After initially refusing a $3.2 billion line of credit offered by the International Monetary Fund, the ruling military council turned around last month and said it wanted the money.
But negotiations with the I.M.F. are not yet a done deal. Renewed street violence ahead of the January parliamentary elections and the crackdown on pro-democracy groups since then, including the prosecution of U.S. citizens, have put a broad swathe of foreign aid at risk.
In addition to the I.M.F loan, deals are in the works for low-interest loans from the World Bank, the African Development Bank, the European Union and the U.S. and Japanese governments. But much of this additional financing is contingent on securing the I.M.F. loan, as well as on progress in areas like elections, free speech and the rule of law.
“Many of Egypt’s friends aren’t going to move until the I.M.F. loan is approved,” said Mohsin Khan, senior fellow at the Peterson Institute for International Economics and a former director of the Middle East and Central Asia department at the I.M.F. “And without it, Egypt is in big trouble. Every month the loan is delayed, Egypt’s needs for financing become that much larger.”
The I.M.F. loan is still being analyzed in Washington. If the loan program is similar to the one Egypt originally rejected, Mr. Khan said, the fund will focus its lending conditions on macroeconomic issues like growth, inflation and the budget deficit. For many of Egypt’s other allies, however, good governance will be necessary to build on the I.M.F. loan’s foundation.
Likening the Arab Spring to the transformation of Central and Eastern Europe after the fall of the Berlin Wall, the Group of 8 leading countries meeting in Deauville, France, last May announced a partnership with Egypt, Tunisia and the Arab League to assist their transitions to more democratic societies.
Through various development banks, the participants have slated up to $20 billion through 2013 to support democracy-building efforts in Egypt and Tunisia, a prerequisite for improving governance, transparency, accountability — and growth in the private sector.
E.U. policy on Egypt is that “if the government wants to do more, there will be more support and more cooperation available,” Marc Franco, a former E.U. ambassador to Egypt, said during an interview. He spoke in Cairo in January, a few days before retiring from diplomatic service.
“The same goes for the Deauville commitments,” Mr. Franco said. “To support this process of democratization of the regimes, the G-8 said it will make additional money available.”
“But of course the financial assistance supports political reform,” he said. “If the political reform stalls, the pipeline might dry up.”
Egypt receives foreign aid in the form of grants for specific programs and loans that the International Cooperation Ministry can spend as it sees fit. Grants usually amount to less than 1 percent of Egypt’s gross domestic product, so the real money comes in loans.
Existing loan programs from international and regional organizations amount to about $10.8 billion. This is money that Egypt desperately needs, since the revolution and post-revolutionary violence have destroyed tourism — a key source of foreign currency — and stalled much of the economy, including the energy industry and agriculture.
According to the Central Bank of Egypt, the country’s net international reserves fell to $16.4 billion by the end of January from $35.6 billion at the beginning of 2011. If reserves continued to decline at the recent rate of close to $2 billion a month, Mr. Franco said, Egypt would be at risk of not being able to cover more than four months of imports.
On Feb. 2, the World Bank said Egypt had requested a $1 billion loan, while in late January, International Cooperation Minister Fayza Abul Naga, a holdover from the Mubarak government in the transitional cabinet, said Egypt would ask for an additional $500 million from the African Development Bank.
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