SCENESETTER FOR DEPUTY SECRETARY ZOELLICK'S VISIT TO EGYPT

C O N F I D E N T I A L CAIRO 002933

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LONDON AND TUNIS PLEASE PASS TO THE DEPUTY SECRETARY

E.O. 12958: DECL: 05/14/2016
TAGS: PGOV PREL KDEM EG
SUBJECT: SCENESETTER FOR DEPUTY SECRETARY ZOELLICK'S VISIT TO EGYPT


Classified by DCM Stuart Jones for reasons 1.4 (b) and (d).

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Summary and Introduction
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1. (C) We look forward to welcoming you to Sharm El Sheikh. You come at a tense time for Egypt. The Mubarak regime has come under criticism for its heavy-handed response to protest demonstrations in each of the past two weeks. Also, judicial decisions are expected on May 18 in both Ayman Nour's appeal and the Supreme Judicial Council's disciplinary case against two senior judges who spoke out against election corruption. Some modest political reforms are possible before parliament breaks this summer. Preparations continue for more sweeping constitutional reforms in 2007. But without vigorous leadership, the GOE and parliament will backslide and institute half-measures at best. Mubarak remains deeply engaged in regional issues and continues to play an indispensable role on Israel/Palestine and Sudan, while helping also on Iraq, Syria, and Lebanon. He clearly hopes that his elder statesman value, combined with the implicit threat of the Muslim Brotherhood's rise, will temper foreign pressure for more and faster democratic reforms. The succession overshadows all other political issues. The Prime Minister and his economic cabinet are soldiering ahead with privatization and liberalization of the economy, but face stubborn resistance from nationalist-statist quarters in and out of government, especially on Egypt's third rail ) public subsidies.


2. (C) On the bilateral track, your confirmed senior GOE interlocutor will be Prime Minister Nazif, and we have a request in to see Mubarak. EGIS Chief Omar Soliman also told us he would be glad to see you, if schedules permit - he will be working the Israeli and PA delegations in Sharm. You may wish to re-state our concern over the momentum on reform with Nazif or any of the others. Nazif will push back hard and
may complain about USG/Congressional political conditioning of economic and miliary aid and the FTA. Your appearance with Arab League SYG Moussa will be an excellent venue to counter perceptions that the U.S. commitment to foster democracy is flagging. Moussa may try to steer the discussion towards Iraq and Israel-Palestine. You may be able to blunt this by praising his own creditable efforts to foster democracy in the region through the Arab League. End summary.

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2006: Stepping Backward (and Forward)
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3. (C) This spring has seen ample evidence that the regime's domestic house is not in order. Whatever this says about backsliding or latent repression, the real story here is a vacuum of leadership on domestic policy. The aging Mubarak simply does not have a domestic counterpart to the formidable Omar Soliman, his consigliere on foreign policy matters. In earlier days, Mubarak would have bargained his way out of these messes. But PM Nazif lacks the common touch and Gamal Mubarak has not stepped up to the role. This leaves the field open to the heavy handed tactics of the old guard. The litany of mis-steps follows:

-- Judicial disciplinary action against two senior judges who
charged fraud in the parliamentary polls;

-- Suppression of activists and demonstrators supporting the
judges, particularly on, but not limited to, May 11;

-- State-influenced media attacks on reform advocates;

-- Extension of the Emergency Law for two more years;

-- Postponement by two years of local council elections;

-- Continuing arrests and harassment of opposition activists;

and

-- The conviction of opposition leader Ayman Nour.


4. (C) At the same time, Gamal Mubarak, PM Nazif and other reformers insist the GOE is on track for substantive political reform. They tell us that before the current parliamentary session ends (in late June) new legislation will be passed granting new press freedoms and greater
judicial autonomy ) an issue at the heart of the judges' dispute. It is not clear that either measure will satisfy the press syndicate or the Judges Club, but they represent improvements and will be trumpeted by the GOE as significant political reforms.


