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U.S. ECONOMIC ASSISTANCE TO EGYPT: DOES

IT ADVANCE REFORM?

HEARING

BEFORE THE

COMMITTEE ON 

INTERNATIONAL RELATIONS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

JUNE 17, 2004

Serial No. 108–160

Printed for the use of the Committee on International Relations

(

Available via the World Wide Web: http://www.house.gov/international—relations 

(II)

COMMITTEE ON INTERNATIONAL RELATIONS 

HENRY J. HYDE, Illinois, Chairman 

JAMES A. LEACH, Iowa 

DOUG BEREUTER, Nebraska 

CHRISTOPHER H. SMITH, New Jersey, 

Vice Chairman 

DAN BURTON, Indiana 

ELTON GALLEGLY, California 

ILEANA ROS-LEHTINEN, Florida 

CASS BALLENGER, North Carolina 

DANA ROHRABACHER, California 

EDWARD R. ROYCE, California 

PETER T. KING, New York 

STEVE CHABOT, Ohio 

AMO HOUGHTON, New York 

JOHN M. MCHUGH, New York 

ROY BLUNT, Missouri 

THOMAS G. TANCREDO, Colorado 

RON PAUL, Texas 

NICK SMITH, Michigan 

JOSEPH R. PITTS, Pennsylvania 

JEFF FLAKE, Arizona 

JO ANN DAVIS, Virginia 

MARK GREEN, Wisconsin 

JERRY WELLER, Illinois 

MIKE PENCE, Indiana 

THADDEUS G. MCCOTTER, Michigan 

KATHERINE HARRIS, Florida 

TOM LANTOS, California 

HOWARD L. BERMAN, California 

GARY L. ACKERMAN, New York 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

DONALD M. PAYNE, New Jersey 

ROBERT MENENDEZ, New Jersey 

SHERROD BROWN, Ohio 

BRAD SHERMAN, California 

ROBERT WEXLER, Florida 

ELIOT L. ENGEL, New York 

WILLIAM D. DELAHUNT, Massachusetts 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

JOSEPH CROWLEY, New York 

JOSEPH M. HOEFFEL, Pennsylvania 

EARL BLUMENAUER, Oregon 

SHELLEY BERKLEY, Nevada 

GRACE F. NAPOLITANO, California 

ADAM B. SCHIFF, California 

DIANE E. WATSON, California 

ADAM SMITH, Washington 

BETTY MCCOLLUM, Minnesota 

BEN CHANDLER, Kentucky 

THOMAS E. MOONEY, SR., Staff Director/General Counsel 

ROBERT R. KING, Democratic Staff Director 

HILLEL WEINBERG, Senior Professional Staff Member and Counsel 

MARILYN C. OWEN, Senior Staff Associate 

(III)

C O N T E N T S 

Page

WITNESSES 

The Honorable Edward S. Walker, Jr., President, The Middle East Institute .. 5

Michele Dunne, Ph.D., Visiting Scholar, The Carnegie Endowment for International Peace ...................................................................................................... 10

David B. Gootnick, Director, International Affairs and Trade, U.S. General 

Accounting Office ................................................................................................. 14

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

The Honorable Henry J. Hyde, a Representative in Congress from the State 

of Illinois, and Chairman, Committee on International Relations: Prepared 

statement .............................................................................................................. 2

The Honorable Edward S. Walker, Jr.: Prepared statement ............................... 8

Michele Dunne, Ph.D.: Prepared statement .......................................................... 12

David B. Gootnick: Prepared statement ................................................................ 16

(1)

U.S. ECONOMIC ASSISTANCE TO EGYPT: DOES 

IT ADVANCE REFORM? 

THURSDAY, JUNE 17, 2004

HOUSE OF REPRESENTATIVES, COMMITTEE ON INTERNATIONAL RELATIONS, Washington, DC. 

The Committee met, pursuant to call, at 10:53 a.m. in room 

2172, Rayburn House Office Building, Hon. Henry J. Hyde [Chairman of the Committee] presiding. 

Chairman HYDE. We will now commence with the Committee 

hearing. The Egyptian economy has often under-performed its 

peers, despite important natural advantages and massive assistance from the United States and other donors. 

Despite that massive assistance, or perhaps because of it, Egypt’s 

economy and political system have largely resisted reform. 

This might be a matter of indifference in other parts of the 

world, but Egypt’s longstanding relationship with the United 

States, its leadership position in the Arab world, its critical location, and its path-breaking peace with Israel, make its development 

a matter of great concern to Americans. 

Which is why we have a massive assistance program to begin 

with. There are poorer people than the Egyptians, people who are 

objectively more deserving of our aid if poverty alone were the criterion. It is because of our interest in Egypt’s success that we are 

holding this hearing. 

Our assistance is meant to be transforming and not palliative. 

Yet, Egypt, our second largest aid recipient, negotiates with us 

about the terms under which it will accept our assistance, and 

drives a hard bargain. 

In the end, it would be fair to say that a combination of 

geostrategic circumstances and the greater resistance to change in 

Egypt has made our cash assistance programs, including the Commodity Import Program, of questionable utility in driving reforms. 

There are no serious reform-involved conditions accompanying $200 

million in yearly CIP (Commodity Import Program) funds, and the 

record on the $200 million yearly straight-cash transfer is questionable. 

Each year, in exchange for the cash transfer, Egypt is supposed 

to undertake additional economic reforms. Yet, Administration 

after Administration has assented to conditionality packages that 

are remarkably similar to one another. 

For example, in the cash that was transferred last week in the 

supplemental aid package, improved economic statistics were cited 

as a ‘‘quid pro quo.’’ But it turns out that in 1998, we provided cash 

2

to Egypt in return for its agreement to provide the very same statistics. 

It is also true that we have provided cash for financial sector reform. Financial sector reform has been identified by the Administration as the most important reform going forward. 

It seems to be so important to privatize the state-owned banks 

in Egypt that we should probably, if necessary, pay yet again to 

support the same intended result. USAID’s consultants have demonstrated the critical role that distorted lending practices play in 

retarding Egypt’s economic reform. 

Regrettably, Egypt’s financial sector is pursuing coping strategies, which will put the Egyptian economy further and further behind. I congratulate our Administration on its proposal to rework 

the Egypt assistance program. It ought to be in place in full, and 

I expect that it will be. 

It is critical also that economic progress be matched by a true political opening. We should be of greater assistance in helping Egyptians find their own path forward. The Administration’s Egypt program re-work addresses this as well, and it, too, should be put in 

place with dispatch. 

The Commodity Import Program seems to be, for all practical 

purposes, a second cash grant program that has had almost no 

scrutiny and has never been specifically authorized, at least in the 

case of Egypt. 

I appreciate the work of the General Accounting Office presented 

today in preliminary form, and that will help us understand the 

program, its limitations, and its role, if any, in advancing Egypt’s 

economic transformation. 

We will be privileged to hear from two experienced diplomats 

turned scholars, who can help us understand how we might have 

an impact through our assistance programs, and perhaps otherwise, on the course of Egypt’s economic and political reform. 

We will then hear a preliminary view of the General Accounting 

Office study of the CIP program. 

[The prepared statement of Chairman Hyde follows:]

PREPARED STATEMENT OF THE HONORABLE HENRY J. HYDE, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF ILLINOIS, AND CHAIRMAN, COMMITTEE ON INTERNATIONAL RELATIONS

The Committee will come to order. 

The Egyptian economy has often underperformed its peers, despite important natural advantages and massive assistance from the United States and other donors. 

And despite that massive assistance—or perhaps because of it—Egypt’s economy 

and political system have largely resisted reform. 

