SCENESETTER FOR DEPUTY SECRETARY ZOELLICK'S JULY

C O N F I D E N T I A L SECTION 01 OF 05 CAIRO 005194

SIPDIS

DEPARTMENT FOR D, NEA/FO AND NEA/ELA
NSC STAFF FOR ABRAMS/POUNDS

E.O. 12958: DECL: 07/07/2015
TAGS: PREL PGOV KDEM EG
SUBJECT: SCENESETTER FOR DEPUTY SECRETARY ZOELLICK'S JULY
12-14 VISIT TO CAIRO

Classified by Charge d'Affaires Michael Corbin for reasons
1.4 (b) and (d).

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Introduction
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1. (C) Deputy Secretary Zoellick, Embassy Cairo warmly
welcomes you to Egypt and believes your visit comes at a
particularly significant moment for reform in Egypt. You
will be able to review a number of important internal and
regional developments, discussed below, since the S visit, in
your meetings with President Mubarak, Prime Minister Nazif,
Foreign Minister Aboul Gheit, and Intelligence Chief Soliman.
You will also be able to discuss political reform and
prospects for this fall's presidential and parliamentary
elections with members of both the ruling party's reform wing
and its old guard, as well as with key opposition leaders and
political observers. The Egyptian and international press
will be very interested in your visit, and your encounters
with the media will present good opportunities to reinforce
our messages on expanding freedom and democracy in Egypt and
the region, confronting terror in Iraq and the wider region,
and capitalizing on opportunities for peace in Gaza and the
Sudan. End introduction.

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Recent Developments
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2. (C) Since Secretary Rice's June 20 visit, a senior GOE
official has indicated publicly that Egypt's first direct and
competitive presidential election will be held on September 7
(although there has not yet been an official announcement of
this date). Two electoral commissions have been established
that will oversee, respectively, the presidential elections
and the subsequent legislative elections. A slate of bills
which make adjustments to the political system, touted by the
GOE as significant political reforms, have also been passed,
and the USG is moving forward with assistance to promote
competition and transparency in the fall elections. Regional
issues have continued to develop, with the abduction of
Egypt's ambassador in Baghdad a pressing concern for Cairo.
Egypt has continued to play an active role in the Sudan
including the public dispatch of 800 peacekeeping troops to
Southern Sudan. The GOE signed a long-awaited natural gas
deal with Israeli Infrastructure Minister Eliezer in Cairo.
Egypt has also continued to play an active role with
Palestinian factions and in support of strengthened
Palestinian security forces. However, an agreement on border
guard deployment has yet to be reached.

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Presidential Race Moving Forward
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3. (C) Egypt's first direct, competitive presidential
election will be held on September 7, according to Zakaria
Azmy, a senior ruling party official and one of the
President's closest advisors. Azmy has also stated that
candidates' nominations must be submitted to the newly-
formed presidential elections commission by July 19. (Note:
Azmy's remarks, printed in the leading pro-government daily,
are authoritative but do not constitute an official
announcement. End note.) Although we are still awaiting an
official announcement, President Mubarak will almost
certainly be seeking another term. Of his declared
opponents, Ghad Party leader Ayman Nour, whose forgery trial
has been postponed until September 25, would appear to pose
the most serious challenge, although his legal case and
attendant negative publicity have compounded his
disadvantages. Khalid Mohieldin, the 84 year-old honorary
chairman of the leftist Tagammu' party appears to be the only
candidate from an established opposition party. Though a
respected national figure (as one of the "free officers" who
overthrew King Farouq in 1952),Mohieldin's frail health, and
his unreconstructed socialist views, probably preclude him as
a serious opponent. Several other leaders of Egypt's "paper"
political parties are likely to run, but are unlikely to make
much of an impact.

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Political Reform Agenda Wraps for the Season
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4. (C) Egypt's parliament ended its legislative term on July
5 with the passage of several political laws touted as key
political reforms by the GOE. On July 2, President Mubarak
promulgated four new laws:

-- A presidential elections law
-- Revisions to the law on political rights
-- Revisions to the law on political parties
-- Revisions to the law on the parliament

While your GOE interlocutors will present each of these laws
as significant political reforms, opposition figures and
other skeptical observers describe them as half measures.
The scope and impact of these laws will depend greatly on the
spirit in which they are interpreted and implemented.


