PROGNOSIS FOR EGYPT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89T01156R000100030028-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 16
• Document Creation Date: December 27, 2016
• Document Release Date: March 11, 2011
• Sequence Number: 28
• Publication Date: March 5, 1986
• Content Type: MEMO

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The Director of Central Intelligence
Washington, D.C. ZOSOS
National Intelligence Council
C 5 MAR ;986
MEMORANDUM FOR: Ambassador Morton I. Abramowitz
Director of Intelligence and Research
Department of State
SUBJECT: Prognosis for Egypt
1. Attached you will find the paper on Egypt you requested in your
3 February letter for Allen Wallis. It is an in-house-paper--at Wallis'
request and has not been coordinated by the Community. Last week's riots
underscore the paper's pessimism about the regime's ability to address
its problems effectively and the possible immediacy of a crisis.
3. We hope this paper is helpful to Allen Wallis and others who are
formulating economic and aid policies for Egypt through what may prove to
be a very difficult period. The paper is important enough to be seen by
other key members of the policy community and has been distributed
accordingly.
Robert M. Gates
Chairman
Attachment:
As stated
CL BY SIGNER
DECL OADR
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EGYPT: Prospects for the Mubarak Regime
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KEY JUDGMENTS
Egypt's rapidly deteriorating economic situation could bring the
Mubarak regime's viability into question during 1986.
Under present circumstances we see little prospect that this trend
will be arrested in any major way. Mubarak's position has been so
weakened by numerous issues that the requisite will and political
capability is lacking to take the major remedial economic steps
necessary, e.g., restructuring the economy to reduce subsidies,
rationalize exchange rates, and control imports.
Ultimately, Mubarak will be pressured into negotiating a standby
agreement with the IMF and rescheduling the official debt.
-- If he adequtely prepares public opinion in advance, the
political reaction to the IMF agreement need not in itself
precipitate an unmanageable situation.
-- But if the only economic adjustments made are superficial, then
all that will have been bought is a little time until Egypt's
external debt troubles and its relations with creditors
threatens even its ability to import food and other essentials.
Conversely, if Mubarak has not adequately prepared public opinion for
new IMF strictures, the likelihood will rise of civil disorder and sharp
reactions against both his regime and his pro-US policies. In such
circumstances, Mubarak could easily miscalculate and lose control of
events, particularly if the police and military balked at forcibly
suppressing popular disturbances.
Furthermore, the present economic difficulties are only part of
Mubarak's serious troubles. They follow a series of dramatic political
setbacks -- in particular, the Achille Lauro incident, the Malta
highjacking, Israel's raid on Tunis, and the February police riots --
which have undercut his influence and left him vulnerable to an
increasingly hostile opposition.
It is this greatly weakened political position which renders unlikely
the major remedial shifts in economic policy which Mubarak should take,
whether on his own initiative or formalized in an IMF-supported standby
program. Substantial political risks would be involved for him:
-- The public debate on the economy centers around the well-being
of Egyptians, not the debt crisis.
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-- The mass of Egypt's low- and middle-income urban population
already see their economic status eroding.
-- IMF-imposed austerity measures would be portrayed by the
opposition as a loss of sovereignty.
-- A reduction in subsidies and sudden price hikes in basic
commodities almost certainly would lead to widespread rioting.
We believe Mubarak will push hard for debt relief and expanded
financial assistance from the US and will interpret any perceived
footdragging by Washington as a sign of growing indifference to Egypt's
plight. Although he is unlikely to jeopardize existing US aid flows by
downgrading ties with Washington or totally abandoning the Camp David
accords, public opinion may force him to cool relations with Tel Aviv
even further and distance Cairo from US policies in the region.
In a prolonged period of general disorder we expect that Mubarak
would reverse the most egregious austerity measures. If disorder
continued and Mubarak seemed unable to govern, senior officers would
probably require him to step down. Similarly, if Mubarak dies or resigns
we would expect the military to supervise the transition of power since
Mubarak has not appointed a successor. If the military proved as
incapable as Mubarak in addressing the nation's economic woes, the
prospects of a takeover by more radical elements increases.
