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Cablegate: Ambassador's Meeting with Finance Minister Youssef

VZCZCXYZ0001
RR RUEHWEB

DE RUEHEG #1036/01 1421519
ZNR UUUUU ZZH
R 211519Z MAY 08
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 9304
INFO RUEHGB/AMEMBASSY BAGHDAD 0278
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS CAIRO 001036

SENSITIVE
SIPDIS

TREASURY TO BAUKOL, MATHIASEN
USAID FOR ME/MEA/MCCLOUD

E.O. 12958: N/A
TAGS: ECON EFIN ETRD EPET PGOV EG
SUBJECT: AMBASSADOR'S MEETING WITH FINANCE MINISTER YOUSSEF
BOUTROS GHALI

SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET.

1. (SBU) Summary: In an upbeat May 15 introductory courtesy
call with Finance Minster Youssef Boutros Ghali (YBG), the
Ambassador discussed local perceptions of economic reform,
Egyptian assistance to Iraq and the Iraq Compact meeting in
Stockholm, the Egyptian debt relief proposal, the Minister's
candidacy for Chair of the IMF's International Monetary
Financial Committee (IMFC), and several economic reform
benchmarks. End Summary.

2. (SBU) The Ambassador began by complimenting YBG on his
reform track record and recent accomplishments, noting his
tremendous reputation around the globe. He commented that he
has always been an economic reformer, but it has only been
since 2004 that he has had a sufficient number of cabinet
allies to translate his vision into action. He expressed
appreciation for the bilateral relationship and said that too
frequently people get mired in minor details of the
relationship, without remembering the big picture positives.
The Ambassador expressed hope that that one area where there
could be some specific positive movement is in the area of
the QIZ expansion, noting that Ambassador Schwab was expected
to meet Minister Rachid at the World Economic Forum in Sharm
el-Sheikh. The Ambassador also noted that while she is
optimistic, there is some domestic opposition to QIZ
expansion. The Ambassador noted her interest in stimulating
greater public private partnerships in Egypt and the
importance of a healthy corporate social responsibility
culture as well. YBG agreed with this, offering that
Egyptians expect the government to do everything for them, so
frequently are unwilling to take their own initiative or
action.

3. (SBU) In response to the Ambassador's concern that the
poor are still not benefiting from Egypt's strong growth, YBG
quickly responded that Egypt has enjoyed seven percent growth
for only two years -- inadequate time for true trickle down
to lift everyone's income. He lamented the level of support
he and the economic reformers have enjoyed domestically,
despite the fact that they believe they are going all out to
help both the business community and the poor. He noted that
there has been considerable negative local reaction to recent
revenue generating measures designed to plug the deficit, but
that the international reaction had been positive. He also
regretted that local business leaders, who are experiencing
excellent growth and profits, privately heap praise on the
economic reformers but publicly are silent or negative. He
further complained that the press loves the negative stories
and no one is willing to write the good news.

4. (SBU) The Ambassador raised the issue of Ministerial
attendance at the Iraq Compact meeting in Stockholm on May
29, noting that she had also raised it with Foreign Minister
Aboul Gheit. YBG made no commitments but said he would talk
to Aboul Gheit to determine appropriate attendance. The
Ambassador also pressed YBG on debt relief for Iraq and
inquired about the origins of the workers' remittances. YBG
said that he has told Iraqi Finance Minister Jabr that the
Iraqis must provide a good faith effort to pay the workers'
remittances and only then could the Egyptians consider relief
on the official debt. He noted that the issue was now a
political one and outside his hands. He said the workers'
remittances predated the 1991 war, so were not covered by the
United Nations Compensation Commission. (Note: In a letter
exchange last spring before the Iraq Compact was signed in
Sharm el-Sheikh, Jabr offered for Iraq to pay half of the
$408 million in workers remittances and that Egypt, would in
turn, forgive all official debt. YBG's letter in response
was dismissive and Egypt was silent on the subject at the
Iraq Compact event. There has been no progress on the matter
in the intervening time. End note.)

5. (SBU) The Ambassador provided a short summary of Minister
for International Cooperation Aboulnaga's visit to the US and
her debt relief proposal, noting that the proposal was not
particularly well received and is unlikely to go anywhere.
YBG showed little reaction.

6. (SBU) YBG alerted the Ambassador of his candidacy for the
Chair of the IMF's IMFC. Other candidates are Indian Finance
Minister Chidambaram and Canadian Finance Minister Flaherty.
The Ambassador noted his candidacy and said we would relay
the message to Washington.

7. (SBU) The Ambassador inquired about one of the more
difficult revenue measures that the Minister is currently

engaged in: real estate tax reform, which is also a benchmark
in the Human Development and Private Sector Development MOU.
YBG noted that it was very difficult and that the Parliament
was not as supportive as he would like. He wants to slash
the rates from 40 to 10 percent, while also eliminating all
exemptions. Eliminating the exemptions will vastly increase
the numbers who owe taxes. He conceded that he does not
really need the new law, as he could eliminate the exemptions
with a ministerial decree, but that would leave the high rate
unchanged. Regarding other benchmarks, he said the Ministry
will need to submit the comprehensive budget law next
Parliamentary session, rather than the current one, as he has
not had time to read the draft law that USAID had helped
with. The MOU had envisioned accomplishment of this
benchmark in 2008 -- USAID has already been informed of this
delay.

8. (SBU) The Ambassador concluded by thanking YBG for his
role as board member on the Cairo American College, and noted
that the status of the school needs to be determined, to
ensure that the school remains tax exempt.


SCOBEY

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