Egypt, which had been a Soviet-allied state for decades, Washington spared no effort in a bid to use military aid to cement its nascent alliance.
“They were disillusioned with the Russians and kicked them out and turned to the West,” said Rep. Gerald E. Connolly (D-Va.), a member of the House Foreign Affairs subcommittee on the Middle East and North Africa who worked on Egypt policy as a Senate staffer during the 1970s and 1980s. “We embraced that and, oh my goodness, what an opportunity.”
Because Egypt could not afford pricey military equipment, the White House allowed it to use cash-flow financing to place orders for jets, air-defense batteries, antitank missiles and armored personnel carriers. Congressional auditors warned in a 1982 report that the practice could have unforeseen consequences.