VZCZCXYZ0007
RR RUEHWEB

DE RUEHEG #2872/01 2670747
ZNR UUUUU ZZH
R 240747Z SEP 07
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 6998
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0345

UNCLAS CAIRO 002872 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ELA, NEA/RA, EB/IDF 
USAID FOR ANE/MEA MCCLOUD AND RILEY 
 
USTR FOR SAUMS 
TREASURY FOR MATHIASON AND HIRSON 
COMMERCE FOR 4520/ITA/ANESA/OBERG 
 
E.O. 12958:  N/A 
TAGS: ECON EFIN EG
 
SUBJECT: World Bank mulls timing and content of its next financial 
sector loan in Egypt 
 
REF:  A) Cairo 2868; B) Cairo 2726 
 
Sensitive but Unclassified.  Please protect accordingly. 
 
 
¶1. (U) Summary:  The World Bank continues to prepare its next large 
financial sector loan to Egypt, but is slowing presentation to the 
World Bank Board somewhat, pending resolution of the Banque du Caire 
privatization, among other conditions. World Bank staff senses some 
reform hesitation at the Central Bank, a view not shared by the IMF 
(ref a).  End Summary. 
 
¶2. (SBU) Treasury Attache met with World Bank staff working on 
financial sector reform on Sept. 20.  World Bank staff expressed 
some concern that the Central Bank's commitment to financial sector 
reform may have slowed.  The World Bank noted that Governor El Okdah 
had not spoken publicly about the Banque du Caire sale for some 
time, and that the Governor had skipped the session with the 
Parliament, instead sending Deputy Governor Tarek Amr and Minister 
of Investment Moheildin to face the Parliament's tough questions. 
In addition, when President Mubarak and Prime Minister Nazif were 
forced to publicly defend the privatization plan, World Bank staff 
opined that this could indicate Mubarak's and Nazif's disappointment 
that the Governor had not been willing to take some of the public 
criticism (ref b).  The announcement for the sale advisor of Banque 
du Caire has been anticipated for several weeks, but the World Bank 
questioned whether it would be forthcoming during the month of 
Ramadan (which ends October 13).  It was the World Bank's view also 
that the Governor had become a bit less forthcoming and more 
defensive regarding information pertaining to the status of 
restructuring the two remaining state-owned banks (Bank Misr and 
National Bank of Egypt). 
 
¶3. (U) The World Bank is still prepared to lend more budget support 
to the Government of Egypt, assuming reform does not slow.  Earlier 
in the year, the World Bank had anticipated bringing their 
Development Policy Loan (DPL) II to the Board in September, but now 
is waiting at least until the Banque du Caire sale advisor is 
announced, and more likely, waiting until the sale itself is 
completed (anticipated in March 2008). 
 
¶4. (U) When the World Bank's DPL I was approved in 2006, it 
foreshadowed the conditions it would be seeking for a follow up 
loan.  In general terms, the phase two loan is envisioned to cover 
areas such as: (i) the regulatory and supervisory framework for 
banking and insurance, (ii) the restructuring of the state-owned 
banks, (iii) reducing public ownership in the joint venture banks, 
(iv) restructuring of the insurance industry, (v) modernizing budget 
preparation, and (vi) improving public financial management and 
corporate financial reporting.  In addition to seeking greater 
comfort that the Banque du Caire sale will come to fruition, some of 
the specifics that the World Bank is focused on include: getting 
greater clarity from the GOE on the plans for the remaining 
state-owned banks, seeing at least one state-owned insurance company 
privatized (as also benchmarked in the US Financial Sector MOU cash 
transfer), and taking action on the draft Accountancy Law.  The 
Accountancy Law seeks to modernize the supervision/regulation of the 
accounting industry in Egypt and has been in draft form since 2003 
when the World Bank first recommended it be updated. 
 
¶5. (U) The African Development Bank (AfDB) also wishes to be part of 
the lending package to the GOE, as the AfDB indicated to the 
Treasury Attache in early September.  However, it remains somewhat 
unclear how the World Bank and AfDB will divide these 
responsibilities, and what the ultimate timing and amounts from the 
two institutions will be.  An AfDB negotiating team is expected to 
visit Cairo in November. 
 
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Comment 
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¶6.  (SBU) There are some areas in the proposed DPL II which are 
either addressed in USAID's existing Financial Sector MOU, or which 
are envisioned in the draft education, health and private sector 
cash transfer MOU which should be signed soon.  It will be important 
for the US and the World Bank (and the AfDB if necessary) to 
coordinate as we try to reward good performance, stimulate faster 
reform and not undermine or duplicate each other's efforts.  (Note: 
When the original DPL and the AFDB companion loan were made in 2006, 
there was some concern in the USG that the multilateral development 
bank loans were undercutting USG assistance as they provided large 
 
sums up-front, as opposed to the USG MOU which required some 
performance before the bulk of the funds were disbursed. End Note.) 
As we look to the more distant future, it is worth flagging that the 
World Bank seeks to do a potential DPL III in 2009, assuming reform 
momentum is adequate. 
 
¶7. (SBU) This conversation with World Bank staff suggests that the 
Bank is less positive than the IMF is on Egypt's reform momentum. 
The IMF's concluding statement to its recent Article IV mission 
(dated September 12, 2007) was very positive (ref a).  The divergent 
views from the two institutions may be a result of who their primary 
interlocutors are.  The World Bank tends to be less close with the 
Central Bank, yet very close with the Ministry of Investment, 
whereas the IMF is very close with the Central Bank, and less so 
with the other ministries.  It will be interesting to see if the 
World Bank is capable of leveraging faster reform from the GOE. 
JONES