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Al-Ahram Weekly 6 - 12 July 2000 Issue No. 489 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 6 - 12 July 2000 Issue No. 489
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region Focus International Economy Opinion Culture Features Travel Living Sports Profile People Time Out Chronicles Cartoons Letters Money, money, money
By Sherine Abdel-Razek
Thousands working in both the private and public sectors have not seen any money in three months. This is the reality of the snowballing liquidity problem. Everyday the government insists that it has the problem under control, but the money never arrives.
"I did not get my salary last month. I don't understand the economic terms but company officials said that it was because of a liquidity problem," said an employee of a state company. Despite his problem, however, he is actually one of the fortunate ones. He has an alternative source of income, since he moonlights as a taxi driver.
Ebeid
Ghali
Hassanein
El-Darsh
In the marketplace, businesses are desperate to raise any amount of money, by any means. The new trend in consumer goods is to sell anything and everything through installments. Yet, in the stores no one is buying. The money shortage has robbed both low and middle income earners the luxuries they used to enjoy. Under current conditions, people struggle to buy the necessities. Luxury items and personal investments are simply not feasible any longer. The lack of consumer and investment activity has exasperated the problem. A vicious circle has developed.
Yet, last week brought good news. The Ministry of Finance announced that the government has repaid LE8.3 billion of its debts to public companies. Furthermore, the minister of economy released a survey that indicated better than expected results for inventory turnover within the industrial sector. The survey sample also demonstrated an improved rate of debt repayment.
The good news, however, has yet to be heard on the street. This lack of improvement in the marketplace has created the impression that the government is talking more than acting. The state's credibility remains shaken.
According to Hani Tawfiq chairman of Egycap for Investments, the government has been actively managing the problem. However, since it is a macroeconomics dilemma, these efforts will take time to be felt on the ground. "The government did not inject this money into the companies' cash-dry budgets. Instead it has settled the debts of these companies to the banks and thus these companies were not able to pay employees or subcontractors," he explained.
Tawfiq argues more needs to be done to get money in the hands of individuals. Once employees and contractors get paid, they will start buying again. The ailing stock market is a reflection of this dilemma. Investors are fleeing the market. Not only do investors no longer have free capital, they have also lost confidence.
In an investment environment plagued by a lack of confidence, there is a tendency to play it safe. Tawfiq remarked, "Even if companies receive cash repayments, I am sure that they will keep it in their vaults rather than invest or even repay debts. None of these companies know if they will ever receive another instalment."
Ahmed El-Ghandour, a Central Bank of Egypt board member, sees it from a different perspective. "The liquidity problem did not happen all of a sudden. Its causes have been accumulating over years. So tackling the problem will also take some time, maybe a year or two."
Mohamed Shaaban, head of investments in the Arab International Bank, agrees with El-Ghandour. Shaaban contends that a resolution to the problem will take time. "It is not a matter of new policies adopted by the government to realise quick results," he said. Regarding the capital market, he pointed out that a lack of transparency and credibility have made investors very uneasy.
Initially, the banks were hardly affected by the liquidity problem. However, over time interest rates have had to be raised on deposits to attract more funds. This has led to a parallel increase in lending rates. They currently stand at approximately 16 per cent. New investment, therefore, has been hindered.
According to El-Ghandour, the banks should have dealt with the liquidity problem in another fashion. "They could have stopped lending to low creditworthy clients and thus would have dealt with one of the main causes of the problem," he said.
Many economists believe that state policy makers have picked up a dangerous double-edged sword in order to deal with the crisis. The government indicated that it plans to privatise a number of state-owned companies in order to finance debt repayments. According to Shaaban, however, this influx of stock into an already depressed market runs the strong risk of compounding the problem.
