VZCZCXYZ0000
RR RUEHWEB

DE RUEHEG #1204/01 1791240
ZNR UUUUU ZZH
R 281240Z JUN 09
FM AMEMBASSY CAIRO
TO RUEHC/ECSTATE WASHDC 2990
INFO RUEATRS/DEPT OF TREASUR WASHDC
RUCPDOC/USDOC WASHDC 0444

UNCLAS SECTION 01 OF 02 CAIRO 001204 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR NEA/ELA, NEA/RA 
USAID FOR ANE/MEA MCCLOUD AND RILEY 
USTR FOR FRANCESKI 
TREASURY FOR PARODI AND BAYLIN 
COMMERCE FOR 4520/ITA/ANESA 
 
REF:  CAIRO 2436 
 
E.O. 12958:  N/A 
TAGS: ECON EFIN EINV EG
SUBJECT:  Economic and financial leaders debate Egypt's economic 
future 
 
CAIRO 00001204  001.5 OF 002 
 
 
Sensitive but unclassified.  Please handle accordingly. 
 
¶1. (SBU) Key Points: 
* At the Ambassador-hosted Economic Roundtable, leading economic 
minds in Egypt believe that sound macroeconomic policies have 
contributed to Egypt's 7% growth the last several years. 
* The Roundtable believed that Egypt will weather the current 
economic downturn better than most regional peers. 
* The Roundtable expressed concern that the reform mentality of the 
government of Egypt has begun to wane. 
 
¶2. (SBU) Summary: Continuing with recent practice (reftel), the 
Ambassador invited a diverse group of financial business leaders and 
economic thinkers to an Economic Roundtable to discuss Egypt's 
current economic situation and its future.  The group included the 
World Bank's Chief Economist for Egypt, three banking CEOs, an 
economics professor from Cairo University, the executive director of 
a leading think tank, an advisor to the investment authority, and a 
partner at a law firm who is also a former AmCham President.  While 
all felt secure in noting that Egypt would continue to weather the 
current global recession, the deeper the discussion progressed, the 
more vocally participants expressed real concerns about Egypt's 
investment climate, the deterioration of the reform agenda, and the 
deeper structural problems which persist. End Summary. 
 
¶3. (SBU) There was general agreement that the global crisis is 
easing and that the situation is improving in Egypt as well.  The 
group generally agreed that the 4.7% GDP growth target for the year 
was feasible and that Egypt's financial system remains as sound as 
it has ever been.  All acknowledged some of Egypt's basic economic 
indicators had suffered during the global recession, particularly 
noting the reduction in: FDI, trade, tourist arrivals, and Suez 
Canal receipts.  The group emphasized that Egypt is not in crisis, 
but that the priority for Egyptian policy makers should be the 
longer-term structural problems that constrain growth and which have 
plagued Egypt for years. 
 
¶4. (SBU) The group was generally complimentary of the Central Bank 
of Egypt's (CBE) handling of monetary policy, pointing to the 
generally stable foreign exchange rate.  Several pointed out that 
while net international reserves have fallen (from about $35 billion 
at their peak last year to about $32 billion now), they remain 
healthy and it is reasonable for the reserves to deteriorate 
somewhat in the given circumstances.  Most felt that the CBE 
intervention had been modest and warranted.  None expressed concerns 
that a run on the currency was likely or that there was risk of a 
precipitous fall in the level of gross international reserves. 
World Bank Chief Economist Santiago Hererra, however, noted that 
monetary policy has suffered from a lack of transparency.  He cited 
the CBE's selling of some of its holdings at commercial banks as an 
example of the CBE's opaqueness in monetary dealings.  (Note: Given 
the lack of significant movement of the Egyptian pound in recent 
months vis a vis other emerging markets, the pound is stronger than 
its regional competitors, therefore making Egyptian exports less 
competitive.) 
 
¶5. (SBU) The discussion of the Egyptian fiscal stimulus was wide 
ranging.  Several felt that the 15 billion LE (US$ 2.7 billion) 
which was approved several months ago has not been enough.  Several 
argued that to truly be counter-cyclical, Egypt should be buying as 
much as possible now and investing into infrastructure at a much 
faster rate if it was to truly "benefit from the crisis."  Yet, at 
the same time, no one in the room could point to anything specific 
that the stimulus money had done or any data on jobs created or 
saved as a result of government interventions.  Further, there did 
not seem to be any expectation that the government would provide any 
accounting for its stimulus spending.  While the group generally 
wanted more money spent, most seemed to believe that the GOE is 
relatively inept at spending its infrastructure investments, and 
that the GOE cannot build any public good quickly, thus largely 
defeating the purpose of stimulus spending. 
 
¶6. (SBU) The World Bank Chief Economist reminded the group that the 
GOE has a budget deficit of 8%, so to significantly increase 
spending on poorly and slowly implemented infrastructure projects 
would only exacerbate that problem and may not result in the desired 
increase in demand.  He reminded the group that subsidies and public 
sector wages still dominate the government's budget so there is very 
little room to spend more, without running up the deficit.  Other 
participants seemed less concerned about the high deficits and were 
willing to take on higher debts to fund such extraordinary spending. 
 
 
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