Why Egypt Needs Peace Now

...Sadat put the overall balance of payments deficit in 1975 at $3.3 billion...

...Although over 30 per cent of the country's industrial capacity is idle because of the lack of spare parts, cargoes of these essential materials are being held up in the clogged port of Alexandria...

...4. Cairo even stands to profit from selectively lifting its boycott of American firms dealing with Israel, presented as an Egyptian concession in the Sinai negotiations...

...Three days later, in an interview in Al-Hawadith, Sadat stressed that the Sinai accord was a military arrangement, that Egypt has not given up its military option and is making great efforts to upgrade it, that Egypt has not abandoned its concern about the recovery of the Golan Heights, and that it is firmly committed to the restoration of the Palestinians' rights and is ready to fight for them, if necessary...

...This has given employment to tens of thousands of workers and has attracted a population of several hundred thousands into an area virtually vacant since the 1967 War and the 1970 war of attrition...

...7. The accord has paved the way for U.S...

...For all their proclamations of Arab solidarity, they have chosen to devote their income to domestic programs and investments in the West that reflect their national interests...

...The Sinai accord will encourage stepped-up search efforts, and Cairo is counting on major oil discoveries to solve its financial problems...

...They have preferred to await World Bank approval of loan requests as an indicator of the feasibility of some projects, or to extend loans through their own agencies using economic criteria to determine the merit of an undertaking, such as the Kuwait Fund for Arab Economic Development...

...Indeed, the Beirut newspaper Al Anwar charged Egypt's information media with trying to mislead the people into believing the bridge that made the Sinai crossing possible would become the bridge over which billions of dollars would flow to them...

...Sadat himself, one diplomat pointed out, confirmed this on August 28, 1974, when he told a gathering of Egyptian journalists and Ministry of Information personnel: "In October 1973, Egypt's economy was in dire straits...

...3. As a result of the more secure and stable conditions expected over the next several years, Egypt stands to gain, if only marginally at first, from the civil strife in Lebanon...

...Sadat, proclaiming the beginning of the "economic crossing," directed that a five-year plan be prepared covering the years 1976-80...

...In any event, Egypt's rich "brothers" have been cautious in committing funds for economic development...

...Oded I. Remba, a specialist in Middle East affairs, has recently returned from a visit to Egypt...

...These are not simply empty words designed to assure the continued support of the oil states and political backing from the other Arab nations...

...The Ford Administration proposes to ask Congress for $650-$800 million in economic assistance to Egypt in fiscal 1976, and additional amounts in future years...

...The reconstruction of the Suez Canal zone was presented as a further symbol of new dynamism, of the capacity to divert resources to development by virtue of the achievements in the Ramadan War...

...The national infrastructure- roads, harbors, communication networks, urban facilities-has similarly deteriorated...

...Lebanese financiers have expressed the fear that Egypt will emerge as a major alternative business center, particularly since it has been developing financial establishments in Cairo and is planning a free-trade zone in Port Said...

...The Ford Motor Company, on the Arab League's blacklist since 1967, offered last month to invest $230 million in industrial projects in Egypt including the assembly of trucks and tractors and the manufacture of diesel engines for local use and export...

...Equally important, the Arab oil states will have to reverse their aid priorities from financing arms purchases and establishing military industries to basic economic assistance and investments in development projects, even as states like Syria and Iraq press to reen-force the present debilitating pattern...

...Egypt may gain access as well to U.S...

...With world shippers no longer fearful of using the waterway, the Suez Canal Authority estimates revenues of $450 million in the first full year of operation- compared to $250 million in 1966, the last full year before the Canal closed...

...Until the 1967 Six Day War, oil transportation constituted 75 per cent of the Canal's traffic...

...It will complement the Canal by serving tankers that are still too large to go through the waterway...

...Work on the first stage of a program to deepen and widen the Canal has begun, financed by an agreement signed with Japan July 26 for a long-term, low-interest $130 million loan...

