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Al-Ahram Weekly 11 - 17 March 1999 Issue No. 420 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 11 - 17 March 1999 Issue No. 420
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Focus Special Features Travel Sports People Time Out Chronicles Cartoons Letters Pound winces as imports rise
By Niveen WahishThe gap between supply and demand is the age-old equation behind any surge or drop in prices. It is the main reason why, for the second time in two months, the US dollar exchange rate against the Egyptian pound has shot up to LE3.48 from approximately LE3.40 -- the figure around which it had hovered for around seven years.
The increase in the dollar's value is attributed to excess demand for the US currency that is not met by an equal supply, mainly because of a deteriorating balance of payments. While Egypt's import bill has been increasing, foreign revenues have declined.
Preliminary Central Bank of Egypt (CBE) figures show that the trade deficit rose to $11.8 billion in 1997/98, compared to $10.2 billion in 1996/97. Meanwhile, foreign currency revenues from the Suez Canal and remittances of Egyptians abroad have been dwindling due to shrinking oil prices and the global financial crisis. Tourism revenues have also been hit since the 1997 Luxor incident, which is estimated to have resulted in losses of around $700 million.
The fat import bill, according to one banker who preferred to remain anonymous, is a result of importing too many unnecessary items. She pointed out that because of the Asian crisis, consumer products are sold cheap on the international market. This has lured businessmen to import products and store them in order to sell them later at higher prices. "Even Ramadan lanterns were imported this year," she commented.
In an attempt to control the rise in the dollar rate and find a long-term solution for the problem, CBE's governor last week recommended that banks be more selective when opening letters of credit to importers. He advised that they should not finance the importation of consumer products that are over-abundant on the market but rather, should grant credit to importers of capital goods and production inputs. Moreover, he recommended that banks should not finance a project with hard currency unless it is expected to yield profit in the same currency. It has also been decided that importers applying for letters of credit should cover them fully instead of only 10 per cent as at present.
However, the governor said that the increase in the dollar's value is not a major problem, since Egypt has a foreign reserve of around $20 billion. He also said that in order to balance supply and demand, the CBE is injecting around $1 billion into the market. The step has already borne fruit and the price of the dollar is slowly returning to its original level.
However, the injection manoeuvre is only a temporary solution. The anonymous banker said that "there is only so much the government would be willing to put into the market, otherwise the reserves that it has long boasted about would be affected. On the other hand, if the government did not intervene and the dollar was left to rise in value, it would mean that the price of our imports will be higher."
Prime Minister Kamal El-Ganzouri has said that a one-piastre rise in the dollar's price adds $60 million to the import bill. According to the banker, consumers will be the ones to bear the cost. "It's a vicious circle," she said.
The ultimate panacea, according to this banker, is to seal off the importation of unnecessary consumer products. "The government could not do this outright for fear of not being in compliance with the GATT. That is why it is doing this indirectly by instructing banks to practice better judgement before giving out credit," she said. In this framework, she pointed out that more market data should be made available in order to enable bankers to make correct decisions on which products are needed locally and which are not. In her opinion, the government should not have left importation open from the beginning. "Even the US has quotas on its imports, why shouldn't we?" she questioned, adding, "A country should protect its local market and production."
Similarly, exchange companies recognise that imports have to be controlled. Rawhia El-Aasar, vice chairman of Misr Cambio Exchange company, said that imports have to be rationed. "The government cannot go on forever supplying the needed dollars," she said.
Dispelling any suspicions that exchange companies might have a hand in raising the value of the dollar, El-Aasar said the companies have a profit margin that does not change whether the dollar rises or falls. On the contrary, she said that "the rise in the value of the dollar slows business down."
