WASHINGTON LAYS OUT PARAMETERS FOR EGYPT ESF

C O N F I D E N T I A L STATE 093356

SIPDIS

E.O. 12958: DECL: 09/08/2019
TAGS: EAID ECON EFIN EG PGOV PREL
SUBJECT: WASHINGTON LAYS OUT PARAMETERS FOR EGYPT ESF
DISCUSSIONS

REF: A. CAIRO 1725 B. CAIRO 1727

Classified By: NEA Acting A/S Michael Corbin, EO 12958 Reasons 1.4 b&d


1. This is an action request. See paragraph 3.


2. (C) SUMMARY: Embassy Cairo correctly understands that
the most recent Government of Egypt (GOE) proposal for the
Economic Support Funds (ESF) program goes beyond what
Washington is willing to support in the name of better
bilateral relations (Ref B). The interagency is not
receptive to increasing Egypt ESF levels in a particularly
tight budget environment. Although USAID and the Department
have not yet fully developed a counterproposal to Egypt on an
endowment, the United States cannot support any endowment
proposal of the magnitude the GOE envisions, nor one that
includes debt relief. The Embassy should certainly maintain
the same level of oversight over FY 2009 scholarship funds
and go forward with the activities notified to Congress for
Egypt's FY 2009 funding. Furthermore, the Department is
concerned about Egyptian threats to hold FY 2009 and FY 2010
programming hostage to its maximalist proposals (Ref A) and
wishes to remind Egypt of the significant changes the United
States made in its approach to ESF in spring 2009. END
SUMMARY.

Action Request
--------------


3. (SBU) The Department requests that the Ambassador, in her
meeting with Minister of International Cooperation (MIC)
Fayza Aboul Naga on September 9, pursue the following
objectives.

-- Express the Administration's desire to maintain a positive
bilateral relationship with Egypt, in which we address our
differences via consultations and negotiations.

-- Convey the message that out-year ESF levels are dependent
on multiple Congressional consultations and the FY 2011
budget is yet to be determined within the Administration, but
we are pleased with the results on FY 2010.

-- Inform the Minister that the USG is working on an
endowment counterproposal that it hopes can meet both our
governments' interests. U.S. interests include mutually
agreeable institutional mechanisms that guarantee a high
level of accountability for the use of funds, adherence to
U.S. accounting and oversight requirements, and an acceptable
co-management framework.

-- Convey the Washington positions on debt relief and FY 2009
funds to support the President's Cairo speech.

-- Convince MIC Aboul Naga that because of the U.S. economic
situation and U.S. Congressional interests, returning to the
terms of the GOE's November 2007 proposal will not be
possible.

ESF Levels
--------------


4. (SBU) The Embassy is directed not to share the Department
of State's planned FY 2011 or out-year ESF level for Egypt
with the GOE. It would be a premature discussion, as the
Department has not yet submitted its FY 2011 budget request
to the Office of Management and Budget (OMB),which has
responsibility for preparing the President's Budget. Details
of the President's budget are not public until the budget is
transmitted to the Congress in February 2010.


5. (C/NF) The Department of State intends to include a $250
million request for ESF in its OMB submission. Given Egypt's
large existing pipelines of prior year funding, and competing
priorities in a constrained budget environment, it will not
be possible to raise the level further. The Administration
made exceptional efforts to raise the level to $250 million
in FY 2010 and NEA has gone to great lengths to maintain this
level in FY 2011, which will be an extraordinarily difficult
budget year.


6. (SBU) The USG believes it premature to discuss a
phase-out of the ESF program, because of the nature of our
strategic relationship and the fact that our two governments
did not even discuss trade between 2005 and 2009. Similarly,
it is premature to discuss potential levels FY 2011 and
out-year funding with the GOE and Embassy should discourage
the pursuit of a multi-year assistance commitment at this
time. Washington encourages Embassy to continue discussions
with the GOE on the focus of foreign assistance. The USG
view is that the bulk of future ESF funds will be focused on
the array of educational and other goals outlined by
President Obama in his June 4 speech in Cairo. There will
still be a portion of the programmatic portfolio directed to
democracy and governance, as well as a modest technical
assistance component.

Endowment
--------------


7. (SBU) The USG has been working to develop a
counterproposal on an endowment that meets the interests of
both our nations, which we hope to submit soon. The
preliminary view is that any fund would initially be a
relatively modest, NGO-run operation with a limited focus on
a few priority themes. These ideas about endowment concepts
are very preliminary and will require extensive consultation
with Congress.


8. (SBU) As Washington laid out in April, the primary U.S.
concerns are to find mutually agreeable institutional
mechanisms that guarantee a high level of accountability for
the use of funds and an acceptable co-management framework.
Congressional oversight of our foreign assistance remains
very high, especially with assistance to Egypt. Any
endowment fund would need to fulfill all accounting and
oversight requirements that normally accompany U.S.
assistance grants. Furthermore, Egypt still faces
significant challenges in the areas of health, education, and
poverty, and our USAID programs continue to be
well-positioned to help the GOE address them.

Debt Relief
--------------


9. (SBU) The United States cannot consider any adjustments
to Egypt's debt in the context of assistance programming.
U.S. policies on the two issues are made completely
separately. The Embassy should urge the GOE to approach the
Departments of State and Treasury in Washington if there is a
need for any further clarification on debt or debt relief.


10. (SBU) The USG has never agreed that ESF levels should
equal or exceed Egypt's debt payments. The U.S. view is that
assistance levels are best justified by development needs of
the recipient country and what the assistance programs can
achieve on the ground. FMF of $1.3 B annually also
contributes significantly to Egypt's assistance package.
Additionally, the United States forgave over $12 billion in
Egyptian debt in 1990-91 as a strong symbol of our great
friendship with Egypt. Egypt's debt burden has now become
sustainable based on standard measures, and U.S. policy
generally supports debt forgiveness only for countries with
unsustainable debt burdens.

Use of FY 2009 Funds
--------------


11. (SBU) The USG supports using up to $19 million, the
currently approved portion of FY 2009 ESF funding for higher
education, for scholarship programs that support the
priorities outlined in the President's Cairo speech. If the
decision is made to increase the amount of scholarship
programs beyond what is currently approved, reprogramming
will be needed. The Department does not currently support
reprogramming funds to meet the $40 million scholarship
request at this time.


12. (SBU) The Department believes that a portion of
USAID/Cairo's follow-up initiatives to the President's Cairo
speech should, if they fall within the existing approved use
of Egypt ESF funds, help expand and initiate other
educational activities domestically in Egypt, such as model
science and technology high schools, an agricultural
technology school, and expanding an English language program
for secondary students. Such programs will help improve
Egyptian competitiveness across the board.
CLINTON