Cable sobre el primer ministro egipcio y su visión de las reformas económicas del país

Date:2008-09-25 13:49:00
Source:Embassy Cairo
Dunno:08CAIRO1370 08CAIRO397 08CAIRO730 08CAIRO931

DE RUEHEG #2098/01 2691349
P 251349Z SEP 08

C O N F I D E N T I A L CAIRO 002098



E.O. 12958: DECL: 09/23/2018

1560 E) CAIRO 730

Classified by Ambassador Margaret Scobey for reason 1.4 (d).

1. (C) SUMMARY: In a meeting with the Ambassador, Prime
Minister Nazif said that it is essential that the GOE
continue with its economic reform program, including
privatization, and maintain high growth levels. He said that
Egypt has been able to "weather a difficult year" but that
"we can't take a second blow." He said inflation was the
biggest challenge, and would prevent further subsidy
adjustments in the near term, but was also concerned about
developments in international financial markets. On ESF,
Nazif appears to distance himself from the Ministry of
International Cooperation's (MIC) position of "no new
projects" after FY 2008 (ref a), and called ESF a "symbol of
friendship and partnership." He reitereated earlier comments
that the level per se was not as important as the fact that
it is "a way to bring in know-how that we couldn't get any
other way." The prime minister downplayed concerns about the
draft media law (ref b) and observed that efforts to censor
the internet would not be effective. "As long as I am prime
minister, we will not censor the internet, or remove
Facebook." In a discussion about Ayman Nour, he repeated the
GOE position that Ayman Nour's case is a criminal one, not a
human rights case, and that mention of Nour by POTUS was very
upsetting to President Mubarak. END SUMMARY.

2. (C) Ambassador called on Prime Minister Ahmed Nazif on
September 22 to review the status of the economic reform
program and ESF issues, accompanied by econ counselor
(notetaker). She opened by delivering Secretary Rice's Eid
greetings to the prime minister, for which he was grateful.
He asked about recent developments in US financial markets.
He said Egypt has been able to weather a difficult year,
noting that inflation remains very high. He described
inflation in Egypt as "imported," with about 80 percent of it
attributable to increasing food and energy prices. Nazif
said the GOE had addressed this with the "May package" of a
thirty percent wage hike to government employees, offset by
tax hikes and a reduction in energy subsidies. With these
measures, combined with high growth rates, the GOE brought
the budget deficit within targets, but, he cautioned, "we
can't take a second blow." The GOE hopes to maintain growth
at 6.0-6.5% percent this year, but Nazif said this is a

3. (C) When asked about plans for continued reform, Nazif
explained that the GOE had made its commitment to economic
reform clear at the WEF in Sharm in May 2008. Now, he said,
"we need action." A major goal of the GOE right now is to
fix internal market mechanisms, and to improve internal
trade. Egypt needs distribution centers for wholesale and
retail trade outside of Cairo and Alexandria. This, he said,
would create investment opportunities and jobs, and allow the
development of a more structured market. It will increase
competition in the market and smooth retail prices. It will
be up to the private sector to create these distribution
points, but the problem they face is land. The GOE is
working to identify and provide small parcels (about 50
acres) to private commercial developers.

4. (C) Another major goal is to revitalize the
privatization process. The GOE plans to rehire the
consultant for the Banque du Caire privatization as a signal
to the markets that the GOE still intends to sell the bank
(ref c). They are also looking at other ways to privatize
firms including mass privatizations, as was done in eastern
Europe. These programs will be announced at the NDP party
conference in November.

5. (C) On the issue of energy, the prime minister observed
that energy prices in Egypt did not change between 1992 and
2004. Since 2004, gasoline prices have risen 75 percent, and
diesel, 120%. Under current economic circumstances and
inflation rates (24 percent year-on-year in August 2008), it
would be hard, he said, to raise prices again. The GOE
target is single digit inflation by mid-2009. The Egyptian
pound, he said, is sometimes seen as slightly undervalued,
and if it were to strengthen somewhat this would have an
impact on inflation. Nazif also noted that the composition
of Egypt's foreign reserves in terms of currency closely
reflect the breakdown of its foreign debt, thereby protecting
Egypt from currency movements. Once inflation is down, he
hopes that the GOE can restart the reform program and return
to accelerated growth rates.

