A closer look at the “Mubarak trust fund”

One of the most significant — yet least known and least understood — new developments in U.S. funding for the region is the potential establishment of an "endowment" for the Egyptian government, popularly known as the "Mubarak Trust Fund." The details of this new endowment are part of the third annual POMED study, "The Federal Budget and Appropriations for Fiscal Year 2011: Democracy, Governance, and Human Rights in the Middle East," released today, which examines the American budget for international affairs and aims to interpret signals regarding policy priorities in the Middle East. While some attention has focused on the reductions in the total level of funding to Arab democracy groups, the "Mubarak Trust Fund" represents a potentially worrying new twist in the way aid is delivered.

When Congress passed annual appropriations for Fiscal Year 2010 (FY10) in December, it designated that of the $250 million in economic assistance to Egypt, "up to $50,000,000 may be made available for an endowment to further the shared interests of the United States and Egypt." Ostensibly, the entire $1.56 billion aid package that Egypt receives annually is designed "to further the shared interests of the United States and Egypt."  So why set aside $50 million in a special endowment for this purpose? Apparently the Egyptian government thinks the process by which the U.S. Congress allocates foreign aid to more than 100 countries is no longer good enough for Egypt — and it appears that the Obama administration and Congress may agree.

The new "Trust Fund" needs to be understood in the wider context of the U.S.-Egypt aid relationship. American aid to Egypt is shaped by the legacy of the 1978 Camp David accords, in which the United States agreed to large multiyear aid packages to both Egypt and Israel. In 2007, the Bush administration signed a ten-year Memorandum of Understanding (MOU) with Israel governing military aid through 2018, but reached no similar agreement with Egypt, leaving economic aid to be decided on an ad hoc, year-by-year basis. 

Beginning in 2004, members of Congress began to regularly submit amendments aimed at reducing aid to Egypt or conditioning aid upon various benchmarks such as progress on judicial reform and curbing police abuses. In response, the Egyptian government sought a plan to remove U.S. economic aid to Egypt from normal channels of congressional oversight.  To this end, in 2006, the Egyptian government offered a proposal in which the U.S. government would allocate $250 million annually for 20 years into four "development funds" in the areas of: microfinance, democracy/decentralization, technology/research, and education/health. The general idea was that the U.S. would deposit annually into these funds, allowing the Egyptian government to then draw from the accounts without the uncertainty of annual congressional appropriations.   

By early 2009, the plan had evolved into the establishment of two endowments, one focused on microfinance and the other on education. The fund designated to support Egyptian democracy had unsurprisingly disappeared from the agenda, given the preferences of the Egyptian government and its role in the negotiations. In fall 2009, Egyptian Minister for International Cooperation Fayza Mohamed Aboulnaga presented a revised proposal under which the U.S. would provide $1.925 billion in funds over ten years, while also transferring $1.67 billion in Egyptian government debts into the endowment over the same period. 

As the U.S. executive branch did not embrace the proposed endowment, the Egyptian government turned to Congress. Senator Judd Gregg (R-NH), Ranking Member of the State and Foreign Operations Subcommittee of the Senate Appropriations Committee, led the effort within Congress to allocate funds for such an endowment. In September 2007, he offered an amendment that would have made as much as $500 million available for a "United States-Egypt Friendship Endowment" to "further social, economic and political reforms in Egypt." Then last year, Senator Gregg succeeded in including language in the FY10 omnibus appropriations bill allowing $50 million to be put into a new endowment — but unlike the 2007 amendment, the language now made no reference to reforms. The bill contained no details about the fund’s structure or purpose and most in Congress, including appropriations committee members, were unfamiliar with the endowment or its intent when it was approved.  Upon passage in December, critics quickly assumed the worst, dubbing the proposed endowment the "Mubarak trust fund." There is some irony in the fact that Congress was taking action to establish a fund proposed specifically to circumvent the oversight role of Congress.

Since then, the Obama administration has been negotiating with the Egyptian government and appears to have proposed an education-focused endowment that does not alter the fundamental approach, but offers much lower funding levels than those proposed by Egypt. To be sure, supporting education in Egypt is an admirable goal for U.S. assistance, and a large multiyear program for doing so is worth considering. But there are numerous problems with this particular approach. 

First, the endowment’s lack of a clear governing structure is cause for concern — Congress ought to be wary of allocating resources while leaving those details to be determined after the fact, which would risk turning the endowment into the slush fund that critics fear. In addition, while support for economic and political reform has long been a core component of U.S. economic aid to Egypt, it is troubling that this new endowment will likely include neither. Moreover, the U.S. spends more than $1 billion annually supporting education around the world through conventional bilateral assistance, and it is entirely unclear why a different approach is needed in Egypt.

On the other hand, if a large multiyear aid package free of annual congressional oversight is in fact needed to properly support education in Egypt, well, there is a large, existing initiative that provides aid in this manner — the Millennium Challenge Corporation (MCC). Egypt is one of only seven countries to have passed the MCC indicators test in each of the past five years, but the Egyptian government has expressed little or no interest in an MCC aid agreement. Why not?  Presumably because it fears increased scrutiny, particularly of Egypt’s poor record on democracy and human rights. 

This is not to suggest that a multiyear sector-specific aid package cannot be constructive. One successful such example was the 2002 MOU between the U.S. government and the Egyptian Ministry of Finance, which provided for specific sums to be released upon certification that the ministry had undertaken key financial sector reforms. This MOU is widely credited with helping revive the Egyptian economy between 2002 and 2005. Were the U.S. to establish a new development account for Egypt, one might hope that its funds be tied to conditions or benchmarks, a fundamental component of the successful 2002 MOU and of MCC’s programming. But the Egyptian government has other ideas, stressing in a fall 2009 proposal that the transition to the new endowment be "not related to conditionalities that may hamper implementation."

In the months ahead Congress will appropriate funds for Fiscal Year 2011. Unless a compelling case is made for providing additional funding to an ambiguous, ill-defined endowment, Congress ought to think twice before further diminishing its own role in the U.S.-Egypt aid relationship.

Stephen McInerney is director of advocacy at the Project on Middle East Democracy (POMED) and author of the new report, "The Federal Budget and Appropriations for Fiscal Year 2011: Democracy, Governance, and Human Rights in the Middle East."