US embassy cable - 05CAIRO5194

C O N F I D E N T I A L SECTION 01 OF 05 CAIRO 005194 
 
SIPDIS 
 
DEPARTMENT FOR D, NEA/FO AND NEA/ELA 
NSC STAFF FOR ABRAMS/POUNDS 
 
E.O. 12958: DECL: 07/07/2015 
TAGS: PREL, PGOV, KDEM, EG, Visits 
SUBJECT: SCENESETTER FOR DEPUTY SECRETARY ZOELLICK'S JULY 
12-14 VISIT TO CAIRO 
 
Classified by Charge d'Affaires Michael Corbin for reasons 
1.4 (b) and (d). 
 
------------ 
Introduction 
------------ 
 
1. (C) Deputy Secretary Zoellick, Embassy Cairo warmly 
welcomes you to Egypt and believes your visit comes at a 
particularly significant moment for reform in Egypt.  You 
will be able to review a number of important internal and 
regional developments, discussed below, since the S visit, in 
your meetings with President Mubarak, Prime Minister Nazif, 
Foreign Minister Aboul Gheit, and Intelligence Chief Soliman. 
 You will also be able to discuss political reform and 
prospects for this fall's presidential and parliamentary 
elections with members of both the ruling party's reform wing 
and its old guard, as well as with key opposition leaders and 
political observers.  The Egyptian and international press 
will be very interested in your visit, and your encounters 
with the media will present good opportunities to reinforce 
our messages on expanding freedom and democracy in Egypt and 
the region, confronting terror in Iraq and the wider region, 
and capitalizing on opportunities for peace in Gaza and the 
Sudan.  End introduction. 
 
------------------- 
Recent Developments 
------------------- 
 
2. (C) Since Secretary Rice's June 20 visit, a senior GOE 
official has indicated publicly that Egypt's first direct and 
competitive presidential election will be held on September 7 
(although there has not yet been an official announcement of 
this date).  Two electoral commissions have been established 
that will oversee, respectively, the presidential elections 
and the subsequent legislative elections.  A slate of bills 
which make adjustments to the political system, touted by the 
GOE as significant political reforms, have also been passed, 
and the USG is moving forward with assistance to promote 
competition and transparency in the fall elections.  Regional 
issues have continued to develop, with the abduction of 
Egypt's ambassador in Baghdad a pressing concern for Cairo. 
Egypt has continued to play an active role in the Sudan 
including the public dispatch of 800 peacekeeping troops to 
Southern Sudan.  The GOE signed a long-awaited natural gas 
deal with Israeli Infrastructure Minister Eliezer in Cairo. 
Egypt has also continued to play an active role with 
Palestinian factions and in support of strengthened 
Palestinian security forces.  However, an agreement on border 
guard deployment has yet to be reached. 
 
-------------------------------- 
Presidential Race Moving Forward 
-------------------------------- 
 
3. (C) Egypt's first direct, competitive presidential 
election will be held on September 7, according to Zakaria 
Azmy, a senior ruling party official and one of the 
President's closest advisors.  Azmy has also stated that 
candidates' nominations must be submitted to the newly- 
formed presidential elections commission by July 19.  (Note: 
Azmy's remarks, printed in the leading pro-government daily, 
are authoritative but do not constitute an official 
announcement.  End note.)  Although we are still awaiting an 
official announcement, President Mubarak will almost 
certainly be seeking another term.  Of his declared 
opponents, Ghad Party leader Ayman Nour, whose forgery trial 
has been postponed until September 25, would appear to pose 
the most serious challenge, although his legal case and 
attendant negative publicity have compounded his 
disadvantages.  Khalid Mohieldin, the 84 year-old honorary 
chairman of the leftist Tagammu' party appears to be the only 
candidate from an established opposition party.  Though a 
respected national figure (as one of the "free officers" who 
overthrew King Farouq in 1952), Mohieldin's frail health, and 
his unreconstructed socialist views, probably preclude him as 
a serious opponent.  Several other leaders of Egypt's "paper" 
political parties are likely to run, but are unlikely to make 
much of an impact. 
 
-------------------------------------------- 
Political Reform Agenda Wraps for the Season 
-------------------------------------------- 
 
4. (C) Egypt's parliament ended its legislative term on July 
5 with the passage of several political laws touted as key 
political reforms by the GOE.  On July 2, President Mubarak 
promulgated four new laws: 
 
-- A presidential elections law 
-- Revisions to the law on political rights 
-- Revisions to the law on political parties 
-- Revisions to the law on the parliament 
 
While your GOE interlocutors will present each of these laws 
as significant political reforms, opposition figures and 
other skeptical observers describe them as half measures. 
The scope and impact of these laws will depend greatly on the 
spirit in which they are interpreted and implemented. 
 
