US embassy cable - 05CAIRO2532

C O N F I D E N T I A L SECTION 01 OF 03 CAIRO 002532 
 
SIPDIS 
 
E.O. 12958: DECL: 03/30/2015 
TAGS: PREL, OREP, EG, Visits 
SUBJECT: CODEL DREIER MARCH 23-25 VISIT TO CAIRO:  PRIME 
MINISTER NAZIF REVIEWS REFORM EFFORTS 
 
Classified by Charge Gordon Gray for reasons 1.4 (b) and (d). 
 
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Summary 
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1.  (C)  In a March 24 meeting with Egyptian Prime Minister 
Nazif, CODEL Dreier (consisting of Representatives Dreier, 
Diaz-Balart, Alcee Hastings, Doc Hastings, Gingrey, and 
Crenshaw) discussed the potential for political and economic 
reform in Egypt, links between economic development and the 
fight against terrorism, and Egypt's appreciation for U.S. 
assistance.  Nazif said U.S. aid was critical to helping 
Egypt ensure stability in a volatile region.  The CODEL 
thanked Nazif for Egyptian training of Iraqi security 
personnel.  Nazif also highlighted Egyptian contributions to 
peace between the Israelis and Palestinians, suggesting that 
"peace was possible" with U.S. support. 
 
2.  (C)  Touting his cabinet as young, energetic, and 
development-oriented, Nazif said economic reforms in Egypt 
were taking hold but the economy needed time to turn around. 
In the meantime, many ongoing reforms put pressure on the 
budget, making U.S. assistance even more important.  Nazif 
and the U.S. delegation agreed on the value of free trade, 
and Nazif noted a strong link between development and 
fighting terrorism.  The Prime Minister also cited Egypt's 
long-term political reform efforts, appealing for continued 
U.S. support to bring more openness to the region.  President 
Mubarak had opened the issue of constitutional change 
(potentially allowing multi-candidate elections) in spite of 
concerns about timing.  This effort opened the door to more 
changes after the September presidential election, according 
to Nazif, who hoped that higher voter turnouts would enhance 
public participation in government.  End summary. 
 
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Bilateral and regional security cooperation 
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3.  (C)  Emphasizing Egyptian appreciation for U.S. 
assistance and the importance of the bilateral relationship, 
Prime Minister Nazif told CODEL Dreier that military 
assistance had paid off in terms of Egypt becoming a 
stabilizing force in the region.  Egypt led the way to peace, 
he said, positing peace as necessary for growth and 
development. 
 
4.  (C)  Congressman Dreier pointed out that political and 
economic openness was important to any nation and that 
political self-determination was key to development.  He 
thanked Egypt for the important role it played in regional 
stability.  The U.S. appreciated Egypt's support vis-a-vis 
Iraq, he said, especially the training that Egypt is 
providing to Iraq's security forces.  Dreier said it would be 
easier for the U.S. to leave Iraq once more Iraqi security 
forces are in place; he highlighted Iraqi self-determination 
as the goal of U.S. policy. 
 
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Peaceful resolution to the Israeli-Palestinian dispute 
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5.  (C)  Responding to a question about the real prospects 
for peace in the Middle East, Nazif stated that the main goal 
in the short term was a cessation of violence.  The most 
important thing was calming both sides, he said.  The second 
step would be developing credible leadership encompassing all 
Palestinian factions, including the refugees.  The third step 
would be "getting Israel to come to the table."  Peace could 
not be one sided.  That is why, according to Nazif, Egypt 
sent back its Ambassador to Tel Aviv, signed the QIZ 
agreement, and invited PM Sharon to Sharm El Sheikh.  Nazif 
said he believed Sharon wanted peace, but faced difficulties 
over the settlements.  Achieving peace would be a long 
process, opined Nazif; however, with both sides engaged, and 
U.S. support, peace was possible.  U.S. support was key in 
Nazif's view and the U.S. needed to change the perception 
that it was biased toward Israel. 
 
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Economics, U.S. assistance, and terrorism 
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6.  (C)  Nazif said his cabinet was young, energetic, and 
development-oriented.  He pointed out that many reforms had 
been undertaken, such as the recent corporate tax cut (from 
42 to 20%), tariff cuts last September, and cuts in sales 
taxes on capital goods.  He noted that Egypt had a 
diversified economy, but that agriculture was still 
important, with most exports going to Europe.  The U.S., 
however, was still Egypt's major trading partner. 
 
