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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 Counting the credit
By Ibrahim Nafie
It was heartening to read the many responses that have followed my articles discussing the current liquidity crisis, the majority of which have been measured and coherently argued. There have, too -- which is far less heartening -- been several irrational responses, not least the lengthy commentary in the opposition Al-Shaab newspaper which somewhat predictably took refuge in the usual vague and irresponsible rhetoric -- announcing "economic ruin", the "death of government", and the "return of the snare of debts" rather than engaging in any kind of reasonable discussion of the problems at hand.
Just what kind of "economic ruin", we may well ask, is reflected by World Bank figures that show a rise in real GDP from $22.9 billion in 1980 to $47.3 billion in 1995 and $78.1 billion in 1998, and a rise in per capita share of the GNP from $558 in 1980 to $790 in 1995 and $1290 in 1998? Where is the purported "ruin" in the IMF's World Economic Outlook of October 1999 which show a rise in the rate of real growth of GDP from 5 per cent in 1997 to 5.4 per cent in 1998 to 6 per cent in 1999? In addition, the IMF projected an anticipated growth of 5.4 per cent for 2000, a figure that does not take into account the sharp rise in oil prices that began last autumn and that will probably inflate the growth rate beyond the IMF's predictions. How can one speak of economic ruin when inflation has fallen from 21 per cent in 1992 to 3.7 per cent in 1999, during which period hard currency reserves have been built up to the stage where they cover a year and a half's imports?
As for Al-Shaab's announcement of the "death of government", nothing could be more absurd. While it is true that the government is giving greater rein to the private sector to enable it to play a more active role in improving the efficacy of the national economy, it continues to fund public projects, investing the equivalent of 34.3 per cent of GDP on such in 1997. Nor is there any foundation to the newspaper's plaint regarding the return of the debt trap. Al-Shaab's sweeping judgement was based on a jumbled understanding of government policy.
The Egyptian government, in reality, has been keen both to diversify the sources of its financing -- reducing its reliance on external sources and ensuring that funds are directed towards projects with the potential to capitalise on Egypt's comparative advantages.
I have been intrigued by the diversity of opinion regarding the possible causes of the liquidity crisis. Some readers have suggested that it is the product of a foreign conspiracy, an opinion I find unconvincing. Ultimately, we are responsible for the conduct and welfare of our economy. If certain foreign parties move to exploit a weakness, we have first to examine how we gave them the opening. Simultaneously, we must be the first to assume the responsibility of remedying that weakness and steering the economy towards a more secure and prosperous future. In this respect, it should be said that all the measures the government has taken to address the liquidity crisis have been effective and have begun to show immediate results.
Others have suggested that the spread of mobile phones has been partially responsible for the liquidity shortage. While it is true that the two major mobile phone companies operating in Egypt garner at least LE1 billion in annual subscriptions, this does not imply a serious sapping of national liquidity unless these companies divert that income to investment abroad. As for the liquidity that goes towards purchasing foreign-made mobiles and accessories, the two mobile companies might do well to consider establishing an industry to produce such equipment locally, under an agreement with one of the international mobile phone manufacturing companies. At the same time, it should be remembered that the mobile phone network in Egypt has become an indispensable part of international telecommunications and is increasingly vital to facilitating business and improving the attractiveness of the local investment climate.
Yet another body of opinion has suggested tax evasion as a cause of the liquidity crisis. It is true that this factor debilitates the government's ability to pay its debts to contractors. However, in terms of the overall economic picture, tax evasion, however pernicious, only reduces the amount of money in circulation if such money is salted abroad.
Readers suggested many viable solutions to the liquidity crisis. These include developing a more viable exchange rate policy, adopting more innovative ideas for promoting exports and raising passage charges through the Suez Canal in a manner that does not detract from its competitivity with alternative navigational routes. Some have suggested that the government should freeze the mega projects it has initiated, although in my opinion the more viable alternative is to put a freeze on further projects and to concentrate on bringing the initiated projects into production to enable them to recuperate the investments already made.
Finally, it is important to allay the frequently voiced fear that Egypt might find itself vulnerable to a financial meltdown on the southeast Asian model. It should be stressed that the repetition of such a crisis in Egypt is unlikely given that the kind of currency speculation that precipitated the crisis in Southeast Asia is not permitted. In addition the Central Bank plays an important regulatory role in setting the price of the Egyptian pound against the dollar.
The government has proven itself effective in safeguarding the Egyptian economy from sudden crises. Certainly it has acted rapidly and responsibly to counter the liquidity crisis, as evidenced by President Mubarak's assurance that the government will not devalue the pound or increase the amount of cash in circulation, since to do so would be inflationary. This does not mean, of course, that it is not essential to take stern measures to remedy those economic problems that generated the liquidity crisis, and to correct budgetary imbalances in order to boost economic growth to a level where it is commensurate with Egypt's regional and international status.