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The Setting
Adverse economic and political circumstances place extreme pressure
on the Mubarak regime and could bring its viability into question during
1986. Egypt's ability to meet both import requirements and external debt
obligations is deteriorating rapidly. Its balance of payments position
will likely become unmanageable during 1986 without some combination of
significant increases in external assistance, debt rescheduling, and
large cuts in import growth. These difficult choices come at a time when
Mubarak is in a particularly bad position for addressing them.
Economic Pros ects. Egypt's major sources of foreign earnings are in
decline with a ing oil revenues presenting the most serious and
immediate concern. Next to worker remittances, oil revenues represent
the single greatest source of foreign exchange earnings. Egypt earned
about $2.2 billion from oil sales in 1985, down 15 percent from the
previous calendar year. Declining petroleum revenues stemmed largely
from the sluggish world oil market which depressed prices. Petroleum
sales still accounted, however for about 60 percent of Egypt's commodity
exports and 20 percent of its foreign exchange earnings.
Even before the latest steep decline in world oil prices, Egypt's
petroleum revenue outlook was poor. Production much beyond current
levels of between 900,000 b/d and 960,000 b/d is unlikely, according to
knowledgeable oil industry sources. Meanwhile, domestic oil consumption
has been increasing at a rate of 10-13 percent over the past several
years, cutting ever deeper into the exportable surplus.
These negative trends have now been reinforced by the precipitous
slide in world oil prices. If the average price per barrel for the year
falls to X20, Egypt will lose about X650 million in hard currency oil
revenues. If, as some analysts now believe, prices fall even further, to
say X15 per barrel, Egypt could lose $1.15 billion annually.
Foreign earnings losses at even the more "moderate" X20 per barrel
level will strike Egyptian government finances particularly hard in the
coming months as the full magnitude of the price cuts begins to be felt.
Cairo has already experienced serious difficulties in servicing its
international debt obligations, now estimated at about $3.7 billion
annually. Lengthening delays in repayment, a large debt burden, and
declining earnings potential have effectively excluded Egypt from
negotiating further medium-to-long term commercial loans. Financial
sources have also reported that Egyptian borrowers are experiencing
increasing difficulties in obtaining short-term credits.
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Other major sources of foreign exchange--in particular, remittances
and tourism--are unlikely to compensate for the loss of oil earnings
during the current year. The economic downturn in the oil economics of
the Persian Gulf--the area employing most of Egypt's overseas
workers--has already begun to affect expatriate remittances, which
totaled 2.8 billion in 1985. While we discount alarmist projections that
assume large-scale layoffs of Egyptian workers, we believe it is possible
that some layoffs will occur and that reductions in pay and benefits are
likely for many more. Accordingly, a major increase in remittance
earnings is unlikely during 1986, and these earnings may even fall.
Similarly, tourist earnings which provided over $400 million in hard
currency last year will probably decline. Publicity surrounding the
recent spate of terrorist hijackings in the Middle East has led tourists,
particularly US citizens, to avoid what is seen as an increasingly
dangerous region to visit. Bookings at major Cairo hotels reportedly
have slumped badly in the past few months and are unlikely to pick up
sufficiently during the year to provide for any growth in earnings. With
the possible exception of cotton sales, we can detect no measurable
component of foreign earnings that will experience significant growth
over the current year--certainly none that will make up for the acute
loss of oil earnings.
The Political Scene. An unprecedented rash of political setbacks has
put Mubarak on the defensive and seriously undermined his ability to cope
with Egypt's economic crunch. Cairo's mismanagement of several recent
crises have eroded Mubarak's political credibility and left him
vulnerable to an increasingly hostile opposition. These crises include:
-- The Achille Lauro incident.
-- The hijacking of an Egyptian airliner to Malta.
-- Border tensions with Libya in which Mubarak appeared to vacillate.
