Egypt: Background and U.S. Relations

Egypt: Transition under Military RuleBackground and U.S. Relations Jeremy M. Sharp Specialist in Middle Eastern Affairs June 21, 2012 Congressional Research Service 7-5700 www.crs.gov RL33003 CRS Report for Congress Prepared for Members and Committees of Congress Egypt: Transition under Military Rule Summary On January 25, 2011, Egyptians began 18 days of mass protests that eventually drove President Hosni Mubarak to resign from the presidency after 29 years in power. In the wake of Mubarak’s resignation, a Supreme Council of the Armed Forces (SCAF)—made up entirely of military officers who enjoyed leading positions under Mubarak—has exercised executive authority directly and via an interim cabinet. The SCAF oversaw a March 2011 referendum that approved amendments to Egypt’s constitution, and also issued new laws on the formation of political parties and the conduct of parliamentary elections. The amended constitution laid out a transitional framework in which the elected People’s Assembly and Shura Council, in conjunction with the SCAF, were to select members for a 100-person Constituent Assembly to draft a new constitution subject to a referendum. Legislative elections held in late 2011 and early 2012 granted significant majorities to Islamist political parties, including the Muslim Brotherhood’s Freedom and Justice party. The SCAF and various non-Islamist forces challenged the legislature’s efforts to select members for the Constituent Assembly, and a court ruling found the legislative electoral law unconstitutional, putting the recent election results and the future of the Islamist-dominated parliament in doubt. As polls closed for the final round of Egypt’s June 2012 presidential election, the SCAF issued further amendments to the transitional constitution, granting itself sweeping powers to appoint members of the Constituent Assembly, enforce martial law, and remain immune from oversight by the newly elected president. Muslim Brotherhood candidate Mohammed Morsi has claimed victory in the poll. This report provides a brief overview of the transition thus far and information on U.S. foreign aid to Egypt. The United States has provided significant military and economic assistance to Egypt since the late 1970s. U.S. policy makers have routinely justified aid to Egypt as an investment in regional stability, built primarily on long-running military cooperation and on sustaining the March 1979 Egyptian-Israeli peace treaty. Successive U.S. Administrations have viewed Egypt’s government as generally influencing developments in the Middle East in line with U.S. interests. U.S. policy makers are now grappling with complex questions about the future of U.S.-Egypt relations, and these debates and events in Egypt are shaping consideration of appropriations and authorization legislation in the 112th Congress. Congressional Research Service Egypt: Transition under Military Rule Contents Overview: Egypt’s Military Retains Control ................................................................................... 1 Latest Developments........................................................................................................................ 4 Issues for Congress .......................................................................................................................... 7 Egyptian-Israeli Relations ......................................................................................................... 7 The 1979 Peace Treaty ........................................................................................................ 7 The Economy and Possible IMF Loan ...................................................................................... 9 U.S.-Egyptian Relations ................................................................................................................ 12 The NGO Case ........................................................................................................................ 13 U.S. Foreign Aid to Egypt ....................................................................................................... 15 Military Aid....................................................................................................................... 15 Economic Aid.................................................................................................................... 16 U.S. Foreign Aid to Egypt Since February 2011............................................................... 18 The Consolidated Appropriations Act, FY2012 ................................................................ 19 FY2013 State and Foreign Operations Appropriations Bills............................................. 19 Figures Figure 1. Map of Egypt.................................................................................................................... 7 Figure 2. Egyptian Opposition to U.S. Aid.................................................................................... 13 Tables Table 1. U.S. Assistance to Egypt, FY2010-FY2013 Request....................................................... 16 Table 2. Top 10 recipients of U.S. Foreign Assistance, FY2012 and FY2013 Req. ...................... 22 Table 3. U.S. Foreign Assistance to Egypt..................................................................................... 22 Table 4. U.S. Foreign Assistance to Egypt, 1946-1997 ................................................................. 23 Contacts Author Contact Information........................................................................................................... 24 Congressional Research Service Egypt: Transition under Military Rule Overview: Egypt’s Military Retains Control Egypt’s first truly competitive presidential election appears to have been won by the Muslim Brotherhood’s candidate, Mohammed Morsi, although a final announcement of the results is still pending.1 Ahmed Shafik, Morsi’s opponent, also has declared himself the winner. On June 20, the Presidential Electoral Commission announced that final results, which were to be released on June 21, would be delayed in order to evaluate charges of electoral abuse. The delay has created a tense atmosphere in Egypt, raising suspicions that the electoral process could be manipulated in favor of Shafik. As polls closed, the Supreme Council of the Armed Forces (SCAF), with the aid of courts dominated by judges appointed under former President Hosni Mubarak, took significant steps to limit presidential authority. A court ruling leading to the dissolution of parliament may take away Morsi’s key base of support in the government, while the SCAF has exempted itself from oversight and asserted broad powers through last-minute changes to the transitional constitution.2 The developments have led some Egyptian activists and outside observers to conclude that Egypt is no longer in “transition.” It remains to be seen if full civilian rule can be achieved or if the demands of the January 25 revolution for democracy and substantive constitutional reform will remain unfulfilled. While many analysts had anticipated that the SCAF would seek to limit the incoming president’s powers in the absence of a permanent constitution, few observers anticipated the degree to which the SCAF would be willing to manipulate Egypt’s transition to preserve its primacy and privileges. Apparently, the SCAF is calculating that the support of many Egyptians within the secular elite—the military, the private sector, and the Coptic Christian community—will mitigate public protest against its final-hour maneuvers, and that the Brotherhood will consider accepting the outcome if it secures the presidency. The Brotherhood, despite its victories at the polls, had its reputation suffer somewhat in recent months as it sought more power by deciding to field a candidate in presidential elections—backtracking on its previous promise not to. The SCAF also may calculate that the protest movement is exhausted and that it can contain whatever public backlash it may face in the weeks ahead. Finally, the SCAF also may be betting on the resignation of the international community to accepting its fait accompli, as foreign nations fearing the spread of instability in an already volatile region may choose what they perceive as the lesser of two evils by supporting Egypt’s government rather than seeing it fail. In the end, after 16 months of a messy transition, the military, which perceives itself as the guardian of the Egyptian state, appears unwilling to abandon the reins of power to the Muslim Brotherhood. The Brotherhood, for its part, may not seek to foment instability as a result of this reverse, perhaps considering this latest episode a lost battle in a decades-long struggle for power 1 According to a running tally on the Al Ahram website, Morsi leads Shafiq by 900,000 votes. Available online at http://english.ahram.org.eg/ui/front/townvotes.aspx 2 An English translation of the new June 17, 2012, annex to the amended March 2011 constitution is available online at http://english.ahram.org.eg/NewsContent/1/64/45350/Egypt/Politics-/English-text-of-SCAF-amended-EgyptConstitutional-.aspx. On June 18, SCAF also announced that it would appoint General Abdel Momen Abdel Baseer to be the new president’s chief of staff. It also re-constituted the National Defense Council to handle national security affairs. The council is headed by the president and has 17 members, 12 of whom belong to the military. SCAF has said that it will officially transfer power to the president on June 30. Congressional Research Service 1 Egypt: Transition under Military Rule with Egypt’s “deep state.” According to this perspective, even a weakened presidency represents a gain. According to one Brotherhood official, “It is not easy to uproot the military’s grip on the state.... We are planning for a 7- or 10-year process.” Egypt’s transition had, at times, been guided by agreements reached in SCAF-Brotherhood negotiations, much to the consternation of liberal political forces. However, as presidential elections approached and the Muslim Brotherhooddominated parliament became more confrontational toward the military, the two sides drifted apart and Egyptian politics became a zero-sum game. Secretary of State Hillary Clinton stated days before the presidential election that “There can be no going back on the democratic transition called for by the Egyptian people.” Recent events suggest otherwise. For the United States, there are most likely negative implications to the SCAF’s recent moves. In spite of broader efforts to engage with the Brotherhood and other political actors in Egypt, U.S. relations remain closest with the Egyptian military, supported by an annual $1.3 billion military aid package. On June 18, a Defense Department spokesman said that Secretary of Defense Leon Panetta, who spoke to the head of SCAF, Field Marshal Mohamed Hussein Tantawi, on June 15, was not told by Tantawi of SCAF’s intentions to amend the interim constitution.3 Many Egyptians will most likely blame the United States government for the SCAF’s authoritarian behavior. Moreover, U.S. policymakers will be faced with the quandary of accepting imperfect results while being asked to support international efforts to lend Egypt funds to help with its severe budgetary shortfalls. Some Members of Congress have already threatened to withhold foreign aid. On June 19, former President Jimmy Carter, who monitored the presidential election, stated that he was “deeply troubled by the undemocratic turn that Egypt has taken.” 3 “’Deeply Concerned’ about Egypt Decree: Pentagon,” Reuters, June 18, 2012. Congressional Research Service 2 Egypt: Transition under Military Rule Key Egyptian Movements, Institutions, and Religious Communities The Military—Since the resignation of former President Hosni Mubarak in February 2011, Egypt has been ruled by a military council known as the SCAF—The Supreme Council of the Egyptian Armed Forces. Since 1952, the military has been the strongest government entity, comprising nearly half a million personnel and possessing vast land holdings and businesses. It plays a key social role, providing employment and a sense of national identity to many Egyptians. The military is led by 77-year-old Field Marshal Mohamed Hussein Tantawi. The Muslim Brotherhood—Since its founding in 1928, the Muslim Brotherhood (MB) has been one of Egypt’s strongest political movements. Its purpose is to turn Egypt away from secularism and toward an Islamic government based on sharia (religious) law and Islamic principles. Over the years, the Egyptian government has alternated between tolerating and suppressing the Muslim Brotherhood, sometimes arresting and jailing its members, and other times allowing them to operate almost without hindrance. After the February 2011 revolution, the political party arm of the movement, the Freedom and Justice Party (FJP), was legalized, and the FJP secured 45% of all seats in the lower house of parliament following parliamentary elections in 2011-2012. Many foreign observers agree that the organization renounced its former policy of using violence as a political tactic decades ago, and point out that the former Brotherhood members most committed to violence largely gravitated toward organizations that formed the basis for Al Qaeda. The U.S. State Department does not list the MB as a Foreign Terrorist Organization. The “Remnants” of the Old Regime—Known colloquially in Egyptian Arabic as feloul, there are many former supporters of the old order who wish to see their power restored. Mubarak’s former ruling party was known as the National Democratic Party (NDP) before it was disbanded in 2011 and its headquarters burned by protestors. The party had been a symbol of a corrupt system to many, yet in recent months it had slowly returned, led by former Minister of Civil Aviation and Prime Minister Ahmed Shafik. Shafik appears to have narrowly lost the presidential election to the Muslim Brotherhood candidate Mohammed Morsi. Revolutionary Youth—Youth activists are widely credited with sparking and leading the uprising that led to the dissolution of the Mubarak regime. Like many Arab countries, Egypt has experienced a youth bulge in recent years, though its economy is unable to produce adequate employment for college-educated youth, leading to high youth unemployment, delayed marriage rates, and frustration with the status quo. For the last several years, youth activists have organized themselves into non-party movements, such as April 6 Youth Movement and the National Association for Change. However, young revolutionaries were not able to translate their successful protests into postrevolutionary politics and have subsequently been marginalized by more established forces during Egypt’s transition. Salafis—After the February 2011 revolution, Salafis (conservative Muslims who endorse strict interpretations and implementation of Islamic law) began organizing themselves politically. The Al Nour Party is the largest Salafi political party, having secured 21% of the seats in the last parliamentary election. Coptic Christians—Coptic Christians comprise an estimated 8% to 12% of the population. They are largely absent from high level government and military positions, though Copts play a prominent role in the private sector. Copts may face discrimination, and the community is subject to occasional instances of sectarian attacks, to which both the government and the Coptic Orthodox Church rapidly respond to ease communal tensions. However, more often than not, the Egyptian government only acts to redress the immediate symptoms of violence rather than the underlying causes. Judiciary4—In recent months, Egyptian judges have ruled on cases with enormous implications for Egyptian political life. Historically, Egyptians have had great respect for judges, in spite of state attempts to coerce the judiciary. In general, the civilian court system is well regarded and operates independently of the executive branch. Judges also supervise polling stations during elections. Recent statements and decisions may change the courts’ reputation. 