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Al-Ahram Weekly 18 - 24 May 2000 Issue No. 482 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 18 - 24 May 2000 Issue No. 482
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Focus Features Heritage Travel Living Sports Profile People Time Out Chronicles Cartoons Letters Searching economic alarms
By Ibrahim Nafie
Now that government actions to combat the recession appear to be at last having an impact, it is time, perhaps, to extend our soul-searching beyond the immediate causes of the liquidity shortage and the actions necessary to kick-start the economy to the mechanisms that need to be in place to allow us to tackle or pre-empt any crisis calmly and in good time.
It is, I believe, important that we get away from the hysteria that accompanied the recession. Surely we are sufficiently mature to face up to those issues that, if they cannot be said to be root causes of the recent economic problems, nonetheless contributed to their exacerbation.
It does not signify weakness to admit that we have been facing problems -- indeed, the opposite is true. For it is a sign of economic maturity to face up to the occasional crises that are an inevitable part of the management of any successful economy in a world where individual states are becoming ever more economically interdependent.
Some might argue that as a small, developing economy, Egypt need not respond to crises in the same manner as, say, leading industrial nations, which tend to be the first to react to the chill winds from any adverse developments in the international economic climate. And while there is undoubtedly an element of truth in this position, it is certainly not the whole story. Indeed, given the importance of international trade to the growth of Egypt's GDP, it could be argued that Egypt is, as a developing country, more vulnerable than advanced economies to distortions in the international economic arena.
Over the last few years it could be argued that a false sense of security was created by an exaggerated faith in positive economic indicators, which were not analysed as critically as might have been the case. Certainly the Asian crisis, which erupted in June 1997, should have sounded a warning bell, yet the response of some economic officials was simply to deny that it could have any detrimental effects on Egypt's own economic prospects, a position in marked contrast to the in-depth analysis of events in South East Asia and their possible impacts on international trade conducted by economists elsewhere. The role of the increasingly internationalised capital markets, the dangers of running a constant budget deficit, of an unrealistically inflated real estate market in which developers had heavily invested, all came under scrutiny, as did the quantities of speculative capital swilling around the international markets, seeking quick profits and then, as quickly, exiting markets.
Writers, analysts and government officials consistently underestimated the possibility of such a crisis impacting on the domestic economy on the grounds that the level of foreign capital operating in Egyptian markets was low and that real-estate lending by local banks was comparatively not high. What no-one anticipated, though, was the manner in which the collapse of Asian currencies would affect the domestic economy given the subsequent stockpiling of unsaleable inventories which officials are only now identifying as one of the reasons behind our own liquidity shortage. Analysts, though, should have been aware of the dangers of such stockpiling much earlier. Certainly other countries, including China, took preemptive action in the immediate aftermath of the currency devaluations to avert the danger to their own economies.
There are lessons, too, that must be learned from the global collapse in stock prices following a run on the Hong Kong stock exchange in October 1997. Once again, the tendency was to downplay the possible dangers this might pose to domestic markets. The Egyptian Stock Exchange, it was argued, had effectively readjusted itself the previous February, a fact that would contain any possible detrimental spin-offs. What analysts ignored, however, was the complexity of the operation of international economic relations and the manner in which the collapse of share prices in Hong Kong might impact on a wide array of domestic sectors.
A purely domestic matter, the decimation of tourist revenues which plummeted overnight following the 17 November, 1977 massacre of tourists in Luxor, was also underestimated. While analysts conceded that this would have a negative impact on economic growth, they found solace in reiterating that tourist revenues, after all, constituted only a fraction of GDP, and so the damage caused by their virtual disappearance would be limited.
It is my contention here that desire to make consistently reassuring noises about the health of the local economy in all these instances, if well-meant, came eventually to foster a dangerous complacency. For just as the dangers of stock-piling were overlooked, so the reduction of foreign capital invested in Egyptian markets in the fiscal year 1997-98 was ignored, though it should have been taken as an indication that foreign investors were exiting the market, preferring to take their profits and run rather than stay for the long-haul. The links to what happened in South Asia should have been obvious, though they were, by and large, glossed over.
The basic dilemma, then, is that each new "crisis" tended to be viewed as an isolated incident. There was a consistent failure to draw connections between them, connections that had to be drawn if an accurate overall picture was to be unravelled and alarm bells sounded when they should have sounded.
To escape this dilemma we need to improve our readings of the relevant indictors, which need themselves to be made available with greater frequency. The Central Authority for Public Mobilisation and Statistics, the Central Bank, the Cabinet Information and Decision Support Centre, the Stock Market Authority and the Ministry of Economy all have a role to play in this respect, increasing both the scope and regularity of the statistics they release. Research bodies, too, should be separated from the executive, which is not to say that ministries should not operate their own research centres, merely to argue that these activities must be supplemented by independent bodies that regularly offer their own analyses of the situation.
Let us escape the syndrome whereby we continually shut the stable door only after the horse has bolted. Let us put in place the mechanisms that would allow a preventative economic policy, one that would allow us to head off crises before they develop, just as preventative medicine seeks to combat sickness before it has time to become life-threatening.