-- The February police riots.
We do not believe that opposition to Mubarak is strong enough to
topple him, but it is growing and causing him serious concern. Last
October, opposition elements were openly backing the government against
the US and Israel in displays of national unity. Subsequent crises--in
particular the suicide in January of an Egyptian policeman convicted of
killing seven Israelis in the Sinai--have led responsible opposition
leaders to exploit public emotions by publicly challenging government
policy. There is the continuing possibility that this type of event,
beyond Mubarak's control, could precipitate a major crisis that further
discredits him.
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Mubarak's political troubles are compounded by deepening paralysis
within the Egyptian government that is largely of his own making. His
insistence on maintaining personal control of economic decisionmaking
continues to discourage initiative at the Cabinet level. At the same
time, Egypt's Prime Minister Lufti--a prominent economist and Mubarak's
personal choice for the position--has proved totally incapable of
controlling Cabinet infighting and implementing coherent policies.
Because of his direct role in recent decisions and growing
participation in day-to-day administration, Mubarak increasingly is being
blamed personally for government drift and incompetence. The public
debate centers on the economic well-being of Egyptians and Mubarak has
been unable to rally national support for a general economic
belt-tightening.
Opposition responses to tough government reforms would range from
condemnation by those on the religious right and socialist left of
Egypt's political spectrum to criticism by those in the center. Muslim
fundamentalists--both "moderate" Muslim Brothers and extremists among
low-income Egyptians--would denounce the measures as those of a corrupt
regime failing in its welfare duties to "the faithful."
Socialists--while far less able than religious factions to mobilize
anti-regime sentiment--would portray the decision as capitulation to
Western capitalist pressure. Criticism by moderately well-off Egyptians
in the large flew Wafd party would initially be more restrained but would
increase if outside forces were preceived as dictating Cairo's policy.
Effective economic solutions will entail political choices that any
government would be reluctant to make, but Mubarak's shaky political
position would make certain aspects of an austerity program doubly
dangerous. An increase in food prices in 1977 immediately caused
widespread rioting that required military force--and a return to the old
prices--to restore order. We believe that a similar increase today would
prove even more destabilizing in the likely event public discontent were
fueled by well-organized Islamic fundamentalists seeking a weapon against
the regime. Furthermore, police riots last month have weakened Egypt's
internal security forces and have seriously damaged Mubarak's position.
Mubarak's growing personal sense of vulnerability also will
complicate economic decisionmaking. Mubarak is especially sensitive
about policies that focus popular discontent on his leadership--a
predisposition reenforced by having witnessed Sadat's assassination at
close range. If Mubarak cannot take refuge in inaction or stopgap
solutions--his usual preference--he will seek to rally support for his
position by placing as much blame as possible on external actors such as
the US or oil prices for Egypt's situation before undertaking more
far-reaching policies. He has already begun to prepare public opinion
for hard times in recent public statements about the world's soft oil
market.
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Policy Options
We believe Cairo will continue to explore various policy options
designed to contain its payments deficits and avoid crippling import
cuts. In developing these options Mubarak will consider some combination
of the following:
-- Self-initiated acceleration of reform. Until now, the Egyptian
governmen as s renuous y rests a his option. Current plans
envision a five to seven year period for the elimination of most
subsidies. This pace will yield few dividends in the near term,
but Egyptian policymakers fear that a speedup in reform entails
many political risks with no immediate economic benefits. They
are aware that economic policy adjustments would initially
involve large jumps in living costs and perhaps displacement of
workers, and they lack confidence in their ability to survive
politically during such a period.
The shock of substantially lower oil prices and its obvious
implications for Egypt's economic outlook could provide the
government with a pretext for proceeding with a more vigorous
reform program. The greatest drawback of the current piecemeal
approach to reform has been, we believe, its very gradualism. By
delaying needed price adjustments, or by stretching them out into
increments acceptable to the general public, a sense of urgency
has been lost and much of the shock value of reform dissipated.
