Identifier
Created
Classification
Origin
05CAIRO5524
2005-07-19 15:00:00
SECRET
Embassy Cairo
Cable title:  

VISIT OF NEA PDAS CHENEY: PM NAZIF REVIEWS U.S.

Tags:  PREL PGOV KPAL IS EG OVIP 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
S E C R E T SECTION 01 OF 05 CAIRO 005524 

SIPDIS

E.O. 12958: DECL: 07/07/2015
TAGS: PREL PGOV KPAL IS EG OVIP
SUBJECT: VISIT OF NEA PDAS CHENEY: PM NAZIF REVIEWS U.S.
ASSISTANCE AND REGIONAL DEVELOPMENTS

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

--------
Summary:
--------

S E C R E T SECTION 01 OF 05 CAIRO 005524

SIPDIS

E.O. 12958: DECL: 07/07/2015
TAGS: PREL PGOV KPAL IS EG OVIP
SUBJECT: VISIT OF NEA PDAS CHENEY: PM NAZIF REVIEWS U.S.
ASSISTANCE AND REGIONAL DEVELOPMENTS

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

--------------
Summary:
--------------


1. (C) NEA PDAS Liz Cheney met with PM Nazif, Minister of
Trade Rashid Rashid and Minister of Investment Mahmoud
Mohieldin June 30th for almost an hour at Nazif,s office in
the "Smart Village" outside Cairo. Cheney urged a more
proactive GOE role on direct USG assistance to NGOs in Egypt
in the democracy and governance area, specifically indicating
that it would be difficult to defend the US assistance
program against those in Congress who would make changes to
it if the GOE bureaucracy persists in foot dragging regarding
the registration of NDI, IRI and IFES in Egypt before the
coming elections. Nazif understood and appreciated what the
USG democratization strategy seeks to achieve and called for
a high-level dialogue on ways to manage the political
transition in Egypt. Cheney agreed to such a dialogue,
suggested it be launched during Deputy Secretary,s
forthcoming visit, asked Nazif to designate a GOE POC, but
emphasized the importance of the USG being able to move money
out the door to provide D&G assistance in time for the
elections. Nazif promised to consult President Mubarak and
EGIS director Soliman and revert to her.


2. (C) Summary continued. Nazif stated that he wished to
move the US-Egyptian economic assistance relationship to one
of greater partnership in jointly funded undertakings and
suggested three jointly financed "funds" to promote SMEs,
human development and technology transfer. Cheney welcomed
the GOE proposal to improve the USAID program and said she
looked forward to further discussions in their regard.
Cheney also distinguished the proposed Fund for the Future to
be announced in Bahrain in November from the USAID/Egypt
program. This fund represented potential fresh money for
Egypt. Hearing of Nazif,s support for this fund, Cheney
stated the USG would continue to develop it with the GOE in
time for announcement in November. Turning to the USAID/Egypt
program, Cheney stated that the USG would support efforts to
streamline the economic assistance program in order to reach

more Egyptians and promote reform more effectively. She
noted, for example, that there is less rationale for the
Commodity Import Program (CIP) now that the Egyptian pound is
floating. If the USG and GOE were jointly to approach
Congress to reorganize this program, then funds would be
freed up that could finance something resembling the three
funds Nazif had suggested. Nazif agreed to examine
restructuring the CIP, also stated that he wished to take a
"second look" at the USAID Administration of Justice program
and requested more help from USAID on structural reform in
the health sector. Cheney was accompanied by the Charge,
senior advisors King Mallory and Gamal Helal and contractor
Ahmed Dabbous. Nazif was joined by Cabinet Secretary General
Sami Zaghloul. End summary.

--------------
GOE assistance priorities:
--------------


3. (S) Prime Minister Nazif started the conversation by
stating that he would like to move the US-Egyptian economic
assistance relationship to one that was more of a jointly
funded partnership. There is no need to look for new funding
sources. We should start with the proof of a new concept and
develop matters from there. The Government of Egypt would
like to establish "funds" that would provide financing for
four critical areas:

-- (S) Now that tax vacations have been abolished new
incentives to the private sector are required that make more
sense. PM Nazif indicated that the provision of land at cost
or at a subsidized price might be an alternative.