5. (C) The presidential elections law established a
presidential elections commission composed of three sitting
members of the judiciary, five "independent" members to be
named by parliament, and ex-officio representatives of the
ministries of justice and interior. The commission members
have been named and while including independent public
figures, none of the names is a personality likely to take
bold stands against the government. The law also imposes
campaign spending limits and mandates "equal access" to the
media for candidates. Critics charge that the law allows the
executive to retain too much power over nominations to the
electoral commission, and remain critical of the formula
established by the constitutional amendment in which
candidates qualify to run for president.


6. (C) The law on political rights established the commission
which will regulate parliamentary elections (to be held in
several stages in October and November). The law also
stiffened the penalty for journalists who "spread false
information" about parliamentary candidates, a provision
interpreted by critics as a shield for corrupt politicians.
Critics have also complained that the executive and the
Ministry of Interior retain too much power in the regulation
of parliamentary elections.


7. (C) The new law on political parties expands the
membership of the GOE committee which reviews license
applications for new political parties, a move the GOE
maintains "liberalizes" the licensing process. Reform
advocates had been hoping that the new law would abolish this
committee outright. Critics also complain that the new law
increases the number of signatures proposed parties must
submit when petitioning for official recognition.


8. (C) The revisions to the law governing the parliament
banned the use of mosques and churches for campaign events,
set other rules for parliamentary campaigns, and slightly
increased the minimum educational standards members of
parliament must meet. However, members of parliament born
before 1970 still only have to be deemed "literate" to
qualify.


9. (C) Comment: With the exception of the constitutional
amendment which established for the first time direct,
multi-candidate presidential elections, none of the political
reforms enacted by the GOE this year could be described as
decisive or revolutionary. One posssible exception would be
the establishment of nominally independent commissions to
regulate presidential and parliamentary elections.
Previously, the Ministry of the Interior (MOI),an arm of the
executive, had regulated elections. Skeptics point out that
the MOI will retain operational control of the elections,
with the commissions "setting the rules," but not actually
administering, the elections. End comment.

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Looking Toward the Fall Elections
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10. (C) You will have the opportunity to discuss this state
of play on political reform with senior GOE officials and
with leaders of the ruling National Democratic Party,
comprising both the "reform faction" and the party's "old
guard." Some of your interlocutors from the opposition will
argue that they are "two faces of the same coin." While
familiarity with the details of political reforms enacted to
date will be useful, the main point to keep in mind is that
most of the political reforms undertaken so far are
tentative, and rather than allowing the GOE and the NDP to
rest on their laurels, we will want to press them to focus on
effective implementation of reform, with a particular
emphasis on the GOE's management of this fall's presidential
and parliamentary elections.


11. (C) On the presidential elections, it is difficult to
envision a scenario in which President Mubarak is not
reelected. The president, who has skillfully employed his
nation's pharaonic political culture throughout his career,
can count on the unqualified support of the ruling NDP, which
exponentially outclasses any other political party in terms
of nation-wide organization, patronage networks, and
resources. The key factor in the presidential elections,
therefore, is not the outcome but the process.


12. (C) We will want to see Mubarak's competitors allowed to
campaign, and stage rallies, free from harassment by either
security officials or hired thugs, and to enjoy reasonable
access to state media and fair coverage therein. On election
day, domestic and international observers should be
unencumbered in making their rounds and reporting their
findings. Security forces should not block voters' access to
polling stations, and judges supervising the polls should
have a broad mandate to oversee the process and ultimately
pronounce them free and fair.


13. (C) In the elections for the People's Assembly (PA),
expected to be held in several stages in October and
November, the stakes are higher for Egypt's long-term
democratic transition. The ruling NDP overwhelmingly
dominates the current PA - with 409 of the 444 elected seats.
Under the modalities established in the constitutional
amendment allowing for competitive presidential elections,
political parties will have to occupy at least five percent
of the elected seats in the People's Assembly and the Shura
Council (the upper house of parliament) in order to put
forward presidential candidates as of the next presidential
election in 2011. Currently no opposition party can meet
this standard. Parties will have two chances, in the fall of
2005 and again in 2010, to secure five percent of the seats,
but if no opposition party achieves this threshold this year,
many will judge the presidential elections amendment
superficial in impact.


