were correspondingly large, and thus the burden on donors was substantial. Political circles in the United States were already grumbling that with around two-thirds of the aid budget preempted by Israel and Egypt, it left little scope to use aid as an instrument of U.S. foreign policy in the many other countries with which it had dealings. The United States had already seen glimmers of this issue and had sought to widen the circle of support, and thus lighten the load on individual donors, by appealing to the G-7 and encouraging the World Bank to set up a consultative group of donors. However, the results of these exertions could not be guaranteed, because they depended on whether other countries considered that their commercial and strategic interests justified providing support to Egypt. Thus Egypt should not regard foreign assistance as an eternally available or a continually expanding resource.
From the viewpoint of 2016, the ambassadors’ analysis was prescient. It would be useful to briefly review the course of U.S. assistance to Egypt, and to bring out some of the political implications of its trajectory.26
After the Camp David Accords that cemented the peace between Egypt and Israel, the United States agreed to give Egypt $1.3 billion in military assistance and $815 million as economic aid, a total of $2.15 billion, annually. This contrasted with over $3 billion in total assistance provided to Israel. Commentators in Egypt were unhappy that on a per capita basis, Israel was getting ten times the assistance that Egypt was getting. However, $2.15 billion was still a substantial amount, and Egypt could not afford to reject it.
This state of affairs continued for two decades. Then in January 1998, Israel, mindful that a country with per capita income approaching $20,000 should not be a supplicant for economic assistance, negotiated with the United States to change the mix between economic and military aid. The former was to be reduced over a ten-year period and the latter increased. The United States applied a 3 to 2 ratio, similar to total U.S. aid to Israel and Egypt, to the reduction in economic aid. This reduced Israel’s share annually by $60 million and Egypt’s by $40 million, but military assistance to Egypt was not increased. As a result of these measures, economic aid from the United States to Egypt steadily dropped from $815 million in the fiscal year 1998 to $250 million from fiscal year 2009 onward. Military assistance remained at $1.3 billion, so total U.S. assistance to Egypt in 2016 was about $1.55 billion.
At the same time, Egypt’s GDP has been increasing. In 1980 it was about $23 billion; total U.S. aid therefore accounted for somewhat more than 9 percent of GDP. Egypt’s GDP in 2016 had reached about $300 billion; total U.S. aid today accounted for less than one-half of 1 percent. This greatly changed the calculus—9 percent of GDP can buy you a very comfortable armchair at the table; one-half of 1 percent would hardly pay for a two-legged stool (especially as the purchasing power of the $1.55 billion was much less than it was thirty-five years previously). The leverage that the United States can obtain by virtue of its aid program has substantially eroded.
The leverage is further diluted by U.S. procedures that greatly extend the gap between the promise of aid and its fulfillment, a fact recognized by the U.S. secretary of state John Kerry in testimony before the House Appropriations Subcommittee on April 17, 2013. After detailing the aid Egypt had received from Arab countries, Kerry went on to say:
We promised $1 billion and until I took the $190 million that you kindly helped us to be able to provide, we didn’t provide them with a dime, not a dime. We gave them a promise and a year later, we’ve given them zero. . . . I’ll tell you, if you’re not helpful to people in their time of need, if you’re not there, part of the process, it’s very, very difficult to have the kind of leverage to say, a diverse pluralistic politics is critical to us when they say, what’s it matter to you? You don’t really care. You’re not helping us. The other guys are helping us. Thank you, we’ll, you know, do what we want to do.27
Second, there have been suggestions in the U.S. press and from some legislators that more conditions should be added on the assistance. This produces a blowback from Egyptian policymakers. The latters’ narrative goes on the following lines: “The contract with the United States was that Egypt would maintain the peace with Israel, and not do anything to impede the West’s access to Middle East oil. Even in the face of strong public opposition, we have delivered on this understanding. Now the Americans are asking for more conditions—you must free the press, you must expand democracy, you must increase human rights, you must not be beastly to political dissenters, you must permit NGOs to operate without restriction, and so on and so forth. All these have nothing to do with the original agreement.”
The Egyptian response is thus on the lines of “we already gave at the office.” In the officials’ view, if the United States wants Egypt to do extra things, it should be prepared to come up with more money—one-half of 1 percent of GDP doesn’t begin to cover the bill. The pity is that most of the reforms supported by the United States and the international organizations would be to Egypt’s benefit. However, the two countries are looking at these issues through different lenses, and it is not surprising that the outcome is a muddle and satisfies neither party.
In view of the foregoing analysis, it is difficult to resist the conclusion that the United States has given up direct, meaningful support of the Egyptian economy. It appears to have decided that its strategic goals can be most effectively pursued through its relationship with the Egyptian military combined with some pressure on the IFIs. The United States’ approach takes the form of continuing the carrot of the $1.3 billion in military aid, while wielding the unspoken threat of withholding spare parts, specialized paraphernalia, munitions, training, and maintenance for the hardware supplied. This can be a powerful foreign-policy tool, as Egypt has largely switched its dependence for advanced military equipment from Soviet to American sources. For economic support, Egypt may increasingly have to look to other patrons.
This may not be altogether easy. The ambassador with whom I had the discussions on foreign assistance remarked that for historical, political, and cultural reasons Egypt naturally looked toward the Arabian Gulf countries for assistance. It had helped that many of the rulers and senior officials from these countries had had long-standing ties to Egypt by virtue of being educated in the country and having respect for its culture. However, this was not necessarily true of the younger generation, which increasingly looked to Europe and the United States for these matters. There was a limit to how long the Egyptians could act as Greeks to the Gulf Arabs’ Romans, purporting to provide wise, experienced counsel and the benefits of their superior culture to the Middle East’s new powerhouses. Egypt’s stock of ‘soft power’ was rapidly waning.
The Political Economy of External Assistance
Since so much of modern Egypt’s development has been associated with external aid inflows, it is worthwhile to examine some of the key political-economy discussions that Egyptian policymakers and external donors engaged in concerning this issue.
The economic case for seeking external assistance is straightforward. A country requires a certain rate of investment in order to raise its GDP growth to the targeted level. It may also want technical assistance to upgrade its institutions or stock of human capital. The country is unable to finance these requirements from its own savings, and it may be unable to afford or to access international financial markets. It therefore seeks foreign savings on concessional terms to fill the gap between the required investment rate and the domestic savings rate. The foregoing is the general justification for project assistance. In addition, the recipient country may generate insufficient domestic revenues and thus have a deficit in the budget. The country may therefore seek program assistance, which, in the simplest case, consists of receiving commodities from a donor on grant terms and which the recipient sells in its home market at the market price and thereby acquires the required domestic resources for its budget.28 The recipient may also have a shortfall