-- (S) Providing some predictability to the pricing of energy
and the cost of infrastructure at large industrial
installations.

-- (S) Dispute resolution - Egypt needs to improve the way
commercial courts function. Nazif said that while the USAID
Administration of Justice program had managed to make some
improvements in court administration and computerization, he
thought the results were modest and would like to take a
second look at the program.

-- (S) Access to finance is weak. The insurance companies are
weak and the banking system simply is not lending, because it
is afraid as a result of the high levels of non-performing
loans. Reforms in the banking sector will take 5-7 years and
alternative means are required to provide greater access to
finance.


4. (S) Nazif stated that a fund that was run by a good
management team and provided equity directly to SMEs, not
through the "white elephant" banking system would be one good
solution. He indicated that LE10 million to LE100 million
(USD 2 million to USD 17 million) range investments would be
appropriate for the sector above micro-enterprises and below
large corporations.

5. (S) Nazif pressed for a human resources development fund,
asserting that it was very difficult to send people to the
United States. "We need to do something, because we are both
losing." "If we are currently sending 100 people a year, we
should be sending 500." Nazif urged PDAS Cheney to find a
way of building such an arrangement that would also expedite
visas, and stated that the GOE was willing to provide equal
funding for a human resources development fund.


6. (S) Nazif also pressed hard on the need to promote
technology transfer. While he was "biased towards the
private sector," "we need to do something to provide SMEs
with an incentive" to adopt new technology. The incentive
does not have to be entirely financial. There are signs of
success in Egypt in building IT and the GOE needs to continue
to build on this base. The PM cited the Microsoft
development center in Egypt, staffed entirely by Egyptians,
as an example. Egypt has a huge need for the transfer of
knowledge in the IT, oil and industrial sectors. The USG and
GOE should find ways of doing this. Business and academia
should be jointly involved. Too often in the past our
programs had mistakenly promoted academics talking to
academics and business talking to business. We need to find
joint ways of making the two sectors talk with one another.
"Research and development in Egypt needs to be rebuilt."


7. (S) The Prime Minister suggested that joint funds be
launched to finance SMEs, promote human resource development
and promote technology transfer, even if only on an
experimental basis.


8. (S) The PM agreed with the priorities of USAID's program
in Egypt which he characterized as concentrated on business
development, and health and stated that a new bill on health
care would soon be introduced into parliament. Nazif
indicated that, after spending his government's initial year
on economic reform, the government will be shifting focus to
reforms in social insurance and health care. The regulator
and insurer need to be separated from the provider of health
care. USAID can help Egypt more, Nazif said, if it provides
top quality advice on how to restructure the health sector
rather than simply building new clinics.


9. (S) The government will be shifting attention to the
social sector: education, social insurance, women and the
judiciary. All of these are the pre-requisites for a
healthily-functioning democratic system.

--------------
The Fund for the Future
--------------


10. (S) PDAS Cheney thanked PM Nazif for his introduction,
stating that the USG and GOE are in fundamental agreement.
The Fund for the Future being discussed in the G-8 BMENA
context should be a separate discussion from the discussion
of the USAID program in Egypt. The fund would be modeled on
the successful Polish-American Enterprise Fund. Mallory and
Dabbous had just arrived from Morocco where they had obtained
a preliminary commitment from the GOM to participate in the
fund and provide $20 million with which to finance it. The
USG will continue to expand on what it has accomplished to
date with the GOE on the Fund for the Future in order to be
ready for it to be signed and announced in Bahrain in
November.


11. (S) As far as the USAID/Egypt program is concerned,
Cheney stated that the GOE and USG needed to take a look at
updating the program, including through revisions to the
Commodity Import Program. Now that the Egyptian pound is
floating, the need for this program no longer seems so great.
If both governments push Congress to achieve a reshaping of
this program, this could loosen up funds with which to
finance something resembling the three funds that Nazif
suggested. PDAS Cheney stated that both sides need to
continue to scrutinize the USAID assistance program in order
to ensure that it is helping to meet Egypt,s needs as
effectively as possible.