14. (C) You will want to caution your interlocutors in the
GOE and the ruling NDP that the old play book for
manipulation of legislative elections must not be applied
this year. There will be unprecedented international
attention to this year's legislative elections, and if they
fail to produce a more diverse and independently-minded
parliament, the GOE's rhetorical commitment to democracy will
ring hollow, with tangible consequences for our bilateral
relationship. The GOE's best protection against this will be
to allow domestic and international observers to watch the
elections and to afford the opposition every reasonable
opportunity to compete.

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USG Engagement on Democracy
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15. (C) As the USG's focus on democratic transition in Egypt
has increased during this election year, USAID has stepped up
and more tightly focused its activities in this area.
Through an Annual Program Statement (APS) that solicits
proposals from Egyptian and international organizations,
USAID is funding a variety of democratization activities, and
expects to spend USD 4.5 to 5 million on election-related
activities this year. This direct assistance, in conjunction
with the other assistance to civil society and grass roots
organisations, is being disbursed for the first time without
prior GOE approval, as specified in the Brownback Amendment
to the 2005 Foreign Operations Bill.


16. (C) USAID has just signed three grants for NDI, the
International Center for Freedom in Journalism, and a
coalition of Egyptian NGOs, to support monitoring and fair
media coverage of the upcoming presidential and parliamentary
elections. In addition, USAID has a contract with
International Foundation for Electoral Systems (IFES) to
assist the new Egyptian electoral commissions carry out their
mandates, assist Egyptian NGOs and universities to develop
and organize voter education materials and events, and
support civic dialogue on electoral reform. These
election-related activities complement USAID's longer-term
activities supporting democratic institution building in the
judicial sector, decentralization, and local governance.


17. (C) In addition to USAID programs, the Middle East
Partnership Initiative (MEPI) has been steadily ramping up
its presence in Egypt. Ambassador Welch, in one of his last
acts as Ambassador to Egypt, awarded in March USD one million
in MEPI grants to six Egyptian NGOs which had proposed to
undertake election monitoring, voter education and other
democracy-related civic education activities in Egypt. Since
March, MEPI has pressed forward with a number of other small
grants and is constantly surveying for more opportunities to
fund democracy initiatives in Egypt. In all cases, the key
to making this assistance effective will be overcoming
bureaucratic obstacles that prevent implementation before the
elections. So far, the GOE has not said "no" to any
activity, and the senior GOE officials have asserted that the
GOE will not block such assistance. However, the proof will
be in the implementation.

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Economic Reform
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18. (C) Prime Minister Nazif's government, with young,
business-oriented ministers in key economic positions, has
implemented sweeping reforms, including substantial
reductions in customs tariffs and income taxes, as well as
privatization of several public companies. The Central Bank
of Egypt has stabilized the exchange rate; for the first time
in years hard currency is readily available and the black
market has disappeared. Inflation has dropped from 12 to 9
percent since last July. Parliament recently approved the
new fiscal year budget, which was drafted for the first time
according to IMF standards. Nazif has also begun reforming
Egypt's stifling bureaucracy and burdensome public subsidies.
Several long-standing bilateral trade issues have been
resolved, indicating the Nazif administration's seriousness
in preparing for an FTA. Egypt is also now exporting
products under the Qualifying Industrial Zone (QIZ) agreement
with Israel, signed in December 2004.


19. (C) We are using out bilateral assistance program to
support these reforms. The U.S. and Egypt signed an MOU on
financial sector reform in March 2005, which ties DSP funds
to GOE compliance with specific reform benchmarks, including
privatization of public banks, development of a real estate
mortgage finance facility and privatization of public
insurance companies. The next major financial reform
benchmark facing the GOE is privatization of the Bank of
Alexandria, one of Egypt's "big four" public sector banks.
The target for this privatization is the end of 2005; upon
privatization, we will release to the GOE USD 150 million in
DSP funds.


