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Kerry presses Egypt on economic reform, says aid depends on it

By Arshad Mohammed

ADDIS ABABA (Reuters) - Secretary of State John Kerry urged Egypt to act swiftly on economic reforms to secure a $4.8 billion International Monetary Fund loan, saying the measures were needed to get further aid from the U.S. Congress, an American official said.

Kerry met Egyptian President Mohamed Mursi for about an hour on the sidelines of an African Union summit on Saturday, discussing Syria's civil war, the Israeli-Palestinian conflict, human rights in Egypt and the country's faltering economy, the official said.

Egypt's Islamist-led government has been resistant to introducing the austerity measures needed to win the IMF funding, including raising taxes and cutting fuel subsidies, fearing such painful reforms could provoke social unrest.

However, an IMF deal could help shore up investor and donor concerns after two years of political instability since the overthrow of former president Hosni Mubarak in early 2011. The instability has depressed tourism, a crucial industry for Egypt.

The U.S. official, who spoke on condition of anonymity, said Kerry had made the argument that the reforms were necessary to persuade American lawmakers to proceed with further economic support for the country, which borders U.S. ally Israel.

"He urged action on making reforms happen now to move towards requirements to get the IMF package," the official said.

During his first visit to Cairo as secretary of state, on March 3, Kerry told Mursi the United States would provide the first $190 million of $450 million in pledged budget support because of Mursi's commitment to see the IMF process through.

The remainder, however, would depend on the economic reforms, a point Kerry made again in the Ethiopian capital.

"He said ... we need to be able to show Congress that you have taken the necessary reforms," said the official. "I have been a strong advocate of support for Egypt. I continue to support aid for Egypt, but ... we need to see reforms in place that will encourage my former colleagues back at home to act."

Kerry served in the U.S. Senate for nearly 30 years before becoming the country's top diplomat on February 1.

Egypt has in recent years received about $1.3 billion in military aid from Washington, support that dates back to its signing of a peace treaty with Israel more than 30 years ago. That assistance, however, is not seen as contingent on Egyptian economic reform.

(Reporting by Arshad Mohammed; Editing by Pravin Char)

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