EGYPTIANS REACT SHARPLY TO ESF REDUCTION

S E C R E T CAIRO 002670 SIPDIS SIPDIS E.O. 12958: DECL: 08/28/2012 TAGS: PREL EAID ECON PGOV EG IS SUBJECT: EGYPTIANS REACT SHARPLY TO ESF REDUCTION Classified By: DCM Stuart Jones for reasons 1.4(b) and (d). ¶1. (C) SUMMARY AND INTRODUCTION: The Egyptian's strong reaction to diminished ESF levels reflects concern about political play on the new Israeli military assistance package. They are now trying for face-saving consultations. Ambassador Nabil Fahmy has been instructed to bring new ideas in debt reduction in particular when he returns to Washington DCM next week. END SUMMARY. ¶2. (C) The GOE has reacted strongly to the decision to reduce ESF assistance levels beginning in FY 09. Egyptian Ambassador to the U.S. Nabil Fahmy and Minister of International Cooperation (MIC) Fayza Abul Naga both told Ambassador that they were "astonished" by the USG decision. Fahmy said that he has instructions to raise this issue upon his return to Washington on August 30, and that he will focus on ways to "treat Egyptian debt." Abul Naga confirmed Fahmy's instructions, and asked the Ambassador to meet September 3. ¶3. (C) On August 29, in a meeting with PolMinCouns, MFA Deputy Assistant Minister Mohamed Aboul Dahab followed up on concerns expressed to Deputy Secretary Negroponte by Minister for Foreign Affairs Aboul Gheit on August 28. Aboul Dahab said that the Minister felt the USG had reached "political decisions" without enough input from the Egyptians. "Frankly, we were surprised." ¶4. (C) PolMinCouns observed that the Ambassador and other emboffs had been discussing the aid program for months at all levels, and reminded him of Prime Minister Nazif's comments last year that it wasn't about the levels, but the symbolism. Aboul Dahab responded that the GOE is as upset as much by the timing and the method the USG has used to deliver the message as by the message itself. He said Ambassador Fahmy had raised an endowment with the Secretary in July but had not had a response. In conclusion, he said, "no one informed (Minister of International Cooperation) Fayza (Abul Naga) you were close to a final decision." -------------- Background -------------- ¶5. (S) High-level discussions about assistance took place between the Secretary and Prime Minister Nazif in January, and earlier, between then-Administrator Tobias and MIC Minister Fayza Abul Naga. Since last summer, the Ambassador, AID mission director and other embassy officers have carried on an extensive discussion with GOE officials. GOE officials have responded only minimally or after much prodding on questions of the future of ESF and USAID programs in Egypt. In fact, in the context of a discussion last August of the cash transfer MOU benchmark papers, Nazif said that $400m in ESF did not have the economic impact that it once did, although it still had political importance, and raised the issue of parity between assistance to Israel and Egypt. ¶6. (C) In a subsequent conversation, in response to a suggestion by the Ambassador about aid graduation, Nazif responded that the GOE would prefer to continue with ESF, even if it were to be at a reduced level, as long as it was accompanied by a medium-term commitment. The important thing, Nazif said, was the political support that such a commitment would symbolize. Nazif repeated this view to the Secretary in January 2007, when he once again rejected the SIPDIS idea of aid graduation via an endowment or other mechanism, and reaffirmed GOE interest in a medium-term commitment to ESF by the USG. ¶7. (C) More recently, on at least three occasions since April, the DCM explained to MFA Assistant Secretary Hatem Seif El-Nasr that the Administration was engaged in internal deliberations on future assistance levels and advised that we were looking at significant cuts in ESF. In early August, he reported that we had decided that ESF levels would be reduced. At no point in this period, did anyone on the GOE side ever push back. -------------- So why the reaction? -------------- ¶8. (C) Egyptian reticence to engage on the subject of assistance stems from President Mubarak's instructions to members of his government to refrain from discussions of assistance levels with the USG. MIC's Abul Naga confirmed to the Ambassador on August 29 that this was the case. Mubarak has long had an aversion to talking about either military or economic assistance from the US, which he considers a humiliation. The lack of open discussion and response to our inquiries over the past year at lower levels may also be attributable to the current schlerotic, risk-averse atmosphere that pervades the Egyptian government. Now that the decision has been made, however, the reality of the end of parity between Israeli and Egyptian assistance levels has begun to sink in. This is likely to cause a negative public reaction and heavy criticism of the government. Aboul Gheit and Abul Naga feel particularly vulnerable. -------------- Next steps -------------- ¶9. (C) Aboul Gheit has asked that the USG not release the information about the planned $200m in ESF to either the press or to Congress, and that the USG send a high level delegation to Cairo to consult further on ESF. MFA Deputy Minister Aboul Dahab said Ambassador Fahmy has instructions to raise this issue when he returns to Washington on August ¶30. Ambassador will meet with MIC Minister Abul Naga on September 3. She is likely to press either for a high-level delegation to come to Cairo, or suggest that she visit Washington in September or October for consultations. As noted above, new Egyptian proposals during these meetings will likely focus on both assistance levels, and ways to use the assistance to pay Egyptian official debt. RICCIARDONE