VZCZCXRO9682
PP RUEHROV
DE RUEHEG #2224/01 2941540
ZNY CCCCC ZZH
P 201540Z OCT 08
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC PRIORITY 0681
INFO RUEHXK/ARAB ISRAELI COLLECTIVE PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 CAIRO 002224

SIPDIS

NSC FOR PASCUAL

E.O. 12958: DECL: 10/20/2028
TAGS: PREL PGOV ECON EFIN EG
SUBJECT: GAMAL MUBARAK ON ECONOMIC ISSUES AND THE BILATERAL
RELATIONSHIP

Classified By: Ambassador Margaret Scobey, for reasons 1.4 (b) and (d).
1.(C) Summary: In an October 19 meeting with the Ambassador, presidential son and National Democratic Party (NDP) assistant secretary-general Gamal Mubarak highlighted the GOE's plans to move forward with economic reforms, despite the global financial crisis, and argued that the benefits of economic reforms to date have succeeded in trickling down. He noted that "social justice" will be the main focus of the NDP's November 1-3 annual party conference. While Gamal agreed that the USG and the GOE must find a more constructive means of discussing sensitive internal political issues, he remained irritable about direct U.S. democracy and governance funding of Egyptian NGO's and USG "posturing," and was broadly critical of U.S. policy writ large, commenting that, "our job has become much more difficult because of you." End summary.

------------------------------ ECONOMIC REFORMS WILL CONTINUE ------------------------------

2.(C) Demonstrating an obvious comfort level when discussing economic topics, Gamal spoke at length about the ongoing global financial crisis, and the possible ramifications for Egypt. He noted that the "silver lining" of the crisis would likely be reduced inflation rates: "Inflation has been the major challenge for us in the past 12 months. Now analysts expect deflation, which will give us relief on budgetary pressures, and will help ordinary consumers to afford foodstuffs." Gamal noted that, despite worldwide financial troubles, Egypt still hopes to meet its financial growth targets over the coming year. He asserted that, "we need to send a forceful message that we will continue to move forward with economic reforms."

3.(C) Gamal highlighted that "social justice" will be the main focus of the NDP's November 1-3 annual party conference. "Our critics say that the benefits of economic reforms are not trickling down. But there has been trickle-down, in terms of job creation, and investment in public services nationwide!" Gamal also noted that the real incomes of Egypt's civil servants have "increased handsomely" over the past 3-4 years, so "they are benefiting from the success of economic reforms." Gamal opined that there will be more government spending and private sector investment on infrastructure and job creation in the coming year.

----------------- ASSISTANCE ISSUES -----------------

4.(C) The Ambassador discussed the GOE's views of the FY09 funding level of $200 million in ESF, and emphasized that, despite Egyptian unhappiness, the FY09 levels are not going to change. She noted the complexities of this year's budget cycle, and the possibility of a Continuing Resolution being in effect for the entire fiscal year. She urged that the GOE work through FY09 in a way that preserves the relationship, and that we reinvigorate the dialogue regarding FY10 funding in a constructive manner. Other than inquiring as to possible timelines for approving the FY09 budget, Gamal was unresponsive on this topic.

-------------------------- THE BILATERAL RELATIONSHIP --------------------------

5.(C) The Ambassador emphasized the need to re-energize the bilateral relationship, and to find opportunities to discuss the strength of the relationship, as well as the areas of disagreement, because these issues are not going away. Gamal agreed that disagreements will continue, and that the challenge is to have constructive discussions on sensitive topics, and to find the appropriate framework to discuss issues "helpfully and usefully." The Ambassador suggested that consideration be given to augmenting the government-to-government channel, perhaps with NGO's and exchanges, as ways to foster more constructive engagement on these issues. She flagged the positive efforts of the National Democratic Institute (NDI) and the International Republican Institute (IRI). The Ambassador also noted that senior USG visitors will be coming to Egypt over the next few months, as we look towards re-engergizing the US-Egyptian relationship on all fronts.

6.(C) Gamal responded by emphasizing "skeptical" and negative Egyptian public opinion towards the U.S., noting that "such negativity and skepticism necessarily impacts our CAIRO 00002224 002 OF 002 relationship with you. Our job has become much more difficult because of your decisions. I hope that the next president and administration reviews the past eight years, and draws some lessons." Gamal also asserted that in 2003, he had urged then-Ambassador to Egypt David Welch to "tread carefully" when beginning to directly support Egyptian NGO's with USAID democracy and governance funds, "as you might be setting in a motion a process that might be self-destructive, hurting you and us, and stigmatizing the NGO's that deal with you." The Ambassador responded that the U.S. has trodden carefully, and has been fully transparent with the GOE regarding our funding of all NGO's. Gamal mused that the issue is not transparency, or whether or not the USG appropriately scrutinizes grantees ("I am sure you do"), but that the USG's "posture" is damaging. "All of your public posturing and your approach of taking on the government, it back-fires. The public is too skeptical and hostile towards you."

SCOBEY