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Al-Ahram Weekly 4 - 10 May 2000 Issue No. 480 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 4 - 10 May 2000 Issue No. 480
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Special Features Travel Living Sports Profile People Time Out Chronicles Cartoons Letters Forward and back
By Aziza Sami
The reaction in financial circles to the economic recession and to government measures to redress it has raised a number of question marks over the manner by which the economy is being administered.
There is no dearth of well-informed, accurate assessments -- from both government and business circles -- about the reasons for the recession and how it can be alleviated. The cabinet's economic group includes prominent academics with extensive experience dealing with international funding agencies. Egypt has many economic think tanks and business associations whose prime function is presumably to advise the government on macroeconomic policy. The Central Bank of Egypt offers a veritable reservoir of knowledge with board members who participated in establishing economic institutions in the Gulf and are architects of Egypt's capital market and financial laws.
In short, there is a financial elite but a liquidity problem was left to exacerbate into a "crisis."
How this situation came about relates to the way government agencies work together, how timely and decisive they are in solving problems, and how consistent their declarations are.
When the Central Bank of Egypt -- during the tenure of former Prime Minister Kamal El-Ganzouri -- wanted to inject money into the market during recurrent liquidity squeezes over a year ago, it received directives from the cabinet restricting its freedom to do so. Such intervention was unprecedented. The argument made by El-Ganzouri at that time was that there was no problem in the currency market and hence no need for action.
Lack of coordination between the country's foremost monetary institution and the cabinet has continued since the new ministry came to power. A public statement six months ago by the Central Bank's first deputy, Faeqa El-Rifaai, that the exchange rate must ultimately be liberalised, was met with a categorical declaration by current Prime Minister Atef Ebeid that "the Egyptian pound will not be devalued." Differences continue inside the cabinet itself over the exchange rate issue, as pressures on the Egyptian pound continue, which resulted in the directing of $5 billion of reserves into the market over the past year alone.
While the government has announced its remedy for the economy's recession, it needs to clarify even more how this is to be implemented. Ebeid has announced that a major portion of the government's LE25 billion debt, which it owes to the private and public sectors, will be paid from oil revenues, privatisation proceeds and BOT projects.
Ebeid's optimism is based, partly, on predicted growth in Egypt's oil revenues. But these predictions do not seem to take sufficiently into account the instability in oil prices, which are subject to the fluctuations of the global market.
How exactly privatisation will contribute to debt repayment is unclear. Currently this programme is entering the difficult phase of marketing loss-incurring companies and the best formula for their sale is still being debated. The question then is: what are the expected proceeds, and for how long will these be used to help repay the government's debt?
Apart from the sale of companies, the government's privatisation agenda in general has lacked transparency. Measures were taken and then retracted whenever there was political backlash regarding "sensitive" sectors such as the banking sector, and even the cement sector. In the midst of a series of successful cement deals concluded at the beginning of the year, the government unexpectedly formed the Al-Ahram Company in order to bid for the public sector Ameriya Cement Company in an action which gave the impression it did not want to leave the fray totally to private investors.
The government's economic group needs to move ahead with liberalisation, without falling back on its own steps. It must develop a well-formulated macroeconomic policy under which decisions are assessed thoroughly before they are implemented. At present, its structure and mode of operation are not helping it do this.