...But if real peace is to come to the Middle East, Egyptian leaders must resolve definitively in their own minds whether their efforts and resources will be devoted primarily to social and economic development...

...Otherwise, one of the paradoxical possibilities of the Sinai accord may well be that the Arab oil states will continue to underwrite Egypt's costly military buildup, while the United States and other Western countries help Egypt to survive economically...

...Egyptian officials and intellectuals recognize the enormous cost of the Arab-Israeli conflict to their country's economy, and the substantial benefits that will accrue from the interim Sinai accord...

...In an interview with the Kuwait daily Al-Siyassah, he also stated that Egypt's liquid foreign exchange reserves were practically exhausted: "Imagine a country of 36 million with a budget of 3 billion pounds [roughly $6 billion], and a currency reserve of 30,000 pounds [about $60,000...

...Following the October War, Cairo looked to Saudi Arabia and other Gulf oil states for large-scale cash grants, and to Western and Arab countries for vital investments...

...Besides, Egypt needs billions of dollars for infrastructural projects that bring no return to investors, but are essential for industrial advancement...

...For Sadat's persistent theme today is that Egypt urgently needs a "period of peace'' after the "seven wretched years" of 1967-73, to deal with its worsening economic conditions: a huge balance of payments deficit, a heavy foreign debt burden, shortages of basic commodities, accelerating inflation, widespread unemployment and underemployment, a slowdown in economic growth, and a virtually complete halt in the rise of living standards...

...On another level, however, they have made it abundantly clear that nothing short of Israeli withdrawal from all the occupied territories and restoration of the "rights of the Palestinians" will bring about peace in the Middle East...

...Cairo had particularly high expectations with respect to the Persian Gulf oil states...

...Once the Sinai fields are returned, Egypt will be able to begin exporting a small amount of oil...

...5. The Sinai accord gives additional protection to the Suez Canal, reopened for international navigation on June 5 after being closed for seven years...

...Egypt had come full circle since the October War...

...In conjunction with 15 previous contracts, foreign companies are to spend a minimum of $266 million looking for oil...

...For Egypt, Washington's efforts to put together a coordinated program of financial assistance by the industrial nations and Arab oil countries are no less important than the American role in the shuttle negotiations...

...They have also agreed to contribute large sums to the establishment of an arms industry, probably in Egypt, that will concentrate on making fighter and bomber planes, guided missiles, tanks, personnel carriers, and electronic equipment...

...And that will lead neither to a peaceful resolution of the Arab-Israeli conflict nor to any visible improvement in Egypt's stagnating economy...

...Its oil revenues totaled $22.6 billion in 1974, while its international reserves soared from $3.9 billion at the end of 1973 to $20.5 billion in May 1975, putting it in second place, behind West Germany and ahead of the United States...

...The Egyptian conception of the interim agreement does not encompass eventual normalization of relations with Israel in the diplomatic and economic spheres, or full recognition of the permanent and legitimate existence of the Jewish State...

...In terms of immediate financial requirements, therefore, Arab cash grants and loans were inadequate...

...The government-controlled Saut al-Arab radio station has carefully distinguished between tactics and strategy, asserting that Egypt's strategic position is "to shake the foundations of Israel's existence...

...military equipment...

...That was originally pledged in December 1973, and Japan is reported to have expressed its willingness to consider another loan of $140 million to help finance the second stage of the development program, aimed at allowing the transit of tankers with 260,000 tons capacity in six years...

...Its rehabilitation has received top priority in the government's transitional economic plan for the period July 1974-December 1975...

...In December 1974, moreover, Egypt signed contracts with four major U.S...

...2. The accord will afford Egypt greater security and stability, prerequisites for attracting foreign private investment on a serious scale...

...Egypt is regarded as a bottomless pit...

...Most prominent among these are the following: 1. The oilfields will provide Egypt with 85,000 additional barrels of oil daily...

...Nor did the availability of $250 million in U.S...