12. (S) Nazif stated that the USAID program had been of
tremendous assistance to the GOE over the last thirty years.
However, there "is lots of room for improvement." Nazif
agreed to take a look at how to restructure the Commodity
Import Program, particularly since the Development Support
Program,s funds are tied up in financial sector reform for
the next five years. "Our priorities have changed, and we
need to change the (assistance) program."

--------------
Direct USG assistance
--------------


13. (S) Cheney next addressed the subject of direct USG
assistance to NGOs in Egypt. The GOE needs to adopt a more
proactive role in this connection. This is important to
demonstrate Egypt,s commitment to reform.


14. (S) The prime minister stated that "we need to sit
together in order to be able to move on democracy and
governance (programming)." Egypt is formulating a strategy,
but is tied up in an election year. This has put the
government under constraints. The government wants to settle
on a system that will be in place - a future end state. "We
want fair and transparent presidential and parliamentary
elections. We want it for our own people. They understand
very well what is for real and what is not." If the
president runs again, he will win in a very transparent
process. But it is about more - having been "out of it" for
so long, the opposition in Egypt is weak. We need a steady
process to change the environment and allow people to stand
up an give voice to alternative options and take part in a
truly democratic process.


15. (S) Egypt is half way there, Nazif stated; it has a
fairly free and liberal media, but does not have the other
requirements for an environment characterized by a stable
democratic process. The GOE would love to have two strong
political parties in Egypt. Today the political scene is
characterized by a dominant party, small parties and
extremists. The question is how to manage the transition to a
true democratic process with all the constraints and risks
entailed. One can see elsewhere in the region the risks
involved and this makes one very wary about undertaking
change too rapidly. Egypt needs a "roadmap" not a "roadmap
for peace", but a "roadmap" for democratic change.


16. (S) The GOE understands what the USG is trying to
achieve in promoting greater democracy in the Middle East and
appreciates its efforts. The question is how to translate
this into practice? Where do you put your USAID money? Do you
give it to NGOs? Egyptians are not used to NGOs playing a
political role, let alone receiving money from foreign
governments, to say nothing of receiving money from the U.S.
government. Besides, their capacity is not very great. The
GOE agrees that money should be given NGOs, but needs to
ensure that these organizations are effective. Yes, we want
to have a stronger civil society and judiciary, but we need
to spend more time on how to get there.


17. (S) PDAS Cheney responded that the USG does not
underestimate the challenge that the GOE faces. In the final
analysis, gradual opening is the only solution. The
challenge in Egypt is that for too long opposition political
voices have not been allowed to be heard. This has given fuel
to extremist groups. For democracy to flourish, the system
must be opened to allow space for other viewpoints.


18. (S) International NGOs supported by the USG such as IRI,
NDI and IFES work in most places where the USG has an
assistance program. The USG cannot defend a situation where
these entities can operate everywhere in the world except
Egypt. Additionally, these groups have tremendous expertise
and technical skill that can be of use as the GOE embarks on
democratic reform.


19. (S) Nazif replied that the USG and GOE needed to work
together behind closed doors to build rapport and mutual
understanding on the USG,s democracy and governance goals in
Egypt and to come up with a joint vision for the path
forward.


20. (S) Cheney approved of this approach but cautioned that
the process must take place at a high level so that it does
not get mired down in bureaucracy. PDAS Cheney said that she
would participate in this dialogue from the USG and asked who
the GOE point of contact would be. Nazif responded that he
would need to consult with the President and Egyptian General
Intelligence Service (EGIS) Director General Soliman, but
would come back to PDAS Cheney with a name for the GOE point
of contact. He suggested that person might be Soliman
himself or someone from EGIS.


21. (S) Cheney approved of such a dialogue but cautioned
that USG assistance for the elections process needs to be
"out the door" in time to have an impact on the forthcoming
elections. Cheney stated that our attempts to move forward
on the democracy and governance front are getting bogged down
by the Egyptian bureaucracy in the context of the
Consultative Group. This is another example of why matters,
which are so politically sensitive, need to be elevated out
of normal bureaucratic channels. Nazif agreed and stated
that over-involvement on the part of the Egyptian bureaucracy
sometimes results in parts of the Egyptian government being
"out of the loop" on what is going on.


