he $1 billion a year U.S. economic assistance program in Egypt, the largest American aid program in the world, has become the focus of intense criticism here and in the United States.
The Agency for International Development (AID), which administers the program, is under attack in the Egyptian press as being "an American shadow government in Egypt" and serving as "a tool of American penetration."
American businessmen, on the other hand, say AID has not effectively used its leverage with the Egyptian government over the past seven years to force needed economic reforms or to help private companies, Egyptian and American, compete on equal terms with the dominant state-run sector.
Their views are said to be shared by policy makers in the Reagan administration, where a debate over what to do about the bulky U.S. aid program -- and whether to "get tough" with Egypt over reforms -- reportedly has been under way for some time.
The businessmen and like-minded policy makers are reported to be particularly upset about the hundreds of millions of dollars AID has spent on upgrading plants and providing equipment for Egypt's ailing state-run industries while assistance to its struggling private sector has been relatively small.
Meanwhile, Congress is investigating why AID is unable to spend a significant portion of its allocated funds each year, resulting in the present $2.8 billion "pipeline" of unused appropriations, and why 20 percent of its program consists of "problem projects."
The three-way attack on the program, once compared in size and ambition to the post-World War II Marshall Plan for Western Europe, has the U.S. Embassy and the agency here concerned but uncertain how to respond.
"If U.S. aid were reduced, it would be seen as a very negative political move unless it was part of a general cut, including Israel," said an embassy spokesman who asked that his name not be used. "It would be a signal we were beginning to hedge on our commitments."
"The aid program," he continued, "has got to be measured in terms of political benefits as well. It is to help cushion the shock of an Egypt that decided to go from war to peace.
"Our interests here are not just to see a better economy but an Egypt that continues to be politically stable and committed to the peace process."
The concern in Congress and the disgruntlement among American businessmen have noticeably increased during the past year.
But the attack on AID in the state-controlled Egyptian media is a new development that appears to be an outgrowth of the general frustration among intellectuals here with the policy of the United States and Israel, its two "peace partners," toward Lebanon this past summer.
The criticism surfaced in early October when the weekly economic magazine of the semiofficial newspaper Al Ahram began a debate on the role of AID and other American institutions in sponsoring research which a number of Egyptian critics attacked as a "threat" to Egypt's national security and a "penetration" of its national culture.
Writer after writer, some of them involved in U.S.-sponsored projects, raised questions in Al Ahram's weekly about the purpose of the research, charging or implying that it was a form of intelligence gathering.
One of them, Saad Eddin Ibrahim, a professor of political sociology at the American University in Cairo, said that AID had become "tantamount to an American shadow government."
The strongest protest against the attacks so far has come from Egyptian academics accused of complicity, while AID has so far remained mute.
The debate began to take on such proportions and political overtones that the government last month summarily quashed it by ripping out eight pages that were to appear in one issue of the economic weekly.
Lutfi Abdelazim, the publication's editor, said in an interview that he intends to pursue the debate "as long as I'm here."
The debate, he argued, was in both the Egyptian and American interest and not an "anti-American campaign." He said he wanted to expand it to include a discussion of what Egyptian aid priorities should be.
"You are spending billions of dollars. But in the end, you are not satisfied and we are not satisifed," he remarked. "Our task is to tell you what we want," he added. The AID projects "must be matched with our priorities."
American businessmen have been lobbying through the Egypt-U.S. Business Council, founded in 1975 and grouping 86 American and Egyptian companies. It has set up its own committee to "assist" AID in looking for ways to boost its assistance to the private sector.
In a report issued last spring, the council was as critical of the agency as it was of Egyptian government policy. It called on AID to streamline its procedures, speed its decisions and increase its program flexibility, in addition to providing more financing for the private sector.
It listed as possible steps: pressing the Egyptian government to reduce its massive subsidies for state-run enterprises and basic commodities, eliminating its price ceilings and system of dual foreign exchange rates, and allowing individuals to purchase shares in public-sector companies. It also urged more AID funds to encourage long-term private investment.
Charges leveled against AID here and in Congress range from too much money being spent on feasibility and other studies to too little of its funds actually being used each year.
An AID spokesman, who also asked not to be identified, said the agency was spending no more than $5 million a year on feasibility and evaluation studies. He also denied Egyptian accusations that the studies were aimed at intelligence gathering or done independently of the government.
"We can't spend five cents that the government of Egypt doesn't approve," he said.
In answer to American businessmen's charges that AID was not using its clout to force economic reforms, the spokesman questioned whether this was possible. He noted that Egypt had for years rejected reforms demanded by the International Monetary Fund and thus disqualified itself for a stand-by credit of hundreds of millions of dollars.
Egyptian leaders still have not forgotten the rioting by enraged mobs here in January 1977. They were touched off by a government attempt to reduce subsidies on basic food commodities, a condition posed by the IMF for the credit. Since then, all economic reforms have been viewed as bearing a considerable political risk with the potential for bringing down the government.
"I'm not sure the United States has the political clout to force reforms," he said. "Our leverage is one of a partner and our means discussion and dialogue."
He also dismissed the accusations in the Al Ahram economic weekly articles that AID was a "shadow government" in Egypt, saying that $750 million of the roughly $1 billion earmarked for Egypt annually was given directly to the Egyptian government, which allocates the funds itself.
The AID spokesman said the present $2.8 billion of unspent aid backed up in the "pipeline" was partly the result of $800 million in new funds just obligated by Congress and partly due to the agency's practice of committing all the money for long-term projects in the first year.
He acknowledged that 21 of the roughly 100 AID projects were officially listed as "problem projects," although he argued that this 21 percent ratio compared favorably to the West German aid program, where the ratio was 40 percent. He noted that if a project is funded, and then scrubbed, the money must go back to the U.S. Treasury and thus is lost to the program.
He, too, said major reforms both in AID procedures for disbursing funds and in the Egyptian economy were badly needed, but said he was uncertain in which direction Washington should go.
"Egypt itself clearly hasn't decided on making the reforms," he remarked. "Now the question is, is it time to get tough with Egypt? And how do you go about doing this given the IMF experience?"