CODEL DREIER MARCH 23-25 VISIT TO CAIRO: PRIME

C O N F I D E N T I A L SECTION 01 OF 03 CAIRO 002532

SIPDIS

E.O. 12958: DECL: 03/30/2015
TAGS: PREL OREP EG
SUBJECT: CODEL DREIER MARCH 23-25 VISIT TO CAIRO: PRIME
MINISTER NAZIF REVIEWS REFORM EFFORTS

Classified by Charge Gordon Gray for reasons 1.4 (b) and (d).

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Summary
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1. (C) In a March 24 meeting with Egyptian Prime Minister
Nazif, CODEL Dreier (consisting of Representatives Dreier,
Diaz-Balart, Alcee Hastings, Doc Hastings, Gingrey, and
Crenshaw) discussed the potential for political and economic
reform in Egypt, links between economic development and the
fight against terrorism, and Egypt's appreciation for U.S.
assistance. Nazif said U.S. aid was critical to helping
Egypt ensure stability in a volatile region. The CODEL
thanked Nazif for Egyptian training of Iraqi security
personnel. Nazif also highlighted Egyptian contributions to
peace between the Israelis and Palestinians, suggesting that
"peace was possible" with U.S. support.


2. (C) Touting his cabinet as young, energetic, and
development-oriented, Nazif said economic reforms in Egypt
were taking hold but the economy needed time to turn around.
In the meantime, many ongoing reforms put pressure on the
budget, making U.S. assistance even more important. Nazif
and the U.S. delegation agreed on the value of free trade,
and Nazif noted a strong link between development and
fighting terrorism. The Prime Minister also cited Egypt's
long-term political reform efforts, appealing for continued
U.S. support to bring more openness to the region. President
Mubarak had opened the issue of constitutional change
(potentially allowing multi-candidate elections) in spite of
concerns about timing. This effort opened the door to more
changes after the September presidential election, according
to Nazif, who hoped that higher voter turnouts would enhance
public participation in government. End summary.

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Bilateral and regional security cooperation
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3. (C) Emphasizing Egyptian appreciation for U.S.
assistance and the importance of the bilateral relationship,
Prime Minister Nazif told CODEL Dreier that military
assistance had paid off in terms of Egypt becoming a
stabilizing force in the region. Egypt led the way to peace,
he said, positing peace as necessary for growth and
development.


4. (C) Congressman Dreier pointed out that political and
economic openness was important to any nation and that
political self-determination was key to development. He
thanked Egypt for the important role it played in regional
stability. The U.S. appreciated Egypt's support vis-a-vis
Iraq, he said, especially the training that Egypt is
providing to Iraq's security forces. Dreier said it would be
easier for the U.S. to leave Iraq once more Iraqi security
forces are in place; he highlighted Iraqi self-determination
as the goal of U.S. policy.

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Peaceful resolution to the Israeli-Palestinian dispute
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5. (C) Responding to a question about the real prospects
for peace in the Middle East, Nazif stated that the main goal
in the short term was a cessation of violence. The most
important thing was calming both sides, he said. The second
step would be developing credible leadership encompassing all
Palestinian factions, including the refugees. The third step
would be "getting Israel to come to the table." Peace could
not be one sided. That is why, according to Nazif, Egypt
sent back its Ambassador to Tel Aviv, signed the QIZ
agreement, and invited PM Sharon to Sharm El Sheikh. Nazif
said he believed Sharon wanted peace, but faced difficulties
over the settlements. Achieving peace would be a long
process, opined Nazif; however, with both sides engaged, and
U.S. support, peace was possible. U.S. support was key in
Nazif's view and the U.S. needed to change the perception
that it was biased toward Israel.

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Economics, U.S. assistance, and terrorism
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6. (C) Nazif said his cabinet was young, energetic, and
development-oriented. He pointed out that many reforms had
been undertaken, such as the recent corporate tax cut (from
42 to 20%),tariff cuts last September, and cuts in sales
taxes on capital goods. He noted that Egypt had a
diversified economy, but that agriculture was still
important, with most exports going to Europe. The U.S.,
however, was still Egypt's major trading partner.