5. (C) The presidential elections law established a 
presidential elections commission composed of three sitting 
members of the judiciary, five "independent" members to be 
named by parliament, and ex-officio representatives of the 
ministries of justice and interior.  The commission members 
have been named and while including independent public 
figures, none of the names is a personality likely to take 
bold stands against the government.  The law also imposes 
campaign spending limits and mandates "equal access" to the 
media for candidates.  Critics charge that the law allows the 
executive to retain too much power over nominations to the 
electoral commission, and remain critical of the formula 
established by the constitutional amendment in which 
candidates qualify to run for president. 
 
6. (C) The law on political rights established the commission 
which will regulate parliamentary elections (to be held in 
several stages in October and November).  The law also 
stiffened the penalty for journalists who "spread false 
information" about parliamentary candidates, a provision 
interpreted by critics as a shield for corrupt politicians. 
Critics have also complained that the executive and the 
Ministry of Interior retain too much power in the regulation 
of parliamentary elections. 
 
7. (C) The new law on political parties expands the 
membership of the GOE committee which reviews license 
applications for new political parties, a move the GOE 
maintains "liberalizes" the licensing process.  Reform 
advocates had been hoping that the new law would abolish this 
committee outright.  Critics also complain that the new law 
increases the number of signatures proposed parties must 
submit when petitioning for official recognition. 
 
8. (C) The revisions to the law governing the parliament 
banned the use of mosques and churches for campaign events, 
set other rules for parliamentary campaigns, and slightly 
increased the minimum educational standards members of 
parliament must meet.  However, members of parliament born 
before 1970 still only have to be deemed "literate" to 
qualify. 
 
9. (C) Comment: With the exception of the constitutional 
amendment which established for the first time direct, 
multi-candidate presidential elections, none of the political 
reforms enacted by the GOE this year could be described as 
decisive or revolutionary.  One posssible exception would be 
the establishment of nominally independent commissions to 
regulate presidential and parliamentary elections. 
Previously, the Ministry of the Interior (MOI), an arm of the 
executive, had regulated elections.  Skeptics point out that 
the MOI will retain operational control of the elections, 
with the commissions "setting the rules," but not actually 
administering, the elections.  End comment. 
 
--------------------------------- 
Looking Toward the Fall Elections 
--------------------------------- 
 
10. (C) You will have the opportunity to discuss this state 
of play on political reform with senior GOE officials and 
with leaders of the ruling National Democratic Party, 
comprising both the "reform faction" and the party's "old 
guard."  Some of your interlocutors from the opposition will 
argue that they are "two faces of the same coin."  While 
familiarity with the details of political reforms enacted to 
date will be useful, the main point to keep in mind is that 
most of the political reforms undertaken so far are 
tentative, and rather than allowing the GOE and the NDP to 
rest on their laurels, we will want to press them to focus on 
effective implementation of reform, with a particular 
emphasis on the GOE's management of this fall's presidential 
and parliamentary elections. 
 
11. (C) On the presidential elections, it is difficult to 
envision a scenario in which President Mubarak is not 
reelected.  The president, who has skillfully employed his 
nation's pharaonic political culture throughout his career, 
can count on the unqualified support of the ruling NDP, which 
exponentially outclasses any other political party in terms 
of nation-wide organization, patronage networks, and 
resources.   The key factor in the presidential elections, 
therefore, is not the outcome but the process. 
 
12. (C) We will want to see Mubarak's competitors allowed to 
campaign, and stage rallies, free from harassment by either 
security officials or hired thugs, and to enjoy reasonable 
access to state media and fair coverage therein.  On election 
day, domestic and international observers should be 
unencumbered in making their rounds and reporting their 
findings.  Security forces should not block voters' access to 
polling stations, and judges supervising the polls should 
have a broad mandate to oversee the process and ultimately 
pronounce them free and fair. 
 
13. (C) In the elections for the People's Assembly (PA), 
expected to be held in several stages in October and 
November, the stakes are higher for Egypt's long-term 
democratic transition.  The ruling NDP overwhelmingly 
dominates the current PA - with 409 of the 444 elected seats. 
 Under the modalities established in the constitutional 
amendment allowing for competitive presidential elections, 
political parties will have to occupy at least five percent 
of the elected seats in the People's Assembly and the Shura 
Council (the upper house of parliament) in order to put 
forward presidential candidates as of the next presidential 
election in 2011.  Currently no opposition party can meet 
this standard.  Parties will have two chances, in the fall of 
2005 and again in 2010, to secure five percent of the seats, 
but if no opposition party achieves this threshold this year, 
many will judge the presidential elections amendment 
superficial in impact. 
 
