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Al-Ahram Weekly 4 - 10 March 1999 Issue No. 419 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 4 - 10 March 1999 Issue No. 419
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Focus Travel Sports People Time Out Chronicles Cartoons Letters Regulation revival
By Niveen WahishAlmost a year after the first rumblings of the Southeast Asian financial crisis, experts are considering what could be done in future to deal with such problems and to prevent them from occurring again. These issues, as well as the outlook for developing countries in the wake of the crisis, were the main topics of discussion during a seminar held this week entitled "Global Economic Prospects and the Developing Countries: Beyond Financial Crisis". Organised by the Economic Research Forum for Arab countries, Iran and Turkey, the seminar reviewed the Global Economic Prospects 1998/99 report issued by the World Bank.
Despite the report's contention that "the sharp slowdown in world output, trade and capital flows, as a result of the crisis, is clouding short-term prospects," hope is expressed that policy announcements made by the major world economic powers will help restore equilibrium to the world economy. For example, the G7 has proposed a set of measures to strengthen the global economy, and financial support has been promised by Japan and others for badly affected Asian countries. "These measures should give a boost to world economic recovery in the medium term and help to head off a global recession. But policies take time to work and the short-term outlook remains precarious," says the report. The report predicted growth in global output to fall from 3.2 per cent in 1997 to 1.8 per cent in 1998.
Among the causes which led to the crisis are, according to the report, "fragilities in local financial systems, shortcomings in macroeconomic policies, imperfections in international capital markets and weaknesses in the international financial architecture for preventing and dealing with crises."
Commenting on the source of the crisis, Youssef Boutros Ghali, Egypt's minister of economy, said, "The regulatory institutions and infrastructure needed to monitor inflows and outflows were almost non-existent. This turned a serious economic crisis into a catastrophe."
The effect on Egypt was limited because of its relatively small presence in the global market and international capital markets, and because of the small share of exports in GDP. He argued that growth in Egypt is mostly self-generated.
However, according to Ghali, Egypt cannot continue to achieve growth solely through domestically-generated investment and trade. "Egypt has to begin to establish a credible presence for itself in international markets," he said. He argued that Egypt has to create an export-friendly environment. "We have to maintain and expand our niche in global trade," even though the slowdown in the world economy "will make this harder. It is difficult to find a place in a shrinking market."
However, Ghali said that while Egypt has a solid foundation for macroeconomic stability, certain precautions are needed. He stressed that "it is essential to heighten the awareness of our institutions of the economic environment facing them," and added that ever-changing economic currents mean that any delay in reacting to local or international developments would be a mistake. In this respect the supervisory functions of the central bank and the capital market authority are of vital importance.
Ghali also said that the government is urging institutions to be flexible and to try to anticipate problems. "Do not wait until something breaks down to fix it," he cautioned.
As well as ensuring the successful implementation of these reforms, Ghali said that the boosting of domestic savings was essential to economic growth and to the creation of jobs for an ever-growing labour force. He argued that this would require the upgrading of institutional standards to international levels and improved services from the banking, insurance and capital markets.
He pointed out that among the targets for the 21st century is the development of human capital and the training of competent institutional managers and said that this would require reform of the salary structure and the educational system.
Backing the measures outlined by Ghali, Mahmoud Abdel-Fadil, professor of economics at Cairo University, said that the "world needs to enhance the capacity of institutions to digest changes in the economic environment." He added that the Asian crisis was a blessing in disguise because it showed there are no tools to forecast such events. "Even rating agencies did not see it coming," he said. This was because "after the crisis we found out that we were looking at the wrong indicators." One of the indicators which was overlooked by economists was the huge short-term debt of the financial and non-financial private sector. To avoid a similar situation in the future Abdel-Fadil called for the development of "vulnerability indicators".