The stark reality of plummeting oil prices, given wide play by
the Egyptian media, could, however, be portrayed by the regime as
an event beyond its control that forces harsh, but necessary,
austerity measures.
We believe there is a high probability that the Mubarak regime
will accelerate reform but we doubt it will take the form of a
coherent, integrated program. More than likely, given Mubarak's
excessively cautious approach and the fragmentation of economic
decisionmaking within the current government, reform will remain
piecemeal. Certain commodities will be subjected to substantial
price hikes, while others, including probably bread, will be left
relatively untouched. Some measures, including harsh import
controls may, if selectively implemented to fall
disproportionately on the private sector, throttle economic
activity and do more harm than good. In any case, it is unlikely
that unilateral reform, alone, at this late stage will provide
sufficient relief to extricate Egypt from its economic crisis.
External financial assistance other than from the United States.
oug gyp w~ oo irs o e ni a ates, i may a so
explore the possibility of other bilateral financing,
particularly from the oil-rich Arab states. Egypt maintains
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unofficial political links with most Arab states, but its
estrangement from mainstream Arab politics is an impediment to
new official aid flows.
We do not regard the prospects for significant funding from such
sources as a viable alternative--even assuming a major political
reorientation by the Egyptian government. The Gulf Arab states
are in the midst of their own financial crisis because of falling
oil revenues and would not be inclined to provide the additional
aid Egypt will require. Even if they were, it would probably be
at the price of deemphasizing the Camp David accords. This would
jeopardize current US assistance levels of about $2.3 billion
annually and probably leave Cairo no better off than before.
Garnering financial assistance from Libya or the Soviet Union
would probably require an even more fundamental political
reorientation by the Egyptian Government and would not, in our
judgment, provide anywhere near the level of funding Egypt would
lose by abandoning its relationship with the United States.
Debt reschedulin We estimate Egypt's external debt at $37
billion. Annual servicing obligations on this indebtedness will
probably total about $3.7 billion during 1986. This huge debt
burden clouds the immediate financial outlook more than any other
factor. Hence, rescheduling, of these payments represents an
attractive alternative for the Egyptian Government.
Resecheduling of public-sector debt--including US Foreign
Military Sales obligations which Cairo believes can be easily
restructured--is traditionally contingent upon having an
IMF-supported economic adjustment program in place.l For
Egypt, an IMF standby agreement would entail adherence to strict
1 The IMF and IBRD are prepared to offer a substantial assistance
package including over $1 billion in financial aid and a Paris Club
rescheduling of bilateral debt if Egypt agrees to a structural adjustment
program. Before such a program could begin, Cairo would probably have to
implement some of the reforms specified in its FY 85/86 Budget including
additional energy price increases, customs revaluation, and movement
toward exchange rate unification. It is not clear whether the IMF/IBRD
would insist that all such reforms be enacted before aid is disbursed, or
if movement on exchange rate unification together with general agreement
on a timetable for other reforms, would suffice. Much will depend on the
IMF/IBRD's assessment of the resolve the government demonstrates before a
proyram is agreed upon--highlighting the importance of a serious dialogue
beginning as soon as possible.
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financial and monetary guidelines, including much more rigorous
subsidy reforms and more rapid movement toward a unified exchange
rate. It is such adjustments that would force substantial
increases in consumer prices and probably provoke political
unrest.
The (Nubarak government has in the past expressed great
sensitivity to the appearance of foreign control over the
country's economic policies. Egypt's leaders continually remind
US officials that they have not forgotten the IMFsupported
austerity program in 1977, which they blame for having caused
widespread riots. Furthermore, we believe the government fears
that Islamic fundamentalists could take advantage of an
embittered and disillusioned population who would vent its
opposition to economic austerity by turning to radical Islamic
fundamentalism.
