US embassy cable - 05CAIRO5524

S E C R E T SECTION 01 OF 05 CAIRO 005524 
 
SIPDIS 
 
E.O. 12958: DECL: 07/07/2015 
TAGS: PREL, PGOV, KPAL, IS, EG, OVIP 
SUBJECT: VISIT OF NEA PDAS CHENEY:  PM NAZIF REVIEWS U.S. 
ASSISTANCE AND REGIONAL DEVELOPMENTS 
 
Classified by Charge Michael Corbin for reasons 1.4 (b) and 
(d). 
 
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Summary: 
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1.  (C) NEA PDAS Liz Cheney met with PM Nazif, Minister of 
Trade Rashid Rashid and Minister of Investment Mahmoud 
Mohieldin June 30th for almost an hour at Nazif,s office in 
the "Smart Village" outside Cairo. Cheney urged a more 
proactive GOE role on direct USG assistance to NGOs in Egypt 
in the democracy and governance area, specifically indicating 
that it would be difficult to defend the US assistance 
program against those in Congress who would make changes to 
it if the GOE bureaucracy persists in foot dragging regarding 
the registration of NDI, IRI and IFES in Egypt before the 
coming elections. Nazif understood and appreciated what the 
USG democratization strategy seeks to achieve and called for 
a high-level dialogue on ways to manage the political 
transition in Egypt. Cheney agreed to such a dialogue, 
suggested it be launched during Deputy Secretary,s 
forthcoming visit, asked Nazif to designate a GOE POC, but 
emphasized the importance of the USG being able to move money 
out the door to provide D&G assistance in time for the 
elections. Nazif promised to consult President Mubarak and 
EGIS director Soliman and revert to her. 
 
2.  (C) Summary continued.  Nazif stated that he wished to 
move the US-Egyptian economic assistance relationship to one 
of greater partnership in jointly funded undertakings and 
suggested three jointly financed "funds" to promote SMEs, 
human development and technology transfer.  Cheney welcomed 
the GOE proposal to improve the USAID program and said she 
looked forward to further discussions in their regard. 
Cheney also distinguished the proposed Fund for the Future to 
be announced in Bahrain in November from the USAID/Egypt 
program. This fund represented potential fresh money for 
Egypt. Hearing of Nazif,s support for this fund, Cheney 
stated the USG would continue to develop it with the GOE in 
time for announcement in November. Turning to the USAID/Egypt 
program, Cheney stated that the USG would support efforts to 
streamline the economic assistance program in order to reach 
more Egyptians and promote reform more effectively.  She 
noted, for example, that there is less rationale for the 
Commodity Import Program (CIP) now that the Egyptian pound is 
floating. If the USG and GOE were jointly to approach 
Congress to reorganize this program, then funds would be 
freed up that could finance something resembling the three 
funds Nazif had suggested. Nazif agreed to examine 
restructuring the CIP, also stated that he wished to take a 
"second look" at the USAID Administration of Justice program 
and requested more help from USAID on structural reform in 
the health sector. Cheney was accompanied by the Charge, 
senior advisors King Mallory and Gamal Helal and contractor 
Ahmed Dabbous.  Nazif was joined by Cabinet Secretary General 
Sami Zaghloul.  End summary. 
 
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GOE assistance priorities: 
-------------------------- 
 
3.  (S) Prime Minister Nazif started the conversation by 
stating that he would like to move the US-Egyptian economic 
assistance relationship to one that was more of a jointly 
funded partnership. There is no need to look for new funding 
sources.  We should start with the proof of a new concept and 
develop matters from there.  The Government of Egypt would 
like to establish "funds" that would provide financing for 
four critical areas: 
 
-- (S) Now that tax vacations have been abolished new 
incentives to the private sector are required that make more 
sense. PM Nazif indicated that the provision of land at cost 
or at a subsidized price might be an alternative. 
 
-- (S) Providing some predictability to the pricing of energy 
and the cost of infrastructure at large industrial 
installations. 
 
-- (S) Dispute resolution - Egypt needs to improve the way 
commercial courts function. Nazif said that while the USAID 
Administration of Justice program had managed to make some 
improvements in court administration and computerization, he 
thought the results were modest and would like to take a 
second look at the program. 
 