This might be a matter of indifference in other parts of the world, but Egypt’s 

long-standing relationship with the United States, its leadership position in the 

Arab world, its critical location, and its path-breaking peace with Israel make its 

development a matter of great concern to Americans. 

Which is why we have a massive assistance program to begin with. There are 

poorer people than the Egyptians, people who are objectively more deserving of our 

aid, if poverty alone was the criterion. It is because of our interest in Egypt’s success that we are holding this hearing. 

Our assistance is meant to be transforming, not palliative. Yet Egypt, our secondlargest aid recipient, negotiates with us about the terms under which it will accept 

our assistance, and it drives a hard bargain. 

In the end, it would be fair to say that a combination of geo-strategic circumstances and the great resistance to change in Egypt have made our cash assistance programs, including the Commodity Import Program, or CIP (a semi-cash asVerDate Mar 21 2002 09:42 May 09, 2005 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6621 F:\WORK\FULL\061704\94284.000 HINTREL1 PsN: SHIRL
3

sistance program), of questionable utility in driving reforms. There are no serious, 

reform-involved conditions accompanying $200 million in yearly CIP, and the record 

on the $200 million yearly straight-cash transfer is questionable. 

Each year, in exchange for the cash transfer, Egypt is supposed to undertake additional economic reforms. 

Yet administration after administration has assented to conditionality packages 

that are remarkably similar to one another. For example, in the cash that was 

transferred last week in the Supplemental aid package, improved economic statistics 

were cited as a ‘‘quid pro quo.’’ But it turns out that in 1998, we provided cash to 

Egypt in return for its agreement to provide the very same statistics. 

It is also true that we have provided cash for financial sector reform. Financial 

sector reform has been identified by the Administration as the most important reform, going forward. 

It seems to be so important to privatize the state-owned banks in Egypt that we 

should probably, if necessary, pay yet again to support the same intended result. 

USAID’s consultants have demonstrated the critical role that distorted lending 

practices play in retarding Egypt’s economic reform. Regrettably, Egypt’s financial 

sector is pursuing coping strategies which will put the Egyptian economy further 

and further behind. 

I congratulate our Administration on its proposal to re-work the Egypt assistance 

program. It ought to be put in place in full, and I expect that it will be. 

It is critical, also, that economic progress be matched by a true political opening. 

We should be of greater assistance in helping Egyptians find their own path forward. The Administration’s Egypt program re-work addresses this as well, and it, 

too, should be put in place with dispatch. 

The Commodity Import Program seems to be, for all practical purposes, a second 

cash grant program that has had almost no scrutiny and has never been specifically 

authorized, at least in the case of Egypt. I appreciate the work of the GAO, presented today in preliminary form, that will help us understand the program, its limitations, and its role, if any, in advancing Egypt’s economic transformation. 

Today, we will be privileged to hear from two experienced diplomats-turned-scholars who can help us understand how we might have an impact, though our assistance programs and perhaps otherwise, on the course of Egypt’s economic and political reform. We will then hear a preliminary view of the General Accounting Office’s 

study of the CIP program. 

Let me now recognize the distinguished Ranking Democratic Member, Mr. Lantos, 

for any comments he may have at this time, after which I will introduce the panel 

members individually.

Chairman HYDE. Let me now recognize the distinguished Ranking Democratic Member, Mr. Lantos, for any comments that he 

may have at this time, after which I will introduce the panel members individually. Mr. Lantos. 

Mr. LANTOS. Thank you very much, Mr. Chairman, and let me 

first extend my apologies for having to be on the Floor shortly to 

engage in a debate on the rule. Mr. Chairman, I want to thank you 

for convening this important hearing and for your usual thoughtful 

opening statement. 

The United States Congress has appropriated nearly $60 billion 

in aid for Egypt since Cairo signed its peace treaty with Israel in 

1979. Some $26 billion of this was economic aid, which is the focus 

of this hearing. 

This assistance program has achieved some important successes 

over the years, such as helping Egypt to reduce its once soaring 

birth rate, but Egypt remains a broken society where illiteracy and 

poverty abound. 

On the issues that we must care about today, economic reform 

and political reform, our assistance program has been largely unsuccessful. The primary reason for this is that the Egyptian regime 

resists reforms so passionately desired by many of its citizens. 

That is why I have joined with you, Mr. Chairman, in writing to 

President Mubarak to insist that Egypt live up to its obligation to 

4

undertake economic reform before we release any more aid on a 

cash transfer basis. 

Not too many years ago, the late Egyptian diplomat, Tassem 

Bashier, warned of what he called the mummification of Egypt 

under the current regime. He was referring to a system so static, 

so intimidated by the prospect of change and loss of control, that 

it opposes all reform and change that could bring real prosperity 

and freedom to the Egyptian people. 

It is beyond dispute that our overall aid program is now twisted 

in a manner that reinforces mummification, and that actually undermines our reformist priorities in Egypt. Since 1999, Mr. Chairman, we have been decreasing our economic assistance to Egypt by 

$40 million annually, while religiously adhering to an annual 

standard of $1.3 billion in military grant funds. 

Our annual military aid to Egypt is now more than twice that 

of our economic assistance. This is not only a misallocation of priorities, it is a theater of the absurd. Egypt inhabits an enviable strategic environment in which it is at peace with all of its neighbors. 

Moreover, that strategic environment has further improved in recent months with Libya’s decision to give up its weapons of mass 

destruction. Exactly where is the threat that justifies Egypt’s need 

for top-of-the-line military technology and warrants such a large 

annual contribution from our constituents? 

The answer is that there is no such threat. Yet, Egypt pursues 

a vigorous military buildup and very strongly stages military exercises that focus on war with Israel, a neighbor that sees peace with 

Egypt as the cornerstone of its security. 

We have an enormous stake in Egypt’s success, Mr. Chairman. 

We serve Egypt’s interests and our own by increasing and improving our support for educational, economic, and political development that effectively contribute to Egypt’s stability. 

We do the Egyptian people no favor when we sate the appetite 

of Egyptian generals at the expense of assistance that would promote prosperity and freedom. We can promote both United States 

and Egyptian interests, first of all, by correcting our mistaken approach to Egyptian foreign aid. 

I intend to do exactly that, Mr. Chairman. I intend to support 

the Egyptian people by introducing legislation that will phase out 

our military assistance for Egypt over the next 3 years, transforming the $1.3 billion in annual gifts to the Egyptian military 

into assistance for promoting economic and political reform, and 

improving the quality of life of the Egyptian people. 

Mr. Chairman, I look forward to hearing our witnesses’ recommendations as to how to improve our economic assistance program, but I have concluded that if we are serious about bringing 

Egypt into the modern world economically, educationally, and politically, Congress must take the first step. We must show leadership by overhauling foreign aid priorities that are now a quartercentury old, utterly obsolete, and counterproductive. Mr. Chairman, 

we need a more robust assistance program for Egyptian reform, 

and a better funded one. 

And we can accomplish that simply by recasting our priorities. 

When we authorize and appropriate funds when we sign the 

checks, we make a political statement. For too long our statement 

5

to the Egyptian people has been that we care far more about your 

generals than about your teachers. 

I intend to lead an effort to reverse that formulation, and reverse 

it for both Egypt’s sake and our own. Thank you, Mr. Chairman. 

Chairman HYDE. Thank you, Mr. Lantos, and without objection, 

any further opening statements will be inserted in the record at 

this point in the record. 

Today, we are going to hear testimony from three distinguished 

witnesses. First, we welcome Ambassador Edward S. Walker, Jr., 

who is the President and Chief Executive Officer of the Middle 

East Institute. 

He has had a distinguished career in government and education, 

and has served in both the Clinton and current Bush Administrations as Assistant Secretary for Near East Affairs. 