Nevertheless, in the absence of large increases in aid, Cairo
probably will be forced into some form of rescheduling during the
current year. For purposes of analysis we have reduced the
likely options available to the Egyptians into two possible
scenarios. These are:
Unilateral action. Cairo could decide to go it alone as some
~r wor countries already have done and limit debt payments
without an agreement with creditors. Such a move could involve a
unilaterally imposed debt moratorium, a freeze on principal
repayments, or a decision to repay only those creditors Cairo
believes are likely to provide fresh funds. This approach avoids
any association with foreigners dictating the country's economic
policies and, accordingly, is more politically palatable than an
IMF program. Such actions, however, probably would result in a
drastic reduction or cutoff of shortterm credit lines, an event
that would slow imports to a trickle given Egypt's low foreign
exchange reserves. Moreover, a unilateral action would discredit
the Egyptians and make subsequent dealings with the IMF extremely
difficult should the regime decide to approach the Fund at a
later date. For these reasons, we doubt the Mubarak regime would
opt for such a solution to its economic problems.
IMF Standb A reement. More likely, Egypt will negotiate a
stan y agreemen with the IMF and pursue a Paris Club
rescheduling of official debt. A rescheduling of commercial bank
debt, howeverwhich accounts for more than half of Egypt's total
debtwould be a lengthy process and would be derailed if Cairo
were to fall out of compliance with its IMF program.
An agreement with the IMF need not precipitate an adverse
political reaction, at least not initially, if the Egyptian
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government prepares public opinion and the IMF is especially
lenient on preconditions. Most of the painful price adjustments
would need to be postponed until well after the first
disbursement of financial assistance. Cairo over the next
several months could use the media to dramatize the seriousness
of the economic situation, stressing how events beyond the
government's control (i.e., the fall in oil prices) require
drastic changes in economic policy.
An even more sophisticated approach would involve prior
consultations between Cairo and the IMF designed to quietly reach
an agreement in principle on an economic adjustment program.
Mubarak then could publicly announce Egypt was adopting
"independent" austerity program without any foreign interference
or infrigement on Egyptian sovereignty. The IMF subsequently
could endorse the "homegrown" Egyptian economic prescriptions and
invite Cairo to formalize the program into a standby agreement.
The IMF-standby scenario could be complicated by several factors:
-- Even if a smooth transition into a standby agreement occurs, it
merely postpones the inevitable price hikes that would be a part
of any IMF agreement. At this later date, however, the Egyptian
skill at procrastination would probably lead to stretched-out
price adjustments as the pace of the price hikes becomes a source
of protracted haggling between the government and the Fund.
-- The Egyptian government could bungle the preparation for an IMF
program. If the current drift in policymaking authority within
the cabinet continues, a troublefree progression to a Fund
program is unlikely. Communication between the government and
the Fund and, for that matter, between the government and the
populace likely will become garbled and may break down. The
worst possible approach Cairo could take, in our estimation,
would be to try to slip into an IMF-supported program without any
public preparation or announcement. Given its poor track record
on implementing prior economic policy changes, such a move is a
distinct possibility. Under these circumstances the likelihood
of political reaction and civil disorder become far greater.
-- Perhaps most seriously, Egypt may make only a superficial
commitment to economic adjustment merely to win an IMF standby
and Paris rescheduling. While this would provide a modicum of
financial relief this year, it would exacerbate both Egypt's
external debt troubles and its relations with creditors in the
following years.
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General Disorder/Coup Scenarios
Mubarak will likely encounter some disorder no matter what strategy
he adopts. Most urban Egyptians already need two sources of income just
to afford goods at current prices, and they would see a large jump in
living costs as intolerable. A substantial price hike in basic
commoditiesbread, flour, rice, and cooking oil, for examplewould lead to
widespread riots.
Even if Mubarak avoided price hikes in basic commodities, other
austerity measures perceived to hurt the lower and middle class might
prompt them to make common cause with Islamic fundamentalist and leftist
forces to challenge government policies. Furthermore, external acts
perceived as antiArabsuch as an Israeli raid on a PLO campwould further
aggravate passions, and possibly instill commitment within some
fundamentalist groups to assassinate the president.