7. (C) Nazif said that 18-20 months would be needed for
Egypt's economy to really turn around. In the meantime, many
of Egypt's ongoing reforms were causing difficulties in the
budget, which made continued U.S. assistance more important.
Nazif noted that reforms currently underway in the banking
sector would cost $10 million, for example, yet were
necessary to overcome an excessively public banking sector.
He lamented that there was not enough separation of the
banking sector and the public companies, which has led to a
significant problem with non-performing loans. He said that
privatization was going forward as well as banking reform.
He noted that the IMF, World Bank, and the EU were all
helping with these reforms, but said that U.S. assistance
remained critical. Reform could not happen without it.


8. (C) Dreier said that U.S. economic growth proved the
value of a supply-side policy. Regarding an FTA, he said
that he would carry Nazif's message of economic reform back
to the U.S., as he would like to see an FTA negotiated with
Egypt. Nazif replied that an FTA would also have important
symbolic value. Trade with the U.S was increasing as was
U.S. investment. Microsoft had opened a building in the
Smart Village (Egypt's high tech business park) last year and
would, under an agreement with the GOE, reinvest its profits
back into the Egyptian economy. He raised Egypt's signing of
the QIZ agreement with Israel and lowering of tariffs, and
said he liked President Bush's idea of a Middle East Free
Trade Area. Nazif cited a strong link between development
and fighting terrorism, suggesting that most terrorists came
from the lower classes. Dreier stated that some in the U.S.
had said that with a GDP 1 percent higher in Pakistan and
Afghanistan, Al Qaeda would never have developed. Nazif
agreed and added that terrorism has to be fought from within,
using education.


9. (C) Nazif noted that Egypt had been fighting terrorism
long before 9/11. Egypt had been successful in rooting
terrorism out of the fabric of society. He pointed to
Egypt's hosting of the February 8 Sharm El Sheikh conference,
the cessation of violence between the Israelis and
Palestinians, and movement on the peace process after four
years of stagnation. He noted Egypt's positive role in
events in Lebanon and Syria, Sudan and Darfur (where he said
Egypt is opening schools),and in overall regional stability
and development.

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Political reform, constitutional changes
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10. (C) According to Nazif, Egypt has also been leading the
way on political reform for the last twenty years. In the
1970s there were only three political parties, now there are
twenty. He said Egyptians enjoyed free speech and a media
without censorship. The last parliamentary election was the
best in Egypt's history, said Nazif, free and fair as
certified by international observers. Egypt's next step will
be multi-candidate presidential elections this year. Nazif
said democracy is a time consuming process and Egypt lost
time during years of war. The current government has a clear
vision for political, economic, and social change, boasted
Nazif, but Egypt needs continued U.S. support to realize the
government's vision and help bring democracy to the Middle
East (a "key factor" in the fight against terrorism).


11. (C) Nazif stated that Mubarak saw it was important to
change the constitution before the upcoming presidential
election, despite the views of many in the government that
there was not enough time before the election to accomplish
the change or field candidates. Mubarak wanted the election
to be seen as legitimate and more democratic. Nazif stated
that the constitutional change would take place in May, with
elections next September. After the election, further
constitutional reform could be contemplated. Nazif believed
that multi-candidate elections would bring more voters to the
polls. Congressman Hastings noted that there was higher
turnout in the Iraqi elections than there was in the last
U.S. presidential election. Nazif said low voter turnout
leads to victories by organized minorities, pointing to the
examples of syndicates in Egypt and Islamic groups which
prevail when there is not broad participation.


12. (C) Nazif went on to say that constitutions should be a
reference point and therefore should not change too often for
fear of engendering chaos; the last change to Egypt's
constitution was in 1980. The document would have to change
somewhat, said Nazif, as it was still a socialist
constitution and many of the reforms the current government
was making contradicted the charter. He believed that more
substantive changes to the constitution would come after the
elections in September.


13. (C) The Prime Minister said he would be visiting the
U.S. in May and wanted to convey the message of reform in
Egypt. The CODEL noted that Nazif's leadership was
important. Members stated that the U.S. had provided much
assistance to Egypt and would endeavor to continue to help,
especially now that real reform appeared to be taking place.


14. (U) CODEL Dreier did not have an opportunity to clear
this message before departing Egypt.


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GRAY