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Cablegate: Widespread Opposition to Banque Du Caire Sale

VZCZCXYZ0009
RR RUEHWEB

DE RUEHEG #2552/01 2281216
ZNR UUUUU ZZH
R 161216Z AUG 07
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 6560
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0315

UNCLAS CAIRO 002552

SIPDIS

SENSITIVE
SIPDIS

STATE FOR NEA/ELA, NEA/RA
USAID FOR ANE/MEA MCCLOUD AND DUNN
USTR FOR SAUMS
TREASURY FOR MATHIASON AND HIRSON
COMMERCE FOR 4520/ITA/ANESA/OBERG

E.O. 12958: N/A
TAGS: ECON EFIN EG
SUBJECT: WIDESPREAD OPPOSITION TO BANQUE DU CAIRE SALE

Sensitive but Unclassified. Please protect accordingly.

REF: Cairo 2307

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Summary
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1. (U) Recent press reports claimed that the GOE had postponed
indefinitely the selection of a sale advisor for Banque du Caire,
due to public opposition to the sale. Central Bank officials denied
these reports, and indicated that an advisor would be selected by
the end of the month. Opposition parties across the spectrum have
vocally opposed the sale, as have grassroots organizations, such at
"The Popular Movement to Counter the Sale of Egypt." Independent
members of parliament tied to the Muslim Brotherhood have also
petitioned to re-open debate in parliament on the sale.

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False Reports
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2. (U) On August 16 Deputy CBE Governor Tarek Amer denied press
reports that the Central Bank had postponed indefinitely selection
of a sale advisor for privatization of the Banque du Caire. An
advisor was supposed to be chosen by early August, and several
financial institutions, including Citibank, have already submitted
bids for the job. The committee to select the sale advisor -
comprised of the Central Bank, and the ministries of Finance and
Investment - has yet to meet. Amer told econoff that the CBE was
waiting for a Prime Ministerial decree to form the committee, which
is slated to happen by the end of the month.

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Strong Opposition
-----------------

3. (U) The press reports alleging postponement of the sale advisor
selection cited a "source close to the operations," who said that
the Central Bank postponed selection of the sale advisor due to
widespread opposition to the sale. The source indicated that the
Central Bank will wait for opposition to die down before taking any
further steps in the sale. Political parties across the spectrum
have vocally opposed the sale and criticized handling of
parliamentary debate on the sale. Mahmoud Abaza, Chairman of the
Wafd party, started a petition against the sale. He also wrote to
several newspapers clarifying that the Wafd party is not opposed to
the sale per se, but wants greater transparency and more shares sold
to the public in an IPO. Abaza also stressed that foreign entities
should not be allowed to control the banking system. In support of
the Wafd petition, the Lawyers' Syndicate launched a campaign to
raise funds to buy shares of the bank should they be offered for
sale in an IPO. The leftist Tagammu party held a protest August 3
in which approximately 200 party members and supporters attempted to
march to Talaat Harb Square in downtown Cairo. Security services
prevented the demonstrators from leaving the area in front of the
party's headquarters.

4. (U) Independent members of parliament tied to the Muslim
Brotherhood (MB) have also called for a new parliamentary debate on
the sale. The independent members asked the speaker of parliament
to investigate irregularities during the meeting of the Economic
Committee to discuss the sale (reftel) and demanded another meeting
to re-open the discussion. The memo also called for an
investigation of Ahmed Ezz, Chairman of the Planning and Budget
Committee, who allowed "unauthorized" individuals into the Economic
Committee meeting.

5. (U) Popular opposition to the sale of Banque du Caire, and
privatization in general, has coalesced around Yehia Abdel Hadi's
"Populist Movement for Countering the Sale of Egypt." Abdel Hadi
told the press that the organization includes members from
opposition parties, the MB, intellectuals and economists, labor
union members, and NGOs, including the entire Kefaya organization.
The movement tracks the outcome of privatization deals and prepares
reports on those who benefited from the deals. According to Abdel
Hadi, the movement will also provide legal assistance to employees
of public companies disadvantages by privatization.

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Comment
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Comment
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6. (SBU) Much of the opposition appears focused on the specter of
foreign control of the economy, which conjures very negative images
for Egyptians. While Egypt became nominally independent in 1922,
Britain still controlled the economy long after that, primarily
through the banking system. Despite opposition to the sale, it is
unlikely that the Central Bank will change the course it has set.
While the sales advisor was to be selected by end-July, many viewed
that target date as overly optimistic. The "surprise approach" used
in the Banque du Caire case, in contrast to the considerable public
notice given of the Bank of Alexandria sale, is contributing to the
public outcry. The flip side of the surprise approach is that once
the public outcry dies down, the overall process should ultimately
be faster, because some of the preparation has already been done.
For example, Banque du Caire's portfolio of non-performing loans
(NPLs) was transferred to Banque Misr in advance of the
announcement. Revenue from the sale of Banque du Caire will be
needed to pay off the NPLs. A cancellation or significant delay in
the sale would cause serious problems for the GOE, as Banque Misr, a
larger and more important public bank, would be left in an extremely
precarious position, with NPLs beyond its capacity to settle.
RICCIARDONE

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