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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 Liquidity and beyond
By Aziza SamiThe cabinet announced this week that a liquidity squeeze on the domestic market has eased off after LE8.5 billion in government debts were repaid to the public and private sectors. "There is no liquidity shortage at present," said a statement issued by the cabinet's economic group, adding that the positive effects of debt repayment would only be felt after some time. Debt repayment will continue "within safe limits," said Prime Minister Atef Ebeid at a meeting with the National Democratic Party's economic committee.
The government also announced on Tuesday that the Central Bank of Egypt is "committed to insuring all bank deposits, whatever their size," affirming that "money placed by depositors in banks is totally secure."
A statement by Economy Minister Youssef Boutros-Ghali said that bank deposits are on the rise, and that the number of loans in default does not exceed the internationally accepted five to seven per cent of bad loan provisions.
The statement followed a highly publicised trial known as the case of the "loan deputies," in which 31 persons, including MPs and bank executives, were convicted by the Supreme State Security Court for incurring bad loans amounting to LE1.6 billion. Observers believe Ghali's announcement was intended to allay investor scepticism that the banking sector would be able to meet its commitment and repay deposits to clients.
The Federation of Egyptian Banks (FEB), at a meeting earlier in the week, discussed the case's impact on the investment climate, specifically on five banks some of whose employees were implicated in the case. The FEB recommended a stronger banking role to counter the market recession, by expanding retail banking and services as well as making credit facilities available to government and public sector employees through credit cards.
Minister of Planning and International Cooperation Ahmed El-Darsh said the National Investment Bank (NIB) would start repaying the government's debt to the public, and that priority would be given to small and medium enterprises.
In an attempt to regulate money market transactions and offer interest rates compatible with the actual liquidity available in the banking sector, the banks on Sunday began implementing a new system for interbank borrowing transactions, known as Cibor (the Cairo Interbank Offered Rate) on a one-month experimental basis. The system, which is modelled after the London Interbank Offered Rate (Libor), aims at regulating interbank transactions by acting as a benchmark for interest rates imposed on lending transactions for one day, and up to a year. More than 95 per cent of Egyptian banks will join the system and announce these offered rates on special pages provided by Reuters.
The first alarm signalling the market's liquidity crunch, sounded six months ago, was the escalating interbank borrowing rate, which soared up to 17 per cent. This triggered accusations that some banks were exploiting the liquidity squeeze by imposing interest rates on their loans higher than those imposed by other banks.
The new Cibor system is intended to reflect the real liquidity available in the money market since interest rates will be a direct manifestation of the cost of this liquidity. Regulating interbank rates will also lead to the adjustment of interest rates on deposits and loans.
Ebeid, who recently met with the Federation of Chambers of Commerce and listened to businessmen's views on the recession, told members of the NDP economic committee that the government would help ease the recession and resuscitate the stock market, which is suffering from a liquidity shortage and plummeting prices.
Recent government statements on the need to promote exports indicate a growing awareness that the economy's fundamental problem lies in what has become a chronic deficit in the trade balance, and a resulting deficit in the balance of payments, as well as the fact that the middle and lower classes have little or no purchasing power.
And while exporters have been promised greater incentives, there are concerns about the increasing trade deficit, which amounted to $12.5 billion last year, and the rising imports bill draining Egypt's foreign reserves. Both the government and businesses see a competitive export performance as the solution. On the ground, however, Egyptian exports do not meet the global market's needs in either quality or cost. Producers are increasingly demanding a devaluation of the Egyptian pound, but the government believes that devaluation is risky as long as exports remain low, and fears negative repercussions on the economy.
Egyptian industrial competitiveness in view of the impending Egypt-EU Partnership agreement and the agreement's impact on the balance of trade topped the agenda at a cabinet meeting on Tuesday headed by President Hosni Mubarak. Egyptian producers had criticised the agreement for not giving them adequate competitive advantages in accessing European markets. Mubarak recommended a review of some of the agreement's provisions.
Egypt and the EU are currently embarking on an industrial modernisation programme. The cabinet meeting stressed that this endeavour should reinforce the economy's ability to implement the partnership and to comply with the liberalisation requirements stipulated by the General Agreement on Tariffs and Trade.
Additional reporting by Sherine Abdel-Razeq
Related stories:From reform to recession 27 April - 3 May 2000
Not so inscrutable liquidity- 27 April - 3 May 2000
Revitalising credit- 27 April - 3 May 2000
What squeeze?-26 Aug. - 1 Sep. 1999
How big a bear?- 20 - 26 August 1998