5. (C) More significantly, the GOE is working on a package of up to 20 constitutional amendments, to be ratified by mid-2007, and then submitted to referendum. This package is intended to drastically change Egypt's political landscape and will reportedly distribute of powers from the executive to the legislature and empowerment of provincial and local councils. It will also include measures that clear the way for the GOE to lift the emergency law and enact new anti-terror legislation based on western models. For us the devil will be in the details; without strong Presidential engagement, there will be a tremendous temptation to pass half-measures that preserve the ruling NDP's political monopoly.


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Succession: The Lurking Issue
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6. (C) Mubarak's current (and presumably final) six year term will end in 2011, but many observers expect the transition sooner. The public fears that Mubarak's domestic machinations are calculated to establish Gamal as his successor. Gamal remains coy and now avoids the limelight. No real contenders stand in his way ) Amre Moussa is the
only often-named alternative -- and the existing legal framework clearly favors his candidacy. It is not yet clear that the Egyptian military establishment ) Mubarak pere's traditional base ) will tolerate the pharaonic succession of decidedly un-military Gamal. And the idea of Gamal's succession remains unpopular with the press and public, on
principle.

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Economic Reform: Pushing Up a Steeper Hill
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7. (C) Nazif's economic team has made significant progress on economic reform, but now the hard work begins. The banking sector remains burdened with bad loans to state-owned companies that will be costly to eliminate. Subsidies, particularly for energy, are a heavy burden on the government budget; Egypt's budget deficit grows even as its economy grows, undermining the confidence of potential foreign
investors. The government does not yet seem prepared to reduce subsidies significantly or accept the job losses inevitable from the sale or closure of the most decrepit state-owned companies. With their momentum stalled by political realities, Nazif and his team are inclined to blame the United States for refusing to open FTA talks, which they
hoped would drive the next stage of reform.


8. (C) Mubarak has apparently instructed his ministers not to raise the issue of military and economic assistance with USG counterparts. He resents any political linkage or conditioning of assistance towards reform. But several members of Congress have expressed reservations on the size and impact of the Egyptian programs, especially on the military side. The GOE dismisses these as irresponsible voices who wish to weaken Egypt to bolster Israel and insists that the Administration demonstrate its loyalty to Egypt by
standing firm. But our message has been that we need something positive to take to Congress.

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Darfur
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9. (C) Mubarak has issued a positive statement on the agreement on Darfur and hinted at Egypt,s support for its full implementation and for a transition to UN forces in Darfur. MFA diplomats tell us that Egypt does not currently plan to increase its current level of 34 military advisors,
but it may be more forthcoming should we ask for peacekeepers in real numbers, after the UN assessment process. Mubarak also has genuine influence over Bashir and Qaddafi and, if you see him, you may wish to urge him to press these contacts on cooperation.

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Israel-Palestine
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10. (C) The Egyptians want to see Hamas fail, but in the meantime, want to avoid heightened extremism in Gaza and the

West Bank. They would like to see Fatah's Palestinian civil servants paid and are contributing directly to efforts to provide humanitarian assistance ) offering to serve as the conduit for all manner of assistance. In this regard, our intelligence collaboration with Omar Soliman, who is expected in Washington next week, is now probably the most successful element of the relationship.

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WEF Appearance with Moussa
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11. (C) Your appearance at the WEF with Arab League SYG Amre
Moussa will provide an excellent venue to challenge the view that the USG is easing the pressure on Egypt for democratic reform. Moussa will default to his longstanding theme that democratic progress depends on a just settlement of the Israel-Palestinian conflict. He may also raise perceived U.S. failures in Iraq and double standards about WMD in Iran and Israel. You may wish to refer to the Arab League's 2004 Tunis Declaration - particularly clause 2.3 of the declaration, in which member states pledged to "consolidate democratic practices," "enlarge political participation," and "foster all components of civil society." You could flatter Moussa for his own creditable efforts on democracy and press him on how they should be implemented, seeking details on Arab League efforts to implement these commitments. RICCIARDONE