14. (C) You will want to caution your interlocutors in the 
GOE and the ruling NDP that the old play book for 
manipulation of legislative elections must not be applied 
this year.  There will be unprecedented international 
attention to this year's legislative elections, and if they 
fail to produce a more diverse and independently-minded 
parliament, the GOE's rhetorical commitment to democracy will 
ring hollow, with tangible consequences for our bilateral 
relationship.  The GOE's best protection against this will be 
to allow domestic and international observers to watch the 
elections and to afford the opposition every reasonable 
opportunity to compete. 
 
--------------------------- 
USG Engagement on Democracy 
--------------------------- 
 
15. (C) As the USG's focus on democratic transition in Egypt 
has increased during this election year, USAID has stepped up 
and more tightly focused its activities in this area. 
Through an Annual Program Statement (APS) that solicits 
proposals from Egyptian and international organizations, 
USAID is funding a variety of democratization activities, and 
expects to spend USD 4.5 to 5 million on election-related 
activities this year.  This direct assistance, in conjunction 
with the other assistance to civil society and grass roots 
organisations, is being disbursed for the first time without 
prior GOE approval, as specified in the Brownback Amendment 
to the 2005 Foreign Operations Bill. 
 
16. (C) USAID has just signed three grants for NDI, the 
International Center for Freedom in Journalism, and a 
coalition of Egyptian NGOs, to support monitoring and fair 
media coverage of the upcoming presidential and parliamentary 
elections.  In addition, USAID has a contract with 
International Foundation for Electoral Systems (IFES) to 
assist the new Egyptian electoral commissions carry out their 
mandates, assist Egyptian NGOs and universities to develop 
and organize voter education materials and events, and 
support civic dialogue on electoral reform.  These 
election-related activities complement USAID's longer-term 
activities supporting democratic institution building in the 
judicial sector, decentralization, and local governance. 
 
17. (C) In addition to USAID programs, the Middle East 
Partnership Initiative (MEPI) has been steadily ramping up 
its presence in Egypt.  Ambassador Welch, in one of his last 
acts as Ambassador to Egypt, awarded in March USD one million 
in MEPI grants to six Egyptian NGOs which had proposed to 
undertake election monitoring, voter education and other 
democracy-related civic education activities in Egypt.  Since 
March, MEPI has pressed forward with a number of other small 
grants and is constantly surveying for more opportunities to 
fund democracy initiatives in Egypt.  In all cases, the key 
to making this assistance effective will be overcoming 
bureaucratic obstacles that prevent implementation before the 
elections.  So far, the GOE has not said "no" to any 
activity, and the senior GOE officials have asserted that the 
GOE will not block such assistance.  However, the proof will 
be in the implementation. 
 
--------------- 
Economic Reform 
--------------- 
 
18. (C) Prime Minister Nazif's government, with young, 
business-oriented ministers in key economic positions, has 
implemented sweeping reforms, including substantial 
reductions in customs tariffs and income taxes, as well as 
privatization of several public companies.  The Central Bank 
of Egypt has stabilized the exchange rate; for the first time 
in years hard currency is readily available and the black 
market has disappeared.  Inflation has dropped from 12 to 9 
percent since last July.  Parliament recently approved the 
new fiscal year budget, which was drafted for the first time 
according to IMF standards.  Nazif has also begun reforming 
Egypt's stifling bureaucracy and burdensome public subsidies. 
 Several long-standing bilateral trade issues have been 
resolved, indicating the Nazif administration's seriousness 
in preparing for an FTA.  Egypt is also now exporting 
products under the Qualifying Industrial Zone (QIZ) agreement 
with Israel, signed in December 2004. 
 
19. (C) We are using out bilateral assistance program to 
support these reforms.  The U.S. and Egypt signed an MOU on 
financial sector reform in March 2005, which ties DSP funds 
to GOE compliance with specific reform benchmarks, including 
privatization of public banks, development of a real estate 
mortgage finance facility and privatization of public 
insurance companies.  The next major financial reform 
benchmark facing the GOE is privatization of the Bank of 
Alexandria, one of Egypt's "big four" public sector banks. 
The target for this privatization is the end of 2005; upon 
privatization, we will release to the GOE USD 150 million in 
DSP funds. 
 
