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Cablegate: Central Auditing Agency Criticizes Goe Budget Management

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

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