VZCZCXYZ0013
RR RUEHWEB

DE RUEHEG #5169/01 2291553
ZNR UUUUU ZZH
R 171553Z AUG 06
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 0707
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0182

UNCLAS CAIRO 005169 
 
SIPDIS 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR NEA/ELA, NEA/RA, EB/IDF AND EB/OMA 
USAID FOR ANE/MEA MCCLOUD AND DUNN 
USTR FOR SAUMS 
TREASURY FOR NUGENT AND HIRSON 
COMMERCE FOR 4520/ITA/ANESA/TALAAT 
 
E.O. 12958:  N/A 
TAGS: ECON EFIN ETRD EINV EG
SUBJECT: EGYPT:  FINANCIAL SECTOR MOU UPDATE, PART II 
 
 
Sensitive but Unclassified.  Not for Internet distribution. 
 
REF:  Cairo 5001 
 
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SUMMARY 
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¶1.  (SBU) Reftel reported GOE progress in meeting benchmarks for the 
first three policy items of the Financial Sector MOU.  Following is 
post's assessment of GOE progress on the remaining policy items in 
the MOU.  In a boost to the GOE's overall real estate sector reform 
program (key benchmarks for which are part of Policy Item 4 of the 
MOU) the Ministry of Investment (MOI) announced the effective 
abolition of stamp taxes on various financial transactions. 
According to the Minister of Investment, elimination of the stamp 
tax should help promote the securitization market and hence mortgage 
financing, a financial service MOI is aggressively promoting.  End 
summary. 
 
--------------------------------------------- --------- 
Policy Item 4:  Strengthening the Financial Sector and Policy Item 
5:  Corporate Governance 
--------------------------------------------- --------- 
 
¶2.  (U) The U.S. will disburse USD 50 million in DSP funds upon 
completion of the following six benchmarks for Policy Items 4 and 
5: 
 
Benchmarks 4.1 - Issuance of regulations that would: 
 
- Establish standards for real estate appraisal; 
 
Completed - The format for the appraisal report was established by 
the Mortgage Finance Authority (MFA) and the MOI through the 
national project for urban real estate registration, which is being 
implemented by the Ministry of State Administration Development 
(MSAD). 
 
- Establish a real estate appraisal and certification program; 
 
Completed - Over 80 appraisers have been certified by the MFA and 
can now conduct approved appraisals. 
 
- Establish a national land title registration system, including 
procedures and appropriate information systems; 
 
Pending - Phase I of the national land title registration system is 
underway in nine pilot zones and is expected to be fully functioning 
in those zones by April 2007.  The registration system is expected 
to be fully functional throughout the country by 2013.  All property 
registration will be conducted through the title system, which will 
also replace deed (personal) registration. 
 
- Reduce property transfer and/or registration fees to less than 1 
percent of the transaction price; 
 
Completed - A law was enacted in May 2006 bringing registration fees 
down to a flat rate, irrespective of the contract value.  In early 
August 2006, MOI issued the new schedule of property registration 
fees under the amended law as follows:  LE 500 for areas up to 100 
square meters, LE 1000 for up to 200 sq. meters, LE 1500 for up to 
300 sq. meters and LE 3000 for areas over 300 sq. meters. 
 
Benchmark 4.2 - Pass legislation to: 
 
- Define rules for joint property ownership; 
 
Pending - The MOI is using the new urban communities as a test case 
for resolving this issue.  A protocol is expected soon from the 
Ministry of Housing and New Urban Communities to facilitate partial 
property ownership in the new communities.  A draft regulation was 
submitted to the Ministry of Justice in February 2006 on divided 
co-ownership of moveable property. 
 
- Establish land ownership (title) certification for the purpose of 
securing land holding for residential or commercial property; 
 
Pending - The draft law being prepared by the MOJ and MSAD, will, 
according to MSAD, establish land ownership (title) certification. 
Land ownership certification is still problematic.  Even if land is 
initially registered, ownership transfer is not.  This is mainly due 
to cumbersome registration procedures and lack of awareness by the 
public. 
 