He has also served as United States Ambassador to three Middle 

Eastern countries, including Egypt, and at the United Nations as 

Deputy Permanent Representative. Ambassador Walker is also an 

accomplished speaker, known for his even-handed analysis of the 

Middle East. We welcome you once more, Ambassador. 

And we next welcome Dr. Michele Dunne, a Visiting Scholar at 

the Democracy and Rule of Law Program, at The Carnegie Endowment for International Peace, and Assistant Professor at Georgetown University. 

Dr. Dunne worked for the Department of State from 1986 to 

2003 in assignments including Director for Near East Affairs on 

the National Security Staff, as a political officer at the United 

States Embassy in Cairo, and a member of the Secretary of State’s 

policy and planning staff. 

She holds a Ph.D. in Arabic language and linguistics from 

Georgetown University, and her book, Democracy and Contemporary Egyptian Discourse, was published in 2003. 

And finally, we welcome Dr. David Gootnick, who has been a Director for International Affairs in Trade at the General Accounting 

Office since 2001. His current portfolio includes humanitarian aid, 

development assistance, economic assistance, and global health. 

From 1994 to 2001, Dr. Gootnick served as the Director of the 

Office of Medical Services at the United States Peace Corps. We 

will ask you to begin, Ambassador Walker, with a summary of your 

statement, 5 minutes give or take. We won’t be inflexible, but your 

written statement, as well as that of all the witnesses, will be 

made a part of the record, and we will start with you, Ambassador 

Walker. 

STATEMENT OF THE HONORABLE EDWARD S. WALKER, JR., 

PRESIDENT, THE MIDDLE EAST INSTITUTE 

Mr. WALKER. Thank you very much, Mr. Chairman, and Members of the Committee. I also want to thank you, Mr. Chairman, 

for your opening statement and that of Mr. Lantos. You have 

raised some extremely difficult questions that need to be addressed 

by this Committee and by the Administration. 

I personally welcome the Committee’s efforts to review our economic assistance program as administered by the Agency for International Development in Egypt, and to consider its objectives and 

effectiveness. 

6

Overall, the United States has vested about $25.5 billion in 

Egypt’s economy. Since the year 2000, by agreement with Egypt, 

the program has been reduced by about $40 million each year, so 

that in fiscal year 2003, funding was at $615 million. It will level 

off at about $475.5 million in the year 2009. The figures, however, 

do not tell the whole story, for our assistance program was already 

declining significantly over the years due to inflation. 

If we wanted to maintain our program at the level of the 1979 outlay of about $1.1 billion, by adjusting for inflation over the 

years, our outlay today would be, I am told, about $4.5 billion. 

The point here is that the impact of our aid dollars has been substantially reduced and our leverage to encourage economic, political, and social reforms equally reduced. I raise this because there 

is a danger of expecting too much of our aid program. 

I also raise it because our resources have declined, and if influence and reform are objectives, then logic would indicate that the 

scope of our program should have contracted as well. 

In short, we should have narrowed our focus so that our remaining programs would be larger and have greater impact. In fact, 

until the most recent USAID/Egypt program review called for by 

the House Committee on Appropriations, AID was continuing to 

cover seven strategic objectives relating to most major sectors of 

the Egyptian economy and society. 

Since our program incorporates a strategic planning cycle, by the 

end of the 5 years in 2008, we would be stretching a program of 

$415 million to cover the seven strategic objectives. 

We need to have a better concept of what we are trying to do and 

what we can possibly do with the resources at hand. Frankly, I 

don’t know what the U.S. objective is. Are we trying to alleviate 

poverty? Are we trying to build the middle class? Are we fostering 

upward mobility? When I look at the AID program, I see a Chinese 

menu: A little of this and a little of that. I don’t see a focused program, and I surely don’t see the priorities that could make a substantial difference. 

Today, we continue to see our AID program in a broader policy 

context. No matter how much money the AID Director can conceivably have available in today’s budget climate, he or she cannot 

change the pace or direction of reform except at the margins. 

What set aside the period of the mid-1990s, when I was Ambassador in Egypt, and when reform by all accounts was in its heyday, 

was the commitment at the very top of the Administration to reform. 

If we are serious about reform, and if we really mean it when 

we call for democracy and economic and social change, then we 

cannot leave the problem to our AID Directors or our Ambassadors, 

or our Assistant Secretaries. 

It will take genuine commitment and persistence from the President of the United States and the Vice President, as well as from 

you gentlemen and ladies in the Congress. 

There are two other aspects of the AID program in Egypt that 

deserve close scrutiny. The program, as it is structured, devotes 30 

percent of its funds, or $200 million, to the Development Support 

Program (DSP), which is a cash grant in return for meeting negotiated reform targets. 

7

A second $200 million is directed to the Commodity Import Program, and that leaves about $200 million for all other programs 

combined. The DSP grants, although a good idea, have some inherent weaknesses. 

One weakness was pointed out by the program review, that the 

reforms negotiated with the Egyptians covered a wide gamut of 

issues and thus lost focus. The review recommended focus on one 

or two key economic reform areas. A good idea. 

The second proposal by the review suggests that if outcomes negotiated with Egypt for reforms are not met, then the funds should 

be reprogrammed to fund other USAID projects in Egypt. 

And both of these programs have met resistance by the Government of Egypt, and that raises an important question as to whether or not Egypt is operating under a United States entitlement, or 

should the program be linked to U.S. interests and objectives. 

If a cash transfer is earmarked and obligated as is currently the 

case and cannot be reprogrammed, then our Ambassador and AID 

Director have limited leverage in both program design and implementation. In short, whose money is it? 

The AID review proposal to permit reprogramming such funds to 

other AID projects in Egypt would go part of the way to resolving 

this problem. But AID might also want to look at authority to reprogram such funds to other AID programs in the Middle East as 

well. 

While I was in Egypt, I was a strong advocate of the commodity 

import. It is a seductive program in that it supports United States 

business sales to Egypt, establishes supplier relationships with 

United States companies, and then lets us use the money twice; 

once for Egyptian firms to buy the products, using low-cost, shortterm loans from AID funds, and then again by the Government of 

Egypt once those loans are paid back. 

It is a popular program in Egypt and in the United States. The 

program review suggests downsizing it to $150 million by 2009, 

and that makes sense. However, AID needs to take a hard look at 

the program. Who does it benefit, and the controls over the Government of Egypt’s use of the proceeds. 

In this case the money already does belong to the Egyptian Government. One problem with this is that the United States objectives are no longer the guiding principle and allocation process. 

In addition, the loans provided to Egyptian businessman tend to 

be driven more by sales of American products than by AID’s reform 

agenda, not necessarily a bad thing, but not a recognized purpose 

of the AID program. 

AID needs to take a hard look at how this program might be 

completely restructured and direct it more closely to AID’s objectives. 

In conclusion, I believe that the AID review has moved the program in the right direction, but that there is further work to do. 

And part of this work will have to be driven by Congress. 

Our objective should be a tighter, more tailored program, which 

takes account of limited resources. It should not be considered an 

entitlement, nor should it be seen as a mechanism for enforcing reform. 

8

Egypt has to take ownership of its own reform program, but we 

need to continue to stimulate that process. Thank you very much, 

Mr. Chairman. 

[The prepared statement of Mr. Walker follows:]

PREPARED STATEMENT OF THE HONORABLE EDWARD S. WALKER, JR., PRESIDENT, THE MIDDLE EAST INSTITUTE

Mr. Chairman, Members of the Committee, Ladies and Gentlemen, I welcome the 

Committee’s efforts to review our economic assistance program, as administered by 

the Agency for International Development (AID) in Egypt and to consider its objectives and effectiveness. 

