In Egypt, NGO crackdown and draft law have chilling effect CAIRO - A crackdown on U.S.-funded pro-democracy groups in Egypt and a bill before parliament that that would further restrict the work of nongovernmental organizations here are inhibiting development work and activism during a period many Egyptians hoped would be marked by greater freedoms. A few months before Egyptians are to elect a new president, groups that have played key roles in the elections of emerging democracies elsewhere in the region are paralyzed by a widening criminal probe of such organizations, backed by the country's ruling generals. Other NGO workers in Egypt are trying to keep a low profile, saying they worry about being named in the legal case or otherwise affected by the broader cloud of suspicion now hanging over foreign-funded groups. "This has become a huge impediment to the U.S."s ability to deliver and to have an impact with its aid," said Stephen McInerney, executive director of the Washington-based Project on Middle East Democracy. This is casting a real shadow over all U.S. assistance to Egypt. Egyptian activists who are not targets of the probe say it has set an ominous tone for human rights and political freedoms in Egypt - two of the main goals of a popular revolt that toppled President Hosni Mubarak a year ago. The concerns triggered by the crackdown have been exacerbated by a draft law that would close the loopholes allowing NGOs to register as corporations or other types of private entities. "The working environment has become poisoned by this crackdown," said Hossam Bahgat, an Egyptian human rights advocate. The consistent message of vilification of human rights has become much worse since these raids and these indictments. U.S. officials had reportedly held out hope that the ruling military council could be persuaded to end the probe of groups that include the Washington-based International Republican Institute and the National Democratic Institute. Gen. Martin Dempsey, the chairman of the Joint Chiefs of Staff, is expected to bring up the case in meetings with Egypt's military ruler in Cairo on Sunday. A spokesman declined to provide details of the talks. Despite the mounting pressure from Washington, however, the generals have shown no signs of backing down. Protesters continue to demand the council's ouster, most recently by calling for a mass strike on Saturday, the one-year anniversary of Mubarak's ouster. Egypt's foreign reserves are running dangerously low and the tourism industry, a pillar of the economy, is in a tailspin. In the face of such woes, Bahgat and other critics say, the military-led government appears to be using the NGO investigation to bolster its popular support by portraying it as a principled stance against U.S. meddling. "When presented this way, most Egyptians side with their army and against the Americans," Bahgat said. An American student and an Australian journalist were reportedly arrested Sunday after being accused of paying Egyptians to go on strike, reinforcing fears that state media reports and government statements are driving a wave of xenophobia.