Wednesday, September 5, 2012

Debt Forgiving Debt...

An Egyptian woman adjusts her veil in front of a poster
outside an exchange office. (VOA)

           This past week, the United States grew close to finalizing a deal with Egypt’s new Muslim Brotherhood government and president, Mohamed Morsi, to help Egypt cut $1 billion from its national debt. Aside from the irony of one of the most debt-laden countries helping another nation pay off its own debt, the diplomatic move for the United States promises numerous benefits.
As the new Egyptian political system stabilizes, the Muslim Brotherhood ruling party has set its eyes on dramatically reducing the amount Egypt owes to foreign nations. This past month, President Morsi set off on a whirlwind tour of the world, not only re-establishing diplomatic relations with China, Syria, Russia, and the EU, but also requesting funds to help re-establish democratic relations within Egypt. Overall, Mr. Morsi’s requests have been successful with China pledging $270 million, the International Monetary Fund (IMF) throwing its support behind a $4.8 billion loan, and over $375 million invested by American financiers (in addition to the $1 billion provided by the American government). However, numerous Congressmen and taxpayers are wondering one thing: where does the money that President Obama pledged Egypt come from?

Where is the money coming from?
            The official explanation from Patrick Ventrell, the State Department’s acting deputy spokesman is that the $1 billion is not “new money.” And surprisingly, for once, the government seems to be correct. Like clockwork, the United States has given over $1.2 billion per year in military aid for the past few decades. Throughout the years, the account books have fluctuated back and forth until Egypt came out in the red—owing the US over $3 billion. Essentially, the money that the Obama administration is giving/forgiving out of the Egyptian debt is the money that would have gone to Hosni Mubarak for military support. In other words, the United States regularly gives Egypt $1 billion per year, so this deal is nothing new.
                        Except for the fact that the U.S. has already given Egypt millions this year. According to the 2012 Appropriations act signed by Obama in December 2011, the U.S. would only give to Egypt if the government was "supporting the transition to civilian government, including holding free and fair elections; implementing policies to protect freedom of expression, association and religion and due process of law." However, the act allowed the Secretary of State to waive that requirement, which Hillary Clinton did in March, increasing the amount donated to over $1.7 million per month given to Egypt.

The reason for the charity.
            As usual, there is a method behind the madness. Maintaining a strong U.S. presence within Egypt, either militarily or monetarily, is key to preserving Middle-East accessibility and Egypt-Israel solidarity, notes Patrick Ventrell. As the New York Times reports, given Egypt’s influence in the Arab world, officials said, its economic recovery and political stability could have a profound influence on other nations in transition and ease wariness in Israel about the tumultuous political changes under way.
            It is  an economic fundamental that nothing is free—you always have to give to get. In this case, the U.S. is trading money for security. One question remains unanswered and unasked however: do we even have the money to spend?