The AID program in Egypt reached its stride in 1979 with a massive infusion of 

US assistance based on the Camp David Agreement. For most of the period since 

1979, until the year 2000, Congress allocated $815 million to the Egyptian economic 

assistance program. In addition, supplementals in the early years of $300 million 

a year, raised the annual figure to about $1.1 billion. Overall, the United States has 

invested approximately $25.5 billion in Egypt’s economy. Since 2000, in agreement 

with Egypt, the program has been reduced by about $40 million each year so that 

in FY 2003 funding was at $615 million. It should level off at $407.5 million by 

2009. The figures, however, do not tell the whole story. For our assistance program 

was already declining significantly over the years due to inflation. If we wanted to 

maintain our program at the level of the 1979 outlay of $1.1 billion, adjusting for 

inflation over the years, our outlay today would be around $4.5 billion. Another way 

of looking at it is that the purchasing power of the current program in 1979 dollars 

is a little over $150 million and that does not buy a whole lot. In terms of Egypt’s 

non-recurring expenditures in 1979, that is excluding salaries and so forth, the AID 

infusion was equal to about two thirds of Egypt’s discretionary budget at that time. 

Today the program hardly makes the chart. 

The point here is that the impact of our AID dollars has been substantially reduced and our leverage to encourage economic, political and social reforms equally 

reduced. I raise this because there is a danger of expecting too much of our AID 

program. I also raise it because our financial resources have declined; so, if influence and reform are our objectives, then logic would indicate that the scope of our 

programs should have contracted as well—in short, we should have narrowed our 

focus so that our remaining programs would be larger and have greater impact. It 

might also dictate that we should have created a consortium of donors, who annually contribute about $2.3 billion, to leverage common reform interests. 

In fact, until the most recent USAID/Egypt program review called for by the 

House Committee on Appropriations, which called for greater focus of our program, 

AID was continuing to cover seven strategic objectives including: Trade and Investment; Competitiveness; Utility Services; Environment and Natural Resources; 

Health and Planned Families; Governance; and Education. Since our program incorporates a five-year strategic planning cycle, by the end of the five years in 2008, 

we would be stretching a program of $415 million to cover the seven strategic objectives. 

The review was a solid effort to change the nature of our program to meet the 

resources available. But it has some of the same problems of diffusion that previous 

programs suffered from. The recommendations of the program review call for a reduction in the number of strategic objectives to four areas including 1. Democracy 

and Governance, 2. Economic Reform, 3. Education, and 4. Health. They also call 

for emphasis within these programs on the number of individuals reached at the 

‘‘grassroots level.’’ These would be noble objectives if we were talking about a program of $4.5 billion. But how much impact can a $407.5 million program have when 

it is spread out over so many areas and is designed to focus on the ‘‘grassroots 

level’’? With 23 million Egyptians living below the poverty line, even if the entire 

AID authorization was directed to the ‘‘grassroots’’ and alleviation of poverty, we 

would still only be spending a little over $1.75 per impoverished Egyptian per year. 

But of course the bulk of the Egyptian program does not and will not go to the 

‘‘grassroots.’’

We need to have a better concept of what we are trying to do and what we can 

possibly do with the resources at hand. Frankly, after reading the literature, I don’t 

know what the US objective is. Are we trying to alleviate poverty? Are we trying 

to build the middle class? Are we fostering upward mobility? Are we trying to improve our image? Are we trying to create jobs, any jobs, or are we trying to create 

jobs that fulfill expectations? Is our objective 100% literacy and if so why, in a largely subsistence economy? When I look at the AID program, and even the Program 

9

Review, I see a Chinese Menu—a little of this and a little of that. I don’t see a focused program and I surely don’t see priorities that could make a substantial difference. We should not forget, that what happens in Egypt with about 23% of the 

total Arab population in the region, has a profound effect on other Arab countries. 

If Egypt sincerely embraces reform, it becomes far easier for others to follow in its 

wake. 

I was in a meeting two days ago with a number of Egyptians considering the reform process. Each of them, in one way or another, highlighted the failure of Egypt 

to build a large and vibrant middle class as the principal roadblock to economic and 

political reform. In fact, these Egyptians said that the gap between the wealthy and 

the poor was widening and the middle class was declining. I am not a development 

theoretician. And I know how many acolytes there are for literacy programs, grassroots programs and small and micro-enterprise lending. When I was Ambassador in 

Egypt, I was a strong advocate of women’s literacy and small and micro enterprise 

programs as being important to the long term development of Egypt. But I think 

we have to ask the question if such programs have any realistic prospect of making 

a significant contribution to reforming the economy. We also have to ask if it would 

not make more sense to concentrate on those reforms that would have the greatest 

impact on economic growth and upward mobility in the society. In Egypt, because 

of legal, financial, bureaucratic and cultural limits, it is very difficult for micro-enterprises to break through into significant mid-level business enterprises. The development of medium-sized businesses might be a better focus for our programs. 

The reform agenda, according to the AID submission to the Committee of May 18 

notes that ‘‘The greatest threat to domestic stability results from popular frustration 

with recent economic performance and a persistent lack of economic opportunity.’’ 

The AID report points out that over one third of the population lives below the poverty line—i.e. 23 million people. At the same time real unemployment is running 

at between 12 and 25 percent. The Egyptian economy has to generate from 750 to 

800 thousand new jobs each year, far more than they have been generating in recent years. 

As I indicated before, our AID is not significant enough alone to leverage the Egyptian government toward reform. There is a tendency to look at the $25.5 billion 

expended and to suggest that the AID program has been a failure. That is not fair. 

Good people working for good objectives are running our program. And a lot has 

been accomplished. Without AID, we would probably long since have seen the emergence of a virulent hostile political environment which would work against our military and political interests. 

But today, we need to see our AID program in a broader policy context. No matter 

how much money the AID director can conceivably have available in today’s budget 

climate, he or she cannot change the pace or direction of reform except at the margins. And from my own experience, no matter how active a part our Ambassador 

plays politically, his or her contribution will be limited. What set aside the period 

of the mid-nineties, when I was Ambassador in Egypt, and when reform, by all accounts, was in its heyday in Egypt, was the commitment at the very top of the Administration to reform. Al Gore, through the Gore-Mubarak partnership, with its 

Presidents’ Council of business leaders from both countries, made the difference. 

The current Administration has not put that kind of commitment into the reform 

program in Egypt and the results are predictable. If we are serious about reform 

and if we really mean it when we call for democracy and economic and social 

change, then we cannot leave the problem to our AID Directors or our Ambassadors 

or Assistant Secretaries. It will take genuine commitment and persistence from the 

President and the Vice President, as well as from the Congress. 

There are two other aspects of the AID program in Egypt that deserve close scrutiny which the Program Review highlighted. The program as it is structured devotes 

about 30% of its funds, or $200 million to the Development Support Program (DSP) 

which is a cash grant in return for meeting negotiated reform targets. A second 

$200 million is directed to the Commodity Import Program. That leaves about $200 

million for all other programs combined. The DSP grants, although a good idea, 

have some inherent weaknesses. One such weakness was pointed out by the Program Review—that the reforms negotiated with the Egyptians covered a wide 

gamut of issues and thus lost focus. The Review recommended focus on ‘‘one or two 

key economic reform areas.’’ A second proposal by the Review suggests that if outcomes, benchmarks and timelines negotiated with Egypt for reforms are not met in 

a reasonable time, then the funds should be reprogrammed to fund other USAID 

projects in Egypt. 