Economic Assistance
6. (C) The Ambassador reminded Nazif that the
Administration has proposed $200m in ESF for Egypt in 2009,
but that Congress has not taken any action as yet. She
underlined that even at $200m, Egypt is one of the USG's
largest aid recipients. She said USAID would like to
continue to focus on health, education and poverty
eradication. Nazif agreed, commenting that "the economic
assistance is a symbol of our cooperation. The value is not
the money, but in the partnership, in the flexibility of the
assistance, and for the expertise." The significance, he
said, is in those two things: "it has been a symbol of
friendship and partnership, and it is channeled to areas
where it is difficult to use Egyptian government funds." "It
is a way to bring in know-how that we couldn't get any other
way." "We should keep it intact."

7. (C) The Ambassador outlined what we have been told by
MIC's Fayza Aboulnaga; that the Egypt government does not
accept this level, and that no new projects will be signed
using FY 2009 money (ref a). This, she explained, was
forcing USAID to make decisions on ongoing programs. One
area that will be affected will be salary support for
Egyptians who have been recruited internationally, and
outside the civil service system, to work within the reform
units at the economic ministries. USAID will phase out ESF
support for these experts, and suggests that the GOE program
local currency to cover these costs. Nazif responded that
the GOE was "a little disappointed" in the process of setting
the new ESF level, and "that is the reason that Fayza is
taking this approach." Nazif said that the USAID support for
these reform units has been very helpful, and remain critical
to getting the right people on board as they cannot be paid
under Egypt's current civil service pay scale. "It will put
us into trouble," he said, "if we don't find a way to pay for

8. (C) In discussing the future of the overall program, the
Ambassador underlined that it is important to the U.S. to
remain engaged in projects that directly benefit the Egyptian
people. "We have a significant military assistance program.
We want to maintain our economic assistance as well," she
said. She noted that there is no support within the
Administration for using ESF for debt relief, and that it did
not make economic sense. Nazif did not disagree. She noted
that the idea of an endowment, or foundation, has not been
rejected, but that it would require Congressional action.
The Ambassador also said that the D&G program continues to
garner Congressional attention, and cautioned that an
endowment would not get Egypt out from under this
requirement. Nazif observed that "we do not see the
foundation as a way out of D&G programming," adding that the
U.S. and Egypt agree on the basics of the program.

Media law
9. (C) The Ambassador noted the importance of not
backtracking on progress made in media freedom, and expressed
concern about press reports about the draft media law (ref
b). Nazif said that the draft law had been misrepresented in
the press, and that the intent of the law would be to create
a media regulator, with the authority to issue licenses to
media outlets, and was not based on recent Arab League
resolutions regarding the media (ref d). The prime minister
observed, however, that the GOE continued to be concerned
about the potential for using the internet, and Facebook in
particular, to incite violence, as was the case leading up to
the April 6 Mahalla riots (ref e). He agreed that banning
Facebook and limiting internet access was not effective, but
said the GOE would monitor the internet closely. However,
"as long as I am prime minister," he said, "we will not
censor the internet, or remove Facebook."

Ayman Nour
10. (C) The Ambassador noted that the President would be
speaking about D&G in New York that day at a democracy
luncheon, and the issue of Ayman Nour's continuing detention
could arise. Nazif responded that such a public statement
would not do Ayman Nour any good. He said President Mubarak
becomes very upset every time that President Bush raises the
case, as he considers it a criminal, rather than a human
rights, case, and that raising it publicly would not help
Nour. The Ambasasdor responded that the USG continues to
take this case very seriously, and would continue to raise
it. Nazif commented that the Egyptian government would
always talk to the US about these issues privately.

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