-- (S) Access to finance is weak. The insurance companies are 
weak and the banking system simply is not lending, because it 
is afraid as a result of the high levels of non-performing 
loans.  Reforms in the banking sector will take 5-7 years and 
alternative means are required to provide greater access to 
finance. 
 
4.  (S) Nazif stated that a fund that was run by a good 
management team and provided equity directly to SMEs, not 
through the "white elephant" banking system would be one good 
solution. He indicated that LE10 million to LE100 million 
(USD 2 million to USD 17 million) range investments would be 
appropriate for the sector above micro-enterprises and below 
large corporations. 
5.  (S) Nazif pressed for a human resources development fund, 
asserting that it was very difficult to send people to the 
United States. "We need to do something, because we are both 
losing."  "If we are currently sending 100 people a year, we 
should be sending 500."  Nazif urged PDAS Cheney to find a 
way of building such an arrangement that would also expedite 
visas, and stated that the GOE was willing to provide equal 
funding for a human resources development fund. 
 
6.  (S) Nazif also pressed hard on the need to promote 
technology transfer.  While he was "biased towards the 
private sector," "we need to do something to provide SMEs 
with an incentive" to adopt new technology. The incentive 
does not have to be entirely financial.  There are signs of 
success in Egypt in building IT and the GOE needs to continue 
to build on this base.  The PM cited the Microsoft 
development center in Egypt, staffed entirely by Egyptians, 
as an example.  Egypt has a huge need for the transfer of 
knowledge in the IT, oil and industrial sectors.  The USG and 
GOE should find ways of doing this.  Business and academia 
should be jointly involved. Too often in the past our 
programs had mistakenly promoted academics talking to 
academics and business talking to business.  We need to find 
joint ways of making the two sectors talk with one another. 
"Research and development in Egypt needs to be rebuilt." 
 
7.  (S) The Prime Minister suggested that joint funds be 
launched to finance SMEs, promote human resource development 
and promote technology transfer, even if only on an 
experimental basis. 
 
8.  (S) The PM agreed with the priorities of USAID's program 
in Egypt which he characterized as concentrated on business 
development, and health and stated that a new bill on health 
care would soon be introduced into parliament.  Nazif 
indicated that, after spending his government's initial year 
on economic reform, the government will be shifting focus to 
reforms in social insurance and health care.  The regulator 
and insurer need to be separated from the provider of health 
care.  USAID can help Egypt more, Nazif said, if it provides 
top quality advice on how to restructure the health sector 
rather than simply building new clinics. 
 
9.  (S) The government will be shifting attention to the 
social sector: education, social insurance, women and the 
judiciary. All of these are the pre-requisites for a 
healthily-functioning democratic system. 
 
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The Fund for the Future 
----------------------- 
 
10.  (S) PDAS Cheney thanked PM Nazif for his introduction, 
stating that the USG and GOE are in fundamental agreement. 
The Fund for the Future being discussed in the G-8 BMENA 
context should be a separate discussion from the discussion 
of the USAID program in Egypt.  The fund would be modeled on 
the successful Polish-American Enterprise Fund. Mallory and 
Dabbous had just arrived from Morocco where they had obtained 
a preliminary commitment from the GOM to participate in the 
fund and provide $20 million with which to finance it.  The 
USG will continue to expand on what it has accomplished to 
date with the GOE on the Fund for the Future in order to be 
ready for it to be signed and announced in Bahrain in 
November. 
 
11.  (S) As far as the USAID/Egypt program is concerned, 
Cheney stated that the GOE and USG needed to take a look at 
updating the program, including through revisions to the 
Commodity Import Program.  Now that the Egyptian pound is 
floating, the need for this program no longer seems so great. 
 If both governments push Congress to achieve a reshaping of 
this program, this could loosen up funds with which to 
finance something resembling the three funds that Nazif 
suggested.  PDAS Cheney stated that both sides need to 
continue to scrutinize the USAID assistance program in order 
to ensure that it is helping to meet Egypt,s needs as 
effectively as possible. 
 
12.  (S) Nazif stated that the USAID program had been of 
tremendous assistance to the GOE over the last thirty years. 
However, there "is lots of room for improvement."  Nazif 
agreed to take a look at how to restructure the Commodity 
Import Program, particularly since the Development Support 
Program,s funds are tied up in financial sector reform for 
the next five years. "Our priorities have changed, and we 
need to change the (assistance) program." 
 
