How US Aid to Egypt is Distributed

The United States may reconsider its annual aid of $1.55 billion to Egypt. This support, essentially military in nature, reflects strong strategic and economic interests.

Washington firmly condemned on Thursday the Egyptian army’s violent dispersal of the militant pro-Morsi encampments. The United States consequently canceled joint military exercises with Egypt planned for September, and some have even suggested that $1.55 billion in U.S. funds to the country could be in jeopardy. The Obama administration, however, has formally denied this rumor. Moreover, the Egyptian head of government warned the United States on Tuesday that it would be making a mistake if it suspended its annual military aid of $1.3 billion, but that Cairo would be able to get by without it. If Washington were to freeze or cut its military assistance to Egypt, it “will be a bad sign and will badly affect the military for some time,” according to Hazem el-Beblawi, Interim Prime Minister of Egypt, in a U.S. television interview on ABC news.

Having received $71.6 billion in aid between 1948 and 2011, Egypt is the second largest beneficiary after Israel. This aid is important for strategic reasons: It helps maintain U.S. maritime access to the Suez Canal, preserve the Israeli-Egyptian peace treaty of 1979 and promote democracy and economic growth in the largest Arab country in the region, according to a report published on July 19, 2013, “Egypt: Background and U.S. Relations.” However, it also represents a strong economic interest, insofar as it translates into arms agreements with American companies.

Military Aid

This is by far the most important portion of the aid, coming to $1.3 billion per year. It covers 80 percent of the equipment expenditures of the Egyptian army. According to the report, $650 million of the Foreign Military Aid (FMA) has already been dispensed to Egypt as of July 19, 2013. The State Department confirms that there remains $584 million of FMA for this year that has not yet been distributed.

The FMA dispensed to Egypt principally affects the contracts established with American defense manufacturers. This is why Washington finds it difficult to cut aid without penalizing its own economy. These contracts cover the acquisition and upgrading of equipment as well as support and maintenance. For example, the coproduction of the M1A1 Abrams tank is one of the keystones of the FMA dispensed to Egypt, which planned on acquiring 1,200 of them in total. A part of each tank is produced in the United States and then sent to Egypt to be assembled with pieces produced in factories around Cairo. The American company General Dynamics of Sterling Heights [in Michigan] is the principle agent of this contract. In 2010, the United States had also sold 20 Lockheed Martin F-16 C/D fighter jets for $2.5 billion. Eight have already been delivered in January 2013, four more in August, and the remaining eight are supposed to be delivered in December 2013.

FMA is also seen in the financing of military cooperation. One such cooperative activity has already been jeopardized by the recent repression of pro-Morsi supporters. Barack Obama announced yesterday the end of joint military maneuvers with Egypt. The agreement normally provided for the training of Egyptian officers in order to facilitate shared operations. Egypt also benefits from some of the surplus defense equipment from the U.S., and from easy payment terms that permit it to negotiate very large contracts with American providers. The country is only obliged to set aside FMA funds for the current year’s expenditure, rather than the totality of the sum required for the purchases spread over several years.

Economic Aid

Over 15 years, U.S. economic aid has been cut to 250 million euros per year, a third of what it once was. This sum has not yet been dispensed this year. Since the February 2011 revolution, debates about the amount and even the continuation of this aid have raged in Congress. Budgetary restrictions, uncertainty regarding the intentions of the army or the Muslim Brotherhood, fears concerning the country’s democratic transition and the preservation of the 1979 peace treaty with Israel are the reasons that have been invoked. By the time the army removed President Morsi from office in July, Barack Obama had already ordered a reevaluation of the aid program.

In a speech given in May 2009, President Obama detailed a plan to support Arab countries undergoing a political transition. He proposed a program to reduce bilateral debt by a billion dollars, in addition to a loan of a billion dollars guaranteed by the United States government to finance the Egyptian economy. The money was to be allocated to infrastructure programs, job creation and as a channel for providing investment funds for small and medium-sized businesses.