UPDATING BILATERAL ASSISTANCE TO EGYPT: EGYPTIAN

C O N F I D E N T I A L CAIRO 005019

SIPDIS

SIPDIS

NEA FOR A/S WELCH, NEA/ELA AND NEA/RA
NSC FOR ABRAMS

E.O. 12958: DECL: 08/15/2016
TAGS: PGOV PREL ECON EAID EG
SUBJECT: UPDATING BILATERAL ASSISTANCE TO EGYPT: EGYPTIAN
RESPONSE TO U.S. PROPOSAL

Classified by Ambassador Francis J. Ricciardone for reasons
1.4 (b) and (d).

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Summary
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1. (C) Ambassador, USAID Mission Director and Washington
visitors met on August 2 with GOE Minister of International
Cooperation Fayza Aboulnaga and other GOE ministers and
officials regarding proposals to update the management of
U.S. bilateral foreign assistance to Egypt. Aboulnaga
labeled as "an indecent proposal" the U.S. memorandum to
transform the assistance program into a cash transfer
mechanism with disbursement conditioned on GOE completion of
benchmarks in the areas of democracy and decentralization,
human development, private sector development and science and
technology. The Ambassador pointed out that the proposal was
designed to support the GOE's own reform agenda and give the
GOE greater control over how the assistance would be used,
while sustaining accountability and improving results.
Aboulnaga ultimately accepted the USG's proposed framework,
while rejecting much of the specific content of the U.S.
proposal, and promised a counter-proposal by the end of
September. The U.S. visitors met separately with Mohamed
Kamal, advisor to NDP Policies Committee Chair and
presidential son Gamal Mubarak; Hala Mustafa, NDP Policies
Committee member and editor-in-chief of Al Ahram's "Democracy
Review"; and Ali Elmoselhy, Minister of Social Solidarity.
End Summary.

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AN "INDECENT PROPOSAL"
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2. (C) On August 2 the Ambassador and AID Mission Director
Ken Ellis led a delegation that included NSC Director for
Democracy and Human Rights Pat Davis, NEA Senior Advisor King
Mallory, and USAID Office of Middle Eastern Affairs Director
David McCloud, in a discussion with the GOE on reshaping the
administration of U.S. economic assistance to Egypt.
Minister of International Cooperation Fayza Aboulnaga led the
GOE side, which included Minister of Social Solidarity Ali
Elmoselhy, Minister of Higher Education Hani Hilal, Minister
of Education Youssry El Gamal, and senior staff from the
Ministries of Finance, Trade and Industry, Foreign Affairs,
Health and Population, and Planning and Local Development.
Following previous discussions in March and a written GOE
proposal in May, the U.S. had proposed for this round of
discussions a draft MOU that would convert most USAID-managed
ESF into direct cash transfers to the GOE budget. An initial
disbursement would be made upon signing the MOU and further
transfers would be contingent on GOE completion of
benchmarks, proposed by the GOE and agreed to by the USG, in
the areas of democracy and decentralization, human
development and private sector development. The Ambassador
had made clear that the format and process of the assistance
program were the main focus of our proposal. Our ideas for
specific content - in the form of "objectives," "items," and
"benchmarks" - were meant to be illustrative. We had drawn
them from the public statements of Egyptian leaders.


3. (C) Aboulnaga opened bluntly, calling the U.S. draft MOU
an "indecent proposal." Aboulnaga at first completely
avoided addressing the issue of procedural reform, targeting
her outrage on the suggested reform benchmarks in the areas
of democracy and decentralization. Calling the proposed
benchmarks a "non-starter," Aboulnaga expressed "shock" at
what she considered an intrusion into Egypt's internal
politics. She also noted the difficulty of measuring
political reform, stressing that benchmarks for cash
disbursement had to be "objective" and not solely reliant on
USG interpretation of compliance. She also expressed concern
about the timing of potential cash transfers, highlighting
the importance of up-front money to ensure funds would be
available to undertake reform efforts. The GOE delegation
also complained that the draft MOU did not take into
consideration GOE suggestions provided in writing last May
for funding of specific programs in various GOE ministries.


4. (SBU) The Ambassador assured Aboulnaga that the draft MOU
was not intended to be "indecent" but to serve as a starting
point for how best to reform the implementation of our
assistance and get better results for agreed U.S.-Egyptian
objectives. The aim was to update a 30-year-old legacy
process in a grand bargain reflecting vastly increased GOE
and private sector capabilities. USAID aimed to diminish its
selection and management of development programs - and thus
diminish the size and cost of mission staff in Egypt - in

return for increased GOE responsibility for getting agreed,
measurable results. On the democracy front, the U.S. wishes
to support the GOE's own political reform agenda through the
same results-based process, leaving the GOE to decide which
outcomes it would seek and how it would achieve them, subject
to our agreement to fund them. Acknowledging the sensitivity
of "conditionality," the Ambassador said the USG had
deliberately proposed a benchmarking process as a means to
shift ESF to an outcome-based system. He emphasized that
this would allow the GOE to take the lead on project design
and implementation. The U.S.-Egyptian MOU on financial
sector reform had proven the success of this "sectoral cash
transfer methodology."


