VZCZCXYZ0008
PP RUEHWEB

DE RUEHEG #0568/01 0921538
ZNR UUUUU ZZH
P 021538Z APR 09
FM AMEMBASSY CAIRO
TO SECSTATE WASHDC PRIORITY 2086

UNCLAS CAIRO 000568 
 
SENSITIVE 
SIPDIS 
 
H FOR REPRESENTATIVE TAUSCHER; NEA/ELA FOR CANEDO 
 
E.O. 12958: N/A 
TAGS: OREP TAUSCHER PGOV ECON KPAL EG IS
SUBJECT: SCENESETTER FOR CODEL TAUSCHER'S VISIT TO CAIRO 
 
 ¶1. SUMMARY: (SBU) Representative Tauscher, welcome to Egypt. 
Your visit comes as Egypt continues its efforts to mediate a 
permanent cease-fire between Israel and Hamas, to facilitate 
intra-Palestinian negotiations to form a new, interim 
government, and to stop the smuggling of arms into Gaza. The 
U.S., European countries, and regional governments are 
working to create security arrangements that would improve 
the flow of humanitarian assistance to Gaza.  Many Egyptians 
see the new U.S. administration as a cause for cautious 
optimism in both the bilateral relationship and in U.S. 
engagement with the region.  Senator George Mitchell has 
twice visited Egypt and the region as U.S. Special Envoy for 
Middle East Peace and will likely return to Cairo in April. 
We have requested meetings for you with President Mubarak, 
intelligence chief General Omar Soliman, Foreign Minister 
Ahmed Aboul Gheit, and Defense Minister Tantawi, as well as 
with disarmament officials.  End summary. 
 
---------------- 
Israel-Palestine 
---------------- 
 
¶2. (SBU) The election of President Obama generated much 
optimism in Egypt and hopes that the new administration would 
quickly focus on problems in the Middle East.  In particular, 
the Egyptian leadership wants the U.S. to urgently address 
the Israeli-Palestinian conflict, and Special Envoy Mitchell 
has assured them that the Administration will press hard for 
progress.  The Egyptians have traditionally served as an 
intermediary between us, the Israelis, and the Palestinians. 
Since the January 2008 Hamas breach of the Egypt-Gaza border, 
the Egyptian role has shifted to focus on intra-Palestinian 
reconciliation and the establishment of a lasting 
Hamas-Israel cease-fire.  EGIS Chief Soliman has worked to 
cement a Israeli-Hamas cease-fire but believes he was badly 
undercut by the Israeli introduction of the release of IDF 
Corporal Gilad Shalit as a new pre-condition for the 
cease-fire.  For the moment, rocket strikes from Gaza are 
relatively low in frequency. 
 
¶3. (SBU) The Egyptians believe that Palestinian 
reconciliation is a prerequisite to delivery of the 
approximately $5 billion in Gaza reconstruction assistance 
pledged at the March 2 Sharm El Sheikh Conference.  Neither 
the Egyptians, nor the international community can work with 
Hamas as a partner on security, political or economic 
reconstruction issues; Rafah crossings will remain closed 
until the Palestinian Authority returns to operate the Gaza 
side of the crossing for normal business.  However, the 
Egyptians periodically open their side of the border for 
humanitarian and emergency medical cases.  The Egyptians will 
tell you that limiting movement in and out of Gaza is 
necessary, but will urge that you impress upon the Israelis 
the need to maintain adequate humanitarian inflows to Gaza. 
The Egyptian government will stress that opening up for 
legitimate trade and forging effective measures against 
smuggling should go hand-in-hand.  Public opinion however 
remains deeply angered by the Gaza "siege" and is eager to 
see if the new administration will push to allow normal 
commerce to flow into Gaza.  The Egyptian public is also 
anxious to see how the U.S. will deal with the new Israeli 
government and the expansion of settlements. 
 
¶4. (SBU) Egyptian security forces continue to improve 
counter-smuggling efforts along the Gaza border and further 
afield, through increasing their security presence in 
northern Sinai and giving greater focus to preventing weapons 
from entering the Sinai.  Egyptian officials claim to have 
identified and sealed over 100 tunnels since the beginning of 
the year, with new discoveries occurring daily.  Recently 
arrived U.S.- supplied counter-smuggling equipment - once 
installed and fully operational - could help improve Egypt's 
ability to fully exploit the tunnels and break up smuggling 
rings.  The government has requested additional border 
security assistance and we are currently exploring ways to 
provide the requested assistance.  Long-term success, 
however, depends on removing the economic incentives driving 
smuggling on both sides of the border. 
 