Both of these proposals have met resistance by the Government of Egypt. And 

that raises an important question as to whether Egypt is operating under a US entitlement or the program is linked to US interests and objectives. If the cash transfer 

10

is earmarked and obligated, as currently is the case, and cannot be reprogrammed 

regardless of agreement on a serious reform agenda or performance on implementation, then our Ambassador and AID Director have limited leverage in both program 

design and implementation. In short, whose money is it? I cannot speak for the current situation, but I can assure you that when I was Ambassador negotiating the 

DSP reform programs, I erred on the side of moderating our objectives to ensure 

that the Government would be able to carry out the required reform programs in 

a reasonable time frame. In effect, I pulled our punches. I did not want Congress 

to be forced into the position of facing a large pipeline of earmarked but unspent 

funds that could result in returning the funds to the US Treasury. I felt that the 

impact on our bilateral relations would be severe and this would damage the successful initiative undertaken by Vice President Gore. The AID Review proposal to 

permit reprogramming such funds to other AID projects in Egypt would go part of 

the way toward resolving this problem, but AID might also want to look at authority 

to reprogram such funds to other AID programs in the Middle East as well. 

While I was in Egypt, I was a strong advocate of the Commodity Import Program. 

It is a seductive program in that it supports US business sales to Egypt, establishes 

supplier relationship with US companies, and then lets us use the money twice—

once for Egyptian firms to buy the products using low cost short term loans from 

AID funds and then again by the Government of Egypt once those loans are paid 

back. It is a very popular program in Egypt and in the United States with its beneficiaries. The Program Review suggests downsizing it to $150 million by 2009 and 

this makes sense. However, AID needs to take a hard look at the program, who it 

benefits, and the controls over the Government of Egypt’s use of the proceeds. My 

recollection is that this is not a program that incorporates a great deal of conditionality. The Egyptian Government is relatively free to allocate the proceeds to various 

ministries and programs with loose AID oversight but little AID direction. In this 

case the money does already belong to the Egyptian Government. One problem with 

this is that US objectives are no longer the guiding principal in the allocation process. In addition, the loans provided to Egyptian businessmen tend to be driven more 

by sales of American products than by AID’s reform agenda, not a bad thing, but 

not a recognized purpose of the AID program. AID needs to take a hard look at how 

this program might be restructured to sustain its popularity but direct it more closely to AID’s objectives. 

In conclusion, I believe that the AID Review has moved the program in the right 

direction but there is further work to do. And part of this work will have to be driven by Congress. Our objective should be a tighter more tailored program which 

takes account of limited resources. It should not be considered an entitlement, nor 

should it be seen as a mechanism for enforcing reform. Egypt has to take ownership 

of its own reform program, but we need to continue to stimulate that process. The 

AID program should only be seen as one element in a much broader effort at the 

highest levels of the US government to help alleviate a growing problem of discontent and potential instability in the region.

Chairman HYDE. Dr. Dunne. 

STATEMENT OF MICHELE DUNNE, PH.D., VISITING SCHOLAR, 

THE CARNEGIE ENDOWMENT FOR INTERNATIONAL PEACE 

Ms. DUNNE. Mr. Chairman and Members of the Committee, 

thank you for inviting me to testify. Having worked on democracy 

assistance to Egypt during assignments in the Government and 

then observed them from outside the Government, I welcome the 

opportunity to present my thoughts to you. 

With your permission, I will focus primarily on the impact of 

American assistance on the prospects for political reform versus 

economic reform. First, I believe that democracy assistance to 

Egypt can be effective only as part of a coherent policy strategy, 

including active engagement with the Egyptian Government on the 

structural changes in law and practice that political reform demands. 

The U.S. Agency for International Development’s programs have 

helped to build Egyptians’ ability to participate in a democratic system, but not their opportunity to do so. 

11

For example, several years of assistance to non-governmental organizations has strengthened Egyptian skills in running their organizations, but has not helped change restrictive laws that keep civil 

society groups from operating freely and practicing advocacy effectively. 

Modest, bottom-up pressure of the sort that can be generated 

through democracy programs alone will not force an unwilling governing elite to share power, nor are the amounts of assistance 

under consideration enough to persuade them. 

Second, the United States Government should raise the relevant 

issues in private discussions with the Egyptian Government at senior levels, and reinforce them with public statements on the need 

for reform in Egypt and throughout the region. 

Recent steps by the Administration in this regard have been important factors in opening up political space in Egypt for discussion 

of reform. President Bush raised the issue of political reform with 

President Mubarak for the first time at their April 2004 summit 

in Crawford, in preparation for which President Mubarak hosted a 

meeting of Egyptian and Arab civil society activists, who issued a 

refreshingly frank and thorough statement of needed reforms. 

Regarding public statements, despite the undeniable resistance 

among many Egyptians to the United States as the messenger of 

democracy and reform, nonetheless the public message has resonated among a broad spectrum of activists—Islamists, and leftists, 

as well as liberals—who have long advocated reform and are now 

coming forward with their own ideas. 

In planning a coordinated strategy of policy engagement and assistance programs, it is important to be honest and clear about the 

current political situation in Egypt. The Egyptian Government has 

shown a willingness to modernize certain institutions, for example, 

the judiciary, and is now allowing discussion of liberalizing aspects 

of political life. It has not, however, shown any intention to democratize, by which I mean giving the Egyptian people the right and 

ability to change their Government. 

All of the United States democracy assistance programs so far, 

and most under contemplation now, aim at modernization and liberalization, which can certainly improve people’s lives in Egypt, but 

do not necessarily lead to democratic transformation. 

I think it is important to keep in mind that that would be a further step that could eventually happen, perhaps when the governing elite decides that it can no longer resist strong internal 

pressure for change, or as a result of visionary leadership. 

Although Egypt is not necessarily on the cusp of democratic 

transformation, it is important to keep political reform on the public and private bilateral agenda in the coming few years when 

Egypt is likely to face a leadership succession, as well as parliamentary elections. 

While the United States cannot and should not try to force 

change in Egypt, it can use the significant influence that it possesses to help shape the environment in which Egyptians will make 

important decisions about their future. 

The United States should be realistic about how much its assistance can achieve, but at the same time be determined to spend 

American funds only on programs that stand a real chance of aidVerDate Mar 21 2002 09:42 May 09, 2005 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6601 F:\WORK\FULL\061704\94284.000 HINTREL1 PsN: SHIRL
12

ing political liberalization with a view toward eventual democratization. 

I have some specific recommendations. First, the United States 

should concentrate in the policy dialogue, and in programs on 

issues that Egyptians themselves have identified as critical to political reform: Lifting emergency laws; revising laws on forming political parties and regulating non-governmental organizations; forming an independent electoral commission and monitoring bodies; 

and amending the Egyptian constitution to provide for direct election of the President, term limits, and redistribution of power from 

the executive to the legislative and judicial branches. 

The United States should make major program commitments 

only in areas where the Egyptian Government has demonstrated 

the will to reform, for example, the judiciary, or in these other critical areas where the United States is prepared to work hard on 

persuading the Egyptian Government to open up. 

I recommend we retain enough flexibility in the assistance program to be able to respond to opportunities or challenges that 

arise. As I mentioned, the political situation in Egypt, I think, is 

going to be changing over the next few years, and we should be 

able to respond to that. 

So I recommend avoid committing all the funds to large, multiyear projects. The United States should carve out funds that can 

be disbursed by the U.S. Government directly to Egyptian or nonEgyptian organizations, with Egyptian Government agreement only 

to general program guidelines. 

As I am sure that the Committee is aware, currently all of the 

funds and all of the programs must be approved by the Egyptian 

Government. 

And the United States should seek alternative destinations for 

funds, as Ambassador Walker also mentioned, should the United 

States and Egyptian Governments be unable to agree on meaningful programs for democracy assistance. 

Finally, it helps to recall that Egypt is for the Egyptians, and all 

of the important decisions ultimately belong to them. At the same 

time, the United States’ influence in Egypt is not neutral, and 

should be used in the service of regional peace and internal reform, 

which I see as the two overarching issues that face Egypt and the 

Middle East today. Thank you for your attention, and I welcome 

any questions. 

