VZCZCXYZ0022
RR RUEHWEB

DE RUEHEG #3541/01 3611206
ZNR UUUUU ZZH
R 271206Z DEC 07
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 7794
RHEHNSC/NSC WASHDC
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0367

UNCLAS CAIRO 003541 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ELA, NEA/RA, EB 
NSC FOR MIKE PASCUAL 
USAID FOR ANE/MEA MCCLOUD AND RILEY 
TREASURY FOR MATHIASON 
COMMERCE FOR 4520/ITA/ANESA/OBERG 
 
E.O. 12958:  N/A 
TAGS: EAID PREL ECON EG
SUBJECT: Central Bank Governor Commits to Completing Financial 
Sector MOU Benchmarks 
 
REF:  Cairo 3365 
 
Sensitive but Unclassified.  Please handle accordingly. 
 
¶1. (SBU) On December 17, the Ambassador and Econoffs met with 
Central Bank of Egypt (CBE) Governor Farouk El Okdah and the two 
Deputy Governors, Tarek Amer and Tarek Kandil, to cover a wide 
variety of end-of year issues. The Ambassador began by 
congratulating the Governor and Deputy Governor Amer for their 
reappointments to another four-year term and congratulating Deputy 
Governor Kandil for his recent promotion from Sub-Governor to Deputy 
Governor.  The Governor thanked the U.S. for its continued support 
and noted great optimism about the health of the Egyptian economy. 
He did note concern that many of lower-income citizens were not 
benefiting from Egypt's strong growth, and he indicated that he had 
made this point to the Prime Minister and the rest of the cabinet. 
 
 
¶2.  (SBU) The Ambassador noted that the U.S. continues to be very 
supportive of the Egyptian financial reform effort, but noted 
concern over the large pipeline of undisbursed funds related to the 
incomplete benchmarks in the Financial Sector MOU. In particular, 
the Ambassador inquired about the two outstanding benchmarks under 
the CBE's control: 1) the status of the financial sector due 
diligence ("audits") of the public sector banks and 2) the prospects 
for the finalization of the Master Repurchase Global Agreement. 
 
¶3.  (SBU) Regarding the audits, the Governor and Deputy Governor 
Kandil indicated that the work is underway and the results should be 
ready for analysis in January or February.  The Governor also 
recommitted to requesting the international audit firms to initiate 
the 2007 audit work immediately after the 2006 work is finished, so 
as to be in a position to make a subsequent disbursement request not 
long thereafter.  The Governor expressed great optimism that there 
would be considerable progress shown on NPLs in the 2006 audit 
report; this contrasts with the less-optimistic indications we 
received from Deputy Governor Kandil when he met with visiting PDAS 
Liz Dibble (reftel).  (Note: The disbursement which hinges on the 
completed audit reports is a pro rata disbursement which is based on 
progress towards: reduction of the non-performing loans, an increase 
the amount of cash recoveries made on those recovered assets, and 
the growth of growth of credit to the private sector. End note.) 
 
¶4.  (SBU) Regarding the Master Global Repurchase Agreement, the 
governor's initial reaction was that that the banks are so liquid, 
they have no reason to pursue "repos".  While recognizing the banks' 
high liquidity levels, the Econoffs noted that various experts (IMF, 
World Bank and U.S. Treasury debt advisor) have identified this as a 
constraint to the development of a healthy financial sector, as the 
banks are looking for a CBE signal that these deals are fully 
sanctioned.  Econoffs agreed that the Repurchase Agreement will not 
suddenly create a robust secondary market in government securities, 
but noted that the lack of such a Master Agreement was a possible 
constraint which, if eliminated, could increase the amount of 
trading taking place.  The Governor concluded by saying that it 
would be no problem to put something in writing and send it to us 
early in the new year.  The Governor's optimism on this benchmark 
was not consistent, however, with Deputy Governor Kandil's recent 
assessment that the market was still "2-3 years" from being ready 
for this (reftel). 
 
¶5. (SBU) The Ambassador inquired about the process of the Banque du 
Caire privatization.  The Governor indicated that the process was on 
track and that they expected to evaluate bids in the first half of 
the year and the sale would be finalized before July 2008.  The 
deadline for bid submissions was on the December 17, the same day 
the meeting took place and we subsequently learned that an extension 
had been granted.  The Governor made no mention of this. 
 
¶6. (U) USAID Director of Policy and Private Sector thanked the CBE 
for their recent interest in micro, small and medium enterprises, 
and the Governor noted that 2008 would be the year when the CBE 
would get much more involved in M/SME issues.  USAID also noted that 
he was pleased that some of the U.S. graduate schools for banking 
have shown interest in Egypt, and urged the CBE to help make these 
relationships long-term and sustainable, so as to not have to rely 
on donor assistance. 
 
¶7. (SBU) The Treasury Financial Attache noted the concern expressed 
in the recent IMF Article IV and Financial Sector Stability 
Assessment which noted both the perception of the lack of 
independence of the CBE and the perception of conflict of interest 
of some members of its Board.  The Governor made the general comment 
 
that there simply are not enough qualified people in Egypt to be 
able to staff a 15-person Board without having some perceived 
conflict.  As a step to remedy this, he noted that none of bankers 
on the Board are permitted on the monetary policy committee or to 
participate in CBE discussions pertaining to individual banks. 
Also, he noted that to isolate himself from perceptions of conflict 
of interest, he would seek to step down as the chair of the General 
Assembly of the state-owned banks, so that he would not be seen as 
both a regulator and owner. 
 
RICCIARDONE