US embassy cable - 05CAIRO5545

C O N F I D E N T I A L SECTION 01 OF 03 CAIRO 005545 
 
SIPDIS 
 
USTR FOR SUAMS 
 
E.O. 12958: DECL: 07/20/2015 
TAGS: PREL, PGOV, ECON, EAID, EFIN, OVIP, EG 
SUBJECT: DEPUTY SECRETARY ZOELLICK'S JULY 14 MEETING WITH 
EGYPTIAN PRIME MINISTER NAZIF 
 
 
Classified by Charge Michael Corbin for reasons 1.4 (d) and 
(b). 
 
1.  (U) July 14, 2005; 8:30 a.m.; Cairo, Egypt. 
 
2.  (U) Participants: 
 
U.S. 
---- 
The Deputy Secretary 
Charge Michael Corbin 
NEA PDAS Elizabeth Cheney 
Deputy Spokesman Adam Ereli 
D Executive Assistant Ross Wilson 
 
Egypt 
----- 
Prime Minister Ahmed Nazif 
Minister of Foreign Trade and Industry Rachid Rachid 
Cabinet Secretary General Sami Zaghloul 
Spokesman Magdy Rady 
Office Director Abu Taleb Mahmoud 
 
------- 
Summary 
------- 
 
3.  (C) During his July 14 meeting with Egyptian Prime 
Minister (PM) Ahmed Nazif, the Deputy Secretary expressed 
condolences for the death of the Egyptian Chief of Mission in 
Iraq.  He voiced strong support for the GOE's economic reform 
efforts, pointing out that Egypt needed economic growth to 
absorb new entrants into the work force.  Nazif said growth 
was increasing, as investor confidence in Egypt had been 
restored.  Responding to Nazif's request for three more 
Qualifying Industrial Zones (QIZs), the Deputy Secretary 
noted that Congress was focused on CAFTA.  The Deputy 
Secretary also underscored that the U.S. offer of loan 
 
SIPDIS 
guarantees would expire on September 30, so the GOE needed to 
move quickly to access the guarantees.  Nazif stated that the 
GOE would act quickly.  On political reform, the Deputy 
Secretary  pointed out that free and fair elections, 
 
SIPDIS 
including parliamentary elections, would send a strong signal 
about Egypt's seriousness regarding democratic reform.  Nazif 
asked for the Deputy Secretary's support in ensuring that 
U.S. assistance to Egypt remained unchanged.  End summary. 
 
--------------------------- 
Progress on Economic Reform 
--------------------------- 
 
4.  (C) The Deputy Secretary began the meeting by offering 
condolences on the death of Egypt's Chief of Mission in Iraq. 
 He noted that he had recently spoken with Iraqi PM Jafari, 
who told him that Iraq was grateful for Egypt's support and 
would like to see continued cooperation between the two 
countries.  Jafari wanted to visit Egypt, and we hoped this 
could happen soon. 
 
5.  (C) The Deputy Secretary congratulated Nazif on the 
progress of economic reform, noting that the critical mass of 
reform-minded ministers in Nazif's Cabinet was key to the 
change Egypt was experiencing.  He also noted that Egypt had 
a large number of college graduates who would be looking for 
job opportunities in the coming years.  Economic growth would 
be needed to ensure that jobs were created to absorb this new 
labor.  Nazif agreed, and noted that July 14 was the one year 
anniversary of his administration.  He pointed out that in 
one year, inflation had fallen from 14 to 4.7%, mainly 
because investor confidence had increased with the Nazif 
government.  Confidence was the key to economic growth. 
Investors trusted Nazif's government, so hope had been 
revived.  A lot of foreign investment was coming into the 
stock exchange and into the state-enterprise privatization 
program, he added.  Tourism revenues were up, as were Suez 
Canal revenues, which had increased 20% over 2004.  The 
economy was still fragile, however, and the average Egyptian 
had not yet seen the positive effects of reform.  Nazif was 
confident that would change with time and continued reform 
efforts. 
 
