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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 Fishing for the small fry
By Ibrahim Nafie
The rulings on the notorious loan deputies case were a great relief to public opinion. Affirming the integrity of our judicial system and the vigilance of our supervisory agencies, they sent a clear message that, while our economy may be striding toward greater liberalisation, no one stands above the law. The rulings are therefore an important deterrent against corruption. There remains, however, the question of what other actions must be taken to ensure that the dangerous irregularities that riveted national attention to this case are not repeated.
Clearly the first step is to remedy the immediate harm the crimes those found guilty in the case committed against the banks and their clients' holdings. Above and beyond this, many aspects of the management of our economy need to be addressed, both to eliminate the adverse effects epitomised by the recent case and to improve our economic climate in general.
The loan deputies case underscored, in particular, the urgent need to revise our current credit policies. Viable and coherent credit policies must follow several principles essential for the improvement of the economic climate and the optimum performance of the financial sector in particular. Credit policies must inspire the confidence of investment capital, reaffirming the government's commitment to the promotion of a responsible private sector that respects the law and the rights of the state and society. The government has no interest in encouraging a private sector given to a "goose that laid the golden egg" mentality, since this only breeds the petty cupidity that leads to crime. Rather, the government seeks to foster a private sector imbued with a mature entrepreneurial culture founded upon the need for rational and sustained growth and productivity.
In addition, our credit policies must furnish incentive to direct foreign investment in those areas of our economy conducive to the development of export trade, the reduction of our dependency on certain imports and the promotion of the technological component in our manufactures and manufacturing apparatus, so as to enhance the competitivity of our products.
The Central Bank has a pivotal role to play in the management of the Egyptian economy. As the recent court case demonstrated, one of this institution's most important functions is constantly to monitor banks' performance in applying the regulations that govern credit. Although the existing control mechanisms of the Central Bank contributed to furnishing the hard evidence that led to the defendants' conviction in this case, it is still necessary to tighten these mechanisms, albeit in a manner that will not impede the system's flexibility and speed in granting credit.
Simultaneously, it is important to improve the channels through which the Central Bank coordinates loan extensions with other banks. In its supervisory capacity, the Central Bank is in a position to have a clear overall picture of the process, and could easily play a guiding role, particularly when investors apply for loans from more than one bank.
While the loan deputies trial was a landmark case, it also underscored the need to introduce substantial improvements in the system of litigation in Egypt. Speed is of the essence in resolving economic and financial cases before the court, because of the interests that are tied up pending the rulings on these cases, on one hand, and, on the other, because of the opportunity long-winded litigation gives groundless scandal-mongering to bring down the innocent with the guilty and tarnish the image of the economy as a whole. In fact, if there was one dismaying aspect to the recent trial, it was the avalanche of rumours that built up over the two years it took to resolve the case and that swept away many honest businessmen responsible for some of the most important institutions in the Egyptian economy. Hand in hand with the need to streamline the litigation process, there is the need to ensure transparency in economic and financial transactions. Greater transparency is one of the most powerful deterrents to corruption and, simultaneously, is important for enhancing the image of the Egyptian economy abroad.
The government is responsible for steering the national economy over the hurdles it faces at home and abroad. If the government recently demonstrated its efficacy at the helm of the economy by paying off LE5.8 billion of its debts to the private sector in a bid to alleviate the liquidity crisis, it must see this process through nevertheless in order to boost confidence in the Egyptian market. In this regard, the government is committed to paying off its debts as they arise, so as to avert the impact of accumulated debt on economic vitality. The government must also demonstrate a high degree of flexibility with regard to the rescheduling of private debts to banks. By doing so, it will help entrepreneurs establish their businesses in a manner enabling them to repay their debts. The banks, too, are responsible in this regard, particularly if they failed to observe the regulations governing the granting of credit to businesses that floundered.
It is imperative for banks to adhere scrupulously to such regulations. Here too, however, it would be useful to revise the scale of priorities in favour of the small enterprise sector, which receives its dynamism from the household economy. While one does not expect a high ratio of loans to savings for this sector, it is still necessary to stimulate small enterprises. By linking its activities systematically to those of big industry, we will be able to generate a more dynamic and intensive economy with greater prospects for real growth.
Of course, readjusting credit priorities in favour of small enterprise does not mean that the banks will ignore the needs of the large-scale private businesses, which are expected to take a lead in economic development under Egypt's current policies of economic deregulation. Indeed, the government has acted to bring about a variety of legislative and bureaucratic reforms, in order to help furnish the necessary conditions for this sector to thrive. Within the framework of the rules governing credit, the banking sector, too, will continue to play a major role in giving sound private enterprise the impetus it needs to flourish.