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Direct USG assistance 
--------------------- 
 
13.  (S) Cheney next addressed the subject of direct USG 
assistance to NGOs in Egypt. The GOE needs to adopt a more 
proactive role in this connection.  This is important to 
demonstrate Egypt,s commitment to reform. 
 
14.  (S) The prime minister stated that "we need to sit 
together in order to be able to move on democracy and 
governance (programming)."  Egypt is formulating a strategy, 
but is tied up in an election year.  This has put the 
government under constraints.  The government wants to settle 
on a system that will be in place - a future end state.  "We 
want fair and transparent presidential and parliamentary 
elections. We want it for our own people.  They understand 
very well what is for real and what is not."  If the 
president runs again, he will win in a very transparent 
process. But it is about more - having been "out of it" for 
so long, the opposition in Egypt is weak. We need a steady 
process to change the environment and allow people to stand 
up an give voice to alternative options and take part in a 
truly democratic process. 
 
15.  (S) Egypt is half way there, Nazif stated; it has a 
fairly free and liberal media, but does not have the other 
requirements for an environment characterized by a stable 
democratic process.  The GOE would love to have two strong 
political parties in Egypt. Today the political scene is 
characterized by a dominant party, small parties and 
extremists. The question is how to manage the transition to a 
true democratic process with all the constraints and risks 
entailed. One can see elsewhere in the region the risks 
involved and this makes one very wary about undertaking 
change too rapidly.  Egypt needs a "roadmap" not a "roadmap 
for peace", but a "roadmap" for democratic change. 
 
16.  (S) The GOE understands what the USG is trying to 
achieve in promoting greater democracy in the Middle East and 
appreciates its efforts.  The question is how to translate 
this into practice? Where do you put your USAID money? Do you 
give it to NGOs?  Egyptians are not used to NGOs playing a 
political role, let alone receiving money from foreign 
governments, to say nothing of receiving money from the U.S. 
government. Besides, their capacity is not very great. The 
GOE agrees that money should be given NGOs, but needs to 
ensure that these organizations are effective.  Yes, we want 
to have a stronger civil society and judiciary, but we need 
to spend more time on how to get there. 
 
17.  (S) PDAS Cheney responded that the USG does not 
underestimate the challenge that the GOE faces.  In the final 
analysis, gradual opening is the only solution.  The 
challenge in Egypt is that for too long opposition political 
voices have not been allowed to be heard. This has given fuel 
to extremist groups.  For democracy to flourish, the system 
must be opened to allow space for other viewpoints. 
 
18.  (S) International NGOs supported by the USG such as IRI, 
NDI and IFES work in most places where the USG has an 
assistance program.  The USG cannot defend a situation where 
these entities can operate everywhere in the world except 
Egypt.  Additionally, these groups have tremendous expertise 
and technical skill that can be of use as the GOE embarks on 
democratic reform. 
 
19.  (S) Nazif replied that the USG and GOE needed to work 
together behind closed doors to build rapport and mutual 
understanding on the USG,s democracy and governance goals in 
Egypt and to come up with a joint vision for the path 
forward. 
 
20.  (S) Cheney approved of this approach but cautioned that 
the process must take place at a high level so that it does 
not get mired down in bureaucracy.  PDAS Cheney said that she 
would participate in this dialogue from the USG and asked who 
the GOE point of contact would be.  Nazif responded that he 
would need to consult with the President and Egyptian General 
Intelligence Service (EGIS) Director General Soliman, but 
would come back to PDAS Cheney with a name for the GOE point 
of contact.  He suggested that person might be Soliman 
himself or someone from EGIS. 
 
21.  (S) Cheney approved of such a dialogue but cautioned 
that USG assistance for the elections process needs to be 
"out the door" in time to have an impact on the forthcoming 
elections.  Cheney stated that our attempts to move forward 
on the democracy and governance front are getting bogged down 
by the Egyptian bureaucracy in the context of the 
Consultative Group.  This is another example of why matters, 
which are so politically sensitive, need to be elevated out 
of normal bureaucratic channels.  Nazif agreed and stated 
that over-involvement on the part of the Egyptian bureaucracy 
sometimes results in parts of the Egyptian government being 
"out of the loop" on what is going on. 
 
