VZCZCXYZ0034
RR RUEHWEB

DE RUEHEG #5461 2431524
ZNR UUUUU ZZH
R 311524Z AUG 06
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 1026
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0191

UNCLAS CAIRO 005461 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
STATE FOR NEA/ELA, NEA/RA, EB/IDF/OMA 
USAID FOR ANE/MEA MCCLOUD AND DUNN 
TREASURY FOR NUGENT AND HIRSON 
COMMERCE FOR 4520/ITA/ANESA/TALAAT 
 
E.O. 12958:  N/A 
TAGS: ECON EAID EFIN EG
SUBJECT: EGYPT:  CONGRESSIONAL EARMARK AGAINST PRESIDENT'S 2007 
APPROPRIATIONS REQUEST WOULD HAMPER ASSISTANCE GOALS 
 
Sensitive but Unclassified.  Not for Internet distribution. 
 
REF:  A. Cairo 5001 
 ¶B. Cairo 5169 
 
¶1.  (U) ACTION REQUEST:  Please see para 4. 
 
¶2.  (SBU) The Senate version of the 2007 Foreign Operations Bill 
contains language restricting the President's budget request and 
discretion in using it.  If left unchanged, these restrictions will 
make it difficult to meet the goal of negotiating an updated, more 
effective model for economic assistance to Egypt.  The aim of the 
new model is to get better results at lower costs, by putting more 
responsibility on the Egyptians to develop and implement a program 
agreed to by both governments, and disbursing funds based on 
achievement of specific benchmarks.  The Senate version of the 
appropriations bill would reduce flexibility in responding to 
Egyptian proposals for development/reform objectives and 
benchmarks. 
 
¶2.  (SBU) Since 1975, Congress has appropriated assistance to Egypt 
as a "lump sum" drawn from Economic Support Funds (ESF).  The Senate 
is now proposing to split the assistance program among four 
different funding sources:  democracy, health and child survival, 
basic education and economic support.  This could make sense from an 
accounting point of view, as it would be easier to determine how 
much money was spent in these four areas.  However, it would remove 
flexibility for the Administration in responding to the Egyptian 
government's proposals for development/reform objectives, as each of 
the four funds carries a different set of restrictions on its use. 
 
 
¶3.  (SBU) Another concern is the possible rescission of FY 2006 
monies.  The House has proposed a $300 million rescission in FY 2006 
ESF for Egypt, while the Senate proposed $200 million.  These 
proposals were based in part on the perception that Egypt was not 
making adequate progress in meeting the benchmarks agreed to under 
the Financial Sector MOU, and would therefore be ineligible to 
receive these funds.  Regarding the House bill, Congressman Kolbe 
said that they would reconsider if Egypt did show progress.  In our 
view, as reported Refs A and B, Egypt is making strong progress on 
the MOU benchmarks.  One of the most important benchmarks still 
pending, privatization of the Bank of Alexandria, is expected by the 
first week of October. 
 
¶4.  (SBU) ACTION REQUEST:  Sustaining the President's request, 
unencumbered by the restrictions in the draft bills, will require 
determined advocacy by the Department.  Specifically, the 
Administration must gain removal of the language in the 2007 Senate 
version of the Foreign Operations Appropriate Bill that would split 
the assistance program into four funding areas, rather than just 
ESF.  The U.S. Administration would be best served by retaining the 
current system of appropriating all assistance solely from ESF 
funds.  Congress could then earmark some portion of the assistance 
for certain important activities, such as promoting democracy and 
freedom.  We would meet those earmarks, as we have in the past, but 
would still have the flexibility needed to negotiate with the 
Egyptian government on amounts and uses of the assistance funds. 
Secondly, we need both houses to remove the rescission provisions in 
the current bills.  This will require detailed briefing of 
appropriate members and staff on Egypt's progress on financial 
sector reform, drawing from points in refs A and B. 
RICCIARDONE