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Draining cash, Egypt on $30 billion search for aid

Friday - 4/26/2013, 11:11am  ET

In this Wednesday, April 24, 2013 photo, Egyptian day laborers wait for employers on a street in Cairo, Egypt. Egypt has been increasingly knocking on doors around the world seeking billions to fill rapidly draining coffers. But not everyone is eager to give, and economists fear that quick injections of cash only let the government put off painful economic reform. (AP Photo/Nasser Nasser)

AYA BATRAWY
Associated Press

CAIRO (AP) -- During a meeting in a Black Sea resort city, Egypt's president and members of his government turned to Russian President Vladimir Putin and asked for a sizable loan, according to a Putin aide.

Egypt's Mohammed Morsi appealed to Moscow and Cairo's past ties, recalling how the former Soviet Union stepped in to finance the building of the Aswan High Dam in the 1950s after the United States abruptly withdrew from the project, according to Russian media.

Still, the Russians' response seemed rather equivocal: We'll talk later.

Egypt has been knocking on doors around the region seeking billions of dollars in loans, bond purchases and grants, trying to fill rapidly draining coffers so it can keep power stations running and bakeries churning out cheap bread for the country's millions of poor.

The drive appears to have accelerated ahead of the summer, when the country's fragile electricity network often breaks down under increased energy use and when officials have predicted a drop in wheat supplies.

Several states -- including Qatar and Libya -- have responded in recent weeks. But strikingly, a few countries have balked, wary of pouring money into Egypt's worsening economy without some political stability after two years of turmoil since the fall of autocrat Hosni Mubarak.

Moreover, economists worry that Morsi's government is relying on an unsustainable policy, scrambling for foreign cash as a temporary cushion that allows it to put off major -- and highly unpopular -- economic reforms and avoid compromise with its political opponents.

The most crucial piece of aid, a $4.8 billion loan from the International Monetary Fund, has been delayed by months of negotiations over how Egypt will reduce its massive system of subsidies, which the poor rely on for cheap fuel and food but which suck up large portions of the budget. The government has taken some limited steps, but many economists believe it is postponing extensive reforms until after parliament elections to avoid austerity measures that could hurt Morsi's majority Muslim Brotherhood party at the polls.

The problem is: No date has been set for elections, and they won't be held until the fall at the earliest. That could mean months of economic limbo, with foreign lenders and donors reluctant to give unless there is a clear economic plan. Securing the IMF loan is considered key to boosting investors' confidence in Egypt and unlocking further aid.

In the meantime, the government has been seeking injections of cash.

Overall, Egypt has sought or is in talks for more than $30 billion since the fall of Mubarak -- the vast majority since Morsi was inaugurated in June, according to a compilation by The Associated Press of what has been announced. In an email, an official in the president's office could not confirm exact numbers but said the figure is "close to accurate." The official, who was not authorized to talk to reporters and spoke on condition of anonymity, did not give further comment on economic policy.

The search for cash has opened Morsi's government to embarrassing opposition taunts that it is begging.

After Morsi and his team returned from Russia, his minister of industry and trade this week denied they asked Moscow for a loan, despite the Putin aide's public description of the closed-door meeting.

"Egypt does not beg anyone for aid," Hatem Saleh said. "What has been reported in the media is not worth responding to."

Egypt's need for funds is dire. After the 2011 uprising that toppled Mubarak, foreign investment in Egypt shriveled and tourism -- a top revenue source -- took a heavy blow. Neither has recovered since, with investors and tourists still scared away by the country's unrest and political uncertainty.

With revenues down, the government has been burning through its foreign currency reserves, which have fallen to just $13.4 billion, a third of the pre-uprising level. Much of that has gone to propping up the currency and importing fuel and wheat for the subsidy system. Egypt spends some $14.5 billion a year in subsidizing fuel and $4 billion in food subsidies, the bulk of which goes to bread. Nearly half of Egypt's 90 million people live near or below the poverty line of $2 a day.

Egypt seems to be "reaching out to others as a backstop" until the IMF deal is sealed, said economist William Jackson of the London-based consultancy Capital Economics. He said there is "a real lack of clarity" on what it has received from other countries.

This month, oil-rich Qatar -- a longtime ally of the Brotherhood -- promised $3 billion, on top of the $5 billion it has already given Morsi's government. Libya announced this month it has deposited $2 billion in Egypt's Central Bank.

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