20. (C) The Emergency Supplemental Assistance offered after
the Iraq war contained USD 300 million in cash and USD 2
billion in loan guarantees and included specific benchmarks
the GOE had to meet before funds could be released. The GOE
met the benchmarks for the cash transfer portion of the
assistance, which was released in June 2004. The GOE has met
many, but not all, of the conditions for the loan guarantees.
It is very unlikely to meet all conditions before
legislative authority for the guarantees expires on September

30. The interagency community has agreed to make available a
portion (USD 1.25 billion) of the guarantees in recognition
of the benchmarks met to date. Secretary Snow will shortly
sign a letter to Finance Minister Boutros Ghali to this
effect. Another outstanding issue is how the GOE will pay
the budget subsidies for the guarantees. The GOE agreed to
pay the subsidies from DSP funds, and USAID is working with
the GOE to identify DSP funds that could be used for this
purpose.

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Regional Issues: Gaza Withdrawal
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21. (C) Egypt has been pressing Israel for some time to agree
to the dispatch of 750 Egyptian military border guards to
patrol the 14-kilometer border between Egypt and Gaza.
Smuggling, including through tunnels, along this sensitive
stretch of border has been a sore point between Cairo and Tel
Aviv; the Camp David accords limit Egypt's coverage of the
border to civilian police, and the GOE wants a more highly
trained force in that zone. Mubarak and Soliman have
apparently won the GOI's agreement in principle at the
political level. The two key issues remain how permanent the
deployment will be and whether Egypt can deploy similar
border guards along the whole length of the Sinai borders.


22. (C) We continue to hear that agreement may be imminent,
usually with the caveat that the Egyptian and Israeli
militaries need to work out more details. If the Israeli
Attorney General determines that the Egyptian deployment
would not necessarily require a change in the treaty itself,
this may open the door to a change in the border force as an
"agreed activity" within the treaty framework. Deployment of
a more capable border force would be more timely in advance
of the beginning of Gaza disengagement.

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Sudan
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23. (SBU) Egypt is intensely concerned and tactically
engaged in the stability of its southern neighbor, from which
flow the essential waters of the Nile. Prime Minister Nazif
will represent Egypt in Khartoum at the July 9 installation
of the Government of National Unity. Recent manifestations
of Egypt's engagement include brokering the June 18 Cairo
agreement between the GOS and the National Democratic
Alliance (NDA),facilitating NDA participation in the
National Constitutional Review Commission (Cairo 4681 and
Cairo 4875).


24. (SBU) In addition to its political involvement in helping
to broker peace in Sudan, Egypt has also provided material
support. Egypt sent a mobile medical clinic, military
observers, and numerous humanitarian flights to Darfur. In
addition, it recently began to dispatch a peacekeeping force
of over 800 troops to south Sudan and has indicated a
willingness to increase those numbers (Cairo 4876). Egypt's
forces in Sudan are to include a command group element, an
infantry company, an engineering company, a demining company,
a transportation platoon, and a field hospital. Egyptian
Minister of Defense Tantawi highlighted Egypt's peacekeeping
efforts in Sudan as a declaration "to the world that peace is
Egypt's strategic choice."


25. (C) During Senior Representative Snyder's June 30 visit
to Cairo (Cairo 5173),MFA, EGIS, and Arab League officials
all confirmed their commitment to working closer with the USG
to further the prospects of stability in Sudan. The MFA and
Arab League also proposed increased cooperation on
infrastructure projects like hospitals, roads, or
universities to boost development. EGIS Chief Soliman has
the Sudan file in the GOE, and your meeting with him will
likely be the best opportunity to review developments in
Sudan.

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Iraq
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26. (C) Egypt is currently preoccupied with the July 2
abduction of its Ambassador in Baghdad, Ihab el-Sherif.
Cairo's recent dispatch of Sherif to Baghdad was indicative
of Egypt's support for the process of normalization and
pacification in Iraq and shoring up regional support for the
Iraqi government. Condemnation of Sherif's kidnapping has
been universal in Egypt, though some commentators have blamed
the GOE for prematurely sending an Ambassador while the
security situation remains volatile. Egypt's offer to train
Iraqi police and military personnel remains open, and several
hundred Iraqi security personnel have received training here,
but the Iraqi government has so far preferred to train the
majority of its personnel in Iraq or Jordan.


Visit Embassy Cairo's Classified Website:
http://www.state.sgov.gov/p/nea/cairo

You can also access this site through the
State Department's Classified SIPRNET website.

CORBIN