--------------------- 
Other Regional Issues 
--------------------- 
 
¶5. (SBU) Egypt has shown increasing confidence that Iraq has 
turned the corner, although concerns remain that the 
Shi'a-led government is prone to Iranian influence.  An Iraqi 
delegation recently visited Cairo for consultations on how to 
reestablish Iraqi-Egyptian economic and political ties. 
Foreign Minister Aboul Gheit visited Baghdad in October 2008 
(the first such visit in over 18 years) and is moving forward 
to reopen Egypt's embassy in Baghdad.  On Iran, Egypt is 
concerned by rising Iranian influence in the region, has 
supported UN sanctions, and is increasingly active on 
countering Iran, e.g. in Gaza and to some extent in Lebanon, 
working with Saudi Arabia and other Arab states to support 
Lebanese political and territorial sovereignty. Egypt has 
deployed peacekeeping troops to the UN Mission in Darfur, 
just agreed to send troops to the UN Mission in Congo and is 
taking a greater role within the African Union on regional 
security and political issues.  President Mubarak met 
Sudanese President Omar Bashir on March 25 in Cairo, 
reportedly to discuss the Darfur conflict.  Egypt hosts a 
large population of Sudanese refugees and is deeply concerned 
that continuing instability in Sudan will pose a threat to 
its own security, compromise its access to Nile water, and 
increase the flow of refugees.  Consequently, Egypt opposes 
the International Criminal Court's issuance of an arrest 
warrant for Bashir. 
 
------------------------------- 
Internal Politics and Economics 
------------------------------- 
 
¶6. (SBU) We continue to promote democratic reform in Egypt, 
including the expansion of political freedom and 
pluralism, and respect for human rights.  Egyptian democracy 
and human rights efforts, however, are being stymied, and the 
GoE remains skeptical of our role in democracy promotion, 
complaining that any efforts to open up will result in 
empowering the Muslim Brotherhood, which currently holds 86 
seats in Egypt's 454-seat parliament.  An ongoing challenge 
remains balancing our security interests with our democracy 
promotion efforts. On April 6, 2008, a new opposition group 
calling for political and economic reforms organized a strike 
through "Facebook" that noticeably quieted the streets of 
Cairo.  The opposition group is calling for a similar April 6 
strike this year.  The April 6, 2008 strike coincided with a 
separate labor action in the Delta industrial city of Mahalla 
that led to violent, fatal clashes between police and 
protesters. 
 
¶7. (U) Economic reform is ongoing although Egypt still 
suffers from widespread poverty affecting 35-40% of the 
population. Reforms in trade and tax policy, financial 
reform, privatization and increased transparency have led to 
6-7% economic growth over the past three years.  Foreign 
investment increased from around $3 billion in 2005 to $11 
billion in the last year, mostly in the petroleum sector, 
though growth in foreign investment appears to be dropping 
off.  Despite this success, significant problems remain, 
including high inflation, high levels of poverty, and 
unemployment, and endemic corruption. Egyptian-U.S. trade has 
more than doubled in the last four years, reaching almost $9 
billion in 2008. The U.S. exports to Egypt about twice as 
much as it imports.  Egyptian banks operate very 
conservatively and have been spared involvement in risky 
financial products, but the effects of the global 
economic crisis on Egypt are beginning to be felt.  As the 
global credit crunch worsens, Egypt remains vulnerable as 
exports, Suez Canal revenues, tourism, and remittances -- its 
largest sources of revenue -- are all down and likely to 
continue to fall.  The Egyptian government viewed the 
reduction in Economic Support Funds (ESF) by half to $200 
million in FY2009 as an affront, and has high expectations 
that the new administration and Congress will approve higher 
levels in FY2010.  The Ambassador and USAID Mission Director 
have emphasized the impact of the ongoing financial crisis on 
budget discussions in the U.S. 
 
¶8. (SBU) We continue to stress the importance of advancing 
military to military cooperation, long a cornerstone of the 
U.S. - Egyptian relationship.  Security agreements, a 
revamped exercise program, establishing shared objectives, 
and interoperability are a few areas where we are seeking to 
strengthen the relationship. 
SCOBEY