DEPUTY SECRETARY ZOELLICK'S JULY 14 MEETING WITH

C O N F I D E N T I A L SECTION 01 OF 03 CAIRO 005545

SIPDIS

USTR FOR SUAMS

E.O. 12958: DECL: 07/20/2015
TAGS: PREL PGOV ECON EAID EFIN OVIP EG
SUBJECT: DEPUTY SECRETARY ZOELLICK'S JULY 14 MEETING WITH
EGYPTIAN PRIME MINISTER NAZIF


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


1. (U) July 14, 2005; 8:30 a.m.; Cairo, Egypt.


2. (U) Participants:

U.S.
--------------
The Deputy Secretary
Charge Michael Corbin
NEA PDAS Elizabeth Cheney
Deputy Spokesman Adam Ereli
D Executive Assistant Ross Wilson

Egypt
--------------
Prime Minister Ahmed Nazif
Minister of Foreign Trade and Industry Rachid Rachid
Cabinet Secretary General Sami Zaghloul
Spokesman Magdy Rady
Office Director Abu Taleb Mahmoud

--------------
Summary
--------------


3. (C) During his July 14 meeting with Egyptian Prime
Minister (PM) Ahmed Nazif, the Deputy Secretary expressed
condolences for the death of the Egyptian Chief of Mission in
Iraq. He voiced strong support for the GOE's economic reform
efforts, pointing out that Egypt needed economic growth to
absorb new entrants into the work force. Nazif said growth
was increasing, as investor confidence in Egypt had been
restored. Responding to Nazif's request for three more
Qualifying Industrial Zones (QIZs),the Deputy Secretary
noted that Congress was focused on CAFTA. The Deputy
Secretary also underscored that the U.S. offer of loan

SIPDIS
guarantees would expire on September 30, so the GOE needed to
move quickly to access the guarantees. Nazif stated that the
GOE would act quickly. On political reform, the Deputy
Secretary pointed out that free and fair elections,

SIPDIS
including parliamentary elections, would send a strong signal
about Egypt's seriousness regarding democratic reform. Nazif
asked for the Deputy Secretary's support in ensuring that
U.S. assistance to Egypt remained unchanged. End summary.

--------------
Progress on Economic Reform
--------------


4. (C) The Deputy Secretary began the meeting by offering
condolences on the death of Egypt's Chief of Mission in Iraq.
He noted that he had recently spoken with Iraqi PM Jafari,
who told him that Iraq was grateful for Egypt's support and
would like to see continued cooperation between the two
countries. Jafari wanted to visit Egypt, and we hoped this
could happen soon.


5. (C) The Deputy Secretary congratulated Nazif on the
progress of economic reform, noting that the critical mass of
reform-minded ministers in Nazif's Cabinet was key to the
change Egypt was experiencing. He also noted that Egypt had
a large number of college graduates who would be looking for
job opportunities in the coming years. Economic growth would
be needed to ensure that jobs were created to absorb this new
labor. Nazif agreed, and noted that July 14 was the one year
anniversary of his administration. He pointed out that in
one year, inflation had fallen from 14 to 4.7%, mainly
because investor confidence had increased with the Nazif
government. Confidence was the key to economic growth.
Investors trusted Nazif's government, so hope had been
revived. A lot of foreign investment was coming into the
stock exchange and into the state-enterprise privatization
program, he added. Tourism revenues were up, as were Suez
Canal revenues, which had increased 20% over 2004. The
economy was still fragile, however, and the average Egyptian
had not yet seen the positive effects of reform. Nazif was
confident that would change with time and continued reform
efforts.

--------------
QIZs and Loan Guarantees
--------------


6. (C) Nazif also noted that the numbers for the QIZ program
were very positive. Approximately 50 companies had already
exported $50-60 million in goods to the U.S. Sixty percent
of the companies had not previously exported to the U.S., and
90% of the companies had capital of less than $10 million.
Minister of Foreign Trade and Industry Rachid added that 450
new companies had been approved to participate in the QIZs,
so three more QIZs would be needed. This would help create
the new jobs needed to absorb the increased workforce
discussed earlier. The Deputy Secretary replied that while
Nazif's visit to the U.S. had been productive, especially his
discussions on the Hill, the Administration was facing a
tough battle with Congress over CAFTA. The Senate had passed
the agreement, and it would be considered by the House this
month, hopefully before the August recess. In the interim,
it would be helpful if the GOE could provide information on
how three more QIZs would benefit Egypt. One component of
that might be how more QIZs could help Egypt prepare for an
FTA.


7. (C) The Deputy Secretary also raised the issue of U.S.
loan guarantees for Egypt, as reflected in Secretary Snow,s
recent letter to Finance Minister Youssef Butros Ghali. He
pointed out that the deadline for accessing the guarantees
was September 30, and that it often took several months to
draw up the agreements. If Egypt wanted to access the
guarantees, the GOE would have to move quickly. Nazif said
the GOE did want the guarantees, especially in light of the
costly reforms it was undertaking in the financial sector,
and would act quickly. He noted that the Minister of Finance
was currently in the U.S. Nazif said he would call Butros
Ghali to make sure that the loan guarantee issue was on his
agenda during the trip.

--------------
Political Reform
--------------


8. (C) Turning to political issues, the Deputy Secretary
said that President Mubarak had recently taken an historic
step by allowing competitive presidential elections. The
upcoming parliamentary elections would also be a measure of
Egypt's commitment to reform. Although the U.S. recognized
that progress had been made, more reform was needed, and free
and fair parliamentary elections would send a good message
about Egypt's seriousness in pursuing reform. Nazif
responded that in the past the Cabinet had only handled
economic issues, but that had changed under the current
administration. The PM was also now engaged in political
reform. Nazif said the new election law was a good start,
and Egypt was trying to meet international standards, but the
democratic process needed time to get underway. He was
concerned that none of the opposition parties had the
capacity to mount a national election campaign, let alone
participate effectively in parliament. He pointed out that
the leadership of these parties was old and had not prepared
a new generation. He also noted that press freedom was
increasing, so that was a sign of the GOE's good intentions
on democratic reform.


9. (C) The Deputy Secretary replied that winning more seats
in parliament could actually help opposition parties increase
their organization and effectiveness. He noted that the
election law was somewhat ambiguous and might limit formation
of new opposition parties. Nazif responded that there were
already twenty opposition parties, and he hoped opposition
forces, rather than forming new parties, would work to better
organize the existing ones. He joked that it might be most
effective for the NDP to simply split into several parties.
He also pointed out that democratic change had to be done
"Egypt's own way."

--------------
U.S. Assistance
--------------


10. (C) PM Nazif said that he was interested in how U.S.
assistance was spent and had some new ideas on redirecting
assistance. The Deputy Secretary said he was willing to
continue discussions with Nazif. Egypt's success was
important for the region's success. Nazif said he was
pleased with the dialogue and would like to see more informal
communication channels open. He thanked the Deputy Secretary
for the support provided through USAID and asked that the
Deputy Secretary work to ensure that assistance to Egypt
remained unchanged. Nazif also noted that POTUS had assured
him in the U.S. that the assistance package would not change.
Continued U.S. assistance was important to ensure the
success of the GOE's reform efforts. The Deputy Secretary
replied that PDAS Cheney had discussed assistance to Egypt
with the Director of USAID and that efforts were also
underway to start up a new enterprise fund, which State would
coordinate with other USG agencies. Nazif said the fund was
a good idea, one that could start small and grow over time.


11. (U) This message has been cleared by D.


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