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Al-Ahram Weekly 23 - 29 March 2000 Issue No. 474 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 23 - 29 March 2000 Issue No. 474
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Features Focus Travel Living Sports Profile People Time Out Chronicles Cartoons Banking on the coming phase
By Gamal Essam El-Din
The new government's first budget -- which is also the first of the century -- scheduled to be debated by the People's Assembly before the end of the month, contains a proposal to bring the state-owned National Investment Bank (NIB) under the jurisdiction of the Finance Ministry. The decision is hardly unexpected, with Prime Minister Atef Ebeid announcing as early as December his government's intention to separate the budget of economic authorities from the state budget. But still, such advance warning is unlikely to lessen the controversy that will surround the formation of a committee investigating financial conditions and regulations of NIB with the objective of bringing them more in line with the government's liberalisation drive.
"NIB is a stumbling block in the way of separating the budget of economic authorities from that of the state, a decision aimed at ending the huge state subsidies granted these authorities, and facilitating their eventual sale. The fact that the majority of economic authorities are heavily indebted to NIB means that unless those debts are somehow cancelled, the authorities will never be broken up," said MP and former Finance Minister Ahmed Abu Ismail.
Official figures reveal that the total debt of the 76 economic authorities to NIB stood at LE83 billion last December, an LE4 billion increase since the previous June. All in all,
debts owed by government agencies, including the economic authorities to NIB had reached LE147.7 billion by December 1999. "Phasing out the subsidies granted to economic authorities and liberalising their activities would be impossible without first relieving them of this huge debt burden," said Abu Ismail.
Last month Finance Minister Medhat Hassanein submitted a memorandum to Prime Minister Atef Ebeid in which he argued that transferring NIB from the supervision of the Planning Ministry to the Finance Ministry was necessary in order to meet liberalisation objectives of the coming period. Originally created in 1980 as a source to finance the state's five-year plan's investment projects it was natural, at the time, Hassanein argued, that NIB be placed under the Planning Ministry's purview. But now that the Planning Ministry's role in devising investment projects is being phased out in favour of giving the private sector a greater say in investment policy-making, NIB should now be placed under jurisdiction of the Finance Ministry -- "the ministry solely responsible for securing the state's budgetary resources," the memo concluded.
Hassanein's memo has provoked a mixed reaction in financial circles with many commentators noting that placing NIB under the Finance Ministry's control will automatically exempt the ministry from servicing its own debts to the bank. The Finance Ministry paid only LE5.1 billion to NIB last year, out of an agreed LE26.9 billion, in settlement of loan instalments and interest rate.
"If the ministerial decision goes into effect, the Finance Ministry will be automatically relieved of paying the NIB its huge financial arrears. It would, after all, be illogical to pay debts to a bank which is already one of its affiliates," said Abu Ismail.
The Finance Ministry's memo has met with support from several inside sources, not only because it will boost the government's privatisation plans for the economic authorities, but also because it will dramatically reduce levels of domestic debt. The ballooning of domestic debt has always been an obstacle to financial reform and privatisation.
"I think placing NIB under the Finance Ministry's purview is a positive step and should receive parliament's support," said Abu Ismail.
Mahmoud Abul-Nasr, chairman of the parliamentary Planning and Budget Committee, fully supports the Finance Ministry.
"I believe that NIB's role should be re-adjusted in the coming period. It's resources are mainly comprised of pension funds (LE51.7 billion) and the proceeds of National Bank investment certificates (LE36.9 billion). These resources should be utilised in a more profitable way," said Abul-Nasr.
Officials at the Planning Ministry, for their part, strongly object to any attempts to transfer NIB's supervision, arguing that the private sector is not yet sufficiently mature to replace NIB's role in providing investment. Besides, the government is still heavily involved in funding investment projects, which is why the role of the NIB, under Planning Ministry supervision, should be maintained, they insist.
Other financial experts have argued that the ideal position for NIB is to come under the supervision of the Central Bank of Egypt (CBE). Kamal Sorour, general manager of Misr International Bank, argues that placing NIB's cash resources under CBE control will give the latter full discretion over the banking sector's liquidity. "This will help a lot in stabilising exchange rates and give CBE greater flexibility in managing money supply on the market," said Sorour.
