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1. (SBU) Representative Price, we warmly welcome you and
your delegation to Egypt. You are scheduled to meet with
Egyptian President Hosni Mubarak, Minister of Foreign Affairs
Ahmed Aboul Gheit, and Speaker of the People's Assembly Ahmed
Fathy Sorour and other parliamentarians. You will also meet
with Egyptian civil society leaders over lunch.

The Bilateral Relationship
--------------

2. (SBU) Strategic Alliance: We have two vital and
strategic national security interests with Egypt - (1) its
commitment to peace with Israel and (2) unfettered U.S.
military access to the Suez Canal and Egyptian airspace,
including ground-based support for USAF operations. A
fundamental element in our relations with Mubarak and his
military is our $1.3 billion in annual Foreign Military
Finance (FMF)- a commitment born of the Camp David Accords
and a priority issue for the GOE. These funds have helped
phase out Egypt's Soviet-era weaponry, modernize its
inventory with U.S.-purchased equipment, and develop an
Egyptian officer corps familiar with Western values and U.S.
standards. The Government of Egypt, and President Mubarak
particularly, value these benefits but especially value the
political symbol of U.S.-Egyptian partnership that this
program represents.


3. (SBU) Economic Assistance: US economic assistance to
Egypt has been on a 10-year glidepath since 1999, declining
$40 million annually from $800 million in 1998 to $455
million in FY 2007, and $415 million in FY 2008. The
administration has not yet decided on the funding levels for
2009 and the post glide-path future of the program. After a
2002 policy review, the U.S. negotiated a financial sector
reform MOU, which established mutually agreed benchmarks for
cash transfer based on completion of specific financial
policy reforms. Based on the success of this program,
starting in FY 2008, all new monies will be disbursed through
a sectoral cash transfer program based on reform benchmarks
in health, education, economic reform and science and
technology.

Domestic Issues
--------------

4. (SBU) Elections for the Shura Council, the upper,
"advisory" house, are scheduled for June 11. Eighty-eight
seats of the 264-member Council will be contested. An
additional 44 members will be appointed by President Hosni
Mubarak. Among opposition groups, only the banned Muslim
Brotherhood is preparing to put up "independent" candidates
to challenge the NDP majority. But widespread detentions of
MB members is hampering their organization. The elections
will be supervised by a newly created Supreme Electoral
Commission. The Commission was created as a result of recent
constitutional amendments approved by national referendum
last March. The referendum was characterized by low voter
turnout due to voter apathy and an opposition-led boycott.
The amendments are also expected to produce new legislation
on counter-terrorism which will replace the current state of
emergency and also a new electoral law.


5. (SBU) In June 2006, the GOE instituted a "freeze" on the
activities of the U.S. political party institutes, IRI and
NDI, and also the international elections NGO, IFES, which
had all applied for registration and started activities in

2005. Since the 2006 freeze, all three organizations, which
are funded by USAID, have conducted very limited, low-profile
activities. IRI and NDI are carrying out programs for civil
society leaders "offshore." Secretary Rice and other senior
USG officials have repeatedly urged President Mubarak,
Foreign Minister Aboul Gheit and others to allow the
institutes to carry out their work in Egypt, but the answer
remains "no."


6. (SBU) Economically, Egypt's prospects are improving.
Unemployment estimates approach 15 percent, and
underemployment is much higher. But analysts predict that
2007 growth will equal the 7% achieved in 2006. Since 2004,
the reformist Cabinet of Prime Minister Ahmed Nazif has made
significant progress in implementing broad economic reform,
improving the investment climate and increasing foreign
investment. They cut taxes and tariffs, made the budget more
transparent, privatized state-owned enterprises, including
one of the four major public banks, and streamlined business
registration procedures. As a result, foreign investment is
expanding rapidly. The reformers are now focused on
developing a mortgage market and the real estate sector, and
on sales tax reform. Trade and customs reforms have helped
maintain and create jobs.
Regional Issues
--------------

7. (SBU) Hosni Mubarak remains a central figure in regional
affairs. Egypt brokered the most recent cease-fire in Gaza,
which at this writing appears fragile, but holding. Egypt is
working to strengthen Abu Mazen and Fatah, in anticipation of
Palestinian elections in 6-12 months. In 2005, Egypt
deployed 750 border guard forces to the Rafah border crossing
between Egypt and Gaza under an agreement with Israel and is
addressing the problematic issue of weapons smuggling via the
Sinai. On Iraq, hosting the recent Neighbors Conference in
Sharm El Sheikh demonstrated tangible support for the
government of Prime Minister Nur Al Maliki. In general,
Egypt shares broad Arab concern about Tehran's growing
influence in the region. Cairo has dismissed Iranian
President Ahmadinejad's recent public offer to strengthen
bilateral relations.


8. (SBU) Sudan: The GOE opposes international sanctions on
Sudan. Instead, they urge us to focus on bringing the Darfur
rebels into the Darfur Peace Agreement. Egypt has offered
engineering units and two battalions of peacekeepers for the
Heavy Support Package of the UN/AU Mission, but the offer has
not been accepted by UN/DPKO. They have already provided
around 800 troops for UNMIS in South Sudan, around 85
security personnel for AMIS in Darfur. Egypt also maintains
a field hospital in Darfur, has provided 15-20 planeloads of
humanitarian supplies, and is the home of an estimated 1-2
million Sudanese refugees. As a member of the African
Union's Peace and Security Commission, Egypt is deeply
engaged in diplomatic efforts and frequently hosts rebel
groups for talks. Sudanese President Bashir visited Egypt in
April and spent a week on vacation.


9. (U) Again, we look forward to ensuring your successful
visit to Cairo.
RICCIARDONE