4 For a complete list of Egypt’s various courts, see http://egyptelections.carnegieendowment.org/2012/06/06/a-guidethrough-the-egyptian-maze-of-justice Congressional Research Service 3 Egypt: Transition under Military Rule Latest Developments • Presidential Election—Mohammed Morsi, the Muslim Brotherhood’s candidate for the presidency, has claimed victory in Egypt’s first truly competitive presidential election, facing Mubarak regime stalwart Ahmed Shafik in a run-off. According to unofficial election results, he received 51.89% of the vote. Anecdotal reports noted that some voters were dispirited by their choices.5 Shafik also is claiming victory and final results have been delayed. Egyptian Presidential Candidate Mohammed Morsi Born in 1951 in a rural Nile Delta village, Mohammed Morsi rose through the ranks of the Muslim Brotherhood to become the chairman of the movement’s political party, the Freedom and Justice Party, having previously served as an independent in parliament between 2000 and 2005. He was the Brotherhood’s backup candidate and was not nominated as a candidate until April 7. As a candidate, Morsi pledged to launch the Brotherhood’s “Renaissance Project,” an economic development plan that seeks to launch a number of large infrastructure projects with a goal of attaining an average rate of annual growth that ranges between 6.5% and 7%. Morsi also is known for being pragmatic and, during the Mubarak regime, maintained dialogue with internal security in order to ensure that suppression of the Brotherhood was kept to a minimum. Morsi is a U.S.-educated engineering professor and received a PhD from the University of Southern California in 1982. He is married with four children. • SCAF Issues Supplementary Constitutional Declaration—The June 17, 2012 constitutional annex grants the SCAF legislative powers, oversight of the defense budget, the authority to appoint Army commanders and the minister of defense, and legal consent over any declaration of war. It also grants the SCAF the ability to form a new Constituent Assembly if the previous one fails to complete its work. A new Assembly must complete its work within three months of formation and must be approved in a public referendum within 15 days from the date of its preparation. Under the June document, new parliamentary elections are to be held within a month of the approval of a new constitution. The June Annex grants the president the power to form and fire a government and ratify and reject laws. According to Nathan Brown at the Carnegie Endowment for International Peace, “The full extent of the SCAF’s authority is not always clear. Its executive authority is strong but not absolute under the emerging system, and it will turn over some significant authority to the president, especially in administrative and domestic affairs. It is likely that true clarity will come only in practice.”6 • Parliament Disbanded—On June 14, the Supreme Constitutional Court ruled that a third of the parliament was elected illegally, upholding an earlier lower court’s ruling that the electoral law governing parliamentary elections was unconstitutional.7 The court enforced the provisions of a 2011 electoral law8 that 5 On May 29, Egyptian officials announced the results of the first round of presidential elections. No single candidate won an outright majority of votes, triggering a run-off between the top two vote-getters, Muslim Brotherhood candidate Mohammed Morsi, who received 25% of all votes, and former Prime Minister Ahmad Shafik, who finished second with 24% of all votes. The run-off vote was held on June 16 and 17. The turnout for the first round was a disappointing 46%. 6 See, “The Egyptian Political System in Disarray,” Carnegie Endowment for International Peace, June 19, 2012. 7 It also ruled that presidential candidate Ahmed Shafik was not disqualified from running for president under a parliamentary-approved disenfranchisement law designed to bar former regime officials who had served during the last 10 years from returning to high public office. Congressional Research Service 4 Egypt: Transition under Military Rule created a complicated dual vote system reserving two-thirds of seats for a party list vote and the remaining third for individual candidates. Article V of the electoral law banned political parties from running candidates in the individual seat system. However, in the run-up to the 2011 elections, political parties, including the Muslim Brotherhood, protested the electoral law and demanded that party members be allowed to run for individual seats. Islamists and others threatened to boycott parliamentary elections, thereby depriving any legitimacy to the military-led transition. In response, the SCAF permitted parties to run candidates in the individual seat system, but SCAF did not actually amend Article V of the law. A lawsuit challenging the validity of the elections subsequently was referred to the Supreme Constitutional Court. The court’s June 2012 ruling had legal validity,9 but many observers believed that the Court and the SCAF would uphold the election results to ensure political stability on the eve of presidential elections. The court ruling cannot be appealed. With 166 of Egypt’s 498 (total of 508 but the other 10 are appointed by the head of state) parliamentary members now having been elected illegally, the SCAF declared the entire lower house of parliament invalid and dissolved it on June 15. The SCAF then assumed legislative powers. The leadership of the lower house has refused to recognize the dissolution order, and security forces have surrounded the parliament building, prompting fears of confrontation. • SCAF Re-authorizes Military Detainment of Civilians—Nearly two weeks after the expiration of the decades-old Emergency Law, the Ministry of Justice decreed on June 13 that officers may legally detain civilians involved in criminal activity and refer them to military tribunals. The move was widely condemned by liberal and human rights activists. Article 53 of the newly amended transitional constitution appears to endorse these changes as well. • Constituent Assembly in Peril—On June 12, parliament voted to approve the 100-person membership of the Constituent Assembly, the body tasked with drafting a new constitution. The Assembly’s composition has been a source of acrimony between secularists and Islamists for months. After Islamists were victorious in parliamentary elections, they packed the Assembly in March 2012 with sympathizers, drawing the ire of non-Islamist members who refused to participate in order to deny the Assembly broad-based legitimacy. Negotiations over the reform of the Assembly ensued, and the SCAF threatened to unilaterally appoint members if a compromise was not reached. All parties finally agreed on its composition, which was subsequently approved by parliament; however, now that parliament has been disbanded, the military has invalidated the existing Constituent Assembly and assumed authority to govern the country and select a new Assembly to write a permanent constitution. Nevertheless, the existing (...continued) 8 In 2011, the electoral law was amended several times in response to outcries from liberals and Islamists who wished to thwart the return of former regime elements. As originally proposed by the SCAF, the electoral law would have set aside half the seats for single member districts and the other half for party lists. 9 According to one source, the Constitutional Court ruled that allowing party members to compete on the individual lists violates the principles of equal opportunity because it gives party members two chances to compete for all the seats while independent candidates don't have the same opportunity. In 1987 and 1990, the SCC invalidated electoral laws on similar legal ground leading to the dissolution of various parliaments. U.S. Open Source Center (OSC) Report GMP20120615966026, “What to know on Egypt’s new political drama,” Al Ahram Online (Cairo), June 15, 2012. Congressional Research Service 5 Egypt: Transition under Military Rule Assembly continues to meet and appointed the head of Egypt’s judiciary, Hussam El Ghuriany, as its chief. 10 11 • Impartiality of Judges Questioned—In the past several weeks, many observers suggested that high level judges had grown more critical of the Muslim Brotherhood and had begun indirectly advocating the election of presidential candidate Ahmed Shafik.10 On June 7, the president of the Judges Club, the professional association for all Egyptian judges, remarked that “We used to stand at the edge of the judiciary and not go near politics.... But now Egypt is falling. We won’t leave matters for those who can’t manage them, with the excuse that we’re not people of politics. No, we are people of politics.”11 • Mubarak Sentenced—On June 2, 2012, a three-judge panel sentenced former president Hosni Mubarak and his interior minister, Habib el Adly, to life in prison for failing to protect hundreds of unarmed protesters during the January 2011 demonstrations. Citing lack of evidence that either President Mubarak or his top aides had expressly ordered the killing of protesters, the panel found that Mubarak was an “accessory to murder,” which did not merit a murder conviction under either Egyptian or international law. The court also acquitted Mubarak and his two sons, Alaa and Gamal, of all corruption charges, citing that the statute of limitations had expired. Similarly, six top security officers accused of a participatory role in the government’s violent response to protesters were acquitted. “Mara Revkin, Egypt’s Injudicious Judges,” Atlantic Council’s Egypt Source, June 11, 2012. “Egyptian Judge Speaks Against Islamist Victory Before Presidential Runoff,” New York Times, June 7, 2012. Congressional Research Service 6 Egypt: Transition under Military Rule Figure 1. Map of Egypt Source: Map Resources, adapted by CRS. Issues for Congress Egyptian-Israeli Relations The 1979 Peace Treaty For the United States, the maintenance of the 1979 Israeli-Egyptian peace treaty is a major regional foreign policy priority, and there is concern that instability in Egypt will disrupt the “cold peace” that Israel and Egypt have maintained for over 30 years. In the period since the resignation of former President Mubarak, Egyptian-Israeli relations have been tense, culminating in the September 2011 siege of the Israeli Embassy in Cairo by protestors,12 in which Israeli diplomats 12 This followed the events described in footnote 14. Congressional Research Service 7 Egypt: Transition under Military Rule holed up inside their compound came perilously close to being confronted by rioters before Egyptian commandos rescued the diplomats at the urging of the Obama Administration. Since then, Israel has maintained a minimal diplomatic presence in Egypt, having moved most of its staff from Cairo to offices in Maadi, New Cairo, and near the Cairo International Airport. Yaakov Amitai is the Israeli ambassador to Egypt, and Egypt’s Ambassador to Israel is Yasser Reda. The peace treaty remains intact. Most observers assert that despite widespread Egyptian anger toward Israel, most Egyptian politicians and party leaders—especially the military—understand the importance of maintaining peace. However, with growing lawlessness in the Sinai Peninsula on Egypt’s side of the border following Mubarak’s departure, and restrictions against additional Egyptian troop and armored unit deployment there per the terms of the treaty’s first annex,13 questions abound over the possible amending of the 1979 agreement. Some Egyptian leaders have made public comments suggesting that the treaty is “open to changes.” In September 2011, just weeks after clashes in the Sinai between Israeli forces and Palestinian terrorists which led to the accidental killing of several Egyptian soldiers,14 former Egyptian Prime Minister Essam Sharaf said “the Camp David agreement is not a sacred thing and is always open to discussion with what would benefit the region and the case of fair peace and we could make a change if needed.”15 That same month, unnamed Israeli military officials said that Israel was looking to launch a strategic dialogue with Egypt in which it would conduct a comprehensive review of the ties between the countries and make necessary changes to the military appendix of the peace treaty.16 Overall, however, some analysts suggest that Israel would prefer to continue the practice of negotiating changes to Egyptian deployments in the Sinai as circumstances necessitate.17 Egypt’s Role as a Mediator in the Arab-Israeli Conflict Since Mubarak’s resignation, there has been much speculation over whether Egypt would continue to play a consequential role in brokering Israeli-Palestinian peace talks and containing Hamas in the Gaza Strip. Many analysts suggested that when Israel completed an October 2011 prisoner exchange with Hamas to return Gilad Shalit from captivity, it did so partly in anticipation that Egypt would not be willing or able to broker such deals in the future due to Egyptian Islamist support for Hamas. For the United States, the possible loss of Egypt as a reliable broker limits its options when trying to corral regional support for renewed negotiations. Some observers assert that a Hamas-sympathetic Egypt could help advance negotiations by facilitating a unified Palestinian stance, but such unity might be objectionable to Israel. Under military rule, Egypt has been an active player in mediating between Israelis and Palestinians and between the Palestinian Authority in the West Bank and Hamas in the Gaza Strip. In addition to the Shalit deal, Egypt helped broker a cease-fire between Israel and Palestinian 13 Available online at http://www.jewishvirtuallibrary.org/jsource/Peace/egypt-israel_treaty.html On August 18, 2011, a Gazan terrorist cell traversed the Sinai into Israel and attacked both civilian and military targets—killing 8 and injuring 31. In hot pursuit of the perpetrators across the border, Israeli and Egyptian forces reportedly killed 7 attackers, but an Israeli aircraft also killed 5 Egyptian police officers, apparently by mistake. The incident further heightened Israeli-Egyptian tensions as thousands of Egyptians demonstrated at the Israeli Embassy a month later. Israeli Defense Minister Ehud Barak issued a statement of regret for the Egyptian deaths on August 20. 