By Tom Perry
CAIRO (Reuters) - The Arab Spring was supposed to bring freedom to Egypt. Instead, concern is growing inside and outside the country that an illiberal wind is blowing the transition from autocracy off course.
Arrest warrants issued by the prosecutor general against activists and a comedian accused of insulting President Mohamed Mursi have hardened opposition fears of a crackdown on dissent by the Muslim Brotherhood-led authorities.
In parliament, Islamist lawmakers are debating draft laws seen by liberals as a threat to civil society and the right to demonstrate - vital elements of a modern democracy.
The United States, which gives Egypt about $1.5 billion in annual aid, directed its sharpest criticism so far at the Islamist-led authorities this week, citing a "disturbing trend of growing restrictions on freedom of expression".
Secretary of State John Kerry said the Obama administration had "real concerns about the direction that Egypt appears to be moving in", mentioning arrests, street violence and "a lack of inclusivity with respect to the opposition".
The European Union, another of Egypt's big donors, expressed worries about Brotherhood-backed proposals for regulating civil society that would give the state wide sway over non-governmental organizations.
Critics say the proposed rules are even more restrictive than they were under the autocracy of President Hosni Mubarak, overthrown two years ago when Arab Spring uprisings swept the region.
Those concerns are piling up as an International Monetary Fund delegation is in Cairo for talks on a $4.8 billion loan which Egypt desperately needs to ease a deepening economic crisis. Western governments say a broader political consensus is essential to implement painful reforms required by the IMF.
"I am really very worried," said Mohamed Abolghar, head of the opposition Egyptian Social Democratic Party. "I am afraid they will shut down that margin of democracy and freedom which the Egyptians gained after the revolution."
Mursi, Egypt's first freely elected ruler, promised on taking office to be a president for all Egyptians and to protect freedoms won by young people who risked their lives to topple Mubarak. The United States called Mursi's election last year a milestone in Egypt's transition to democracy.
But illiberal trends surfacing in officialdom are compounding the fears of opponents of the Brotherhood who say the secretive group has sought to squeeze them out of public life ever since Mubarak was toppled.
The accusation is at the heart of a political confrontation that has grown ever more bitter since Mursi was elected in June and drove through an Islamist-tinged constitution in December, triggering bouts of lethal violence.
"BESIEGED AND ENCIRCLED"
The Brotherhood, banned for decades until Mubarak was toppled, believes its opponents have tried to sabotage Mursi's rule, using their influence in the media, the judiciary and on the streets. It says they have rebuffed Mursi's efforts to build bridges, while inciting violence.
After the most recent unrest - riots near the Brotherhood's Cairo headquarters - Mursi threatened measures to protect the nation. He warned the media against incitement and promised "necessary steps" against any politicians who were involved.
The state prosecutor issued arrest warrants for five leading democracy activists accused of inciting violence, and separately summoned popular television satirist Bassem Youssef - Egypt's answer to CNN "Daily Show" comic Jon Stewart - for questioning for allegedly insulting the president and Islam.
"The Brotherhood feel that they are besieged and encircled by many political forces around them - lately, the United States included," said Yasser El-Shimy, Egypt analyst with the International Crisis Group, a think-tank.
"I wouldn't say there is a case of authoritarian retrenchment here but ... the Brothers adopt a really strict view of democracy in which getting 50 percent-plus-one allows them to pretty much do as they please, and that is what they are doing," he said.
Criticism from Washington has drawn a sharp response from the Brotherhood's Freedom and Justice Party, which accused the United States of meddling in Egyptian affairs.
Responding to censure of the arrest warrant for Youssef, the presidency denied any involvement and said it was the result of legal complaints filed by individuals to the prosecutor. "The presidency reiterates the importance of freedom of expression and fully respects press freedom," it said.
Youssef has been released on bail but human rights activists are not convinced.
Egyptian law gives wide scope for loyalists to bring cases against dissidents: the constitution fast tracked into law by the Islamists last year bans insults against anyone.
Two dozen cases of "insulting the president" were brought in Egypt in the first 200 days of Mursi's rule - four times as many as during Mubarak's 30 years in power, said Gamal Eid, a human rights lawyer.
CONCERNS OVER NGO LAW
Mursi's opponents say the prosecutor, Talaat Ibrahim, has shown bias by prioritizing the Bassem Youssef case while seeming to do little on others. These include allegations of violence perpetrated or incited by Mursi loyalists.
The prosecutor denies any political affiliation. Appointed by Mursi in November, his removal is a demand of the liberal and leftist opposition.
Hafez Abu Seada, head of the Egyptian Organisation for Human Rights, likens the state of affairs to the Mubarak era, when repressive laws were used to violate basic rights. Then, as now, it was government loyalists who instigated such action.
"There is a great threat to the system of human rights in Egypt," he said.
The draft civil society law backed by the Brotherhood is a major worry for democracy advocates in Egypt and Western countries that help to finance non-government organizations, ranging from human rights campaigners to anti-poverty, education and development groups.
Problems include provisions that would treat NGO finances as "public funds". Funding for international NGOs would need to be approved by a "coordination committee" including representatives of the security forces and government.
"There are a number of concerns," James Moran, head of the EU delegation in Cairo, told Reuters in an interview. "There is a great deal of concern on all sides that the time that is needed might not be taken."
Critics ask why the Brotherhood-controlled upper house of parliament is pressing ahead with such an important piece of legislation when it is supposed to be playing only a caretaker role: new lower house elections are due later this year.
"At this time, Egypt is in great need of it," said Abdel-Azeem Mahmoud, a Freedom and Justice Party leader and the head of the committee overseeing the drafting. The law would not inhibit NGO formation and rules for foreign NGOs would boost transparency, he said.
Mahmoud justified tight oversight of foreign NGOs by saying Egypt must know which groups were operating in country.
Human rights lawyer Eid said the draft echoed the Mubarak-era view that civil society was guilty until proven innocent.
Elected with a turnout of less than 10 percent, the upper house has no right to draft such laws, added Abolghar. "It was only supposed to be a consultative house."
(Additional reporting by Mohamed Zaki; Editing by Paul Taylor and David Stamp)