Bush Officials Lobby Congress To Cancel Egypt's Military Debt

THE Bush administration has begun pressing for legislation in Congress to forgive Egypt's $7 billion military debt to the United States. Deputy Secretary of State Lawrence Eagleburger started to court the House and Senate this week. Egypt and other potential benefactors are kicking off their own campaigns on Capitol Hill. Hearings could be scheduled in the next few weeks, congressional aides say.

The effort won't be easy. Congressional leaders are concerned about the impact a debt write-off might have on the pending foreign-aid bill, the US budget, and on Egypt's commitment to economic reform.

``I think we should hold to the conditionality of reform,'' says Rep. Lee Hamilton (D) of Indiana, chairman of the House subcommittee on Europe and the Middle East. ``I want to see us go harder rather than easier.''

``If you're asking me would I support this standing alone, the answer is no,'' says Rep. David Obey (D) of Wisconsin, chairman of the House foreign operations subcommittee.

Stressing Egypt's dispatch of troops to Saudi Arabia and citing its failing economy, the administration announced a proposal last week to forgive the military debt Cairo incurred between 1979 and 1984.

A defeat on this issue would mark the first time since Iraq invaded Kuwait on Aug. 2 that Congress has broken ranks with the White House on Gulf-related issues. The effects could be devastating for Egyptian President Hosni Mubarak, who has aligned himself with the US at considerable risk to his popularity at home.

Mr. Bush's proposal also raises anew the question of what to do with uncollectible debt. Administration officials say Egypt's debt-service obligations are rising much faster than its ability to pay, and that the country is on the brink of bankruptcy. Some in Congress wonder if forgiving Egypt's debt might set a precedent. In all, underdeveloped and insolvent nations owe the US about $60 billion, congressional sources say.

Leaders in the House and Senate say the general issue should be addressed now. The administration argues that that Egypt's case is unique, and immediate action is necessary.

Egypt earns about $3 billion in foreign currency each year. By 1991, its annual debt service to the US will reach $1 billion. Cairo's total foreign debt hovers around $55 billion. And because it relies heavily on remittances of Egyptian workers overseas, tourism, and Suez Canal revenues, its economy is sensitive to international developments and eludes national control.

In 1987, Egyptian President Hosni Mubarak reached an arrangement with the International Monetary Fund (IMF) to reschedule its debt to the Paris Club of Western creditors. But the agreement stipulated economic reform which, after about three months, Egypt reneged on.

Egypt continues to contend that stringent austerity measures would destabilize the country.

The US National Security Council was set to review on Aug. 7 several options for Egyptian debt relief, but the Iraqi invasion of Kuwait changed the picture.

``On Aug. 3 it became clear to us,'' says one administration source, ``that even the most generous ideas were inadequate to compensate Egypt for the loss of revenues'' it suffered because of the Gulf crisis and the pro-American position it took.

Egypt must now feed and employ hundreds of thousands of workers returning from Iraq and Kuwait. Because of the human influx, Egypt stands to lose about $1.2 billion in annual remittances. It will also lose, sources say, about 15 percent of its Suez Canal tolls and a good portion of its income from tourism.

To complicate the matter for Congress, Israel has indicated it would ask for similar debt relief. Congressional aides say Turkey, Greece, Pakistan, and Poland could follow suit.

The write-off of Egypt's debt as well as the debt of other nations could have a serious effect on the US federal budget.

``It opens up the floodgates,'' says Sen. Patrick Leahy (D) of Vermont, chairman of the Senate subcommittee on foreign operations. ``I don't want to see a skyrocketing of our foreign aid bill.''

Administration officials disagree. ``No other country faces Egypt's imbalance in foreign currency,'' says one official. ``Turkey can absorb the shock from oil shortfall without going into recession. Israel earns more than $150 million in interest on its US aid check. And Poland does not need relief by October. It has IMF relief and it got a very generous rescheduling.''

Administration sources say that requests for similar relief from other countries, including Israel, should be denied.

Nevertheless, because of the way Congress accounts for expenditures, forgiving the $7 billion Egyptian debt would swell the foreign-aid bill by 50 percent this year, to $22 billion.

Some in Congress are concerned that complete debt forgiveness will work against economic reform in Egypt.

``There is long-standing concern in Congress with Egypt's unwillingness to deal with deep seated economic problems,'' says a Senate aide. ``I doubt that in the two places that count - the foreign operations subcommittees of the House and Senate - they would be willing to put that aside.''