15 “Israel Summons Egypt Envoy over PM Comments,” Al Jazeera, English, September 16, 2011. 16 “Israel May Amend Military Appendix of Egypt Peace Treaty,” Jerusalem Post, September 1, 2011. 17 Policy Forum Report Sinai: The New Frontier Of Conflict? Policywatch #1872, The Washington Institute for Near East Policy, November 21, 2011. 14 Congressional Research Service 8 Egypt: Transition under Military Rule militants in the Gaza Strip in March 2012. In May 2012, Egyptian intelligence mediated a deal between Palestinian prisoners and Israeli authorities in which 2,000 prisoners had been on a hunger strike for weeks in protest of Israeli incarceration policies. In return for an end to their strike, Israel agreed to limit solitary confinement and expand visits from Gazan relatives who had previously been denied travel. Security in the Sinai Peninsula Most analysts believe that the deterioration in security in the Sinai Peninsula is perhaps the biggest threat to Israeli-Egyptian peace. Though the area has never been fully under Egyptian control, Bedouin Arab tribes in the area have lashed out at state authorities since the revolution for perceived injustices and lack of development in the area.18 Moreover, Palestinian militant groups based in Gaza have reportedly operated more freely in the area and are equipping themselves with weapons from looted Libyan stockpiles sold on the black market. With the national police forces in disarray, Bedouin criminal networks appear to have taken advantage of the security vacuum to increase human trafficking of African migrants into Israel, drug and weapons smuggling, and armed robbery and kidnapping of foreign tourists. In addition, terrorist organizations based in the Sinai have taken advantage of relatively lax security to conduct operations against Israeli, Egyptian, and foreign targets. Such groups have bombed gas pipelines19 and raided tourist resorts. Militants also have fired rockets from the Peninsula into Israel, alarming Israeli officials in nearby cities such as Eilat, which may be a terrorist target due to its proximity to Egypt and destination as a tourist attraction. In response, Israeli officials continue to insist that information sharing between Israel and Egypt continues. In April 2012, Defense Minister Ehud Barak remarked that “Israel, Egypt and Jordan have tasted the fruits of peace, and even during these uncertain times, the crucial communication channels between the Israeli and Egypt security establishments remain both open and effective.”20 Israel also is accelerating construction of a 17-foot tall, 150-mile long, $400 million “security fence” along its border with Egypt. On June 18, unidentified militants attacked Israeli construction workers building that security fence. One worker and two gunmen were killed. The attackers had crossed into Israel and planted a roadside bomb, which destroyed a vehicle carrying workers to the border fence. The Economy and Possible IMF Loan As a result of over a year of political unrest, Egypt’s economy has stagnated (GDP has grown at just 2% from July 2011 to present), and the interim military-led government has boosted social spending, leading to spiraling fiscal deficits. Though certain aspects of the economy have started to recover (such as revenues from Suez Canal receipts, oil and gas exports, and expatriate 18 Bedouins in the Sinai have long resented state investment directed toward beach tourism while tribal villages were neglected. Some tribes, such as the Azazna in northern Sinai, have many members that are not recognized as Egyptian citizens, with identity cards reading “nationality unknown.” See, “Sinai Seethes,” Al Ahram Weekly Online, 17 - 23 May 2012, Issue No. 1098. 19 Gas pipelines supplying Israel and Jordan with Egyptian natural gas have been struck at least 14 times since February 2011. In April 2012, Egypt terminated its controversial 20-year gas supply deal with Israel reached in 2005 due to socalled “contractual violations.” The arrangement had supplied Israel with 40% of its natural gas needs. However, the deal was unpopular in Egypt not only because it involved Israel, but because it involved corrupt dealing between former President Mubarak and his associates. One partner in the deal, Hussein Salem, is awaiting extradition in Spain. Salem is under investigation for corruption for receiving a no-bid contract for the supply of gas to Israel. 20 “Israel Challenges Egypt over Sinai Security Chaos,” Agence France Presse, April 30, 2012. Congressional Research Service 9 Egypt: Transition under Military Rule workers’ remittances), foreign direct investment and tourism receipts remain below their previous levels. Moreover, many economists are concerned that the financial crisis in Europe will lower demand for Egyptian exports and further reduce foreign investment in the months ahead. With a bleak short-term economic outlook and Egyptian leaders sensitive to further domestic instability, public expenditures have increased dramatically in order to reassure the population. Spending on public sector salaries (there are over 6 million Egyptian state employees) and energy and food subsidies has soared, leading to a predicted deficit for this year’s state budget of $23 billion. Since February 2011, authorities have been financing the deficit by borrowing from domestic banks and using the country’s foreign exchange reserves, which have gone from nearly $36 billion in early 2011 to $15.5 billion (including $4 billion in gold bullion) in June 2012. In the last few months, reserves have somewhat stabilized, and Saudi Arabia21 also provided Egypt $1 billion, though it had pledged even more last year (up to $4 billion) to support the transition. At present, it is unclear how a future Egyptian government will finance its fiscal deficit. Currently, the government is paying nearly 16% interest on one-year debt. Spending cuts may prove dramatically unpopular, as would inflationary policies that increase prices on basic commodities. If foreign exchange reserves continue to dwindle, it is unclear whether officials will be forced to depreciate the Egyptian Pound, a move that could boost interest rates and reduce asset values, potentially stalling any recovery. Many analysts suggest that Egypt may have no choice but to increase foreign borrowing, particularly from foreign governments and international financial institutions, since private foreign investors may be unwilling to take the investment risk and domestic banks are overstretched. Credit rating agencies such as Moody’s, Fitch, and Standard & Poor’s have downgraded Egypt’s sovereign credit rating over the past year.22 The International Monetary Fund may be a key foreign lender for Egypt, as it has offered the country $3.2 billion in financing over 18 months to three years at a minimal interest rate. More importantly, an IMF loan would ensure other investors that Egypt was on a path toward economic reform, thereby paving the way for additional foreign lending (the country’s current external debt is $33.7 billion). However, the IMF deal may have drawbacks for the Egyptian government, as it may be conditioned upon Egypt undertaking certain reforms and unpopular austerity measures, such as reducing food and fuel subsidies. Early indications are that officials may propose changing the country’s sales tax to a value-added tax (VAT) and targeting energy subsidies by instituting a direct-payment program for poor Egyptians. To date, Egypt’s lack of acceptance of an IMF loan has been largely based on political factors. According to one source, “Lack of internal political consensus over the loan (a condition set by the IMF) is said to be delaying the final approval. The inability to arrive at an agreement seems to be a result of party politics rather than of divergent views on the nature of the constraints facing the 21 Saudi Arabia is a key player in the Egyptian economy. According to one report, Saudi Arabia is one of Egypt’s biggest foreign investors and more than 1.5 million Egyptians work in Saudi Arabia. Their remittances represent half the value of all Egyptian remittances worldwide. The overall value of Saudi investments in Egypt amounts to $45 billion, while trade between the two countries adds up to $10 billion. Saudi investors also are the biggest investors in the Egyptian stock market and the most frequent visitors to Egypt’s tourist destinations. See, Sherine Abdel-Razek “Economic Ruptures,” Al Ahram Weekly Online, 3 - 9 May 2012, Issue No. 1096. 22 “Egypt Faces Hard Economic Challenges,” Daily Star (Beirut), June 12, 2012. Congressional Research Service 10 Egypt: Transition under Military Rule country’s public finances. Apparently, the Islamist Freedom and Justice Party did not want an interim government to negotiate a loan deal.”23 Members of the Muslim Brotherhood may have desired to lead negotiations with the IMF in order to take credit for the deal and shape an agreement according to its own party priorities. It is unclear whether IMF negotiations will proceed more expeditiously following the presidential election and the recent SCAF- and judiciary-driven action. Chronology: Egyptian Transition Timeline: January 2011-Present January 25, 2011 Large protests begin in major cities. Over 18 days, protesters clash with the police, who withdraw, as military forces are deployed to keep order. Hundreds are wounded in clashes and 848 are killed. February 11, 2011 After daily protests, President Hosni Mubarak resigns after 30 years and hands power to the military, led by Field Marshal Hussein Tantawi. March 2011 The Supreme Council of the Armed Forces proposes a series of amendments to the Egyptian constitution and, on March 19, 77.2% of voters approve the amendments in a public referendum. Several groups boycott the referendum. April 8, 2011 More than 100,000 protesters gather in Tahrir Square to pressure the Supreme Council of the Armed Forces (SCAF) to meet the demands of the public, chief among them the prosecution of Hosni Mubarak. May 2011 Mubarak is officially charged with the abuse of public office and with ordering the killing of protesters during the demonstrations. June 2011 On June 6, the Muslim Brotherhood’s Freedom and Justice Party is declared legal. July 2011 On July 13, the SCAF announces a new electoral law and delays parliamentary elections until November 2011, amplifying tension between the SCAF and the protesters who feel their revolution is being betrayed. Mass protests erupt in Tahrir Square and parliament buildings. In response to the protests, Prime Minister Sharaf dismisses the ministers of finance, industry, and foreign affairs. August 2011 The Mubarak trial begins. Israel kills 5 Egyptian soldiers while in pursuit of Palestinian terrorists in the Sinai Peninsula. Israeli Defense Minister Barak issues statement of regret. September 2011 Protestors storm the Israeli embassy in Cairo, and Israeli diplomats are rescued by Egyptian commandos. At least 3 Egyptians are killed in the clashes, and more than 100 are wounded. The SCAF amends the electoral law under pressure, reducing the proportion of non-party list candidates. October 2011 Security forces forcefully disperse a mass demonstration by Coptic Christians angry about attacks on churches, killing 24 people and wounding over 200. The demonstration further exacerbates tensions between Muslims and Coptic Christians. November-December 2011 The Egyptian supreme court rules that former members of Mubarak’s now defunct party, the National Democratic Party, are eligible to run for office in the upcoming elections. Ensuing protests leave about 40 dead and hundreds wounded. In the first post-revolution parliamentary election, Islamist parties win approximately 75% of the seats. They state that ending “ military rule” is their first priority. 