VZCZCXYZ0009
OO RUEHWEB

DE RUEHEG #3423/01 3401507
ZNY CCCCC ZZH
O 061507Z DEC 07
FM AMEMBASSY CAIRO
TO SECSTATE WASHDC IMMEDIATE 7663

C O N F I D E N T I A L CAIRO 003423

SIPDIS

SIPDIS

E.O. 12958: DECL: 12/05/2017

TAGS: EAID PGOV EG

SUBJECT: EGYPT´S FY 2009 ESF: PROPOSED BUDGET FOR D&G

REF: A) CAIRO 3343 B) CAIRO 3420

Classified by Ambassador Francis Ricciardone for reason 1.4 (d).

¶1. (C) SUMMARY AND INTRODUCTION: After a great deal of deliberation, in which Embassy Cairo participated fully, the inter-agency agreed to allot $66.5m for democracy and governance programs in Egypt for FY08 and $75m for FY09. These figures represent annual totals of our support for civil society -- both US and Egyptian NGO´s -- and also for programs carried out with the Government of Egypt in the areas of administration of justice, media reform and decentralization. We believe that the likely negative Egyptian response to this level of funding, and the inability of US and Egyptian NGO´s to spend at this level with intended results and required accountability, argue for reducing the FY09 D&G figure to $50m. If conditions change, or our projections prove too conservative, we could consider adding funds from other Egypt ESF sources. END SUMMARY.

¶2. (SBU) The political party institutes, NDI and IRI, as well as IFES and Freedom House, are conducting commendable programs in Egypt under very difficult circumstances. Regrettably, there is no reason to believe that they will be registered and permitted to carry out the full range of national activities originally envisioned in their grants. NDI and IRI received new grants in FY07 for $1.5m apiece. This covers the cost of their Cairo offices and off-shore programs. The NDI grant is for two years ($750,000 in FY 2007 and $750,000 in FY08); the IRI grant is for one year.

¶3. (SBU) On November 29, NDI´s regional director told us that, under the current constrained environment, NDI does not envision asking for additional funds through the end of FY09. On December 3, IRI´s Egypt director told us that IRI is preparing a proposal to substantially increase its current grant to provide training in the lead-up to the Spring 2008 municipal elections. We expect that this may be as much as $6.5 million in FY08 funds, in addition to $1.5 million granted in FY07.

¶4. (SBU) Freedom House received a $900,000 grant in FY06 to support the development of civil society advocacy and reform in Egypt. They have spent approximately $400,000. Freedom House´s deputy director of programs told us in Cairo November 7 that they will probably not be able to spend this money by March 2008 but should be able to finish by September 2008. We also expect them to submit a new proposal asking for as much as $5 million in FY08 money.

¶5. (SBU) IFES currently has a one-year grant for $1.3 million, signed in FY07. They are spending this money on schedule, and expect to continue to do so. IFES has requested additional $750,000 in FY08 DRL funding to spend in Egypt. We also expect them to ask us for another $1.5 million in FY08 ESF.

¶6. (SBU) While it is conceivable that both IRI and Freedom House could expend significantly more funds than they are spending now, given their records here in Egypt we doubt that they can do so under their own and USG standards for results and accountability.

(U) Current and projected spending is as follows:

-- FY06 FY07 FY08 (millions of US dollars)

IRI 1.5 1.5 6.5*
NDI 1.4 0.75 0.75
IFES 1.3 1.3 1.5*
FH 0.9 0 5.0*
TOTAL 5.1 3.55 13.75

*Our estimate of potential requests; we have not yet seen written grant proposals from IRI, IFES or Freedom House.

¶7. (SBU) In addition to the funding for the institutes, we have given direct grants to about forty Egyptian NGOs. We believe we are funding very nearly every organization in Egypt that wishes to work with us and meets the direct grants criteria. Again, these organizations are working under the most difficult circumstances. They cope with onerous GOE restrictions, both in operating within Egyptian law and in accepting foreign donor funding. Some are also struggling to meet USAID accountability requirements. Indeed, AID has designed a contract to lend technical support to help them handle USG funds properly and responsibly. After receiving a total of $15.5m in multi-year grants in FY06 and FY07, and possibly up to $15 million in FY08, we believe that this sector has reached its absorptive capacity. We judge that expenditures at higher levels in FY 09 would undermine their effectiveness. As evidence of this, we would cite the $7 million pipeline of obligated but unspent FY06 and FY07 money for Egyptian NGOs.

¶8. (U) Existing bilateral programs with the government continue to make important inroads. For instance, the government has adopted a USG-supported decentralization policy that will devolve political, fiscal and administrative authorities to the governorate and district levels. This gives those entities the resources and authority to address local needs more directly. It also gives residents a stake in monitoring and participating in their own local governments. This program, as well as programs in justice and media reform, need continued funding at roughly current levels of $25 million per annum.

¶9. (C) Following the visit of Minister of International Cooperation Fayza Aboul Naga to Washington in November, the Egyptians have begun to recognize that their FY09 assistance will be cut from $415m in FY08 to $200m. Since these discussions, and in meetings with EB PDAS Elizabeth Dibble in Cairo, they have registered frustration, disappointment, anger and denial. On November 21, Deputy Minister Wafaa Bassim told the DCM that the Egyptians found it "unfair" that IRI was receiving funds from the Egyptian ESF account, which is now being cut in half. We believe that if we commit $75m in FY09, we will invite a further negative reaction from the Egyptians that could include retaliation against the US and Egyptian NGO´s alike.

¶10. (C) Political conditions in Egypt could change substantially and suddenly at any time within the next few years, if President Mubarak dies or is incapacitated before completing his term in 2011. Until then, GOE restrictions affecting the operations of civil society groups are unlikely to improve substantially or quickly. Nonetheless, if our projections prove too conservative or civil society groups prove they can take on more activities in Egypt, we can replenish funds from the Egyptian ESF account. In any event, we do need to consult with the Egyptians on the democracy and governance account. They are angry that they were not able to have input into overall funding levels. We owe them an answer soon on the D&G account.

RICCIARDONE