SCENESETTER FOR CODEL BOND'S VISIT TO CAIRO

UNCLAS CAIRO 000569

SENSITIVE
SIPDIS

H FOR SENATOR BOND; NEA/ELA FOR CANEDO

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


1. SUMMARY: (SBU) Senator Bond, welcome to Egypt. Your visit
comes as Egypt continues its efforts to mediate a
permanent cease-fire between Israel and Hamas, to facilitate
intra-Palestinian negotiations to form a new, interim
government, and to stop the smuggling of arms into Gaza. The
U.S., European countries, and regional governments are
working to create security arrangements that would improve
the flow of humanitarian assistance to Gaza. Egypt hosts a
large population of Sudanese refugees and is deeply concerned
that continuing instability in Sudan will pose a threat to
its own security. Many Egyptians 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 has visited Egypt and the
region as U.S. Special Envoy for Middle East Peace twice and
will likely return to Cairo in April. Your visit will fall
just after the anniversary of the April 6, 2008 nation-wide
strike protesting political and economic conditions. An
opposition group has called for another April 6 strike this
year, and other groups may also participate. We have
requested meetings for you with President Mubarak,
intelligence chief General Omar Soliman, Foreign Minister
Ahmed Aboul Gheit, and National Democratic Party Strategy
chief Gamal Mubarak. End summary.

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Israeli-Palestinian Conflict
--------------


2. (SBU) The election of President Obama generated much
optimism in Egypt and an expectation 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, and
Senator Mitchell has assured them that the Administration
will press hard for progress. The Egyptians have
traditionally served as an intermediary between Israelis and
the Palestinians, and between Palestinian factions. 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 cease-fire. Chief of Egyptian General
Intelligence Service Soliman has worked to cement such a
cease-fire but believes he was badly undercut by the Israeli
introduction of the release of IDF Corporal Gilad Shalit as a
new pre-condition for the cease-fire. For the moment, rocket
strikes from Gaza are relatively low in frequency.

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GAZA
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3. (SBU) The Egyptians believe that Palestinian
reconciliation is a prerequisite to delivery of the
approximately $5 billion in Gaza reconstruction assistance
pledged at the March 2 Sharm El Sheikh conference. Neither
the Egyptians, nor the international community can work with
Hamas as a partner on security, political or economic
reconstruction issues; Rafah crossings will remain closed
until the Palestinian Authority returns to operate the Gaza
side of the crossing for normal business. However, the
Egyptians periodically open their side of the border for
humanitarian and emergency medical cases. The Egyptian
public was angered by the Gaza "siege" and is anxious to see
how the U.S. will deal with the new Israeli government and
the perennial issue of settlement expansion.


4. (SBU) Egyptian security forces continue to improve
counter-smuggling efforts along the Gaza border and further
afield, through increasing their security presence in
northern Sinai and giving greater focus to preventing weapons
from entering the Sinai. Egyptian officials claim to have
identified and sealed over 100 tunnels since the beginning of
the year, with new discoveries occurring daily. Recently
arrived U.S.- supplied counter-smuggling equipment, once
installed and fully operational, could help improve Egypt's
ability to fully exploit the tunnels and break up smuggling
rings. The government has requested additional border
security assistance and we are currently exploring ways to
provide the requested assistance. Long-term success,
however, depends on removing the economic incentives driving
smuggling on both sides of the border.

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ARAB RECONCILIATION, IRAQ, IRAN, SUDAN
--------------


5. (SBU) The recent Gaza crisis was the latest issue to
expose the intra-Arab fault line, with Egypt and Saudi Arabia
on one side, and Syria and Qatar on the other. The Egyptians
and Saudis have subsequently reached out to Damascus through
a series of visits, but Cairo remains disenchanted with the
Qataris, believing Doha to be an upstart with pro-Iranian
leanings. Al Jazeera coverage of the Gaza crisis, which was
generally negative on Egypt's role, is another issue of
contention. Driven largely by these reasons, President
Mubarak did not attend the annual Arab League summit of March
30-31 in Doha.