[The prepared statement of Ms. Dunne follows:]

PREPARED STATEMENT OF MICHELE DUNNE, PH.D., VISITING SCHOLAR, THE

CARNEGIE ENDOWMENT FOR INTERNATIONAL PEACE

Mr. Chairman and Members of the Committee, thank you for inviting me to testify. Having worked on democracy assistance to Egypt during assignments at the 

U.S. Embassy in Cairo and National Security Council staff and then studied the 

issue from outside government, I welcome the opportunity to present my thoughts 

to you. With your permission, I will focus primarily on the impact of American assistance on the prospects for political (versus economic) reform. 

First, democracy assistance to Egypt can be effective only as part of a coherent 

policy strategy including active engagement with the Egyptian government on the 

structural changes in law and practice that political reform demands. The U.S. 

Agency for International Development’s programs have helped to build Egyptians’ 

ability to participate in a democratic system, but not their opportunity to do so. For 

example, several years of assistance to non-governmental organizations has 

strengthened Egyptians’ skills in running their organizations, but has not helped 

13

change restrictive laws that keep civil society groups from operating freely and practicing advocacy effectively. Modest bottom-up pressure of the sort that can be generated through democracy programs alone will not force an unwilling governing elite 

to share power, nor are the amounts of assistance under consideration enough to 

persuade them. 

Second, the U.S. government should raise the relevant issues in private discussions with the Egyptian government at senior levels and reinforce them with public 

statements on the need for reform in Egypt and throughout the region. Recent steps 

by the American administration in this regard have been important factors in opening up political space in Egypt for discussion of reform. President Bush raised the 

issue with President Mubarak for the first time at their April 2004 summit in 

Crawford, in preparation for which Mubarak hosted a meeting of Egyptian and Arab 

civil society activists who issued a refreshingly frank and thorough statement of 

needed reforms. Despite the undeniable resistance among many Egyptians to the 

United States as the messenger of democracy and reform, the public message has 

nonetheless resonated among a broad spectrum of activists—Islamists and leftists 

as well as liberals—who have long advocated reform and are now coming forward 

with their own ideas. 

Third, in planning a coordinated strategy of policy engagement and assistance 

programs, it is important to be honest and clear about the current political situation 

in Egypt. The Egyptian government has shown a readiness to modernize certain institutions—for example, the judiciary—and is now allowing discussion of liberalizing 

aspects of political life. It has not, however, shown any intention to democratize, by 

which I mean giving the Egyptian people the right and ability to change their government. All of the U.S. democracy assistance programs so far, and most under contemplation, aim at modernization and liberalization, which can certainly improve 

people’s lives but do not necessarily lead to democratic transformation. Such transformation could eventually happen when the governing elite decides that it can no 

longer resist strong internal pressure for change, or as a result of visionary leadership. 

Fourth, although Egypt is not necessarily on the cusp of democratic transformation, it is important to keep political reform on the public and private bilateral 

agenda in the coming few years, when Egypt is likely to face a leadership succession 

as well as parliamentary elections. While the United States cannot and should not 

try to force change in Egypt, it can use the significant influence it possesses to help 

shape the environment in which Egyptians will make important decisions about 

their country’s future. 

Fifth, the United States should be realistic about how much its assistance can 

achieve, but at the same time be determined to spend U.S. funds only on programs 

that stand a real chance of aiding political liberalization with a view toward eventual democratization. Specific policy recommendations include:

• Concentrate in the policy dialogue and in programs on issues that Egyptians 

themselves have identified as critical: lifting Emergency Laws, revising laws 

on forming political parties and regulating non-governmental organizations, 

forming an independent electoral commission and monitoring bodies, and 

amending the constitution to provide for direct election of the president, term 

limits, and redistribution of power from the executive to legislative and judicial branches.

• Make major program commitments only in areas where the Egyptian government has demonstrated the will to reform, or critical areas where the U.S. 

government is prepared to work hard on persuading the Egyptian government 

to open up.

• Retain enough flexibility in the assistance program to be able to respond to 

opportunities or challenges that arise; i.e., avoid committing all the funds to 

large, multi-year projects.

• Carve out funds that can be disbursed by the U.S. government directly, with 

Egyptian government agreement only to general program guidelines.

• Seek alternative destinations for funds should the U.S. and Egyptian governments be unable to agree on meaningful programs.

Finally, it helps to recall that Egypt is for the Egyptians, and all of the important 

decisions ultimately belong to them. At the same time, the United States’ influence 

is not neutral, and should be used in the service of regional peace and internal reform, the two overarching issues that face Egypt and the Middle East today.

Chairman HYDE. Thank you, Dr. Dunne, for an excellent statement, and now Dr. Gootnick. 

14

STATEMENT OF DAVID B. GOOTNICK, DIRECTOR, INTERNATIONAL AFFAIRS AND TRADE, U.S. GENERAL ACCOUNTING OFFICE 

Mr. GOOTNICK. Mr. Chairman and Members of the Committee, 

thank you for the opportunity to be here today to discuss GAO’s ongoing work on the private sector Commodity Import Program in 

Egypt. 

This program, managed by USAID, seeks to foster a competitive 

private sector in Egypt, and to assist United States exporters. 

Since 1986, Congress has appropriated roughly $3.1 billion to this 

program. 

In 1998, the United States and Egyptian Governments agreed to 

reduce U.S. economic assistance by roughly 50 percent to $407 million by 2009. This projected reduction is shown on the slide to my 

left, this and subsequent graphics are reproduced in my written 

statement. 

First, traditional project assistance shown in white on the graphic focuses on private sector development, health, education, and the 

environment. Shown in orange, the cash transfer program, as mentioned by Ambassador Walker, provides funding to the Government 

of Egypt conditioned on Egypt’s achievement of specific reforms. 

The CIP, shown in blue, provides loans to Egyptian importers of 

United States goods, and through loan repayments provides funding to the Government of Egypt. 

Today I will focus on three issues. First, Egyptians’ importers 

use of the Commodity Import Program. Second, the use of funds 

generated by the repayment of CIP loans; and third, factors that 

affect CIP’s ability to foster a competitive private sector in Egypt. 

By way of background, the flow of CIP transactions are shown 

in the slide on my right. AID provides funds to U.S. banks to pay 

exporters that sell goods through the CIP. 

Egyptian importers obtain loans from Egyptian banks, who assume credit risk for that loan. On repayment, the banks transfer 

the local currency to a special account at the Central Bank of 

Egypt. 

Now to GAO’s observations. First, regarding Egyptian importers’ 

use of the CIP. In fiscal years 1999 to 2003, about 650 Egyptian 

firms used the CIP to import $1.1 billion in United States products. 

For importers that used the program, CIP supplies needed access 

to foreign currency. During our fieldwork, United States officials, 

as well as Egyptian importers and banks, consistently reported 

that there is insufficient hard currency to meet private sector demand. 

For importers, key additional features of this program include a 

fixed exchange rate and a grace period on loan repayments. In a 

recent survey, half of CIP importers said that the program helped 

increase their production capacity, and one-third said that it increased employment. 

However, two-thirds said that they would have imported U.S. 

goods without this program. 

Second, regarding the use of funds generated by the repayment 

of CIP loans, USAID and Egypt’s Ministry of Foreign Affairs jointly 

determined the uses of this local currency. 

15

As shown in the slide on my left, funds enter the special account 

from two sources; the cash transfer program, and CIP. Between 

1999 and 2003, about three-quarters of the CIP funds supported 

Egypt’s general and sectoral budgets. 

Also, AID uses about 6 percent of these funds toward its operating expenses in Egypt, and roughly 9 percent support AID 

projects, studies, and evaluations. Congressional Committees have 

encouraged AID to use these funds for specific projects, such as 

building a new campus for the American University in Cairo. 