Benchmark 4.3 - Pass legislation and issue implementing regulations 
to enact modern bankruptcy procedures, including foreclosure and 
eviction and procedures that would facilitate joint lender/debtor 
resolution of outstanding debts. 
 
Completed - Regulation on bankruptcy procedures exists in the 
mortgage law.  A total of 14 agents entitled to certify foreclosure, 
eviction, and other procedures have been approved and certified by 
MFA. 
 
Benchmark 4.4 - Pass legislation, if required, and implementing 
regulations that would permit establishment of private credit 
bureaus. 
 
Completed - On August 30, 2005 CBE issued rules and procedures for 
the licensing of credit bureaus, and also issued approval to 
establish the first private credit bureau, the Egyptian Credit 
Bureau (ESTAILAM).  ESTAILAM will have responsibility for credit 
investigations and credibility ratings for bank loans, real estate 
transactions, financial leasing and commodity procurement.  The 
minimum required capital for credit bureaus is LE 5 million.  On 
January 16, 2006, the CBE Board of Directors approved implementing 
regulations for the operation of credit bureaus; rules governing the 
exchange of data and information and the system CBE will employ to 
monitor credit bureaus. 
 
Benchmark 4.5 - Facilitate securitization through completion of 
legislative changes. 
Completed - Securitization regulations were introduced into the 
Capital Market Law in June 2004.  In April 2006, further legislative 
amendments were made to the Capital Market Law, specifying rules of 
establishment and operation of securitization companies.  In late 
June 2006, the MFA announced the establishment of the Egyptian 
Liquidity Facility (ELF) to play the role of market-maker through 
re-financing the portfolios of banks and companies involved in the 
mortgage industry with interest rates lower than the prevailing 
market rates.  The ELF is also to perform securitization for primary 
mortgage financing institutions. 
Benchmark 4.6 - Publish a corporate governance best practice code to 
generate awareness and encourage companies to comply with the code. 
 
 
Completed - Guidelines for private sector corporate governance were 
issued by the MOI in the form of Ministerial Decree No. 332/2005 in 
October 2005.  The guidelines were prepared in accordance with OECD 
corporate governance principles, but are not binding.  The 
guidelines apply primarily to share-holding and limited-liability 
companies, established under Law 159 for 1981 (the Companies Law) 
and Law 95 for 1992 (the Capital Market Law), in addition to 
brokerages.  A code of corporate governance for public sector 
companies was published at the beginning of July 2006 by the 
Egyptian Institute of Directors, and these guidelines are binding. 
 
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Policy Item 6:  Insurance Sector 
-------------------------------- 
 
¶3.  (U) The U.S. will disburse USD 25 million in DSP funds upon 
completion of the following benchmark of Policy Item 6: 
 
Benchmark 6.1 - Privatization of the candidate public insurance 
company. 
 
Pending - After announcement of the international consortium to 
restructure major state-owned insurance companies in September 2005, 
a self-diagnostic matrix valuation of the insurance companies was 
completed in November 2005.  The due diligence diagnostic report of 
the four public insurance companies, including available skill sets, 
and development of the financial statements of the companies is 
expected by September 2006.  If progress continues at the current 
pace, full privatization of one of the companies is possible by 
mid-2007. 
 
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STAMP TAX ABOLISHED 
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¶4.  (SBU) Minister of Investment Mahmoud Mohieldin announced this 
week the effective cancellation of the stamp tax levied on financial 
transfers, debentures, bond ownership, and contracts for 
establishment of companies or capital increases.  The tax was 
canceled by a Ministerial Decree issued July 1.  Mohieldin stated in 
the press that elimination of the tax would bolster the 
securitization market, and hence mortgage financing and refinancing. 
 The MOI, in conjunction with the Ministry of Housing, is 
aggressively promoting mortgage financing, particularly in the new 
urban communities around Cairo.  The GOE's willingness to forego 
revenue from the stamp tax demonstrates political backing for the 
economic reforms necessary to expand this underdeveloped financial 
service sector in the Egyptian market. 
RICCIARDONE