...I convened the National Security Council six days before the war...

...We received this money from our Arab brothers in the first week after the October War...

...One major source of such funds, the International Development Association, provides credits repayable over 40 years at a service charge of .75-1 per cent...

...The oil states seem least inclined to provide extensive budgetary support, the type of aid Egypt requires most urgently...

...In fact, recognizing that the public sector could hardly provide the means for overcoming past neglect, the Sadat regime passed a foreign investment law in 1974 eliminating various controls on banking and foreign trade, legitimizing and encouraging private enterprise, and scrapping the Marxist or pseudo-Marxist interpretations of Nasser's National Charter...

...Per capita defense outlays reached $85...

...At the same time, Egypt plans to construct the suemed pipeline, linking the Gulf of Suez and the Mediterranean, during the next three years...

...It wants stability in Cairo and is willing to supply financial aid so that the Sadat regime will not collapse...

...At the start of 1975, it announced agreements on investments exceeding $3 billion: over $1 billion from Iran, $1 billion from Kuwait in 21 economic projects, and $1 billion from Saudi Arabia and the Sheikhdoms...

...In July, the Canal started to take vessels of up to 70,000 tons fully loaded, or ships as large as those that used it prior to its closing...

...Lehman Brothers, the American investment bank, has already reversed an earlier decision to open its Middle East regional office in Beirut and is planning to open an office in Cairo...

...Whatever else the assessment suggests about the agency's effectiveness, it underscores how little the economic aspects of the Arab-Israeli conflict have been understood, particularly where Egypt is concerned...

...In the light of the grim realities, the conclusion of a three-year Sinai accord-with Israel giving up more territory and the Abu Rudeis oilfields in exchange for limited Egyptian concessions- became Cairo's only feasible option...

...The cash flow enabled Egypt to overcome its immediate crisis, nothing more...

...Thus once more economic considerations dictated action, except this time instead of war, they resulted in the signing of the Sinai accord and the decision to turn for support from the Soviet bloc to the West...

...and explained that the economic situation was extremely serious...

...A steep increase in world prices had compelled Egypt to spend $900 million on food imports in 1974, three times the sum spent in 1972...

...Foreign investments are especially valuable because they bring with them not only capital, technology and marketing outlets, but also managerial skills and training facilities that are crucially important to economic development...

...The commodity shortages and the deterioration of public services became serious issues because of the hopes aroused by the government for a rapid improvement in the standard of living...

...In the early months of this year, the lack of foreign exchange reserves led to a severe shortage of basic commodities (including sugar, tea and rice, sold at low subsidized prices), the emergence of a black market, growing hardships for low-income groups, and a rash of disturbances and strikes...

...Sadat was finally forced to warn the public not to entertain illusions about quick gains...

...Congressional delegation that his country's economic and domestic problems were so severe that it needed peace desperately...

...One possible interpretation of the top priority assigned to military assistance is that the oil states prefer to see Egypt and Syria occupied with the Arab-Israeli conflict in order to shield their own relatively conservative regimes from the revolutionary potential of the two most important have-not Arab states...

...Yet in large measure, I was repeatedly told by government officials and Western diplomats in Cairo this summer, they actually accounted for the unexpected hostilities two years ago...

...But the prevailing realities soon dashed the expectations...

...aid during fiscal 1975, the first large-scale American aid package in about a decade, fill the gap...

...For the first time, it appeared that some real progress might be possible...

...Saudi Arabia is an instructive case in point...

...The situation would not have reached its present state, Rafat argues, if the billions of dollars spent on war and preparations for war had been devoted to construction, development and improving living standards...

...He attributes Egypt's social and economic malaise to preoccupation with the Palestine problem, bureaucratic apathy, Gamal Abdel Nasser's determination to transform Egypt into a predominantly Socialist society, and overpopulation...

...The obstacles to a settlement with Syria over the Golan Heights, with the Palestinians and Jordanians over the West Bank and the Gaza Strip, and with the Egyptians over further withdrawals from Sinai, are formidable...