6. (SBU) Egypt has shown increasing confidence that Iraq has
turned the corner, although concerns remain that the
Maliki government is prone to Iranian influence. An Iraqi
delegation recently visited Cairo for consultations on
developing Iraqi-Egyptian economic and political ties. 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. Egypt
has deployed peacekeeping troops to the UN Mission in Darfur,
just agreed to send troops to the UN Mission in Congo and is
taking a greater role within the African Union on regional
security and political issues. President Mubarak met
Sudanese President Omar Bashir on March 25 in Cairo,
reportedly to discuss the Darfur conflict. Egypt hosts a
large population of Sudanese refugees and is deeply concerned
that continuing instability in Sudan will pose a threat to
its own security, compromise its access to Nile water, and
increase the flow of refugees. Consequently, Egypt opposes
the International Criminal Court's issuance of an arrest
warrant for Bashir.

--------------
Internal Politics and Economics
--------------


7. (SBU) We continue to promote 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.


8. (U) Economic reform is ongoing although Egypt still
suffers from widespread poverty affecting 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, although this
is expected to drop in the face of the economic crisis to 3-4
percent. 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, 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 so far 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
global credit crunch 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. The Egyptian government viewed the USG's
reduction in Economic Support Funds (ESF) by half to $200
million in FY2009 as an affront, and has high expectations
that the new administration and Congress will approve higher
levels in FY2010. The Ambassador and USAID Mission Director
have emphasized the impact of the ongoing financial crisis on
budget discussions in the U.S.


9. (SBU) We continue to stress the importance of advancing
military to military cooperation, long a cornerstone of the
U.S. - Egyptian relationship. Security agreements, a
revamped exercise program, establishing shared objectives,
and interoperability are a few areas where we are seeking to
strengthen the relationship.

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SUGGESTED TALKING POINTS
--------------


10. (SBU) President Mubarak: President Mubarak will emphasize
his concerns about Iran's influence in the region and ask the
U.S. to work closely with Egypt and other moderates in the
region before it moves to engage Iran directly.

--Thank Egypt for its leadership in facilitating a cease-fire
between Israel and Hamas, seek the president's opinion on
next steps for the Palestinian Unity government and the
reconstruction of Gaza.

--Thank the President for Egypt's progress in preventing the
smuggling of weapons into Gaza. What more can the U.S. do to
support Egypt in counter-smuggling efforts?

--Ask the President about latest efforts to promote Arab
reconciliation.

--Seek his opinion on the security situation in Iraq and next
steps for enhancing cooperation between Iraq and its Arab
neighbors.

--Thank the President for deploying peacekeeping troops and
doctors to the UN Mission in Darfur, and to the peacekeeping
mission in Congo, and ask for his assessment of recent
developments in Sudan.


11. (SBU) EGIS General Omar Soliman: General Soliman leads
Egypt's mediation efforts between Israel and Hamas, and
amongst Palestinian factions.

--Thank General Soliman for his work in mediating between
Israel and Hamas, and seek his assessment of current
intra-Palestinian negotiations.



12. (SBU) Foreign Minister Ahmed Aboul Gheit: The USG cut
Economic Support Funds (ESF) to Egypt in half in FY2009 to
$200 million. Minister Aboul Gheit is likely to complain
about what he feels was a "unilateral" cut in aid and will
express his hope that Congress will increase ESF levels in

2010.

--Thank him for Egypt's leadership role in the region.

--Note that ESF is an important symbol of cooperation between
Egypt and the U.S. and we are keen to move forward to resolve
problems relating to FY2009 ESF.


13. (SBU) Gamal Mubarak: Mubarak leads the governing NDP
party's efforts to promote economic reform in Egypt.

--Seek his opinion on the impact of the global economic
crisis on Egypt.

--Ask him for his thoughts on the NDP's priorities and how it
will address the top domestic concerns of poverty and job
creation.
SCOBEY