23 Daily Star, op. cit. Congressional Research Service 11 Egypt: Transition under Military Rule February 2012 Riots kill 74 people after a Port Said soccer match, adding to public criticism of the SCAF and its ability to maintain law and order. April 2012 Amidst a boycott by liberals, moderate Muslims, and the Coptic Church, the Administrative Judicial Court suspends the Islamist-dominated commission in charge of drafting a new constitution. The electoral commission bars 10 candidates from the presidential race, including 2 Islamists and Mubarak’s ex-intelligence chief. May 2012 Egypt holds its first post-revolution presidential election, and the state of emergency imposed in 1981 ends. June 2012 Hosni Mubarak and former Minister of Interior Habib el-Adly are sentenced to life in prison for the death of demonstrators in the 2011 protests. Six police commanders are acquitted of the same charge. The court drops corruption charges against Mubarak and his two sons, citing an expired statute of limitations. Protesters stage various angry demonstrations. The Supreme Constitutional Court invalidates elements of the parliamentary election law, undercutting one-third of the members elected to the Islamistdominated parliament. The Court also overturns a law that would have barred former Prime Minister Ahmed Shafik from the imminent presidential election runoff. In response, the SCAF moves to enforce the ruling, prevent the parliament from reconvening, and claims the right to appoint representatives of Egypt’s constitutional commission. Mohamed Morsi claims victory in presidential election, while the SCAF issues constitutional decrees limiting presidential powers. U.S.-Egyptian Relations U.S. policymakers have long confronted difficulties in balancing the pursuit of U.S. national security interests vis-à-vis Egypt and the promotion of American values and universal human rights. Such tensions, which are common in foreign policy, are likely to continue and perhaps increase in the post-Mubarak era. The bilateral crisis (discussed below) over the arrest of U.S. employees of non-governmental organizations working in Egypt starkly illustrated this tension. Egypt’s transitional government and new Islamist lawmakers, like previous governments, have resorted to blaming the country’s ills on outside forces, namely the United States and Israel. This time, however, the inclusion of anti-U.S. and -Israeli sentiment in political debates is much greater, as various politicians attempt to channel public frustration with the economy and slow political transition and a renewed national sense of “dignity” toward those elements, both foreign and domestic, associated with the ancien régime. In March, for example, the People’s Assembly called for a vote to end U.S. military aid to Egypt after many Egyptian politicians were angered over the release of American NGO employees. Also in March, the People’s Assembly voted to expel the Israeli ambassador from Cairo, recall Egypt’s envoy from Tel Aviv, and halt all natural gas shipments to Israel in response to a new round of fighting in the Gaza Strip between Israel and Palestinian militants. Congressional Research Service 12 Egypt: Transition under Military Rule Figure 2. Egyptian Opposition to U.S. Aid A Gallup Survey in February 2012 Source: Gallup, Mohamed Younis and Ahmed Younis, March 29, 2012 The NGO Case Egypt’s ongoing prosecution of Americans and others employed by U.S.-based democracy promotion organizations led to widespread calls for cuts to, or suspension of, U.S. aid to Egypt. On December 29, 2011, Egyptian police raided the offices of U.S.-based international nongovernmental organizations working on election monitoring, political party training, and government transparency in Egypt, including the International Republican Institute (IRI), National Democratic Institute (NDI), and Freedom House, as part of a criminal investigation commissioned by Minister of International Cooperation Fayza Abul Naga24 into foreign funding of NGOs. Some of the U.S. entities had long ago applied for but had not yet received registration and approval by the Egyptian government, an issue of long-running bilateral dispute.25 Police seized laptop computers and interrogated employees, accusing various organizations of operating illegally without a license. As a result of the raids, many NGOs were forced to close their local offices. The U.S. government protested the raids, and the SCAF promised that equipment would be returned and that NGO operations would return to normal. However, these pledges were not fulfilled. On the contrary, two weeks later, Egypt barred at least six American NGO employees 24 Abul Naga is the only remaining cabinet holdover from the Mubarak era and has served since 2001. Under Egypt’s NGO law (Association Law 84-2002), passed during the Mubarak era, NGOs are required to apply for legal status and must be registered with the Ministry of Social Affairs and report all foreign donations to the government. According to Article 17 of the law, “associations may not accept foreign funding without explicit authorization from the Ministry of Social Affairs.” For an NGO seeking legal status during the Mubarak era, in some cases it took years before the ministry ruled on an application, and many groups were routinely rejected. Often, no response was given to the application, which left an organization in legal limbo; this was the case of NDI, which has attempted to register since 2005. If an NGOs application was rejected, it had few legal rights and could be shut down. Successive U.S. Administrations and Congress have sought to provide aid to Egyptian civil society organizations without the prior approval of the Egyptian government. See NDI factsheet, at http://www.ndi.org/facts-on-ndi-egypt 25 Congressional Research Service 13 Egypt: Transition under Military Rule from leaving the country. On February 6, Egyptian authorities charged 43 people, including the Egypt country directors of NDI and IRI, with spending money from organizations that were operating in Egypt without a license. 19 Americans, including Sam LaHood of IRI, the son of U.S. Transportation Secretary Ray LaHood, face criminal charges. Most of the accused American employees were nonetheless able to leave Egypt with the exception of six or seven individuals who had fled to the U.S. Embassy in Cairo. Throughout February and early March, U.S. and Egyptian officials negotiated to (at the very least) have the travel ban on the Americans who remained at the U.S. Embassy in Cairo lifted. Reportedly, U.S. officials and lawmakers threatened not only to withhold bilateral aid, but to obstruct the IMF loan to Egypt if the situation was not resolved.26 Finally, on March 1, days after three Egyptian judges recused themselves from the NGO case (reportedly because they refused orders to overturn the travel ban due to U.S. pressure and had refused to do so), Egyptian authorities lifted the travel ban, and NDI and IRI were forced to pay a combined $4 million bail. Almost all of the accused Americans are now outside Egypt, but the legal case against them and the other civil society workers continues. Although in the short term some bilateral tensions have abated, many analysts assert that the case (along with earlier Egyptian campaigns against U.S. democracy promotion activities)27 has succeeded in tarnishing Egypt’s NGO sector in general and, perhaps more worrisome, the perception that the United States supports Egypt’s transition. The dispute has engulfed the bilateral relationship at a time when many other issues of interest to the United States are being adjudicated. According to U.S. Assistant Secretary of State for Near Eastern Affairs Jeffrey Feltman, Because of the focus on the NGO issue, that sort of basic message has been lost, which is that we are impressed with what the Egyptian people are trying to do, we are fully supportive of their efforts to build a democratic system.... Now we have had to spend a lot of time, for example, talking to people on Capitol Hill to remind people of the long-term interest that we have in Egypt and the long-term benefits that we think that both countries have. Opportunistic Egyptian politicians, epitomized by Minister Abul Naga, who eagerly sought a foreign scapegoat and distraction from the country’s economic woes, not only diverted the United States from engaging more broadly with new Egyptian leaders, but also created a public backlash against U.S. aid of any kind. According to Egyptian-born scholar Michael Wahid Hanna, “The demands for dignity that were part of the protest movement also implicated what many perceive to be Egypt’s undignified dependency on the United States.” As a result of the NGO dispute, some Egyptian politicians have started a national campaign to raise funds that would replace U.S. assistance. Prominent Egyptians, the military, and Islamist groups are supporting the campaign, called the Fund for Dignity and Pride, which has so far raised $10 million. At present, 2 Americans (the remaining 14 defendants are out of the country), 1 German national, and 14 Egyptian NGO employees are on trial inside Egypt. Their colleagues who were allowed to leave the country are on trial in absentia. If convicted, the NGO workers could face up to six years in prison. According to Robert Becker, an employee of NDI who remained in Egypt to face 26 “U.S. Defendants Leave Egypt Amid Growing Backlash,” New York Times, March 1, 2012. Since the revolution, Egyptian cabinet ministers and Islamist politicians have decried against continued U.S. foreign aid. A December 2011 Gallup survey found that about seven in 10 Egyptians oppose U.S. economic aid to Egypt, and a similar percentage opposes U.S. direct aid to civil society groups. 27 Congressional Research Service 14 Egypt: Transition under Military Rule trial, “Of the four Egyptians charged from NDI, three of them worked for me. At every turn when I was pressured to leave, I couldn't stomach it.... You don't walk away from your colleagues.”28 U.S. Foreign Aid to Egypt Between 1948 and 2011, the United States provided Egypt with $71.6 billion in bilateral foreign aid, including $1.3 billion a year in military aid from 1987 to the present. Since 1979, Egypt has been the second-largest recipient, after Israel, of U.S. bilateral foreign assistance.29 In July 2007, the George W. Bush Administration signed a 10-year Memorandum of Understanding (MOU) with Israel to increase U.S. military assistance from $2.4 billion in FY2008 to over $3 billion by 2018. Egypt received no corresponding increase in U.S. military aid; instead, the Bush Administration pledged to continue to provide Egypt with $1.3 billion in military aid annually, the same amount it has received annually since 1987. Unlike with Israel and, separately, with Jordan, the Bush Administration’s pledge did not involve signing a bilateral MOU with the Egyptian government. Congress typically specifies a precise allocation of foreign assistance for Egypt in the foreign operations appropriations bill. Egypt receives the bulk of foreign aid funds from three primary accounts: Foreign Military Financing (FMF), Economic Support Funds (ESF), and International Military Education and Training (IMET).30September 13, 2012 Congressional Research Service 7-5700 www.crs.gov RL33003 CRS Report for Congress Prepared for Members and Committees of Congress Egypt: Background and U.S. Relations Summary This report provides a brief overview of the key issues for Congress related to Egypt and information on U.S. foreign aid to Egypt. The United States has provided significant military and economic assistance to Egypt since the late 1970s. U.S. policy makers have routinely justified aid to Egypt as an investment in regional stability, built primarily on long-running military cooperation and on sustaining the March 1979 Egyptian-Israeli peace treaty. Successive U.S. Administrations have viewed Egypt’s government as generally influencing developments in the Middle East in line with U.S. interests. U.S. policy makers are now grappling with complex questions about the future of U.S.-Egypt relations, and these debates and events in Egypt are shaping consideration of appropriations and authorization legislation in the 112th Congress. For Obama Administration officials and the U.S. military, there is a clear desire to engage Morsi’s new government on a host of issues, including immediate economic support and Sinai security. For others, opportunities for renewed diplomacy may be overshadowed by disruptive political trends that have been unleashed by the so-called Arab awakening and allowed for more expression of anti-Americanism, radical Islamist politics, antipathy toward Israel, and sectarianism, amongst others. The events of September 11, 2012, in which a visiting U.S. business delegation dispatched to Egypt to expand trade and investment were in Cairo while an angry mob attacked the U.S. Embassy, may be a harbinger of increased dissonance in U.S.Egyptian bilateral relations for years to come. For FY2013, President Obama is requesting $1.55 billion in total bilateral aid to Egypt ($1.3 billion in military aid and $250 million in economic aid). The aid levels requested are unchanged from FY2012 appropriations. According to multiple reports, the Administration is currently negotiating with Egypt the terms for obligating funds that have already been appropriated by Congress, such as up to $1 billion in bilateral debt relief and the seed capital for an enterprise fund. Egypt currently owes the United States approximately $3.2 billion from decades-old food aid loans. In order to provide debt relief, U.S. government agencies are required to value U.S. loans, such as bilateral debt owed to the United States, on a net present value basis rather than at their face value, and an appropriation by Congress of the estimated amount of debt relief is required in advance. P.L. 112-74 did provide that ESF funds appropriated for Egypt in the Act and from prior Acts could be used for an Egypt debt initiative. Moreover, according to P.L. 112-74, bilateral debt relief funds would be a “swap” and channeled into programs that improve “the lives of the Egyptian people through education, investment in jobs and skills (including secondary and vocational education), and access to finance for small and medium enterprises with emphasis on expanding opportunities for women, as well as other appropriate market-reform and economic growth activities.” Congressional Research Service Egypt: Background and U.S. Relations Contents Overview.......................................................................................................................................... 