Kuwait has intensified Arab economic campaign against the Egyptian-Israeli peace treaty by demanding that Egypt return about $1 billion of Kuwait deposits in Egyptian banks, U.S. sources reported yesterday.
This move and other signs that Arab nations are intent on punishing Egyptian President Anwar Sadat more severely than Cairo and Washington had expected emerged as some senior Carter administration officials reportedly were discussing an urgent new economic aid program for Egypt.
The administration is not formally considering proposals to increase U.S. aid to Egypt now, sources said, but there is official discussion of new efforts by Washington to press West Germany, Japan and other developed nations into providing joint economic help for Sadat that could raise the amount of U.S. funds going to Egypt.
Support for an expanded egyptian aid program, which might be channeled through a regional development bank, reportedly comes from the Commerce Department and the office of President Carter's special representative on trade, Robert S. Strauss, who has just been named special negotiator for the Middle East.
A decision by Arab nations last month to halt new economic aid to egypt appears to imperil immediately a $1.4 billion telecommunications project that three U.S. companies have proposed to build in part as a concrete symbol of the flow of American technology and financial help that Sadat has suggested to his nation will crown his peace efforts.
Sadat has reffered to a U.S. plan to rebuild Egypt's decrepit telephone system in justifying his decision at the Camp David summit last year to agree to a peace treaty with Israel.
Officials at the companies that are seeking the contract paint the project as a potential "American Aswam," a reference to the political symbol the Soviet Union supplied Sadat's predecessor, Gamal Abdel Nasser, in building the $1 billion high dam in upper Egypt.
But the $200 million in foreign exchange loans the companies were counting on Saudi Arabia to provide or underwrite evaporated last month, when Arab oil-producing nations carried out decisions made at the Baghdad Arab summit to cut off new economic support for Sadat unless he renounces the treaty with Israel.
The Saudi decision to join the economic boycott also is having a sharp impact on the willingness of U.S. and European banks to provide new financing for Egypt, according to U.S. businessmen.
The administration's request for $300 million in extra economic support for Egypt over the next three years was based on part on the expectation that the Arab states would cut off new aid, U.S. officials said yesterday. The administration also is seeking $750 million in economic aid for Egypt next year.
But Kuwait's action in demanding the return of an estimated $1 billion in demand deposits controlled by the Central Bank of Egypt caught officials here by surprise. Saudi Arabia has about the same amount deposited in Egyptian banks, U.S. officials estimated, but it was not immediately clear if the Saudis would make the same move.
Egypt so far has ignored the Kuwaiti request, and may try to block the transfer of the funds, U.S. sources said."I wouldn't be surprised if Cairo decided to stonewall this," one official commented.
Egyptian officials also are reportedly disturbed that development agencies and funds controlled by other Arab governments are cutting off disbursements on existing commitments if scheduled Egyptian repayments are late. These officials reportedly see a new pattern of financial harrassment that goes beyond the commitments made at the Baghdad summit.
U.S. businessmen who have talked to Saudi and Egyptian officials say they have concluded that it will be a year to 18 months before Arab anger at Sadat has receded far enough for oil money to the available to finance new projects in Egypt.
The $1.4 billion telecommunications project was proposed to Egypt by Ameritech, a consortium of Western Electric, General Telephone and Electronics and Continental Telephone. The financing was to be split into three roughly equal segements of American, Egyptian and other Arab funds.
The proposal called for Egypt to allocate $80 million a year from U.S. aid funds for five years, and a $100 million commitment from the U.S. Export-Import Bank. The consortium approach" of supplying all the equipment, servicing and training for a five-year period for a modern telephone system to replace a network that is now 30 percent inoperative and deteriorating rapidly.
The consortium's ambitious comprehensive project is also imperiled by a decision by the egyptian government to proceed step-by-step with the telephone system renovation, company officials acknowledge.
They have been told that Prime Minister Mustafa Khalil decided last week to commit Egypt only to an $80 million project to be paid for from the U.S. aid funds available for next year, and to review that decision each year. Consortium officials maintain that this approach, which would put them into a competitive bidding situation with U.S., European and Japanese companies, would produce exorbitant annual development costs that in the end would not produce the breakthrough in communications that Sadat expects from U.S. technology.
Sadat, who has frequently heard American investors and executives complain that the lack of working telephones and Telex machines makes it impossible to do business in Egypt, has reportedly indicated to American visitors that he and President Carter have discussed U.S. help for the communications system at several meetings.