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U.S. says it may cut aid to Egypt, but no decision yet

WASHINGTON (Reuters) - The United States said on Monday it still may cut economic or military aid to Egypt but has not made any decision to do so after the Egyptian military's violent crackdown on protesters in which almost 900 people have died in the last week.

President Barack Obama's administration is uneasy at events in Egypt, which has suffered its worst political violence in modern history since the Egyptian army and police used force to break up sit-ins by supporters of ousted President Mohamed Mursi.

The Egyptian military on July 3 overthrew Mursi, who emerged from Egypt's Muslim Brotherhood movement to become the country's first freely elected president last year after the February 2011 fall of long-time authoritarian ruler Hosni Mubarak.

The United States has refused to call Mursi's ouster a military coup and it has never called for him to be reinstated.

Nor has done much to curb the extensive military and economic aid that Cairo receives from Washington.

On July 24, Obama decided to suspend the delivery of four F-16 fighters to Egypt and on August 15 he canceled a regular military exercise with the Egyptian army.

However, he has largely left the aid intact. In recent years, it has run at roughly $1.3 billion in military assistance and about $250 million in economic aid annually.

Because of the across-the-board U.S. government spending cuts, U.S. aid to Egypt in the current fiscal year to September 30 will be slightly lower, amounting to about $1.23 billion for the military and $241 million in economic aid.

State Department spokeswoman Jen Psaki denied a New York Times report on Monday that the department had put a hold on its funding for economic programs that directly involve the Egyptian government.

Psaki told reporters the State Department was reviewing the economic aid to see how much, if any, might be curtailed as a result of Mursi's ouster and the subsequent violence in Egypt, but stressed that no decisions had been made.

She said this might apply to less than half of the $241 million but was unable to provide a specific amount.

U.S. LEGAL QUESTIONS

Under U.S. law, economic aid that goes to non-governmental groups as well as to government programs that promote free and fair elections, health, the environment, democracy, rule of law, and good governance are exempt from such a cut-off, Psaki said.

Economic programs that do not cover these areas may be affected, she said.

"We are reviewing each of those programs on a case-by-case basis to identify whether we have authority to continue providing those funds or should seek to modify our activities to ensure that our actions are consistent with the law," she said.

Psaki also said the Obama administration could choose to cut some of the $1.23 billion in military aid this year.

The emphasis on this came as something of a surprise since the State Department said on July 25 that it had decided to sidestep a U.S. law that would have required it to cut off the military aid if it found that a military coup took place.

Under U.S. law, most aid flows must stop if Washington determines that a country's "duly elected head of government is deposed by military coup d'etat or decree" or toppled in "a coup d'etat or decree in which the military plays a decisive role."

There seems little doubt that Mursi's ouster fits the bill.

As a result, the State Department chose to circumvent the law, arguing that it was under no legal requirement to make a determination and thereby avoiding the question of whether to cut off the military aid.

Leaving aside the legal question, Psaki said that the administration was still in the mist of a wider policy review that could result in the reduction of the military or the economic assistance to Egypt.

"We can make other decisions related to our aid," she said. "The president has a range of options."

Of the roughly $1.23 billion in military aid due to be disbursed this fiscal year, Psaki said $650 million has already been transferred to an account for Egypt at the Federal Reserve Bank of New York.

A further roughly $585 million has not yet been transferred and could be reduced or eliminated if Obama chose to do so.

(Reporting by Lesley Wroughton and Arshad Mohammed.; Editing by Christopher Wilson)

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