1 Domestic Politics ............................................................................................................................. 3 Drafting a Permanent Constitution...................................................................................... 3 Allegations of an Islamist Takeover and Debate over Press Freedom ................................ 4 Economy ............................................................................................................................. 5 Foreign Policy.................................................................................................................................. 6 Egypt, Israel, Hamas, and the Sinai Peninsula .......................................................................... 6 U.S. Policy ....................................................................................................................................... 7 U.S. Foreign Aid to Egypt ......................................................................................................... 8 Military Aid......................................................................................................................... 8 Economic Aid...................................................................................................................... 9 U.S. Foreign Aid to Egypt Since February 2011............................................................... 11 The Consolidated Appropriations Act, FY2012 ................................................................ 12 Latest Foreign Aid Developments..................................................................................... 12 FY2013 State and Foreign Operations Appropriations Bills............................................. 13 Figures Figure 1. Map of Egypt.................................................................................................................... 3 Tables Table 1. U.S. Assistance to Egypt, FY2010-FY2013 Request......................................................... 9 Table 2. Top 10 recipients of U.S. Foreign Assistance, FY2012 and FY2013 Req. ...................... 15 Table 3. U.S. Foreign Assistance to Egypt..................................................................................... 16 Table 4. U.S. Foreign Assistance to Egypt, 1946-1997 ................................................................. 17 Contacts Author Contact Information........................................................................................................... 19 Congressional Research Service Egypt: Background and U.S. Relations Overview After a year and a half of chaotic political transition in Egypt, newly elected President Muhammad Morsi has consolidated power around his administration and a broader network of Muslim Brotherhood supporters at the expense of the military, a development few would have conceived of just months earlier.1 The military, embarrassed by an August 2012 attack against its forces by Sinai-based militants, became weakened politically, and President Morsi capitalized on the military’s vulnerability in the aftermath of the attack by dismissing several high level intelligence leaders and governors. When those moves went unchallenged by the military, the President then dismissed Egypt’s long-time Defense Minister, 77-year-old Field Marshal Mohamed Hussein Tantawi, and other officers. The military, perhaps fatigued by the burden of governance and desirous of regaining the public’s confidence, appears to have willingly acquiesced to Morsi’s maneuvers.2 On August 12, Morsi also issued a new constitutional declaration that abrogated a June 2012 military-issued document. The new version restores full executive authority to the president and provides him with interim legislative powers until the election of a new parliament following the completion of a new constitution. Since his consolidation of power, President Morsi has focused on crafting a more assertive and independent Egyptian foreign policy.3 To date, he has traveled to Saudi Arabia, China, and Iran, and he has upcoming plans to visit the European Union and the United States. His visit to Tehran, the first by an Egyptian leader since the 1979 Iranian revolution, came in connection with the Non Aligned Movement’s summit, where he denounced Iran’s Arab ally Syria, calling the Syrian government an “oppressive regime.” Despite his indirect criticism of Iran, Morsi also has called for the creation of a “contact group” on Syria that includes Iran along with Egypt, Turkey, and Saudi Arabia. Morsi’s foreign policy approach has been met with some degree of public approval, though critics charge that Morsi should devote more energy toward the economy and should present a specific economic reform plan to restore investor and public confidence in the economy. For Obama Administration officials and the U.S. military, there is a clear desire to engage Morsi’s new government on a host of issues, including immediate economic support and Sinai security. For others, opportunities for renewed diplomacy may be overshadowed by disruptive political trends that have been unleashed by the so-called Arab awakening and allowed for more expression of anti-Americanism, radical Islamist politics, antipathy toward Israel, and 1 The Supreme Council of the Armed Forces (SCAF) officially ceded power to Morsi on June 30, 2012. However, due to the SCAF’s last-minute changes to the constitution (June 17 declaration) and dissolution of parliament following a court case that invalidated the election of a third of lower house seats, many observers thought that President Morsi’s actual governing authority would be constrained. 2 Although the insider details of Morsi’s “soft coup” are unknown, both sides made public efforts to portray the officers’ dismissals as consensual. General Tantawi and his deputy were honored in a public ceremony and were retained by the President as “advisors.” There is no indication that the former leaders of the SCAF will be tried for any possible crimes committed during the transition period. However, many former Mubarak officials, including Ahmad Shafiq, the runner-up in the presidential election, continue to be investigated for corruption while in office. Shafiq is in the United Arab Emirates, and there are charges against him alleging that he was involved in illegal land purchases. His case has been referred to a criminal court, and he may be detained should he return to Egypt. 3 For years under Mubarak, many Egyptians quietly bemoaned their country’s diminished stature in both regional and global affairs. Congressional Research Service 1 Egypt: Background and U.S. Relations sectarianism, amongst others. The events of September 11, 2012, in which a visiting U.S. business delegation dispatched to Egypt to expand trade and investment4 were in Cairo while an angry mob attacked the U.S. Embassy, may be a harbinger of increased dissonance in U.S.Egyptian bilateral relations for years to come.5 On September 12, President Obama, who may have been frustrated by Egypt’s lackluster response to the Embassy breach a day earlier, reportedly stated that “I don’t think that we would consider them [Egypt] an ally, but we don’t consider them an enemy....I think it’s still a work in progress, but certainly in this situation, what we’re going to expect is that they are responsive to our insistence that our embassy is protected, our personnel is protected.”6 4 The 120-person U.S. business delegation consisted of several corporate executives from leading Fortune 500 companies and was the largest U.S. trade delegation ever to visit Egypt. Protests outside the U.S. Embassy since the 2011 revolution have become commonplace, though it is unclear if Egyptian authorities are providing adequate police protection outside the Embassy compound. The protest on September 11, 2012 and subsequent Embassy wall breach were in response to the release of a short U.S. film called “The Innocence of Muslims,” which angered some Muslims who charged that it insulted the Prophet Muhammad. 5 The presence of the U.S. trade delegation also coincided with the continuation of Egypt’s ongoing prosecution of foreign and domestic NGO workers. On September 9, the sixth session of the trial of 43 workers, including 19 American citizens, was adjourned. Most of the accused U.S. citizens who were given the chance to return to the United States have done so. 6 “Egypt May Be Bigger Concern Than Libya for White House,” New York Times, September 13, 2012. Congressional Research Service 2 Egypt: Background and U.S. Relations Figure 1. Map of Egypt Source: Map Resources, adapted by CRS. Domestic Politics Drafting a Permanent Constitution On June 12, the now-dissolved parliament approved the membership of a 100-person Constituent Assembly to draft a new permanent constitution. This Assembly was given six months to complete a draft document, which must be put to a public referendum within 15 days of the draft’s release. If it is approved according to this timetable, presumably sometime in early 2013, then parliamentary elections would follow two months later. At present, the legal status of the Assembly is in question, since it was approved by the parliament that a court then ruled to be invalid. Lawsuits against the formation of the Assembly are scheduled to be examined in early October 2012. If the courts declare the present Assembly invalid, then, according to President Morsi’s August 12 constitutional declaration, the president will form a new 100-member Assembly to draft the constitution, which would then have three months to produce a draft. Within 30 days of the issuance of that draft document, a public referendum would be held to Congressional Research Service 3 Egypt: Background and U.S. Relations determine its approval. Within 60 days of its approval, new parliamentary elections would be held. As the dispute over the legality of the Assembly continues, various reports suggest that the current Assembly members are making some progress on a draft document, though some of its members have resigned. Current debates include: • Islam and the State – As it is currently written, Article 2 of the constitution states that “Islam is the religion of the state, Arabic is the official language, and the principles of Islamic Sharia are the primary source of legislation.” Salafis have sought to replace the word “principles” with “laws” or remove the words “primary source of ” and replace it with “sole source of.” However, mainstream religious scholars, liberals, and even some Islamists object to these changes.7 Salafists also have proposed empowering the Islamic scholars of Al Azhar to determine if a law conforms with the principles of Sharia. • Form of Government – Since the revolution, Egyptians have debated whether to retain a strong presidential system of government, revert to a parliamentary system, or create some hybrid form of rule. Typically, Islamists prefer a parliamentary system, while liberals and Coptic Christians prefer a strong presidential system in order to guarantee religious pluralism and civil law. • Role of the Military – One of the most sensitive debates in Egyptian politics centers on enshrining military prerogatives and rights within the constitution itself. The SCAF, at minimum, seeks budgetary autonomy and secrecy, control over the selection of its leaders, war powers, and a formal role in formulating national security strategy and even foreign policy. According to one report, the military may seek a constitutional role as the “guarantor of the civil nature of the state” or “guarantor of constitutional principles.”8 Allegations of an Islamist Takeover and Debate over Press Freedom Since President Morsi’s victory at the polls, many secularists, Coptic Christians, and supporters of the old order have alleged that the Muslim Brotherhood, once ensconced in power, will gradually seize control over various political institutions and establish a theocracy – a decades-old accusation against Islamists that became commonplace following the 1979 Iranian revolution. In recent weeks, there has been renewed focus on the democratic credentials of the Brotherhood, in light of accusations that it is seeking to control the Egyptian media and curtail freedom of speech. Others posit that competing Egyptian institutions, such as the judiciary, may serve as a counterweight to the Brotherhood. In September 2012, many observers are suggesting that Morsi’s new government has made a noticeable effort to control state-owned media and stifle criticism against it by privately held media. As part of his new cabinet, President Morsi appointed a member of the Brotherhood’s political party as information minister. The Brotherhood-controlled upper house of parliament also made a new round of editorial appointments to state-controlled newspapers, many of whom were said to be sympathetic to Islamist political groups. 