Mubarak will almost certainly adopt a more antiUS posture to get
ahead of public opinion in the likely event unrest takes on the theme
that Washington has not done enough to aid Egypt. His reading of mass
sentiment, however, will determine how antiUS he becomes. Blaming the US
for Egypt's troubles would bolster his leadership position by diverting
public attention from his policies.
Even if Mubarak rescinded austerity measures, he still could find
himself in a situation beyond his control. It is possible that
demonstrations would not abate. Bloody suppression of the rioters by
police forces would further embitter the populace.
Mubarak cannot rely on the Interior Ministry's security forces. The
majority of the conscripted troops that make up the bulk of the police
forces are poorly educated Moslems who have grown up in deeply religious
homes and would likely crumble in confrontations with mobs.
The February police riots accentuate Mubarak's dependence on the
military. Instead of the ultimate guarantor of security, the Army must
now be reckoned as the power holding things together. The Army itself is
suspect in certain scenarios. Conscript personnel might find themselves
in sympathy with the disgruntled population and refuse orders to suppress
popular disturbances. If large-scale disorder prompted rebellion in the
armed forces, it would almost certainly bring down the Mubarak regime.
Mubarak Dies or Resi ns. Egypt has demonstrated that its political
insti u ions are exi a enough to accommodate drastic leadership
changes--as evidenced by Nasir's death and Sadat's assassination. If
Mubarak were to die or resign before his tenure ended in 1987, the
Constitution stipulates the Speaker of the People's Assembly would become
the interim president in the absense of a vice president. Within 60
days, a new president would have to be nominated by atwo-thirds vote of
the People's Assembly, and then approved by a majority of the electorate.
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An orderly succession is likely, but a contentious one is possible,
especially during a period of turmoil. In those circumstances, the
military would strongly influence and probably supervise the transition,
presenting a military leader as candidate for president.
Senior Officers Take Control. The current senior officers could
intervene ~n omes is po ~t~cs ~f massive public disorder threatened a
breakdown of law and order. If the Interior Ministry's security forces
became so hard pressed that they were on the verge of collapse, the
military would move to restore order.
If general disorder continued, a martial law decree would be issued
and constitutional rights suspended. This collapse of civilian authority
would seriously discredit the regime and leave the military in de facto
control of the government but possibly with Mubarak remaining at the
head. If the populace were to blame Mubarak personally for Egypt's
policy failures, however, the military would ask him to step down. Under
these circumstances, we believe he would probably resign, rather than be
forced out of office. The senior officers most likely would name the
defense minister president.
Senior officers would distance themselves somewhat from Mubarak's
policies, but they would not abandon the peace process or ties with
Washington altogether. The regime would not want to risk another war
with Israel or jeopardize the US sponsored modernization programs for
Egypt's armed forces. Bitter experiences with the Soviets in the 1970s
have underscored the difficulties of replacing one arms supplier with
another, and senior officers would avoid a repetition.
Instead, anti-US sentiment could prompt demands for cutbacks in AID
projects that are visible and, in some cases, conroversial. Senior
officers could also demand reductions in US official personnel as well as
contractors and researchers. A massive expulsion of Americans, however,
would be unlikely.
The senior officers are not likely to have political agendas at
variance with Mubarak's and, therefore, would find it difficult to
provide forwardlooking, reformminded leadership. They would soon find
themselves stymied by the same hard choices that precipitated Mubarak's
fall. The likely failure of such a regime to solve Egypt's problems
could set the stage for a more radical alternative.
Radical Nationalists Seize Power--the worst case for the short term.
A per~o o po i ica para ysis, economic s agna ion, an epen ence on
foreign assistance could force the overthrow of a regime set up by senior
officers. The leaders in such a coup would likely be younger generals or
colonels whose ideology blends radical Arab nationalism with Islamic
fundamentalism. Their popular appeal would reside in their ability to
evoke a recall of the Nasir era and to exploit xenophobic sentiments
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brought on by bitter disappointment in Westernand especially
USpatronage. Although we do not expect this scenario to unfold within
the next year, Mubarak's near term attempts to grapple with Egypt's
economic distress sets events in motion that directly affects this
possibility.
