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Cablegate: New U.S.-Egypt Esf Cash Transfer Agreement: U.S.

VZCZCXYZ0000
RR RUEHWEB

DE RUEHEG #2968 2771112
ZNR UUUUU ZZH
R 041112Z OCT 07
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 7099
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0347

UNCLAS CAIRO 002968

SIPDIS

SENSITIVE
SIPDIS

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

E.O. 12958: N/A
TAGS: ECON EAID EG
SUBJECT: NEW U.S.-EGYPT ESF CASH TRANSFER AGREEMENT: U.S.
Assistance Will Never Be the Same

1. (U) Summary: The U.S. and Egypt recently signed a new Grant
Agreement totaling $400 million in ESF funds over the next three
years. The funds will be disbursed directly to the GOE upon
completion of mutually-agreed reforms in the areas of education,
health and private sector development. Signing of the agreement is
a major step in transforming the way U.S. economic assistance is
delivered to Egypt. With the elimination of the Commodity Import
Program (CIP) and phasing out of project assistance over the next
few years, cash transfer will eventually be the primary means of
delivering assistance. This will bring one of the U.S.'s largest
bilateral ESF programs more in line with international trends in
assistance delivery. USAID Mission staff will also be reduced as
projects are phased out over the next few years.

2. (U) On September 30, USAID Acting Director John Groarke and
Minister of International Cooperation Fayza Aboul Naga signed a new
cash transfer Grant Agreement for the years 2007-2010. The
agreement ties a total of $400 million in ESF over the next three
years to the GOE's accomplishment of human and economic development
policy reforms. Using the successful Financial Sector MOU as a
model, the U.S. and Egypt agreed on a new Human and Economic
Development MOU focused on three priority areas: health, education
and private sector development.

3. (U) Signing of the new grant agreement is the culmination of a
two-year negotiation process aimed at reaching mutually agreeable
policy reform goals. By extending the Financial Sector MOU model
into the area of human development, the new grant agreement is a
major step in the transformation of the way U.S. economic assistance
is delivered to Egypt. Over the next several years, the CIP program
will be eliminated, and we envisage an end to most ongoing USAID
projects, with the exception of programs under the D&G and education
earmarks. Once these projects/programs are phased out, most U.S.
economic assistance will be delivered in the form of cash transfers
to support accomplishment of mutually-agreed GOE policy goals.

4. (SBU) Though it remains a "lower middle income" country in most
international rankings, Egypt's level of development, relative to
other recipients of USAID project assistance, combined with its
current 6-7% economic growth, drastically reduces the need for
project assistance. At the same time, over the past thirty years,
the GOE has developed considerable technical capacity to carry out
its own programs and projects. The new cash transfer program will
more accurately reflect the political nature of U.S. economic
assistance to Egypt. Moreover, the cash transfer modality is more
in keeping with the shift in international development assistance to
financing of national government's development projects, as the
Millennium Challenge Corporation does.

5. (SBU) Though ongoing USAID projects will require continued
management by American and LES staff, once the projects wind down,
USAID Mission staffing will be significantly reduced. The Mission
plans to abolish some U.S. Direct Hire positions and will not renew
the contracts of some LES staff members on PSCs. The Mission's
local employees have been advised of the reduction in staffing and
the Embassy will look at the possibility of hiring some former USAID
local staff to fill other LES positions at post.

6. (U) Comment: Post is considering public outreach options to
provide background on the changes in the U.S. economic assistance
program. We believe that assistance delivered in the form of
support to GOE development programs will be better received by the
Egyptian public, and GOE officials themselves.
JONES

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