CBE GOVERNOR EL OKDAH PROPOSES "AUDIT" SOLUTION

UNCLAS CAIRO 005337 SIPDIS SIPDIS SENSITIVE STATE FOR NEA/ELA, NEA/RA, EB/IDF/OMA USAID FOR ANE/MEA MCCLOUD AND DUNN USTR FOR SAUMS TREASURY FOR NUGENT AND HIRSON COMMERCE FOR 4520/ITA/ANESA/TALAAT E.O. 12958: N/A TAGS: ECON EFIN ETRD EINV EG SUBJECT: CBE GOVERNOR EL OKDAH PROPOSES "AUDIT" SOLUTION Sensitive but Unclassified. Not for Internet distribution. ¶1. (U) URGENT ACTION REQUEST: See para 5. ¶2. (SBU) In an animated discussion with Central Bank Governor El Okdah, the Ambassador and USAID Mission Director Ellis repeated the U.S. position, already conveyed in a letter from the Ambassador to the Minister of Finance, regarding use of the term "full financial due diligence" versus "audit" in the DSP-II Monitoring Program for the Financial Sector MOU. The Ambassador noted that the USG was willing to accept "full financial due diligence" for the FY 2005 financial analysis of the public banks, but believed that for all subsequent years, the banks in question should issue formal "financial audits." The GOE would have sufficient time between now and the due date of the next financial analysis to address the legal impediment preventing use of the term "audit" for FY 2005. ¶3. (SBU) El Okdah made the case that the MOU benchmarks were aimed at solving the problem of non-performing loans (NPLs) and expanding credit to the private sector. He suggested that for purposes of the DSP-II Monitoring Program, the required annual financial analyses could be partial audits of only these two areas of the public banks' books, i.e., NPLs and credit to the private sector. An international firm would conduct the partial audits, using international accounting standards. This would prevent legal problems with the GOE's Central Audit Board, which is required by law to conduct an annual audit of the public banks according to Egyptian, not international, standards. El Okdah noted that legislation was already before parliament to revise Egypt's accounting standards, but that the revisions would not necessarily bring Egypt's standards into full concordance with international standards. ¶4. (SBU) El Okdah repeated the request for a DVC with the USG actors involved in reaching agreement on the terms of the DSP-II Monitoring Program. Alternatively, he would welcome U.S. Treasury visitors to Cairo or travel to Washington himself, as soon as U.S. Treasury officials might wish. He emphasized his determination to sign the Monitoring Program in the next two weeks, well before the end of the U.S. fiscal year on September 30. The Ambassador undertook to look into the possibility of arranging a DVC or visits in either direction during the week of August 27 or September 3. ¶5. (U) ACTION REQUEST: Post would appreciate NEA/ELA identifying a date and time when the appropriate Treasury and USAID officials in Washington could be gather for a DVC with Egyptian counterparts. RICCIARDONE