EGYPT: ASSISTANT SECRETARY WELCH'S APRIL 4 MEETING

C O N F I D E N T I A L CAIRO 002203

SIPDIS

SIPDIS

STATE FOR NEA/ELA, NEA/RA
NSC STAFF FOR ABRAMS

E.O. 12958: DECL: 04/11/2106
TAGS: PGOV PREL EG
SUBJECT: EGYPT: ASSISTANT SECRETARY WELCH'S APRIL 4 MEETING
WITH PRIME MINISTER NAZIF

Classified by Stuart Jones, Deputy Chief of Mission for
reasons 1.4 (b) and (d).

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Summary
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1. (C) Assistant Secretary Welch and the Ambassador met with
Egyptian Prime Minister Ahmed Nazif on April 4. Welch
briefed Nazif on U.S. regional priorities and encouraged
Nazif to make a visit to the U.S. Nazif discussed Egypt's
reform successes, noting that results in the economic sphere
were better than expected. On the political front, despite
the flawed elections, progress had been made and reform would
continue. Nazif expressed disappointment over the FTA and
noted that he would only visit the U.S. if he could return
with something positive. In the meantime, however, U.S-Egypt
dialogue would continue, particularly on the future of U.S.
assistance. End summary.

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Regional Issues
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2. (C) During a meeting with Egyptian PM Nazif, A/S Welch
outlined his main areas of concern in the region, namely
Israel-Palestine, Iran and Iraq. Iraq was the biggest
problem, which was why Secretary Rice went there to press for
quick formation of a national unity government. The south
was relatively calm and the north was booming; Baghdad was
the problem. The army was working well, Welch explained, but
the police were infiltrated by the Badr Corps. The
leadership of the Ministry of Interior would have to change.
Nazif replied that strong, impartial leadership was
definitely needed, but he didn't see any presently, nor any
emerging in the near future.


3. (C) Nazif inquired about U.S. policy toward the PA,
expressing concern over an extremist organization in power on
Egypt's eastern border. Welch replied that the U.S. would
not engage with Hamas-run PA ministries unless Hamas accepted
the Quartet's three conditions. If Hamas did not accept the
conditions, the U.S. would work to ensure its failure. No
U.S. assistance would be provide to Hamas-run ministries;
rather it would be redirected into humanitarian relief, with
funds channeled through UN agencies and NGOs. The U.S., EU
and most Arab donors agreed with this approach. Nazif
inquired about assistance from Iran, and Welch replied that
Iran did not have the $100 million per month needed to
operate the PA. Welch said that the next three months would
test whether Hamas could become a partner for peace. In the
meantime, the U.S. would remain in contact with the PA
Presidency, so there would be a clear alternative when Hamas
failed.


4. (C) Nazif suggested that no progress could be expected on
the peace process for at least 3-6 months. Welch pointed out
that the Israelis no longer believed negotiation was
possible, as the Palestinians were not truly opposed to
terrorism. Olmert might continue with his policy of
unilateral action, which he now called "convergence." Nazif
said he would keep open the channels of communication with
both sides on the issue.

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Economic Reform
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5. (C) Nazif discussed Egypt's economic reforms, pointing
out that growth was much higher than predicted. Foreign
investment was coming in and construction was up, as was
tourism, despite the Sharm attacks. The stock market had
recovered from its slump, which was a reaction to slumps in
other regional exchanges. The new tax law was working well
and more people were paying taxes. New reform ministers were
added to the Cabinet in 2005, a sign of Mubarak's confidence
in reform. Some voices were against reform, however,
particularly privatization, which was seen by some as selling
the country to foreigners. Despite the criticism, the GOE
was moving ahead on privatization, and the Bank of Alexandria
had recently been put on the block. Despite setbacks like
avian flu and the ferry disaster, Nazif believed reform would
continue. The GOE would focus on real estate reform and
creation of an investment conflict resolution mechanism. The
big challenge, however, would be subsidies, particularly
energy. The new Ministry of Social Solidarity would soon
rebalance subsidies to target the poor, as the current system
benefited the rich.

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Political Reform
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6. (C) On the political front, the GOE would soon present a
draft law on temporary detention that conformed to
international human rights norms, Nazif said. Nazif believed
what was really needed was a new legal means to ensure
security. The only legal tool the GOE had to maintain
security was the Emergency Law, which needed to be replaced
with something else. Nazif had therefore recently formed a
committee to draft an anti-terrorism law, which would be
introduced in the next 3 months. The committee was looking
at U.S. and UK laws as examples.


7. (C) Nazif pointed out that the last election created a
new challenge, which was how to respond to the social
conditions that created support for the MB. One of the
factors was a lack of credible secular opposition, Nazif
said, as highlighted by the recent problems with the Wafd
Party leadership. The NDP also needed to reform to counter
the MB's appeal. Nazif hoped that by giving the opposition
space and encouraging student and media involvement, a
credible opposition might develop before the next
presidential and parliamentary elections.

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Image Problems
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8. (C) Nazif lamented Egypt's image problem in the U.S.,
complaining that Ayman Nour and postponement of the municipal
elections were all anyone heard about Egypt. The GOE hoped
to counter this with a message about reform and Egypt's
shared values with the U.S. Welch said that a visit from
Nazif would go a long way toward reassuring Washington of
Egypt's commitment to reform and good bilateral relations.
U.S. investors were also looking for opportunities in the
region, and a Nazif visit would help distinguish Egypt from
more problematic countries in the region. Nazif said he
would consider a visit, but was very disappointed by the lack
of an FTA. It would be very difficult for him to visit
unless he was sure of returning with something positive.
Welch replied that Washington also wanted something positive
from Egypt to overcome the current impasse.


9. (C) Regarding assistance, Nazif was pleased that a
dialogue had begun over the future of U.S. assistance to
Egypt. Welch agreed the dialogue was positive and said that
the U.S. would continue to quietly send officials to
negotiate the future of assistance. There was a lot of room
to maneuver on the issue. Welch repeated his call for Nazif
to visit the U.S. and lend his voice to those advocating a
strengthening of U.S.-Egyptian relations. A visit before
summer would be best, as this was a political year and
Congress would take all the breaks possible. Nazif agreed to
consider a visit.

RICCIARDONE