VZCZCXYZ0009
RR RUEHWEB

DE RUEHEG #0090/01 0211330
ZNR UUUUU ZZH
R 211330Z JAN 08
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 7925
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0371

UNCLAS CAIRO 000090 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ELA, NEA/RA AND EEB/IDF 
USAID FOR ANE/MEA MCCLOUD AND DUNN 
TREASURY FOR MATHIASON AND CONNOLLY 
COMMERCE FOR 4520/ITA/ANESA/OBERG 
 
E.O. 12958:  N/A 
TAGS: ECON EFIN EG
SUBJECT: CENTRAL AUDITING AGENCY CRITICIZES GOE BUDGET MANAGEMENT 
 
¶1.  (U) Parliament witnessed heated debates on January 10 over the 
Central Auditing Agency's (CAA) report on the FY 2005-06 and 2006-07 
budgets.  Gawdat El Malt, head of the CAA, lauded the Nazif 
government's success in spurring economic growth and attracting 
investment, but noted the oft-repeated view that growth has not 
improved the lives of the poor.  The report criticized the GOE's 
spending record, claiming that neither assistance funds nor the 
proceeds from privatization were effectively and transparently used 
on programs to benefit the whole country, such as education, 
transportation, sanitation and waste management and health care.  In 
his appearance before parliament, El Malt placed much of the blame 
on Minister of Finance Yousef Boutros-Ghali (YBG), who he said had 
not succeeded in controlling the budget deficit. 
 
¶2.  (U) El Malt also expressed skepticism over the recent World Bank 
"Doing Business" report, which gave Egypt high marks for improving 
the investment climate.  The CAA report claims that investors are 
still impeded by weak administrative systems, lack of transparency 
and poor coordination among GOE ministries.  The report also notes 
that corruption is rampant in municipalities, particularly in the 
housing and construction sectors.  All of these failings have 
created a crisis of confidence between the government and citizens, 
El Malt told members of parliament. 
 
¶3.  (U) Wafd party MP Mohamed Sherdy submitted a memo allegedly 
signed by 45 MPs to Mustafa Bakry, the speaker of the People's 
Assembly, asking to refer the CAA report to the Public Prosecutor 
for investigation of possible criminal negligence by GOE officials 
responsible for waste of public funds.  In his own defense, YBG told 
parliament the CAA's report was "superficial," and most of its 
conclusions "hearsay."  Oddly, during the debate he called El Malt a 
"World Bank agent."  YBG pointed out that major expenditure on 
subsidies absorbed most budget resources, leaving little left for 
spending on education and health.  The debate turned hostile at one 
point, with El Malt accusing YBG of slander and Bakry telling YBG to 
"speak politely." 
 
¶4.  (SBU) Amina Ghanem, an advisor at the Ministry of Finance (MOF), 
told us that much of the CAA's report was "unreasonable."  She 
claimed the CAA did not consult with MOF before producing the report 
and said that El Malt has a "grudge" against YBG.  Several months 
ago, YBG asked the Prime Minister to allow independent auditors to 
audit the Egyptian General Petroleum Company, citing the CAA's lack 
of objectivity when conducting audits of GOE entities.  Ghanem 
believes El Malt's criticism of YBG was "revenge" for the latter 
casting aspersions on CAA's competence (Note: CAA is also 
responsible for the legally-required annual audit of the public 
banks). 
 
¶5.  (SBU) Reaction of other local analysts to news of the CAA report 
was mixed.  Alia El Mahdi, Director of the Center for Economic and 
Financial Research and Studies at Cairo University (and a ranking 
NDP member) was supportive of CAA's position.  She told us that El 
Malt and YBG have a history of confrontation, but that YBG 
overreacted to the criticism and acted arrogantly, resorting to name 
calling, rather than an objective debate of facts.  She called YBG's 
charge that the report was too generic unfounded, as she understood 
the report included hundreds of annexes with details of the specific 
allegations/criticism (Note:  the report has not been made public). 
She also noted that El-Malt is a highly respected individual and has 
never before been attacked publicly.  She noted that many MPs, 
regardless of party, rushed to his defense during the debate. 
 
¶6.  (SBU) World Bank (WB) Resident Representative Emanuel Mbi 
downplayed the exchange, saying he believes YBG was simply being 
sarcastic and in no way intended his calling El Malt a "World Bank 
agent" as an insult, but rather to note that the WB has raised 
similar concerns about public sector management and the business 
climate on many occasions.  Mbi told us that the WB's Doing Business 
report has been prone to misrepresentation and misinterpretation, 
with the press often saying that Egypt is the best in the region, 
whereas Egypt still ranks behind many regional comparators.  He also 
noted that the WB sometimes copies El Malt on memos pertaining to 
public sector management, so while he had not seen El Malt's report, 
he would not be surprised if it contained passages similar to WB 
language. 
 
¶7.  (SBU) Comment:  Since taking over the CAA nine years ago, El 
Malt has repeatedly issued reports critical of the GOE's budget 
management.  The barbs he traded with YBG in parliament are typical 
of the personal sniping endemic in Egyptian politics.  YBG is 
frequently involved in personal squabbles, including with Minister 
of International Cooperation Fayza Abul Naga and Central Bank 
Governor Farouk El Okdah.  For his part, El Malt is generally 
regarded as honest and competent, but his umbrage at the proposal to 
submit the budget of a government agency to an independent audit 
highlights the GOE's continued sensitivity to outside scrutiny.  The 
debate has received much media attention, most of which calls for 
GOE officials to be held accountable for misuse of public funds. 
The fact that the issue is being openly debated is a positive, if 
modest, sign of movement toward greater transparency. 
RICCIARDONE