7 8 “Fight club: A concise guide to the controversies over Egypt's new constitution,” Al Ahram Online, July 31, 2012. Al Ahram, op.cit. Congressional Research Service 4 Egypt: Background and U.S. Relations As Brotherhood opponents have employed fiery rhetoric in condemning Morsi’s recent political maneuvers, the government and Brotherhood sympathizers have responded with legal action against their critics, ironically employing media legislation that predates the 2011 revolution and was used by former President Mubarak to stifle public dissent. As a result, authorities have seized newspapers and taken one television station off-air, charging its owner with inciting violence against the government. A prominent editor of one critical newspaper, Al Dustor, was detained on charges of insulting the president and spreading false news, but he was released pending trial following Morsi’s issuing of a new law ending pre-trial detention of defendants in media-related cases. Morsi also has tried to deflect accusations that the Muslim Brotherhood seeks total control over Egyptian governance and media. Reportedly, he has tasked his vice president with establishing an independent body to review freedom of speech cases. However, the government insists that there are certain red lines when it comes to freedom of speech. According to Information Minister Abdel Maqsoud, “There is a clear difference between freedom on the one hand and libel, slander, character-assassination and incitement to murder, on the other.”9 Economy As a result of over a year of political unrest, Egypt’s economy has stagnated (GDP has grown just 2% from July 2011 to present), and the interim military-led government has boosted social spending, leading to spiraling fiscal deficits. Though certain aspects of the economy have started to recover (such as Suez Canal revenues, oil and gas exports), foreign direct investment and tourism revenues (down 24% since 2010) remain below their previous levels. Moreover, many economists are concerned that the financial crisis in Europe will lower demand for Egyptian exports and further reduce foreign investment in the months ahead. With a bleak short-term economic outlook and Egyptian leaders sensitive to further domestic instability, public expenditures have increased dramatically in order to reassure the population. Spending on public sector salaries (there are over 6 million Egyptian state employees) and energy and food subsidies has soared, leading to a predicted national budget deficit for 2012 of $22-23 billion. Since February 2011, authorities have been financing the deficit by borrowing from domestic banks and using the country’s foreign exchange reserves, which have diminished from nearly $36 billion in early 2011 to $14.4 billion (including $4 billion in gold bullion) in July 2012. It is unclear how a future Egyptian government will finance its fiscal deficit. Spending cuts may prove dramatically unpopular, as would inflationary policies that increase prices on basic commodities. If foreign exchange reserves continue to dwindle, it is unclear whether officials will be forced to depreciate the Egyptian pound, a move that could boost interest rates and reduce asset values, potentially stalling any recovery. Many analysts suggest that Egypt may have no choice but to increase foreign borrowing, particularly from other governments and international financial institutions, since private foreign investors may be unwilling to take the investment risk and domestic banks are overstretched. Credit rating agencies such as Moody’s, Fitch, and Standard & Poor’s have downgraded Egypt’s sovereign credit rating multiple times over the past year. The International Monetary Fund may be a key foreign lender for Egypt, as it has offered the country $4.8 billion in financing over 18 months to three years at a minimal interest rate. Significantly, an IMF loan would boost other investors’ confidence that Egypt is on a path toward economic reform, thereby possibly paving the way for additional foreign lending (the country’s 9 “Rights: Veil Falls Over Egyptian Media,” Inter Press Service, August 27, 2012. Congressional Research Service 5 Egypt: Background and U.S. Relations current external debt is $33.7 billion). However, the IMF deal may have drawbacks for the Egyptian government, as it may be conditioned upon Egypt undertaking unpopular reforms and austerity measures, such as reductions in food and fuel subsidies. Foreign Policy Egypt, Israel, Hamas, and the Sinai Peninsula For the United States, the status of the 1979 Israeli-Egyptian peace treaty is a major regional foreign policy priority, and there is concern that instability in Egypt will disrupt the “cold peace” that Israel and Egypt have maintained for over 30 years. In the period since the resignation of former President Mubarak, Egyptian-Israeli relations have been tense, with a spike in tensions in the immediate aftermath of the September 2011 siege of the Israeli embassy in Cairo by protestors.10 Since then, Israel has maintained a minimal diplomatic presence in Egypt, having moved most of its staff from Cairo to offices in Maadi, New Cairo, and near the Cairo International Airport. With a Muslim Brotherhood president now leading Egypt, some commentators claim that Egypt will develop closer ties to Hamas in Gaza.11 Others suggest that while some general degree of comity may exist between Palestinian and Egyptian Islamists, Egypt may move cautiously in engaging Hamas. In July 2012, Hamas officials spoke openly about the need to expand operations of the Rafah border crossing between Egypt and Gaza, the only non-Israeli controlled entry/exit point from Gaza to the outside world. Later that month, Hamas Prime Minister Ismail Haniyeh met with President Morsi and the two leaders reportedly agreed to open the Rafah crossing for 12 hours each day, raise the daily limit of visiting Gazans to 1,500, and stop deporting Palestinians who arrive at Cairo International Airport without an entry visa. On August 5, 35 unidentified gunmen attacked Egyptian troops stationed near the IsraeliEgyptian-Gaza border, killing 16. The gunmen then seized several vehicles and proceeded to attack the Israel-Gaza Kerem Shalom crossing just over the Egyptian border before being thwarted by Israeli forces. The Israeli government, which has been repeatedly warning Egypt about the security situation in the Sinai, called the attack a “wake up call” for Egypt. In the days following the attack, Egypt’s military, in order to demonstrate its resolve, avenge the killing of its soldiers, and stabilize the area, re-launched its anti-militant operation in the Sinai (dubbed “Operation Eagle,” first launched in 2011), using air power in the area for the first time in nearly four decades. Egypt also temporarily closed its border crossing with Hamas, and the army deployed armored vehicles including tanks and Apache helicopters to the Sinai. Egypt and Israel mutually agree upon any short term increase of Egypt’s military presence in the Sinai. The terms of the 1979 Israel-Egypt Peace Treaty require that.12 Some Israeli leaders publicly expressed 10 The siege followed an August 2011 terrorist attack in Israel by Sinai-based militants that resulted in Israeli forces killing six Egyptian security personnel after crossing the Egyptian border in hot pursuit of the perpetrators. During the siege, Israeli diplomats who were gathered in the embassy’s security compound came perilously close to being confronted by the rioters before Egyptian commandos rescued the diplomats at the urging of the Obama Administration. 11 In September 2012, Arab media sources reported that Egypt agreed to allow Hamas to open an office in Cairo. The two sides also formed a “joint security committee” to discuss border issues between Gaza and Egypt. 12 Article IV (4) states that “The security arrangements provided for in paragraphs 1 and 2 of this Article may at the (continued...) Congressional Research Service 6 Egypt: Background and U.S. Relations concern over Egypt’s deployment of heavy equipment, particularly tanks, into demilitarized zones, claiming that some Egyptian deployments were not coordinated with Israel. In early September, one Egyptian military official stated that “Egypt is coordinating with the Israeli side over the presence of Egyptian armed forces in Sinai. They know this....The deployment of the armed forces on all the territory of Sinai is not a violation of the peace treaty between Egypt and Israel.”13 Judging from previous responses to Sinai terrorism, Egypt and other parties often neglect full consideration of the factors underlying the area’s destabilization. Many analysts suggest that Egypt’s previous responses to security incidents in the Sinai focus solely on military measures and often lead to alienation and radicalization of Sinai residents. For example, authorities often detain local suspects in large numbers and for prolonged periods of time, breeding resentment and revenge attacks against police in the area. Egyptian development policy in the Sinai also may be inadequate to address the range of economic needs and political grievances of Sinai’s population. Many residents from local tribes describe being treated as second-class citizens, while government officials often claim that Sinai Bedouin cherish their local autonomy. According to multiple reports, since the August 2011 attacks, the United States has attempted to assist Egypt in better securing the Sinai. According to one report, “The Pentagon is discussing a variety of options for sharing intelligence with Egypt’s military and police in Sinai. They include intercepts of cellphone or radio conversations of militants suspected of plotting attacks and overhead imagery provided by aircraft — both piloted and drones — or satellites.” 14 Another report indicated that the Pentagon has deployed a “truck-mounted tracking system that will allow U.S. troops to monitor the deployment of Egyptian forces.”15 U.S. Policy U.S. officials have cautiously engaged the new Egyptian government and have attempted to balance the interests of maintaining close ties to the military with the need to acknowledge the legitimacy of elected civilian leaders such as President Morsi. When asked how the Administration will deal with an Islamist head of the Egyptian state, U.S. officials have stated that they will “judge by actions, not words.” Secretary of State Hillary Rodham Clinton and Secretary of Defense Leon Panetta have each separately visited Cairo for meetings with President Morsi since he took office. Deputy Secretary of State William Burns has also visited Egypt, promising to “help Egypt deal with its economic challenges, including meeting immediate financial concerns, providing debt relief, helping to create jobs and educational opportunities, and encouraging U.S. investment and tourism.” In August and September 2012, Undersecretary of State for Economic Growth, Energy, and the Environment Robert D. Hormats visited Egypt to negotiate possible bilateral debt relief and, as (...continued) request of either party be reviewed and amended by mutual agreement of the Parties.” In August 2011, Israel had granted Egypt permission to introduce additional battalions into the Sinai, but prior to the August 5, 2012 militant attack, Israeli officials had claimed that Egypt had not augmented its forces accordingly. 13 “Egypt, Israel coordinating on Sinai security sweep-army,” Reuters, September 8, 2012. 14 “After Sinai Attack, U.S. and Egypt Step Up Talks on Security,” New York Times, August 11, 2012. 15 “Militants in Egypt's Sinai pose a test for peacekeeping force,” Washington Post, August 19, 2012. Congressional Research Service 7 Egypt: Background and U.S. Relations previously mentioned, a large U.S. business delegation toured Egypt to explore possible investment there. U.S. Foreign Aid to Egypt Between 1948 and 2011, the United States provided Egypt with $71.6 billion in bilateral foreign aid, including $1.3 billion a year in military aid from 1987 to the present. Since 1979, Egypt has been the second-largest recipient, after Israel, of U.S. bilateral foreign assistance.16 In July 2007, the George W. Bush Administration signed a 10-year Memorandum of Understanding (MOU) with Israel to increase U.S. military assistance from $2.4 billion in FY2008 to over $3 billion by 2018. Egypt received no corresponding increase in U.S. military aid; instead, the Bush Administration pledged to continue to provide Egypt with $1.3 billion in military aid annually, the same amount it has received annually since 1987. Unlike with Israel and, separately, with Jordan, the Bush Administration’s pledge did not involve signing a bilateral MOU with the Egyptian government. Congress typically specifies a precise allocation of foreign assistance for Egypt in the foreign operations appropriations bill. Egypt receives the bulk of foreign aid funds from three primary accounts: Foreign Military Financing (FMF), Economic Support Funds (ESF), and International Military Education and Training (IMET).17 Military Aid In FY2011, Egypt received almost a quarter of all U.S. FMF funds, and Israel received nearly 60%. FMF aid to Egypt is divided into three general categories: (1) acquisitions, (2) upgrades to existing equipment, and (3) follow-on support/maintenance contracts. U.S.-Egyptian coproduction of the M1A1 Abrams Battle tank, which began in 1988, is one of the cornerstones of U.S. military assistance to Egypt. Egypt plans to acquire a total of 1,200 tanks. Under the terms of the program, a percentage of the tank’s components are manufactured in Egypt at a facility on the outskirts of Cairo and the remaining parts are produced in the United States and then shipped to Egypt for final assembly. General Dynamics of Sterling Heights, MI, is the prime contractor for the program. Although there are no verifiable figures on total Egyptian military spending, it is estimated that U.S. military aid covers as much as 80% of the Defense Ministry’s weapons procurement costs.3118 Egypt also receives Excess Defense Articles (EDA) worth hundreds of 28 “In Egypt, American NGO workers head to court in civil society trial,” Christian Science Monitor, June 5, 2012.millions of dollars annually from the U.S. Defense Department. The United States offers IMET 16 The 1979 Peace Treaty between Israel and Egypt ushered in the current era of U.S. financial support for peace between Israel and her Arab neighbors. In two separate memoranda accompanying the treaty, the United States outlined commitments to Israel and Egypt, respectively. In its letter to Israel, the Carter Administration pledged to “endeavor to take into account and will endeavor to be responsive to military and economic assistance requirements of Israel.” In his letter to Egypt, former U.S. Secretary of Defense Harold Brown wrote that “the United States is prepared to enter into an expanded security relationship with Egypt with regard to the sales of military equipment and services and the financing of, at least a portion of those sales.” Ultimately, the United States provided a total of $7.3 billion to both parties in 1979. The Special International Security Assistance Act of 1979 (P.L. 96-35) provided both military and economic grants to Israel and Egypt at a ratio of 3 to 2, respectively, though this ratio was not enshrined in the treaty as Egypt would later claim. 