7.  (C)  Nazif said that 18-20 months would be needed for 
Egypt's economy to really turn around.  In the meantime, many 
of Egypt's ongoing reforms were causing difficulties in the 
budget, which made continued U.S. assistance more important. 
Nazif noted that reforms currently underway in the banking 
sector would cost $10 million, for example, yet were 
necessary to overcome an excessively public banking sector. 
He lamented that there was not enough separation of the 
banking sector and the public companies, which has led to a 
significant problem with non-performing loans.  He said that 
privatization was going forward as well as banking reform. 
He noted that the IMF, World Bank, and the EU were all 
helping with these reforms, but said that U.S. assistance 
remained critical.  Reform could not happen without it. 
 
8.  (C)  Dreier said that U.S. economic growth proved the 
value of a supply-side policy.  Regarding an FTA, he said 
that he would carry Nazif's message of economic reform back 
to the U.S., as he would like to see an FTA negotiated with 
Egypt.  Nazif replied that an FTA would also have important 
symbolic value.  Trade with the U.S was increasing as was 
U.S. investment.  Microsoft had opened a building in the 
Smart Village (Egypt's high tech business park) last year and 
would, under an agreement with the GOE, reinvest its profits 
back into the Egyptian economy.  He raised Egypt's signing of 
the QIZ agreement with Israel and lowering of tariffs, and 
said he liked President Bush's idea of a Middle East Free 
Trade Area.  Nazif cited a strong link between development 
and fighting terrorism, suggesting that most terrorists came 
from the lower classes.  Dreier stated that some in the U.S. 
had said that with a GDP 1 percent higher in Pakistan and 
Afghanistan, Al Qaeda would never have developed.  Nazif 
agreed and added that terrorism has to be fought from within, 
using education. 
 
9.  (C)  Nazif noted that Egypt had been fighting terrorism 
long before 9/11.  Egypt had been successful in rooting 
terrorism out of the fabric of society.  He pointed to 
Egypt's hosting of the February 8 Sharm El Sheikh conference, 
the cessation of violence between the Israelis and 
Palestinians, and movement on the peace process after four 
years of stagnation.  He noted Egypt's positive role in 
events in Lebanon and Syria, Sudan and Darfur (where he said 
Egypt is opening schools), and in overall regional stability 
and development. 
 
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Political reform, constitutional changes 
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10.  (C)  According to Nazif, Egypt has also been leading the 
way on political reform for the last twenty years.  In the 
1970s there were only three political parties, now there are 
twenty.  He said Egyptians enjoyed free speech and a media 
without censorship.  The last parliamentary election was the 
best in Egypt's history, said Nazif, free and fair as 
certified by international observers.  Egypt's next step will 
be multi-candidate presidential elections this year.  Nazif 
said democracy is a time consuming process and Egypt lost 
time during years of war.  The current government has a clear 
vision for political, economic, and social change, boasted 
Nazif, but Egypt needs continued U.S. support to realize the 
government's vision and help bring democracy to the Middle 
East (a "key factor" in the fight against terrorism). 
 
11.  (C)  Nazif stated that Mubarak saw it was important to 
change the constitution before the upcoming presidential 
election, despite the views of many in the government that 
there was not enough time before the election to accomplish 
the change or field candidates.  Mubarak wanted the election 
to be seen as legitimate and more democratic.  Nazif stated 
that the constitutional change would take place in May, with 
elections next September.  After the election, further 
constitutional reform could be contemplated.  Nazif believed 
that multi-candidate elections would bring more voters to the 
polls.  Congressman Hastings noted that there was higher 
turnout in the Iraqi elections than there was in the last 
U.S. presidential election.  Nazif said low voter turnout 
leads to victories by organized minorities, pointing to the 
examples of syndicates in Egypt and Islamic groups which 
prevail when there is not broad participation. 
 
12.  (C)  Nazif went on to say that constitutions should be a 
reference point and therefore should not change too often for 
fear of engendering chaos; the last change to Egypt's 
constitution was in 1980.  The document would have to change 
somewhat, said Nazif, as it was still a socialist 
constitution and many of the reforms the current government 
was making contradicted the charter.  He believed that more 
substantive changes to the constitution would come after the 
elections in September. 
 
13.  (C)  The Prime Minister said he would be visiting the 
U.S. in May and wanted to convey the message of reform in 
Egypt.  The CODEL noted that Nazif's leadership was 
important.  Members stated that the U.S. had provided much 
assistance to Egypt and would endeavor to continue to help, 
especially now that real reform appeared to be taking place. 
 
14.  (U) CODEL Dreier did not have an opportunity to clear 
this message before departing Egypt. 
 
 
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http://www.state.sgov.gov/p/nea/cairo 
 
You can also access this site through the 
State Department's Classified SIPRNET website. 
 
GRAY