22.  (S) Comment: Since PDAS Cheney,s visit, a grant 
agreement for democracy and governance activities has been 
signed with NDI and another will shortly be signed with IRI, 
a contract has been signed with IFES, and Egyptian Foreign 
Minister Aboul Gheit, in a meeting with NDI, has supported 
NDI,s work in Egypt, as long as no funds are given to 
political parties directly. The embassy is continuing to work 
with the consultative group and to seek and analyze new 
proposals for directly funded civil society programs in 
Egypt.  End comment. 
 
23.  (S) Nazif suggested "lets put a target on what needs to 
be done before the elections". PDAS Cheney agreed and stated 
that she would be back in Cairo on July 13-14, together with 
Deputy Secretary of State Zoellick. She suggested that this 
would be a good time to initiate the high-level dialogue that 
the Prime Minister suggested.  Nazif responded that he would 
talk with the President and Soliman and "decide what is 
acceptable". 
 
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Regional Developments 
--------------------- 
 
24.  (S) PDAS Cheney moved on to congratulate the GOE on the 
signature of an agreement of natural gas delivery with the 
government of Israel.  Nazif responded by stating that the 
GOE hoped very much for more progress on the 
Palestinian-Israeli front.  He hoped that "things will move" 
after Gaza withdrawal. Nazif could not emphasize enough the 
need for the USG to continue applying itself to this issue. 
Cheney responded that the USG is very engaged up to the level 
of POTUS himself and that the USG is providing all the 
support possible to General Ward and Mr.  Wolfensohn to 
ensure that Gaza withdrawal is a success. 
 
25.  (S) Nazif indicated that the Palestinian people needed 
to see a positive result from the Gaza withdrawal and they 
had to receive a clear message that Gaza is not the end of 
the line.  The USG needs to do more work on the situation. 
Cheney indicated that Wolfensohn will present his plan for 
Gaza at the forthcoming G-8 summit at Gleneagles to build 
multilateral support and be able to show a positive outcome 
to Palestinians.  Currently, the USG does not want to shift 
attention away from Gaza, because the USG wants withdrawal to 
be a success.  But the USG also recognizes that we need a 
long-term plan and that we need to make clear that we expect 
withdrawal from the four West Bank towns as well. 
 
26.  (S) Nazif asked about the situation in Iraq. Cheney 
responded that the Jafaari visit to Washington had gone well 
and that the Brussels donor conference had gone well too. 
Skeptics of the democratic process in Iraq are constantly 
being proven wrong as the Iraqi government meets its various 
deadlines. The inclusion of 25 Sunnis in the constitutional 
drafting process is very important and was a good step. And 
the Iraqi government is on track to finish work on the 
constitution by August 15th and to hold a subsequent 
referendum.  These are very important and real achievements 
in a security environment that is very challenging; they get 
minimized or overlooked too often. 
 
27.  (S) Cheney highlighted the security challenge posed by 
jihadis, including Saudi young men, who are presently 
unaccounted for, according to the Saudi government.  Networks 
in Damascus are helping to identify these young men and to 
transfer them to Iraq.  Therefore it is imperative to keep 
the pressure on Bashar al Assad.  Not just for this reason, 
but because of the continuing assassinations in Lebanon, and 
continuing assistance to groups such as Palestinian Islamic 
Jihad.  Assad is trying to send messages to the USG via 
various governments in the region that he wants improved 
relations, but we see no evidence of a changed attitude on 
the part of Bashar and the Syrian government. 
 
28.  (S) Nazif said that it was difficult to build democracy 
in Iraq in the current environment there and that the very 
idea was repulsive to the insurgent elements fighting there. 
Allawi had visited Cairo recently and is wary of Iran,s role 
in Iraq.  Nazif warned of the "duality" in calling for a 
fully open democratic process without knowing where it will 
lead. Cheney countered that this was the reason why it was so 
important to put guarantees in place in the Constitution so 
that no person or group could subvert the process.  Nazif 
closed the conversation by stating "lets cross our fingers 
and see what happens". 
 
29.  (U) NEA Senior Advisor King Mallory drafted and PDAS 
Cheney cleared this message. 
 
 
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CORBIN