Egypt has asked the Reagan administration to convert $500 million in U.S. economic aid to a cash grant to help compensate for the expected loss of $3 billion in foreign exchange earnings, according to Egyptian and U.S. officials.
A high-ranking Egyptian team led by Planning Minister Kamal Ganzouri and including Finance Minister Salah Hamed is in Washington this week negotiating with U.S. officials the terms of an economic reform program that could clear the way for an administration decision to provide the cash grant if Congress also approves.
The cash would also help Egypt indirectly to begin meeting interest payments on its $4.5 billion military debt to the United States. Egypt should pay roughly $1 billion on the debt this year but is unlikely to do so because of the serious economic crisis facing the government.
Currently, only $115 million of the roughly $1 billion in annual U.S. economic assistance -- which is a large portion of the total U.S. aid package -- to Cairo is cash. But the cash portion of this fiscal year's aid program has yet to be disbursed because Egypt has not carried out the long-promised economic reforms Congress has insisted upon.
The United States has, however, disbursed $500 million in cash appropriated by Congress last year as a special one-time supplemental appropriation, which also included $1.5 billion for Israel over two years. Regular U.S. economic and military aid to Egypt this year will be about $2.2 billion, after the cuts mandated by the Gramm-Rudman-Hollings legislation.
One U.S. official said that in exchange for cash, "the United States wants assurances it will go to good use and that is part of the ongoing dialogue."
The main obstacle, administration and congressional sources said, is the refusal of President Hosni Mubarak's government to institute the kind of fundamental economic reforms the International Monetary Fund, the World Bank and the United States have been urging for years.
These include an end to government subsidies for certain basic food items, electricity and gasoline that have cost the Egyptian government $7 billion a year, close to a third of Cairo's budget. Mubarak has put off a decision on ending these subsidies for fear of igniting public demonstrations that could undermine his government.
The Ganzouri delegation and Egyptian Defense Minister Abdel Halim Abu Ghazala, who was here last week, have also sought help on the huge Egyptian foreign debt, which now amounts to roughly $35 billion, including $6.8 billion owed the United States.
Since fiscal 1985, all U.S. economic and military aid to Egypt has been in grants rather than loans.
The Egyptian government has been asking the United States to consider cutting the interest rates -- which average 12 percent -- on the military debt accumulated before 1985. Cairo would like to pay the same 7 to 8 percent the U.S. government pays on loans today. In addition, Egypt is being charged an extra 4 percent on payments that are more than two months in arrears.
The administration's position is that it cannot reduce interest rates for Egypt alone without inviting pressure from other allies with big debts, such as Israel. In addition, it is not clear whether the administration has the authority to cut rates unilaterally without congressional approval, according to congressional and administration sources.