Finally, let me outline four factors that affect CIP’s ability to foster a private sector in Egypt. First, reforms, such as reduction in 

government subsidies, lower tariffs, and privatization of stateowned enterprises, which began in the early 1990s, have stalled in 

recent years. 

This has created a climate not conducive to private enterprise. 

Because CIP funding to the special account is not tied to reforms, 

some United States officials have suggested that the CIP may ease 

reform pressures on the Egyptian Government. 

Second, the Egyptian Government’s inconsistent exchange rate 

policies have contributed to foreign currency shortages, and have 

hampered the business environment in Egypt. 

Third, Egyptian banks are reluctant to provide loans to entrepreneurs. Egyptian banks generally provide CIP loans, and indeed 

any loans, only to well established customers with sufficient collateral and a proven track record. 

Fourth, because the program is not designed to reach Egypt’s 

large informal economy, its ability to develop a competitive private 

sector is limited. Informal businesses make up more than 80 percent of Egypt’s entrepreneurs. 

In conclusion, Mr. Chairman, while the CIP provides benefits to 

program participants and supports the Egyptian Government’s 

budget, various factors limit its ability to foster a competitive private sector in Egypt. 

In this context, it is important that policymakers continue to 

evaluate whether this program is the most effective means to support economic growth and private sector development in Egypt. Mr. 

Chairman, this concludes my statement. I will be happy to answer 

the Committee’s questions. 

[The prepared statement of Mr. Gootnick follows:]

16

PREPARED STATEMENT OF DAVID B. GOOTNICK, DIRECTOR, INTERNATIONAL AFFAIRS

AND TRADE, U.S. GENERAL ACCOUNTING OFFICE


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Chairman HYDE. Thank you very much, Dr. Gootnick. Ms. RosLehtinen. 

Ms. ROS-LEHTINEN. Thank you so much, Mr. Chairman. Timing 

is everything. I appreciate the opportunity to ask our panelists 

some questions. Earlier this month, the United States approved $300 million in 

aid to Egypt. Will this be viewed entirely as a signal that the 

United States is fully satisfied with Egypt’s economic and political 

reforms? You heard the remarks by the Chairman and Mr. Lantos 

with regard to United States aid to Egypt. 

Mr. WALKER. Let me take a crack at this. I think it is always 

a problem when we are providing additional aid without the kinds 

of controls that some of us have suggested here: That the money 

has to be related to U.S. reform objectives, and that there has to 

be an agreement, and that the money is not an entitlement but is 

something that can be taken away. And I think that these are very 

important elements to the overall program, and to the success of 

the program. Whether this $300 million will make a substantial difference in 

the attitude, my impression has been that the Egyptian Government has been resisting the state aid program recommendations 

that were called for by the Committee, and it seems to me that 

those recommendations make a lot of sense, although I don’t believe that they go far enough. 

So there ought to be considerably more conditionality in the way 

that we deal with this program. 

Ms. ROS-LEHTINEN. Thank you. If I could ask another question. 

The Chairman of the Egyptian parliament’s Arab Affairs Committee recently argued that without a serious resolution to the ongoing problem of the Arab-Israeli conflict, progress with wider Middle East initiatives is destined to grind to a halt. 

To what extent is reform in the Arab world held hostage to some 

vague idea about a resolution of this conflict? 

Ms. DUNNE. Congresswoman, I would agree with you that the 

issue has become tied in peoples’ minds, and also is used by the 

Government. If there is an external crisis of some kind, a security 

crisis of some kind, that can be a way of postponing discussion of 

internal problems and needs for internal changes. 

I think that dynamic is beginning to change. As I mentioned in 

my statement, despite the fact that there is significant discomfort 

among many Egyptians with many aspects of United States policy, 

and there has been a lot of talk about United States and Middle 

East initiatives, and lack of credibility and so forth. 

Nonetheless, still the issue of reform has come to be very much 

on the public agenda. As I said, the message is getting through. As 

acceptable or unacceptable as the United States happens to be at 

the moment as a messenger of the need for democracy and reform, 

I think that the message is getting through. 

And I think that there have been a lot of Egyptians for a long 

time who have wanted this to be on the agenda, and are taking the 

opportunity now to step forward and have their say about the kind 

of reforms that are needed. 

But certainly it is an easy excuse for them to say that they can’t 

push for reform with leaders whom we meet, because first we have 

37

to deal with the Arab-Israeli conflict, and it is a wonderful excuse 

for them to do nothing to reform their own Government, to privatize, and do everything that they need to do. 

Mr. WALKER. If I might add something, Ms. Ros-Lehtinen. I 

think that the problem has been that many people in the Arab 

world do not believe that we are committed to the problem, and 

dealing with the problem of the Palestinian issue. 

And therefore they tend to raise that in order to put it on our 

agenda. They are afraid that it is not on the agenda. Reform in this 

part of the world should be seen as a critical necessity for these 

countries and their own interests. 

That to me is the most persuasive argument that we have, but 

I do believe that indeed, along with Dr. Dunne, people in the region, and particularly in Egypt, are beginning to understand that. 

It does not reduce the need for dealing with the Palestinian issue, 

however. 

Chairman HYDE. The gentlelady from California, Ms. Lee. 

Ms. LEE. Thank you. Mr. Chairman, I would like to yield my 

time at this point to Mr. Wexler from Florida, who has to leave. 

Chairman HYDE. The Chair will go to Mr. Wexler. 

Mr. WEXLER. Thank you, Ms. Lee and Mr. Chairman. I just want 

to quickly congratulate the Chairperson of our Middle East Subcommittee, Ms. Ros-Lehtinen, who I think has done an extraordinary job in keeping this Committee and her Subcommittee involved in the Israeli-Palestinian, and broader Israeli-Arab conflict, 

in a very constructive way. 

And I applaud the highlighting of the substance of this Committee. I think there are certain self-evident truths that need to be 

stated, and then also talk about what I think are somewhat extraordinary developments on the ground. 

And that is it is self-evident, it seems, that the pursuit of the 

peace process, and pursuit of the road map, and pursuit of the disengagement plan from Gaza, is certainly not mutually exclusive 

from pursuit of a democratic transformation plan and strategy. 

But I think we are somewhat remiss at this point in this Congress for not pointing out what on the ground has occurred with 

respect to Egypt in the last 3 to 4 weeks, which is dramatic. 

The cooperation between Prime Minister Sharon and President 

Mubarak in the last 4 weeks dwarfs any cooperation that has occurred between Israel and Egypt in the last 3 years. 

Foreign Minister Sharon’s trip to Cairo was the warmest, as I 

understand it, the warmest receipt of an Israeli official in Egypt in 

a long, long time. We very ceremoniously engaged, and I was all 

for it, with Prime Minister Sharon when he came to Washington 

in support of his disengagement plan. 

But let us be honest about it. When we, the United States, supported the plan, and it was viewed as an Israeli-American plan, it 

received nothing but condemnation throughout the world. 

I am not saying that is justified, but that was the reality. It 

wasn’t until Egypt and Jordan—but principally Egypt in a very significant way—began to engage in this process that the international community began to embrace it. But in my mind it is the 

peace process. 

38

The peace process at this point is Israel’s, Prime Minister 

Sharon’s, disengagement plan. It is no broader than that, and it is 

no smaller than that. If Prime Minister Sharon’s disengagement 

plan succeeds, the peace process will move forward, and if it fails, 

there is no alternative. 

Egypt effectively, along with Jordan at this point, has accomplished with Chairman Arafat what we were unable to accomplish. 

I am not criticizing us because I think we did the exact right thing. 