A radical nationalist regime of this type would have to seize power
by force, but, if successful, would probably gain the acquiescence of the
rank-and-file military. The mass of Egyptians would probably accept
severe belt-tightening under such a regime as long as all segments of
society were forced to make sacrifices.
The regime would seek to break perceived Western economic domination
and look for alternative sources of financial support. This could begin
with a renunciation of the Camp David accords to attract assistance from
wealthier Arab states and a full return to the Arab fold. The regime
would also make friendly overtures to the Soviet Union, Iran, and Libya
to strengthen Egypt's nonaligned credentials. The regime would be
unlikely, however, to initiate any hostile gestures toward Israel,
allowing instead the perpetuation of a "cold peace."
Implications for the United States
As Mubarak begins to grapple with Egypt's burgeoning economic crisis,
he will continue to seek debt relief and expanded financial assistance
from the United States, and may make this a more visible, public, and
contentious issue despite repeated warnings from US officials that the
prospects for such aid are poor. Egyptian officials will push hard for
FMS debt rescheduling. We do not believe that they sufficiently
understand that FMS debt relief can only realistically be addressed
within the context of Paris Club rescheduling. Accordingly the
government will continue to push hard for bilateral accommodation on
military debt.
The Mubarak government also will strongly argue for conversion of
more Economic Support Funding (ESF) into cash transfers, as well as an
increase in total ESF, which currently is X815 million annually. During
the current US fiscal year about X300 million of ESF has been allocated
by the United States for balanceofpayments support; the remainder is
distributed as project assistance through USAID. Cairo will probably
attempt to persuade US officials to convert more project assistance into
grants, citing as justification the altered economic outlook resulting
from falling oil prices. Egyptian officials may also cite growing
political and social tensions caused by the large US presence in Egypt
and argue the desirability of lowering the US profile by channeling more
project assistance directly into Egyptian hands.
In addition to such direct assistance, Cairo will probably also ask
the United States to use its influence within the IMF to grant assistence
to Egypt on the most lenient terms possible. The Egyptian government
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will be looking for minimal preconditions before a first tranche of aid
is released and sufficient flexibility on the timing and degree of price
adjustments required.
The longer Egypt's economic crisis continues, the more Egyptians will
opt to blame Washington for their plight. A major economic policy shift
will intensify the growing Egyptian opposition to Mubarak's close ties to
the US and Israel. Many Egyptians have come to view US assistance as an
insulting bribe for Cairo's "good" behavior toward Israel, yet at the
same time they have been disappointed that US largess flowing from the
Camp David accords has failed to improve Egypt's lot. Although Mubarak
is unlikely to jeopardize existing US aid by downgrading ties to
Washington or abandoning Camp David, public opinion may force him to
cool relations with Tel Aviv and distance himself from arrangements
increasingly perceived as affronts to Egypt's prestige.
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EGYPT: Prospects for the Mubarak Regime
NIC 01107-86
NIO/NESS' (3 March 1986)
Distribution:
Orig - Ambassador Morton I. Abramowitz, State
1 - Jock Covey, NSC
1 - Howard J. Teicher, NSC
1 - Richard W. Murphy, State
1 - Allen Wallis, State
1 - David J. Dunford, Desk Officer, State
1 - The Honorable Richard Armitage
1 - Robert H. Pelletreau, DoD/ISA
1 - Doug Mulholland, Treasury
1 - Byron Jackson, Commerce
1 - Doug Menarchik, VP's Office, 294 OEOB
1 - C/NIC
1 - VC/NIC (Ford)
1 - VC/NIC (Fuller)
1 - D/ NE SA
1 - C/AI
1 - A/NIO/NESA (File)
1 - DDI Registry
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