3017 Egypt also receives, though not consistently, relatively small sums from the Nonproliferation, Antiterrorism, Demining, and Related Programs (NADR) account and the International Narcotics Control and Law Enforcement (INCLE) account. NADR funds support counter-terrorism training through the Antiterrorism Assistance Program. INCLE funds support police training and respect for human rights in law enforcement. 3118 According to one source, U.S. military assistance pays for about a third of Egypt’s overall defense budget each year. See, “Three Decades of Weapons, Training for Egypt Keep U.S. in Loop,” Bloomberg, February 2, 2011. 29 Congressional Research Service 15 Egypt: Transition under Military Rule millions of dollars annually from the U.S. Defense Department. The United States offers IMET 8 Egypt: Background and U.S. Relations training to Egyptian officers in order to facilitate U.S.-Egyptian military cooperation over the long term. IMET assistance also makes Egypt eligible to purchase training at a reduced rate. In addition to large amounts of annual U.S. military assistance, Egypt benefits from certain aid provisions that are available to only a few other countries. Since 2000, Egypt’s FMF funds have been deposited in an interest bearing account in the Federal Reserve Bank of New York and have remained there until they are obligated. By law (P.L. 106-280), Congress must be notified if any of the interest accrued in this account is obligated. Most significantly, Egypt is allowed to set aside FMF funds for current year payments only, rather than set aside the full amount needed to meet the full cost of multi-year purchases. Cash flow financing allows Egypt to negotiate major arms purchases with U.S. defense suppliers. Table 1. U.S. Assistance to Egypt, FY2010-FY2013 Request (Regular and Supplemental Appropriations; Current Year $ in Millions) Account FY2010 FY2011 FY2012 FY2013 Request ESF 250.0 249.5 250.0 250.0 FMF 1,300.0 1,297.4 1,300.0 1,300.0 IMET 1.900 1.400 1.400 1.800 INCLE 1.000 1.000 .250 7.900 NADR 2.800 4.600 5.600 — 1,555.7 1,553.9 1,557.25 1,559.7 Total Economic Aid During the 1980s and 1990s, Egypt received large amounts of annual economic loans and grants, mainly to support large-scale USAID infrastructure projects in sanitation, education, and telecommunications.3219 By the late 1990s, Congress began to scale back economic aid both to Egypt and Israel due to a 10-year agreement reached in the late 1990s known as the “Glide Path Agreement.” In January 1998, Israeli officials, sensing that their economic growth had obviated the need for that type of U.S. aid at a time when Congress sought to reduce foreign assistance expenditures, negotiated with the United States to reduce economic aid and increase military aid over a 10-year period. A 3:2 ratio that long prevailed in the overall levels of U.S. aid to Israel and Egypt was applied to the reduction in economic aid ($60 million reduction for Israel and $40 million reduction for Egypt), but Egypt did not receive an increase in military assistance. Thus, Congress reduced ESF aid to Egypt from $815 million in FY1998 to $411 million in FY2008. The Bush Administration, whose relations with then-President Hosni Mubarak suffered over the latter’s reaction to the Administration’s democracy agenda in the Arab world, then requested that Congress cut ESF aid by half in FY2009 to $200 million. Congress appropriated the President’s request. Upon taking office in 2009, President Obama sought a $50 million increase in economic aid to Egypt for FY2010, which Congress then passed. 32 19 According to the U.S. State Department, U.S. economic aid has helped provide clean drinking water and sanitation to the city of Cairo, build more than 2,000 schools and double literacy levels, and decrease in the maternal mortality rate by over 50% and the child mortality rate by over 70%. See, U.S. State Department, Assistance to Egypt Fact Sheet, Office of the Spokesman, Washington, DC, May 19, 2011. Congressional Research Service 16 Egypt: Transition under Military Rule9 Egypt: Background and U.S. Relations In prior years, ESF funds were divided into two categories: USAID projects and cash transfers.3320 ESF funds are allocated to a variety of sectors, including health, education, economic growth, and democracy and governance. U.S. funding for the latter has been a source of acrimony between the United States and Egypt for years, culminating in the current dispute over U.S. funding for nongovernmental organizations. U.S. Funding for Democracy Promotion in Egypt Each year, a small portion of USAID-managed bilateral economic aid is spent on democracy promotion programs. On principle, the Mubarak government rejected U.S. assistance for democracy promotion activities, though it grudgingly accepted certain programming. On the other hand, democracy activists believe that the U.S. government, particularly during the Obama Administration and before the January 2011 popular uprising, had not been aggressive enough in supporting political reform in Egypt. The Mubarak government staunchly opposed foreign support to independent civic groups that demanded government accountability, as well as civic groups that had not received government approval. During the Bush Administration, executive branch policymakers and Members of Congress directed some ESF toward direct support for Egyptian non-governmental organizations (NGOs). In FY2005, Congress directed that “democracy and governance activities shall not be subject to the prior approval of the GoE [government of Egypt],” language which remained in annual foreign operations appropriations legislation until FY2010 (see below).3421 Under Mubarak, Egypt had claimed that U.S. assistance programs must be jointly negotiated and could not be unilaterally dictated by the United States. P.L. 111-117, the Consolidated Appropriations Act, FY2010, contained general legislative language on the use of U.S. funds to NGOs, stating in Section 7034: With respect to the provision of assistance for democracy, human rights and governance activities in this Act, the organizations implementing such assistance and the specific nature of that assistance shall not be subject to the prior approval by the government of any foreign country.3522 P.L. 112-10, the Department of Defense and Full-Year Continuing Appropriations Act, 2011, became law on April 15, 2011, after the resignation of former Egyptian President Hosni Mubarak, and did not contain language addressing the NGO issue.3623 Appropriations for FY2012 contain multiple conditions on all types of assistance to Egypt (discussed below). 3320 It is unclear if USAID is still operating the cash transfer program, as it had been scheduled to be phased out by 2011. Congress sought to ensure that U.S. foreign assistance for Egypt was being appropriately used to promote reform. In conference report (H.Rept. 108-792) language accompanying P.L. 108-447, the FY2005 Consolidated Appropriations Act, conferees specified that “democracy and governance activities shall not be subject to the prior approval of the GoE [government of Egypt]. The managers intend this language to include NGOs and other segments of civil society that may not be registered with, or officially recognized by, the GoE. However, the managers understand that the GoE should be kept informed of funding provided pursuant to these activities.” 3522 P.L. 111-117. The conference report accompanying the Act notes, “the requirements of section 7034(m)(4) of this Act shall apply with respect to the provision of assistance to Egyptian NGOs.” 3623 The FY2011 Act did contain the following provisions on economic aid to Egypt: “That of the funds appropriated under this heading, up to $250,000,000 shall be made available for assistance for Egypt for activities that support democratic elections, promote representative and accountable governance, protect human rights, strengthen civil (continued...) 3421 Congressional Research Service 17 Egypt: Transition under Military Rule10 Egypt: Background and U.S. Relations U.S. Foreign Aid to Egypt Since February 2011 After Mubarak’s resignation in February 2011, the Administration made several aid proposals for Egypt. In the weeks following the resignation, the Obama Administration reprogrammed $165 million in already appropriated ESF for support to Egypt’s economy ($100 million) and political transition ($65 million). In a speech delivered at the State Department on May 19, 2011, President Obama outlined a new plan for U.S. engagement with Arab countries undergoing political transitions, such as Egypt. Major components of that plan include the following: • Launch a $2 billion facility in the Overseas Private Investment Corporation (OPIC) to support private investment across the region. • Provide up to $1 billion in bilateral debt relief to Egypt, working with the Egyptian government to invest these resources to foster growth and entrepreneurship. • Help Egypt regain access to capital markets by providing $1 billion in U.S.backed loan guarantees to finance infrastructure and job creation. • Work with Congress to create enterprise funds to invest in Tunisia and Egypt, modeled after funds that supported the transitions in Eastern Europe after the fall of the Berlin Wall. Enterprise funds are to focus on making loans to, or investments in, small- and medium-sized (SME) businesses in the fund’s host country that other financial institutions are reluctant to invest in. • Refocus the European Bank for Reconstruction and Development (EBRD) so that it may provide similar support for democratic transitions and economic modernization in the Middle East and North Africa as it has in Europe. • Launch a comprehensive Trade and Investment Partnership Initiative in the Middle East, working with the European Union (EU), to encourage more trade within the region; build on existing agreements to promote integration with U.S. and European markets; and open the door to freer trade for countries that adopt high standards of reform and trade liberalization to construct a regional trade arrangement. (...continued) society and the rule of law, reduce poverty, promote equitable economic development, and expand educational opportunities for disadvantaged Egyptian youth, including through scholarship programs: Provided further, That the Secretary of State shall submit a spending plan, including a comprehensive strategy to promote democracy and development, to the Committees on Appropriations for funds provided for Egypt under this heading: Provided further, That such plan shall not be considered as meeting the notification requirements under Section 7015 of division F of P.L. 111-117 or under Section 634A of the Foreign Assistance Act of 1961: Provided further, That such funds shall be subject to the regular notification procedures of the Committees on Appropriations: Provided further, That funds appropriated under this heading shall be made available to support democratic transitions in the Middle East and North Africa, including assistance for civil society organizations and the development of democratic political parties:’ (b) Not later than 45 days after enactment of this Act, the Secretary of State shall submit to the Committees on Appropriations a report on Egypt detailing whether—(1) a transparent, political transition is occurring that includes the participation of a wide range of democratic opposition and civil society leaders and is responsive to their views; (2) the emergency law and other laws restricting human rights have been abrogated; protesters, political and social activists and journalists are not being arrested, detained or prosecuted for the peaceful exercise of their rights; and the government is respecting freedoms of expression, assembly and association; and (3) legal and constitutional impediments to free and fair presidential and parliamentary elections are being removed.” Congressional Research Service 18 Egypt: Transition under Military Rule11 Egypt: Background and U.S. Relations The Consolidated Appropriations Act, FY2012 Overall, Congress has supported new Obama Administration proposals for Egypt but with conditions. P.L. 112-74, the Consolidated Appropriations Act, 2012, provides the full request for Egypt ($1.55 billion), authorizes debt relief, and authorizes and appropriates funding for the creation of an enterprise fund to promote private sector investment. However, Section 7041 of P.L. 112-74 specifies that no funds may be made available to Egypt until the Secretary of State certifies that Egypt is meeting its obligations under the 1979 Egypt-Israel Peace Treaty. It further specifies that no military funds be provided until the Administration certifies that Egypt is supporting the transition to civilian government, including by holding free and fair elections and by implementing policies to protect freedom of expression, association, and religion, and due process of law. The Administration may waive these certifications under certain conditions. In addition, conferees directed the Secretary of State to submit a report to the Committees on Appropriations, not later than 60 days after enactment of the act, outlining steps that the Government of Egypt is taking to protect religious minorities, including Coptic Christians; prevent sectarian and gender-based violence; and hold accountable those who commit such acts. On March 15, the New York Times reported that the Administration intends to obligate FY2012 military aid to Egypt by exercising the waiver authority Congress granted it in Section 7041 (c) of P.L. 112-74, the Consolidated Appropriations Act 2012.3724 That section would waive a provision of law requiring the Secretary of State to certify to the Committees on Appropriations that the Government of Egypt is supporting the transition to civilian government before FY2012 Foreign Military Financing to Egypt is obligated. According to the New York Times report, some Administration officials have argued that the certification should wait until the presidential election. However, existing FMF funding previously appropriated by Congress may be dwindling, and the Egyptian military may be at risk of missing defense contract payments.3825 The Secretary of State exercised the waiver on March 23. In an