SCENESETTER FOR CODEL LIEBERMAN'S VISIT TO CAIRO

UNCLAS SECTION 01 OF 02 CAIRO 000265

SENSITIVE
SIPDIS

H PLEASE PASS TO SENATOR LIEBERMAN

E.O. 12958: N/A
TAGS: PREL ECON PGOV OREP KPAL EG IS
SUBJECT: SCENESETTER FOR CODEL LIEBERMAN'S VISIT TO CAIRO

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Summary
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1. (SBU) Senator Lieberman, welcome to Egypt. Your visit
comes at a pivotal time for Egypt and the region. A
ceasefire is almost in place between Israel and Hamas, which
the Egyptians are seeking to cement. The U.S., European
countries, and regional governments are searching for ways to
put in place security arrangements to allow the flow of
humanitarian assistance to Gaza. Many see the new U.S.
administration as a cause for cautious optimism in both the
bilateral relationship and in U.S. engagement with the
region. Senator George Mitchell visited Egypt in late
January for his first trip to the region as U.S. Special
Envoy for Middle East Peace and will return to Cairo March 1.
Secretary Clinton plans to attend a March 2 Gaza
Reconstruction conference the Egyptians are hosting in Cairo.
We have requested meetings for you with President Mubarak,
intelligence chief General Omar Suleiman, and Foreign
Minister Ahmed Aboul Gheit. End summary.

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Israel-Palestine
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2. (SBU) The election of President Obama generated much
optimism in Egypt and hopes that the new administration would
quickly focus on problems in the Middle East. In particular,
the Egyptian leadership wants the U.S. to urgently address
the Israeli-Palestinian conflict. The Egyptians have long
served as an intermediary linking us, the Israelis, and the
Palestinians. Since the January 2008 Hamas breach of the
Egypt-Gaza border, the Egyptian role has shifted to focus on
intra-Palestinian reconciliation and the establishment of a
lasting Hamas-Israel ceasefire. The Egyptians are now
working to conclude and cement the Israeli-Hamas ceasefire
for 12 to 18 months, giving them time to help forge a
non-partisan Palestinian government. They believe that
Palestinian reconciliation is a prerequisite to any major
next step in Gaza, as neither the Egyptians nor the
international community can work with Hamas as a partner on
security, political or economic reconstruction issues. The
Egyptians will tell you that limiting movement in and out of
Gaza is necessary, but will urge that you impress upon the
Israelis the need to maintain adequate humanitarian inflows
to Gaza. The Egyptians will stress that keeping borders open
for legitimate trade and forging effective measures against
smuggling go hand-in-hand.

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Other Regional Issues
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3. (SBU) On Iraq, Egypt, although still concerned that Iraq's
Shia government is too prone to Iranian influence, has shown
increasing confidence that Iraq has turned the corner.
Foreign Minister Aboul Gheit completed a successful trip to
Baghdad in October 2008 and is moving forward to reopen its
embassy in Baghdad. On Iran, Egypt is concerned by rising
Iranian influence in the region, has supported UN sanctions,
and is increasingly active on countering Iran, e.g. in Gaza
and to some extent in Lebanon, working with Saudi Arabia and
other Arab states to support Lebanese political and
territorial sovereignty.

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Internal Politics and Economics
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4. (SBU) We continue to work towards democratic reform in
Egypt, including the expansion of political freedom and
pluralism, and respect for human rights. Egyptian democracy
and human rights efforts, however, are being stymied, and the
GoE remains skeptical of our role in democracy promotion,
complaining that any efforts to open up will result in
empowering the Muslim Brotherhood, which currently holds 86
seats in Egypt's 454-seat parliament. An ongoing challenge
remains balancing our security interests with our democracy
promotion efforts.


5. (U) Economic reform has been, on the whole, a success
story, although Egypt still suffers from widespread poverty
affecting of 35-40% of the population. Reforms in trade and
tax policy, financial reform, privatization and increased
transparency have led to 6-7% economic growth over the past
three years. Foreign investment increased from around $3
billion in 2005 to $11 billion in the last year, mostly in
the petroleum sector, though growth in foreign investment
appears to be dropping off. Despite this success,

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significant problems remain, including high inflation, high
levels of poverty, and unemployment, and endemic corruption.
Egyptian-U.S. trade has more than doubled in the last four
years, reaching almost $9 billion in 2008. The U.S. exports
to Egypt about twice as much as it imports. Egyptian banks
operate very conservatively and have been spared involvement
in risky financial products, but the effects of the global
economic crisis on Egypt are beginning to be felt. As the
economic crisis worsens, Egypt remains vulnerable as exports,
Suez Canal revenues, tourism, and remittances -- its largest
sources of revenue -- are all down and likely to continue to
fall.
SCOBEY