22. (S) Comment: Since PDAS Cheney,s visit, a grant
agreement for democracy and governance activities has been
signed with NDI and another will shortly be signed with IRI,
a contract has been signed with IFES, and Egyptian Foreign
Minister Aboul Gheit, in a meeting with NDI, has supported
NDI,s work in Egypt, as long as no funds are given to
political parties directly. The embassy is continuing to work
with the consultative group and to seek and analyze new
proposals for directly funded civil society programs in
Egypt. End comment.


23. (S) Nazif suggested "lets put a target on what needs to
be done before the elections". PDAS Cheney agreed and stated
that she would be back in Cairo on July 13-14, together with
Deputy Secretary of State Zoellick. She suggested that this
would be a good time to initiate the high-level dialogue that
the Prime Minister suggested. Nazif responded that he would
talk with the President and Soliman and "decide what is
acceptable".

--------------
Regional Developments
--------------


24. (S) PDAS Cheney moved on to congratulate the GOE on the
signature of an agreement of natural gas delivery with the
government of Israel. Nazif responded by stating that the
GOE hoped very much for more progress on the
Palestinian-Israeli front. He hoped that "things will move"
after Gaza withdrawal. Nazif could not emphasize enough the
need for the USG to continue applying itself to this issue.
Cheney responded that the USG is very engaged up to the level
of POTUS himself and that the USG is providing all the
support possible to General Ward and Mr. Wolfensohn to
ensure that Gaza withdrawal is a success.


25. (S) Nazif indicated that the Palestinian people needed
to see a positive result from the Gaza withdrawal and they
had to receive a clear message that Gaza is not the end of
the line. The USG needs to do more work on the situation.
Cheney indicated that Wolfensohn will present his plan for
Gaza at the forthcoming G-8 summit at Gleneagles to build
multilateral support and be able to show a positive outcome
to Palestinians. Currently, the USG does not want to shift
attention away from Gaza, because the USG wants withdrawal to
be a success. But the USG also recognizes that we need a
long-term plan and that we need to make clear that we expect
withdrawal from the four West Bank towns as well.


26. (S) Nazif asked about the situation in Iraq. Cheney
responded that the Jafaari visit to Washington had gone well
and that the Brussels donor conference had gone well too.
Skeptics of the democratic process in Iraq are constantly
being proven wrong as the Iraqi government meets its various
deadlines. The inclusion of 25 Sunnis in the constitutional
drafting process is very important and was a good step. And
the Iraqi government is on track to finish work on the
constitution by August 15th and to hold a subsequent
referendum. These are very important and real achievements
in a security environment that is very challenging; they get
minimized or overlooked too often.


27. (S) Cheney highlighted the security challenge posed by
jihadis, including Saudi young men, who are presently
unaccounted for, according to the Saudi government. Networks
in Damascus are helping to identify these young men and to
transfer them to Iraq. Therefore it is imperative to keep
the pressure on Bashar al Assad. Not just for this reason,
but because of the continuing assassinations in Lebanon, and
continuing assistance to groups such as Palestinian Islamic
Jihad. Assad is trying to send messages to the USG via
various governments in the region that he wants improved
relations, but we see no evidence of a changed attitude on
the part of Bashar and the Syrian government.


28. (S) Nazif said that it was difficult to build democracy
in Iraq in the current environment there and that the very
idea was repulsive to the insurgent elements fighting there.
Allawi had visited Cairo recently and is wary of Iran,s role
in Iraq. Nazif warned of the "duality" in calling for a
fully open democratic process without knowing where it will
lead. Cheney countered that this was the reason why it was so
important to put guarantees in place in the Constitution so
that no person or group could subvert the process. Nazif
closed the conversation by stating "lets cross our fingers
and see what happens".


29. (U) NEA Senior Advisor King Mallory drafted and PDAS
Cheney cleared this message.


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