KEFAYA DEMONSTRATES AGAINST RISING INFLATION

UNCLAS CAIRO 000233

SIPDIS

SENSITIVE
SIPDIS

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 PGOV EG
SUBJECT: KEFAYA DEMONSTRATES AGAINST RISING INFLATION

--------------
Protest Marks Anniversary of 1977 Uprising
--------------


1. (U) Opposition movement "Kefaya" held a demonstration on January
18, the 30th anniversary of the 1977 Bread Intifada, to protest
increases in prices of basic commodities and express solidarity with
workers from the Nile Delta towns of Helwan and Mahalla, who went on
strike in December over promised but unpaid end-of-year bonuses.
Press reports indicated approximately 100 people assembled for the
protest in front of the El-Sayyeda Zeinab Mosque in downtown Cairo.
State security services surrounded the protestors but took no action
to stop the demonstration. Carrying anti-government banners and
holding up carrots and onions, the crowd demanded the government
take action to lower commodity prices and called for greater
government transparency. The demonstration coordinator, Kefaya
member Kareem Mohamed Rega, was quoted as saying "commodity prices
have constantly been rising the past 25 years ever since Mubarak
came to power. People need lower food prices and we chose to hold
the demonstration today to mark the 30th anniversary of the 1977
Bread Intifada."


2. (U) The January 1977 Bread Intifada erupted when President Anwar
Sadat decided to dramatically increase the price of basic
commodities, such as bread and vegetables, overnight. Riots and
strikes broke out around the country, prompting Sadat to overturn
his decision temporarily. Egyptian contacts frequently cite the
1977 "Bread Riots" as evidence that when pushed far enough,
Egyptians will take to the streets in large numbers to demand
change, particularly when it comes to economic concerns. Some
analysts also cite the incident as the cause of the GOE's extreme
caution when making changes to the commodity subsidy program.
Recent changes to this program, including the July fuel subsidy
reduction, were modest in comparison to the cuts needed to reduce
the program's burden on the state budget.

-------------- --------------
Despite Low Turnout, Inflationary Concerns Increasing
-------------- --------------


3. (U) Although the protest drew only a modest crowd, price
increases are a subject of much concern in the media and among
average Egyptians. The Consumer Price Index rose 12.4% year-on-year
in December 2006, the highest level in 2 years. Warning of possible
overheating in the economy, the Central Bank raised interest rates
in October and again in November, with some, but not all, commercial
banks following suit. The GOE has been treading a thin line on
inflation vs. growth, not wanting to dampen the impressive growth
rate of 6.9% registered in fiscal year 2005-06. Many economic
analysts believe the real problem for the average Egyptian is not
the rise in prices, but the lack of a concomitant rise in wages. It
was precisely this issue that prompted the strikes at state-owned
textile factories in Helwan and Mahalla in December. Prime Minister
Nazif had promised workers a 2 month bonus, which the factories
refused to pay. Workers went on strike until management agreed to
pay the bonus.

--------------
Kefaya' Future Unclear
--------------


4. (SBU) COMMENT: This was the first time Kefaya organized a
demonstration solely to protest an economic issue. Some observers
see the voicing of economic concerns as an attempt to broaden
Kefaya's appeal to the average Egyptian. The relatively low
turnout, however, was seen by some as an indication of Kefaya's
waning unity and organizational capacity. In the aftermath of the
demonstration, Kefaya's leader, George Issac, stepped down on
January 25, while denying rumors of a power struggle in the
organization. Isaac told the press that his resignation was a
message to Arab leaders to step down and make room for new blood.
Dr. Abdel Wahab Al-Misseiry took over as head of Kefaya upon Isaac's
resignation. Although Al-Misseiry has not announced his intentions
as the new leader of Kefaya, the modest turnout for the January 18
demonstration may dissuade the organization from future attempts to
mix economic issues with the group's political agenda.
RICCIARDONE