------------------------ 
QIZs and Loan Guarantees 
------------------------ 
 
6.  (C) Nazif also noted that the numbers for the QIZ program 
were very positive.  Approximately 50 companies had already 
exported $50-60 million in goods to the U.S.  Sixty percent 
of the companies had not previously exported to the U.S., and 
90% of the companies had capital of less than $10 million. 
Minister of Foreign Trade and Industry Rachid added that 450 
new companies had been approved to participate in the QIZs, 
so three more QIZs would be needed.  This would help create 
the new jobs needed to absorb the increased workforce 
discussed earlier. The Deputy Secretary replied that while 
Nazif's visit to the U.S. had been productive, especially his 
discussions on the Hill, the Administration was facing a 
tough battle with Congress over CAFTA.  The Senate had passed 
the agreement, and it would be considered by the House this 
month, hopefully before the August recess.  In the interim, 
it would be helpful if the GOE could provide information on 
how three more QIZs would benefit Egypt.  One component of 
that might be how more QIZs could help Egypt prepare for an 
FTA. 
 
7.  (C) The Deputy Secretary also raised the issue of U.S. 
loan guarantees for Egypt, as reflected in Secretary Snow,s 
recent letter to Finance Minister Youssef Butros Ghali.  He 
pointed out that the deadline for accessing the guarantees 
was September 30, and that it often took several months to 
draw up the agreements.  If Egypt wanted to access the 
guarantees, the GOE would have to move quickly.  Nazif said 
the GOE did want the guarantees, especially in light of the 
costly reforms it was undertaking in the financial sector, 
and would act quickly.  He noted that the Minister of Finance 
was currently in the U.S.  Nazif said he would call Butros 
Ghali to make sure that the loan guarantee issue was on his 
agenda during the trip. 
 
---------------- 
Political Reform 
---------------- 
 
8.  (C) Turning to political issues, the Deputy Secretary 
said that President Mubarak had recently taken an historic 
step by allowing competitive presidential elections.  The 
upcoming parliamentary elections would also be a measure of 
Egypt's commitment to reform.  Although the U.S. recognized 
that progress had been made, more reform was needed, and free 
and fair parliamentary elections would send a good message 
about Egypt's seriousness in pursuing reform.  Nazif 
responded that in the past the Cabinet had only handled 
economic issues, but that had changed under the current 
administration.  The PM was also now engaged in political 
reform.  Nazif said the new election law was a good start, 
and Egypt was trying to meet international standards, but the 
democratic process needed time to get underway.  He was 
concerned that none of the opposition parties had the 
capacity to mount a national election campaign, let alone 
participate effectively in parliament.  He pointed out that 
the leadership of these parties was old and had not prepared 
a new generation.  He also noted that press freedom was 
increasing, so that was a sign of the GOE's good intentions 
on democratic reform. 
 
9.  (C) The Deputy Secretary replied that winning more seats 
in parliament could actually help opposition parties increase 
their organization and effectiveness.  He noted that the 
election law was somewhat ambiguous and might limit formation 
of new opposition parties.  Nazif responded that there were 
already twenty opposition parties, and he hoped opposition 
forces, rather than forming new parties, would work to better 
organize the existing ones.  He joked that it might be most 
effective for the NDP to simply split into several parties. 
He also pointed out that democratic change had to be done 
"Egypt's own way." 
 
--------------- 
U.S. Assistance 
--------------- 
 
10.  (C) PM Nazif said that he was interested in how U.S. 
assistance was spent and had some new ideas on redirecting 
assistance.  The Deputy Secretary said he was willing to 
continue discussions with Nazif.  Egypt's success was 
important for the region's success.  Nazif said he was 
pleased with the dialogue and would like to see more informal 
communication channels open.  He thanked the Deputy Secretary 
for the support provided through USAID and asked that the 
Deputy Secretary work to ensure that assistance to Egypt 
remained unchanged.  Nazif also noted that POTUS had assured 
him in the U.S. that the assistance package would not change. 
 Continued U.S. assistance was important to ensure the 
success of the GOE's reform efforts.  The Deputy Secretary 
replied that PDAS Cheney had discussed assistance to Egypt 
with the Director of USAID and that efforts were also 
underway to start up a new enterprise fund, which State would 
coordinate with other USG agencies.  Nazif said the fund was 
a good idea, one that could start small and grow over time. 
 
11.  (U) This message has been cleared by D. 
 
 
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