20. (C) The Emergency Supplemental Assistance offered after 
the Iraq war contained USD 300 million in cash and USD 2 
billion in loan guarantees and included specific benchmarks 
the GOE had to meet before funds could be released.  The GOE 
met the benchmarks for the cash transfer portion of the 
assistance, which was released in June 2004.  The GOE has met 
many, but not all, of the conditions for the loan guarantees. 
 It is very unlikely to meet all conditions before 
legislative authority for the guarantees expires on September 
30.  The interagency community has agreed to make available a 
portion (USD 1.25 billion) of the guarantees in recognition 
of the benchmarks met to date.  Secretary Snow will shortly 
sign a letter to Finance Minister Boutros Ghali to this 
effect.  Another outstanding issue is how the GOE will pay 
the budget subsidies for the guarantees.  The GOE agreed to 
pay the subsidies from DSP funds, and USAID is working with 
the GOE to identify DSP funds that could be used for this 
purpose. 
 
-------------------------------- 
Regional Issues: Gaza Withdrawal 
-------------------------------- 
 
21. (C) Egypt has been pressing Israel for some time to agree 
to the dispatch of 750 Egyptian military border guards to 
patrol the 14-kilometer border between Egypt and Gaza. 
Smuggling, including through tunnels, along this sensitive 
stretch of border has been a sore point between Cairo and Tel 
Aviv; the Camp David accords limit Egypt's coverage of the 
border to civilian police, and the GOE wants a more highly 
trained force in that zone.  Mubarak and Soliman have 
apparently won the GOI's agreement in principle at the 
political level.  The two key issues remain how permanent the 
deployment will be and whether Egypt can deploy similar 
border guards along the whole length of the Sinai borders. 
 
22. (C) We continue to hear that agreement may be imminent, 
usually with the caveat that the Egyptian and Israeli 
militaries need to work out more details.  If the Israeli 
Attorney General determines that the Egyptian deployment 
would not necessarily require a change in the treaty itself, 
this may open the door to a change in the border force as an 
"agreed activity" within the treaty framework.  Deployment of 
a more capable border force would be more timely in advance 
of the beginning of Gaza disengagement. 
 
----- 
Sudan 
----- 
 
23. (SBU)  Egypt is intensely concerned and tactically 
engaged in the stability of its southern neighbor, from which 
flow the essential waters of the Nile.  Prime Minister Nazif 
will represent Egypt in Khartoum at the July 9 installation 
of the Government of National Unity.  Recent manifestations 
of Egypt's engagement include brokering the June 18 Cairo 
agreement between the GOS and the National Democratic 
Alliance (NDA), facilitating NDA participation in the 
National Constitutional Review Commission (Cairo 4681 and 
Cairo 4875). 
 
24. (SBU) In addition to its political involvement in helping 
to broker peace in Sudan, Egypt has also provided material 
support.  Egypt sent a mobile medical clinic, military 
observers, and numerous humanitarian flights to Darfur.  In 
addition, it recently began to dispatch a peacekeeping force 
of over 800 troops to south Sudan and has indicated a 
willingness to increase those numbers (Cairo 4876).  Egypt's 
forces in Sudan are to include a command group element, an 
infantry company, an engineering company, a demining company, 
a transportation platoon, and a field hospital.  Egyptian 
Minister of Defense Tantawi highlighted Egypt's peacekeeping 
efforts in Sudan as a declaration "to the world that peace is 
Egypt's strategic choice." 
 
25. (C) During Senior Representative Snyder's June 30 visit 
to Cairo (Cairo 5173), MFA, EGIS, and Arab League officials 
all confirmed their commitment to working closer with the USG 
to further the prospects of stability in Sudan.  The MFA and 
Arab League also proposed increased cooperation on 
infrastructure projects like hospitals, roads, or 
universities to boost development.  EGIS Chief Soliman has 
the Sudan file in the GOE, and your meeting with him will 
likely be the best opportunity to review developments in 
Sudan. 
 
---- 
Iraq 
---- 
 
26. (C) Egypt is currently preoccupied with the July 2 
abduction of its Ambassador in Baghdad, Ihab el-Sherif. 
Cairo's recent dispatch of Sherif to Baghdad was indicative 
of Egypt's support for the process of normalization and 
pacification in Iraq and shoring up regional support for the 
Iraqi government.  Condemnation of Sherif's kidnapping has 
been universal in Egypt, though some commentators have blamed 
the GOE for prematurely sending an Ambassador while the 
security situation remains volatile.  Egypt's offer to train 
Iraqi police and military personnel remains open, and several 
hundred Iraqi security personnel have received training here, 
but the Iraqi government has so far preferred to train the 
majority of its personnel in Iraq or Jordan. 
 
 
Visit Embassy Cairo's Classified Website: 
http://www.state.sgov.gov/p/nea/cairo 
 
You can also access this site through the 
State Department's Classified SIPRNET website. 
 
CORBIN