Egypt Dialogue of the Deaf

By Michael S. Serrill

At the top of the agenda when Vice President George Bush sat down last week with Egyptian President Hosni Mubarak was an urgent request that the U.S. help alleviate Egypt's burgeoning economic problems. Bush, who was winding up a three-nation Middle East tour, demurred. Pleading that he "didn't come here to cry poor mouth," the Vice President nonetheless declared that the U.S. was "facing very difficult budgetary times" and could not guarantee an increase of its $2.2 billion in annual aid to Cairo. But he did promise to discuss Egypt's needs with President Reagan. Said Bush: "A stable Egypt is vitally in the interest of the United States."

In the months ahead, Egypt's financial crisis, the worst in many years, may become increasingly difficult to brush aside. Unless Cairo can find a way to gain relief from payments coming due on its $35 billion foreign debt, it may be forced either to default on loans or to cut domestic spending so drastically as to risk provoking a political crisis. Since almost any new regime is likely to be more influenced by Islamic fundamentalists than Mubarak's has been, Washington has good reason to make sure that Egypt ultimately gets the aid it needs. Says one Western observer: "No matter how you do the numbers, they're going to need help."

Egypt's immediate cash-flow problem is the result of a sudden drop in the value of its main sources of foreign exchange. Because of the collapse in oil prices, exports of crude from Sinai oil wells may fall from last year's $2.8 billion to as little as $1.5 billion in 1986. Remittances from Egyptians working in the Persian Gulf declined by $300 million, to $3.5 billion, this year and are expected to continue falling as the major oil producers in the region cut back production. In addition, the country has suffered a 20% decline in its $1 billion-a-year tourist trade, principally because of American fear of terrorism.

Mubarak asked Bush to urge the International Monetary Fund to reschedule some of Egypt's debt to ease potentially dangerous pressures on his government. He also renewed two other long-standing requests:

-- He would like to renegotiate the interest rate on the $4.5 billion that Egypt owes the U.S. for purchases of military equipment. The rates on those loans range from 12% to 14%, while the current market rate is 8%. Annual interest on the military debt totals $500 million a year. The State Department says any adjustment in interest rates would set a bad precedent.

-- Mubarak would like the U.S. to untie the strings attached to Egypt's $1 billion in annual economic aid, which is largely awarded in the form of specific joint-development projects. The Egyptians want more of the aid in cash.

So far Mubarak's recent pleas have garnered no new funds. The IMF, the U.S. and other Western governments instead have insisted that Egypt take bolder steps to reform its bloated, inefficient economy. They are pressing Cairo to encourage more private investment. But their most frequent target is Egypt's vast system of government subsidies, which could consume as much as $7 billion of the country's $15 billion budget this year. The subsidies are a growing burden, especially since Egypt's population, now 50 million, is increasing by 1 million people every nine months.

For most middle-class Egyptians, subsidies are a welcome but nonessential financial cushion. A rent-controlled three-bedroom apartment in Cairo, for example, can cost as little as $3.74 a month. Telephone service costs 2 cents or 3 cents a call. The subsidized price of a large loaf of bread is about 2 cents. But for the majority of Egyptians, whose per capita income is $600 a year, subsidies are just enough to keep them from penury. Last February national security police rioted after the rumor spread that their hitch would be extended from three years to four. Reason: the conscripts earn less than $10 a month, on which many of them must support families. In 1977, when former President Anwar Sadat tried to cut food subsidies, widespread rioting almost brought down his government. "We learned from the lesson of 1977," says an Egyptian official. "We can't repeat it again."

Mubarak has therefore inched cautiously toward reform. Gasoline prices have been raised twice in the past year. Electricity rates were hiked an average of 35% a year ago, and taxes on luxury imports have been imposed. Such steps are not nearly enough. Mubarak's dilemma is that sterner measures, which might save Egypt from the embarrassment of defaulting on its foreign loans, could provoke a popular uprising that the fundamentalists are poised to exploit.

The government plays down the fundamentalist threat. One senior official describes the religious minority as a "few hundred" people who "cannot do any damage on a national scale." But others see it as a steadily rising influence, particularly in the universities. Few Egyptians can forget that it was a fundamentalist group that assassinated Sadat in a hail of bullets in October 1981.

Washington is eager to have Egypt continue in its role as a moderate, pro- Western influence in the region. In that spirit, U.S. officials worked hard last week to get an agreement signed between Egypt and Israel in the dispute over Taba, the slice of Red Sea beachfront that Israel refused to hand back to Egypt along with the rest of Sinai in 1982. While no accord was initialed before Bush's departure, officials on all sides are hopeful that an agreement for binding arbitration in the dispute can be reached soon, opening the way for a relaxation in Egyptian-Israeli relations after four chilly years.

For the moment, Mubarak will have to depend on the ability of his long- suffering people to muddle through the current crisis. Though the Egyptians are renowned for their patience, they will not wait forever for economic improvements. "The doomsayers have been around for quite a while," says one Western analyst. "But this time, the day of reckoning may come."

With reporting by David S. Jackson/Cairo