But they have finally begun the process of transforming—hopefully successfully—and mandating that Arafat give up control of 

the security forces and hand them over to the Palestinian Prime 

Minister, and it is Egypt’s intervention that has caused this dynamic. 

It is Egypt’s intervention which has gotten Chairman Arafat to 

finally, possibly, move in a constructive fashion to consolidate the 

security forces. So as we discuss what we expect from Egypt, and 

it is very legitimate, and I have been one of the harshest critics of 

Egypt in certain ways, their press is still awfully anti-Semitic, 

Egypt should move their Ambassador back to Israel as an even 

greater sign of support of the peace process. 

But what I hope we have learned in the last 4 weeks is that the 

peace process as it is embodied in a very, I believe, constructive 

Israeli disengagement plan, the key ingredient of the success of 

that plan at this point is Egyptian commitment to the reform of the 

Palestinian authority. And Egyptian commitment to the shutting 

down of the tunnels from Egypt to Gaza, and Egyptian commitment to empowering the moderate forces within the Palestinian authority to take on Hamas. 

All of this other discussion, while it is incredibly important and 

incredibly justified by our part to get to the question that Ms. RosLehtinen brought forth, and that is the excuses of the Arab world 

so often as putting aside all of what they should do, and laying at 

rest the excuse of the Israeli-Palestinian conflict finally for the first 

time in years, Egypt is acting in a way that not only embraces our 

hopes, but actually implements them in a way that we have been 

unable to do. 

And I think that if we fail to provide that kind of acknowledgement, then maybe we are not doing justice to, in fact, the dramatic 

change of heart that has occurred. As I understand it, U.N. Chief 

Cofenan is now talking with Prime Minister Sharon about successfully implementing Israel’s plan to disengage. 

Why has that happened? It happened in principal part because 

of the cooperation of Egypt and Jordan now. Why is it now being 

embraced by a broader audience? Because moderate Arab countries 

are being brought to the table by moderate Arab countries, and I 

think we should follow this very same recipe with respect to our 

hopes for democratic transformation. 

We can lead, but only to a point. And I would hope that we 

would recognize that at a point our leadership almost becomes 

counterproductive, and if we don’t respect the goals and the objectives of the moderate Arab leaders, and respect their views, as 

much as we may differ with them. 

Chairman HYDE. The gentleman’s time has expired. 

Mr. WEXLER. Thank you, Mr. Chairman, very much. 

39

Chairman HYDE. You are welcome. Mr. Rohrabacher. 

Mr. ROHRABACHER. Thank you very much. I agree with my colleague’s praise of Ms. Ros-Lehtinen’s leadership of the Subcommittee. Let me note that the progress that my colleague has 

highlighted in his presentation, it is not just the change in Egypt. 

Mr. Sharon has changed a bit, too, and all of this just wasn’t 

Egyptian intransigence, and now they have changed. But, no, Mr. 

Sharon has changed his way of dealing with people, and his demands, and I remember several years ago his position was very different than what it is today. So let us hope that the changes in 

heart there and the changes in heart that was brought about in 

Egypt and Jordan, bring about more peace. And bring about a 

peaceful solution, and give us a closer chance to find that peace 

that we are all seeking. 

And I would like to just note that when we have hearings like 

this and where we are trying to find ways—well, inherently a hearing like this will look at the bad side of things, because we are trying to correct the flaws. And whenever you look at the flaws, that 

means that you are not highlighting the other good parts as well, 

and there are many good parts and good things that Egypt has to 

brag about. 

And they have been good friends of the United States, and they 

have been very positive players over this last decade in the cause 

of peace. 

So the way that I look at it, Mr. Chairman, is that this hearing 

and the testimony of our witnesses today, are some very positive 

things that need to happen. We need to make some reforms, and 

we need to make sure that we keep our eye on those reforms. 

But at the same time, when we are comparing Egypt, we need 

to say what Egypt is compared to. If we are comparing it to other 

real countries, Egypt has actually a lot to brag about. And if we 

compare it to what Egypt can be in the future if it continues down 

the path of reform, whether it gets bogged down and not going 

down that path of reform, well, Egypt, we have to talk about that 

as well. 

First of all, Egypt and Jordan are great friends of the United 

States and great friends for the cause of peace, and we need to 

make sure that is on the record. 

I understand that Egypt has been engaging—and the Egyptian 

leadership has been engaging—with Hernado de Soto, and talking 

about some real solid reform in that regard, and economic reforms. 

Would the panel like to comment on that? 

Is that a serious commitment on the part of Egypt to go to that 

level of reform? 

Mr. WALKER. Mr. Rohrabacher, I am not specifically familiar 

with what de Soto has been talking to the Egyptian Government 

about. He has been a major supporter of small enterprise lending 

in the past, and the AID program has had a number of programs 

of this nature, and they have been relatively successful. 

Actually, some of the most successful programs have been put on 

by the private sector itself, particularly the Alexandria Businessmen’s Council. So I certainly hope that they are in conversation 

with the Egyptian Government, because he is an excellent resource 

for that. 

40

Mr. ROHRABACHER. Actually, I understand that Hernado de Soto 

has done a study in Egypt of property titles, and the fact that so 

many people who actually live on the land have not been given 

title, and are actually looking at the possibility of a major change 

in title and ownership in Egypt. 

Mr. WALKER. I think that would be a very welcome development, 

but it starts a two-fold question. One is the titling of land, particularly on the farms, which has been put up over so many generations, and has not been adequately documented, and that means 

that farmers don’t have collateral which they could use to take 

loans out, and could create a very difficult problem for growth. 

And for expansion into the middle class and into middle-sized entities. It is both a problem there, and it is a problem on the mortgage side, where banks do not give mortgages except for with 100 

percent collateral, which most people at that level can’t sustain. So 

I think that this is a very welcome occurrence. 

Mr. ROHRABACHER. So with the issues that you have raised 

today, let us hope as well, or just draw attention to that possible 

area of reform, which I understand the Egyptian Government is actually considering. So thank you for your testimony, and thank you 

for your leadership, Mr. Chairman. 

Chairman HYDE. Thank you, Mr. Rohrabacher. Because we have 

two votes on the Floor, by the time we get over there and vote and 

get back, it could consume over an hour. 

Ms. BERKLEY. Mr. Chairman, could I make a 1-minute statement 

for the record? 

Chairman HYDE. Oh, surely. Ms. Berkley, for 1 minute. 

Ms. BERKLEY. Thank you very much. I think I would be remiss 

if I didn’t get on the record that I am a little concerned about this 

overstatement about the great friend that Egypt has been for the 

United States. 

I think it has been a mixed record at best. I would appreciate it 

if the Chairman gave me permission to submit some questions in 

writing. In order to be a true partner in peace and a friend to the 

United States, I would hope that the Egyptian Government would 

do everything that they can to return their Ambassador to Israel 

to demonstrate that they truly, truly understand the importance of 

that. 

And that we could get some answers as to that extraordinary 

arms build-up over the last few years. I would like to know who 

the Egyptians think their enemies are, and why they are using so 

many billions of dollars in order to improve their military. 

And of course what has troubled me from the beginning is the 

extraordinary level of anti-Semitism in the Egyptian press. So if I 

may submit questions in writing on those issues, I would appreciate it. 

[No questions for the record were submitted.] 

Chairman HYDE. We would welcome your questions, and I am 

sure that the panel will do their best to cope with them. 

Ms. BERKLEY. Thank you very much, and thank you for your testimony. 

Chairman HYDE. Because of the time constraints, we are going 

to adjourn the Committee, but I want to thank you for a serious 

41

and important contribution to this developing problem. Thank you. 

The Committee stands adjourned. 

[Whereupon, at 11:49 a.m., the Committee meeting was adjourned.]

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