5. (SBU) Ellis and Mallory pointed out that it would be
incorrect to characterize the proposed benchmarks as
externally imposed &conditionality8, as it was the GOE
itself that was being asked to propose the benchmarks that it
would fulfill, subject only to USG agreement to fund the
achievement of the results. Ultimately, by explicitly
linking ESF cash transfers to the achievement of tangible
results, the MOU would place full responsibility for
management and use of ESF upon the GOE. Davis agreed that
measurement of accomplishment of the democracy benchmarks
should not be subjective, but should instead be based on
international standards and commitments to which the GOE had
already agreed. She noted that the Millennium Challenge
Corporation serves as a successful model for measuring
compliance.

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BUT WE'LL THINK ABOUT IT
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6. (SBU) By the end of the five-hour meeting, the GOE
delegation accepted the format of the draft MOU, while
harshly rejecting the specific proposed benchmarks for
reform. Significantly, the GOE did not insist on excluding
democratic reform from the ESF sectors that could be made
subject to the proposed cash transfer methodology. Aboulnaga
raised the possibility of linking the democracy benchmarks to
a &Reform Fund8 that would constitute a separate agreement
but follow the same format: some up-front disbursement to
help initiate reforms, with further disbursements contingent
on fulfilling democracy benchmarks. The U.S. delegation
reaffirmed that the new procedure would provide for some
funding to get projects started, but Congress is loathe to
agree to establish separate named "funds." Aboulnaga
promised an Egyptian counter-proposal based on the MOU's
framework by the end of September at the latest and welcomed
continued discussions in the interim. She promised that the
Egyptian counter-proposal would include the four areas
mentioned in the U.S. draft MOU (democracy and
decentralization, human development, private sector
development, and science and technology),but would also
include a plan of action, and details on the timing of cash
transfers. NEA Senior Advisor Mallory requested that the
counter-proposal set clear objectives and meaningful
benchmarks, as the U.S. Congress, which has final approval
over disbursement of assistance, would look for concrete
reform commitments when considering future levels of
bilateral foreign assistance for Egypt.

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ADDITIONAL GOE MEETINGS
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7. (C) Davis, Mallory and McCloud, accompanied by emboffs,
met separately with Dr. Hala Mustafa (NDP Policies Committee
member, editor-in-chief of Al Ahram's "Democracy Review" and
liberal activist). Mustafa related her deep skepticism that
the proposed changes to U.S. assistance would make any
tangible difference because "the regime will check the
necessary boxes, but that does not mean any change will
occur, as they will still maintain control ... this is
Egypt!" She repeatedly cited the example of alleged
increased press freedom in Egypt over the past year - "the
government can point to increasing freedom of the press, but
the reality is that the state of the press is worse than it
has been in decades. Regime-supported and sponsored attacks
against reformers are the norm. Where is the real
improvement?" Asked for suggestions on how to ensure that
the MOU leads to concrete results, she suggested limiting and
prioritizing the benchmarks as well as insisting on regular,
six-month progress reports. To her, the priority should be
changing laws governing political parties, civil society
activities and the media. In addition, she also stressed the
need for maintaining public pressure on the GOE to reform,
stating that it was USG public pressure last year that

created the momentum for reform.


8. (SBU) Separately, Ali Elmoselhy, Minister of Social
Solidarity, discussed the role of NGOs in Egyptian society
and defended "Law 84," which governs NGOs, including
charities. He argued that many NGOs are fraudulent and prey
on the poor, so the GOE must actively intervene to ensure
their proper functioning. The marketplace will not
necessarily put bad NGOs out of business, and Egypt lacked a
civil society that could police NGOs without GOE oversight.
Elmoselhy agreed to receive USG comments on Law 84, which
Davis promised to provide, and to work together on revising
NGO legislation to bring it into compliance with
international standards.


9. (C) The Washington visitors also met with Dr. Moamed
Kamal, a close advisor to Gamal Mubarak, meber of the NDP
Policies Secretariat, and professr of political science at
Cairo University. Whie holding that reforms are needed and
that the NP Secretariat was reviewing democracy legislationin other countries,
Kamal evinced clear discomfortwith the
concept of setting benchmarks in the deocracy and governance
fields. Observing that, "ou don't want to get into
micromanagement of theEgyptian political process," he noted
that the reorms suggested in the draft MOU would be
"extremly sensitive and difficult," would come up against
"resistance," and could become "yet another irriant in the
overall U.S.-Egyptian relationship." He urged that any
benchmarks be "tied to general oals vice specific laws and
initiatives ... the ey is to make it as general as possible,
with th timeframe and deadlines as flexible as possible."
Kamal commented that, "it would be much less senitive to
have an agreement on technical assistanc for specific issues
(such as the new Anti-Terro Law),rather than setting
deadlines."


10. () Davis and Mallory noted that the democracy anddecentralization benchmarks in the draft MOU were rawn
almost exclusively from President Mubarak,s ampaign
promises and published NDP proposals. Te democracy and
decentralization goals and timelines suggested in the GOE,s
counter-proposal could be more general and flexible, as Kamal
suggeste, but they would have to pass the &smell test8
with key members of Congress. A separate, more tighty-held
MOU on democracy and decentralization wassuggested as a way
to minimize the possibility o leaks. Davis and Mallory
repeatedly made it clar that the administration,s ability
to advocate for a robust multi-year ESF commitment to Egypt
byond FY 2008 would depend upon receiving significat and
meaningful proposals from the GOE in the aea of democracy
and decentralization.
RICCIARDNE