...Nevertheless, according to Western diplomats, the Saudis will not subsidize on a grant basis the living standards of Egypt's population of over 36 million, which is growing at the rate of nearly 1 million a year...

...Meanwhile, the Arab oil states, with vast surpluses and revenues of over $51 billion in 1974 alone, have mostly confined their generosity to giving Egypt (as well as Syria and Jordan) money for military purposes...

...Neither war nor continuation of the status quo would have resulted in the tangible benefits the interim agreement holds for Egypt...

...Despite hopes that it would in turn generate the aid and investments necessary for confronting basic structural weaknesses, by 1975 the country faced an acute shortage of ready funds as well as long-term development problems...

...oil firms calling for expenditures of up to $179 million on exploration in areas including the Gulf of Suez and 4,600 square miles extending south of the Sinai Peninsula to the Red Sea...

...On August 10, he told a U.S...

...Its production has declined sharply in recent years, from 212,000 barrels a day in 1972 to 144,000 barrels in 1974...

...As I learned in the course of many candid conversations during my visit, they reflect deeply ingrained political and psychological attitudes on the part of Egyptian officials, academicians and journalists...

...The supply difficulties, he promised, would be eased in 1976, but many years would be required to affect a substantive change in the economy...

...6. The accord will enable Egypt to continue vigorous reconstruction of the Suez Canal Zone and its three major cities-Port Said, Ismailia and Suez...

...As one Egyptian professor told me, investors needed a greater sense of security and much improved facilities...

...This may well explain why Saudi financial backing has fallen short of Egypt's requests, why Riyadh will not help pay Cairo's $5-7 billion debt to the Soviet Union, and why some of its major commitments- like the $600 million long-term loan made by King Khalid this July- have been in the form of low-interest loans...

...While it extended several credits to Egypt, the Association has limited resources primarily intended for the poorest nations rather than "middle-income" countries like Egypt, whose per capita earnings of $250 place it at the lower range of that category...

...aid on an unprecedented scale...

...Our very subsistence during 1974 was not assured: I was facing debts which had to be paid in December, according to international agreements, but there was no possibility of doing so...

...It was an eagerness to guarantee safety that prompted Egyptian negotiators to fight hard for a few strategic miles in the northern and central sectors of the disengagement line...

...The duality of Egyptian policies was recently illustrated by Sadat himself...

...According to data published in the Beirut weekly, Middle East Economic Survey, Egypt's defense spending totaled $3.1 billion in 1974, or 35.8 per cent of Gross National Product -the highest level of any Arab country...

...Western businessmen swarmed into Cairo to investigate financial opportunities, filling once-empty hotels to overflowing, but very few of the hundreds of proposed projects have so far materialized...

...The prospect of linking Western technology with Arab petrodollars and Egyptian manpower was not enough to attract industrial enterprises capable of creating jobs and earning or saving foreign exchange...

...This critical economic situation was one of my reasons for going to war, since there was no chance that we would receive even one dollar of the promised Arab aid, amounting to $500 million, before inscribing the saga of the Canal crossing in our blood...

...Even if the $3 billion in pledged investments fully materialized, it would take at least two or three years for them to yield concrete economic benefits...

...8. The Sinai agreement may make possible a reduction in escalating military expenditure...

...Perhaps the most critical analysis of all this, published last December in Al Ahram, has been offered by Cairo University Law Professor Wahid Refat...

...THE ECONOMICS OF THE SINAI ACCORD Why Egypt Needs Peace Now BY ODED I. REMBA From documents released earlier this month by the House Select Committee on Intelligence, we now know that only hours before Egyptian forces moved across the Suez Canal to launch the October War, the CIA was ruling out the possibility of such an attack on the grounds that it would wreck President Anwar el-Sadat's "painstaking effort to invigorate the economy and would run counter to his efforts to build a united Arab political front...