Cablegate: Egypt: Congressional Earmark Against President's 2007

VZCZCXYZ0034
RR RUEHWEB

DE RUEHEG #5461 2431524
ZNR UUUUU ZZH
R 311524Z AUG 06
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 1026
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0191

UNCLAS CAIRO 005461

SIPDIS

SIPDIS
SENSITIVE

STATE FOR NEA/ELA, NEA/RA, EB/IDF/OMA
USAID FOR ANE/MEA MCCLOUD AND DUNN
TREASURY FOR NUGENT AND HIRSON
COMMERCE FOR 4520/ITA/ANESA/TALAAT

E.O. 12958: N/A
TAGS: ECON EAID EFIN EG
SUBJECT: EGYPT: CONGRESSIONAL EARMARK AGAINST PRESIDENT'S 2007
APPROPRIATIONS REQUEST WOULD HAMPER ASSISTANCE GOALS

Sensitive but Unclassified. Not for Internet distribution.

REF: A. Cairo 5001
B. Cairo 5169

1. (U) ACTION REQUEST: Please see para 4.

2. (SBU) The Senate version of the 2007 Foreign Operations Bill
contains language restricting the President's budget request and
discretion in using it. If left unchanged, these restrictions will
make it difficult to meet the goal of negotiating an updated, more
effective model for economic assistance to Egypt. The aim of the
new model is to get better results at lower costs, by putting more
responsibility on the Egyptians to develop and implement a program
agreed to by both governments, and disbursing funds based on
achievement of specific benchmarks. The Senate version of the
appropriations bill would reduce flexibility in responding to
Egyptian proposals for development/reform objectives and
benchmarks.

2. (SBU) Since 1975, Congress has appropriated assistance to Egypt
as a "lump sum" drawn from Economic Support Funds (ESF). The Senate
is now proposing to split the assistance program among four
different funding sources: democracy, health and child survival,
basic education and economic support. This could make sense from an
accounting point of view, as it would be easier to determine how
much money was spent in these four areas. However, it would remove
flexibility for the Administration in responding to the Egyptian
government's proposals for development/reform objectives, as each of
the four funds carries a different set of restrictions on its use.

3. (SBU) Another concern is the possible rescission of FY 2006
monies. The House has proposed a $300 million rescission in FY 2006
ESF for Egypt, while the Senate proposed $200 million. These
proposals were based in part on the perception that Egypt was not
making adequate progress in meeting the benchmarks agreed to under
the Financial Sector MOU, and would therefore be ineligible to
receive these funds. Regarding the House bill, Congressman Kolbe
said that they would reconsider if Egypt did show progress. In our
view, as reported Refs A and B, Egypt is making strong progress on
the MOU benchmarks. One of the most important benchmarks still
pending, privatization of the Bank of Alexandria, is expected by the
first week of October.

4. (SBU) ACTION REQUEST: Sustaining the President's request,
unencumbered by the restrictions in the draft bills, will require
determined advocacy by the Department. Specifically, the
Administration must gain removal of the language in the 2007 Senate
version of the Foreign Operations Appropriate Bill that would split
the assistance program into four funding areas, rather than just
ESF. The U.S. Administration would be best served by retaining the
current system of appropriating all assistance solely from ESF
funds. Congress could then earmark some portion of the assistance
for certain important activities, such as promoting democracy and
freedom. We would meet those earmarks, as we have in the past, but
would still have the flexibility needed to negotiate with the
Egyptian government on amounts and uses of the assistance funds.
Secondly, we need both houses to remove the rescission provisions in
the current bills. This will require detailed briefing of
appropriate members and staff on Egypt's progress on financial
sector reform, drawing from points in refs A and B.
RICCIARDONE

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