Kerry urges Egyptian economic reform on Cairo trip

Some critics say the U.S. is not changing its policy in Egypt, choosing to back Islamists instead of democracy and human rights. NBC's Ayman Mohyeldin reports. 

By Arshad Mohammed, Reuters

Secretary of State John Kerry will stress the importance Egypt achieves political consensus for painful economic reforms needed to secure an IMF loan, a senior U.S. official said on Saturday.

Kerry arrived in Egypt on his first visit to the Arab world since taking office for talks with the leaders of a country mired in political and economic crisis two years after the overthrow of autocrat Hosni Mubarak.

With Egypt's pound and foreign currency reserves sliding, the official said that if Cairo could agree on a $4.8 billion loan from the IMF, this would bring in other funds from the United States, European Union and Arab countries.

However, the official said the United States believed Egypt needed to increase tax revenues and reduce energy subsidies - measures likely to prove highly unpopular.

"His basic message is it's very important to the new Egypt for there to be a firm economic foundation," the official told reporters as Kerry flew to Cairo.

"In order for there to be agreement on doing the kinds of economic reforms that would be required under an IMF deal there has to be a basic political ... agreement among all of the various players in Egypt," the official said on condition of anonymity.

Jacquelyn Martin / AP
U.S. Secretary of State John Kerry, left, meets with Arab League Secretary General Nabil Elaraby, at far right, in Cairo, Egypt on Saturday, March 2, 2013. 

Egypt said on Thursday it would invite a team from the International Monetary Fund to reopen talks on the loan and the investment minister expressed hope that a deal could be done by the end of April.

The loan was agreed in principle last November but put on hold at Cairo's request during street violence the following month that flared in protest at a planned rise in taxes.

While the tax rise was withdrawn, Islamist President Mohamed Mursi is likely to face violent protests as any cuts in subsidies demanded by the IMF will push up living costs in a country where poverty is rife.

Energy subsidies soak up about 20 percent of the government budget, bloating a deficit set to soar to 12.3 percent of annual economic output this financial year.

Clashes in Mansoura, Port Said
Early on Saturday, young protesters fought interior ministry police in the Nile Delta city of Mansoura, where one protester was killed and dozens injured. In the Suez Canal city of Port Said, protesters torched a police station, security sources said.

While the protests were unrelated to Kerry's visit, they were examples of the frequent outbreaks of unrest faced by Egypt's government.

Clashes are commonplace, with young people and Egyptians demanding Mursi reform the interior ministry's police force. The president is accused of not taking police reform, a key demand of the uprising that toppled Mubarak, seriously.

Kerry will stress the need for agreement across the political spectrum on reforms and winning approval in the Shura Council, Egypt's upper house of parliament.

"What they need to do is ... things like increasing tax revenues, reducing energy subsidies, making clear what the approval process will be to the Shura Council for an IMF agreement, that kind of thing," said the official.

Hopes for consensus between the ruling Islamists and opposition parties seem slim. Liberal and leftist opposition parties have announced a boycott of parliamentary elections, scheduled for April to June, over a new constitution produced by an Islamist-dominated assembly and other grievances.

Kerry meets opposition leaders on Saturday but many senior figures were not on the list of expected participants, including Hamdeen Sabahy, who came a close third in presidential elections last year and former U.N. nuclear agency head Mohamed ElBaradei.

Kerry does not wish to be seen as lecturing Egyptians and will not explicitly tell opposition parties to renounce their boycott of the lower house polls, the U.S. official said.

However, he will make the case for them to take part.

"If they want to ensure that their views are taken account, the only way to do that is to participate. That they can't sit aside and just assume that somehow by magic that all of this is going to happen," the official said. "They've got to participate."