accompanying statement, a State Department spokesperson said that “'the secretary’s decision to waive is also designed to demonstrate our strong support for Egypt’s enduring role as a security partner and leader in promoting regional stability and peace.” Latest Foreign Aid Developments For FY2013, President Obama is requesting $1.55 billion in total bilateral aid to Egypt ($1.3 billion in military aid and $250 million in economic aid). The aid levels requested are unchanged from FY2012 appropriations. According to multiple reports, the Administration is currently negotiating with Egypt the terms for obligating funds that have already been appropriated by Congress, such as up to $1 billion in bilateral debt relief and the seed capital for the enterprise fund mentioned above. Egypt currently owes the United States approximately $3.2 billion from decades-old food aid loans. In order to provide debt relief, U.S. government agencies are required to value U.S. loans, such as bilateral debt owed to the United States, on a net present value basis rather than at their face value, and an appropriation by Congress of the estimated amount of debt relief is required in advance. P.L. 11274 did provide that ESF funds appropriated for Egypt in the Act and from prior Acts could be 24 25 “Despite Rights Concerns, U.S. Plans to Resume Egypt Aid,” New York Times, March 15, 2012. op.cit. Congressional Research Service 12 Egypt: Background and U.S. Relations used for an Egypt debt initiative. Moreover, according to P.L. 112-74, bilateral debt relief funds would be a “swap” and channeled into programs that improve “the lives of the Egyptian people through education, investment in jobs and skills (including secondary and vocational education), and access to finance for small and medium enterprises with emphasis on expanding opportunities for women, as well as other appropriate market-reform and economic growth activities.” Given the rampant anti-Americanism permeating Egyptian politics at the moment and general concern over the intentions of the Muslim Brotherhood in Egypt, some lawmakers may call for cuts to Egypt’s assistance in the future. However, according to one report, some American and Israeli officials have “sought to assure members of Congress that assistance should proceed, despite reservations about the Muslim Brotherhood’s political rise. They have argued that persistently high unemployment, especially among women and young people, could undermine Mr. Morsi’s government, causing further instability in Egypt and beyond.”26 FY2013 State and Foreign Operations Appropriations Bills House (H.R. 5857)—The House bill provides the full Administration request for Egypt of $250 million in ESF and $1.3 billion in FMF. It includes a number of specific directives, including: 37 3826 • Section 7042 of the bill contains a certification that no funds may be made available for Egypt unless the Secretary of State certifies to the Committees on Appropriations that Egypt’s central government is meeting its obligations under the 1979 Egypt-Israel Peace Treaty. • The bill also contains a requirement stating that prior to obligations of ESF and FMF, the Secretary of State shall certify that the Government of Egypt has (1) completed the transition to civilian government, including holding free and fair elections; and (2) is implementing policies to protect freedom of expression, “Despite Rights Concerns, U.S. Plans to Resume Egypt Aid,” New York Times, March 15, 2012. op.cit. Congressional Research Service 19 Egypt: Transition under Military Rule association, and religion, and due process of law. The Secretary of State may waive these requirements if the Secretary determines and reports to the Committees on Appropriations that to do so is in the national security interest of the United States. The bill states that such a determination and report shall include a detailed justification for such waiver and that the Secretary of State shall consult with the Committees on Appropriations prior to waiving such requirements. • In addition, the Committee on Appropriations must be consulted prior to the transfer of FMF funds to an interest-bearing account for Egypt. The committee also must be notified 15 days in advance of the obligation of funds for Egypt. • The committee also directs the Secretary of State to submit a report to the Committees on Appropriations, not later than 90 days after enactment of this act, detailing the status of human rights within Egypt. The report should include whether the Government of Egypt is providing adequate protection for religious minorities, including protection of Coptic Christians, their property, and places of worship. “To Back Democracy, U.S. Prepares to Cut $1 Billion From Egypt’s Debt,” New York Times, September 3, 2012. Congressional Research Service 13 Egypt: Background and U.S. Relations • The committee directs the Secretary of State to report to the Committees on Appropriations, not later than 90 days after enactment of this act, on all assistance provided under this heading for Egypt from fiscal year 2008 through 2012. The report should include the following: (1) the ministries, agencies, or instrumentalities of the Government of Egypt that received funding; (2) United States, international, or Egyptian organizations that received funding; (3) a description of the purpose of each program, project, or activity; (4) whether each program, project, or activity complied with mandatory audit requirements; and (5) a description of whether each program, project, or activity fulfilled its stated purpose. • Section 7032 of the bill contains a passage stating that “None of the funds appropriated or otherwise made available by title III of this Act may be obligated for direct Government-to-Government assistance if such assistance is to a government that is actively and significantly interfering with the operation of civil society organizations.” This restriction does not specifically refer to Egypt but could possibly apply to some economic aid to Egypt should its government obstruct operations of non-governmental organizations. Senate (S. 3241)—The Senate bill also contains most of the Administration request for Egypt, though it “reduces assistance for Egypt under ESF by an amount equal to the amount posted as bail in February 2012 for members of United States NGOs operating in Egypt.” The Senate bill includes the following provisions: • “None of the funds appropriated under titles III and IV of this Act and in prior Acts making appropriations for the Department of State, foreign operations, and related programs may be made available for assistance for the Government of Egypt unless the Secretary of State certifies to the Committees on Appropriations that such government is meeting its obligations under the 1979 Egypt-Israel Peace Treaty.” • “The President shall submit to the Committees on Appropriations, concurrent with the fiscal year 2014 budget request, a comprehensive review of United States assistance for Egypt, including the strategic purposes and mechanisms for Congressional Research Service 20 Egypt: Transition under Military Rule disbursing such assistance, and specific programs to be conducted in furtherance of security sector and other reforms.” • “Funds appropriated by this act under the heading ‘Foreign Military Financing Program’ for assistance for Egypt shall be made available for border security programs in the Sinai, and for purposes related to peacekeeping and disaster response: Provided, That a portion of such funds estimated to be outlayed during fiscal year 2013 may, following consultation with the Committees on Appropriations, be transferred to an interest bearing account for Egypt in the Federal Reserve Bank of New York: Provided further, That funds appropriated by this Act under the heading ‘Economic Support Fund’ shall be made available to promote security sector reform in Egypt, in accordance with section 7034(r) of this Act.” • “Prior to the initial obligation of funds appropriated by this Act for assistance for Egypt under the heading ‘Foreign Military Financing Program’, the Secretary of State shall certify to the Committees on Appropriations that the Government of Egypt is a democratically elected civilian government that is implementing Congressional Research Service 14 Egypt: Background and U.S. Relations policies to—(A) provide civilian control over, and public disclosure of, the military and police budgets; (B) fully repeal the Emergency Law; and (C) protect judicial independence; freedom of expression, association, assembly, and religion; the right of political opposition parties, civil society organizations, and journalists to operate without harassment or interference; and due process of law. The Secretary of State, after consultation with the Committees on Appropriations, may waive the requirements of paragraphs (1) and (4) if the Secretary determines and reports to the Committees on Appropriations that to do so is important to the national security interest of the United States: Provided, That such determination and report shall include a detailed justification for such waiver.” Congressional Research Service 21 Egypt: Transition under Military Rule Table 2. Top 10 recipients of U.S. Foreign Assistance, FY2012 and FY2013 Req. (in millions) FY2012 FY2013 Req. 1. Israel $3,075 1. Israel $3,100 2. Afghanistan $2,327 2. Afghanistan $2,505 3. Pakistan $2,102 3. Pakistan $2,228 4. Iraq $1,683 4. Iraq $2,045 5. Egypt $1,557 5. Egypt $1,563 6. Jordan $676 6. Jordan $671 7. Kenya $652 7. Nigeria $599 8. Nigeria $625 8. Tanzania $571 9. Ethiopia $580 9. South Africa $489 10. Tanzania $531 10. Kenya $460 Source: Allocation tables provided to CRS by the Department of State, F Bureau. Does not including funding from independent agencies such as MCC, which, if included, could change the ranking of Tanzania. Congressional Research Service 15 Egypt: Background and U.S. Relations Table 3. U.S. Foreign Assistance to Egypt ($ in millions) Fiscal Year Economic 1948-1997 Military IMET Total 23,288.6 22,353.5 27.3 45,669.4 1998 815.0 1,300.0 1.0 2,116.0 1999 775.0 1,300.0 1.0 2,076.0 2000 727.3 1,300.0 1.0 2,028.3 2001 695.0 1,300.0 1.0 1,996.0 2002 655.0 1,300.0 1.0 1,956.0 2003 911.0 1,300.0 1.2 2,212.2 2004 571.6 1,292.3 1.4 1,865.3 2005 530.7 1,289.6 1.2 1,821.5 2006 490.0 1,287.0 1.2 1,778.2 2007 450.0 1,300.0 1.3 1,751.3 2008 411.6 1,289.4 1.2 1,702.2 2009 250.0 1,300.0 1.3 1,551.3 2010 250.0 1,300.0 1.9 1,551.9 2011 249.5 1,297.4 1.4 1,548.3 Total 31,070.3 40,509.2 Congressional Research Service 43.14 71,623.9 22 Egypt: Transition under Military Rule16 Egypt: Background and U.S. Relations Table 4. U.S. Foreign Assistance to Egypt, 1946-1997 ($ in millions) Year Total Military Loan Military Grant I.M.E.T Grant Misc. Economic Grant D.A. Loan D.A. Grant ESF Loan ESF Grant P.L. 480 II P.L. 480 I 1946 9.6 — — — 9.3 Surplus 0.3 UNWRA — — — — — — 1948 1.4 — — — 1.4 Surplus — — — — — — 0.1 — — — 0.1 Tech Asst — — — — — — 1952 1.2 — — — — — 0.4 — — — 0.8 1953 12.9 — — — — — 12.9 — — — — 1954 4.0 — — — — — 3.3 — — — 0.7 1955 66.3 — — — — 7.5 35.3 — — — 23.5 1956 33.3 — — — — — 2.6 — — 13.2 17.5 1957 1.0 — — — — — 0.7 — — — 0.3 1958 0.6 — — — — — 0.0 — — — 0.6 1959 44.8 — — — — — 2.0 — — 33.9 8.9 1960 65.9 — — — — 15.4 5.7 — — 36.6 8.2 1961 73.5 — — — — — 2.3 — — 48.6 22.6 1962 200.5 — — — — 20.0 2.2 20 — 114.0 44.3 1963 146.7 — — — — 36.3 2.3 10 — 78.5 19.6 1964 95.5 — — — — — 1.4 — — 85.2 8.9 1965 97.6 — — — — — 2.3 — — 84.9 10.4 1966 27.6 — — — — — 1.5 — — 16.4 9.7 1967 12.6 — — — — — 0.8 — — — 11.8 1972 1.5 — — — — 1.5 — — — — — 1973 0.8 — — — — — — — — — 0.8 1974 21.3 — — — — — — — 8.5 9.5 3.3 1975 370.1 — — — — — — 194.3 58.5 104.5 12.8 1976 464.3 — — — — — 5.4 150.0 102.8 201.7 4.4 TQ 552.5 — — — — — — 429.0 107.8 14.6 1.1 1951 Congressional Research Service 17 Egypt: Background and U.S. Relations Year Total Military Loan Military Grant I.M.E.T Grant Misc. Economic Grant D.A. Loan D.A. Grant ESF Loan ESF Grant P.L. 480 II P.L. 480 I 1977 907.8 — — — — — — 600.0 99.2 196.8 11.7 1978 943.2 — — 0.2 0.1 Narc. — — 617.4 133.3 179.7 12.5 1979 2,588.5 1,500 — 0.4 — — — 250.0 585.0 230.7 22.4 1980 1,167.3 — — 0.8 — — — 280.0 585.0 285.3 16.1 1981 1,681.2 550 — 0.8 — — — 70.0 759.0 272.5 28.9 1982 1,967.3 700 200.0 2.4 — — — — 771.0 262.0 31.9 1983 2332.0 900 425.0 1.9 — — — — 750.0 238.3 16.8 1951 Congressional Research Service 23 Egypt: Transition under Military Rule Military Loan Military Grant I.M.E.T Grant Misc. Economic Grant D.A. Loan D.A. Grant ESF Loan ESF Grant P.L. 480 II P.L. 480 I Year Total 1984 2,470.8 900 465.0 1.7 — — — — 852.9 237.5 13.7 1985 2,468.7 — 1,175.0 1.7 — — — — 1,065.1 213.8 13.2 1986 2,539.1 — 1,244.1 1.7 — — — — 1,069.2 217.5 6.6 1987 2,317.0 — 1,300.0 1.8 — — — — 819.7 191.7 3.9 1988 2,174.9 — 1,300.0 1.5 — — — — 717.8 153.0 2.6 1989 2,269.6 — 1,300.0 1.5 — — 1.5 — 815.0 150.5 1.2 1990 2,397.4 — 1,294.4 1.6 — — — — 898.4 203.0 — 1991 2,300.2 — 1,300.0 1.9 — — — — 780.8 165.0 52.5 1992 2,235.1 — 1,300.0 1.8 — — — — 892.9 40.4 — 1993 2,052.9 — 1,300.0 1.8 — — — — 747.0 — 4.1 1994 1,868.6 — 1,300.0 0.8 — — — — 561.6 35.0 6.2 1995 2,414.5 — 1,300.0 1.0 — — 0.2 — 1,113.3 — — 1996 2,116.6 — 1,300.0 1.0 — — — — 815.0 — 0.6 1997 2,116.0 — 1,300.0 1.0 — — — — 815.0 — — Total 45,669.4 4,550 17,803.5 27.3.0 11.2 80.7 82.8 2,620.7 15,923.8 4,114.3 455.1 Notes: Totals may not add due to rounding. No U.S. aid programs for years 1947, 1949, 1950, 1968, 1969, 1970, and 1971. P.L. 480 II Grant for 1993 includes $2.1 million in Sec. 416 food donations. TQ = Transition Quarter; change from June to September fiscal year * = less than $100,000 I.M.E.T. = International Military Education and Training UNRWA = United Nations Relief and Works Agency Surplus = Surplus Property Tech. Asst. = Technical Assistance Narc. = International Narcotics Control D. A. = Development Assistance ESF = Economic Support Funds P.L. 480 I = Public Law 480 (Food for Peace), Title I Loan P.L. 480 II = Public Law 480 (Food for Peace), Title II Grant Congressional Research Service 18 Egypt: Background and U.S. Relations Author Contact Information Jeremy M. Sharp Specialist in Middle Eastern Affairs jsharp@crs.loc.gov, 7-8687 Congressional Research Service 2419