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Al-Ahram Weekly 7 - 13 September 2000 Issue No. 498 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 7 - 13 September 2000 Issue No. 498
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Features Travel Living Sports Profile People Time Out Chronicles Cartoons Letters Cat and mouse
By Aziza Sami
With political tensions between the US and Egypt riding high the one question on the lips of administration officials in Washington tends to be a variant of "what possible use is Egypt to the US when it is not performing in the Middle East peace process to America's satisfaction?" The ,'s handling of events surrounding the rescheduling of debts incurred by the Lakah group reveals a greater degree of transparency than is normally the case when it comes to such matters. Some facts, at least, have almost been laid on the table, and intimations concerning the shape of any rescheduling have emerged which could hardly happen without support at the highest levels. Indeed, what details have emerged were published in that most public of arenas, the pages of Akhbar El-Yom.
Ismail Hassan, governor of the Central Bank of Egypt, is, we are told, meeting with Lakah's creditors and attorneys to look into ways of rescheduling the debt. The government has also announced that banks will take no legal action against clients who are behind in debt repayments except after consultation with the Central Bank.
That some proposals have been made public in the Lakah deal constitutes a positive precedent, and seems to signal that there is a new willingness to negotiate rather than foreclose on debts that are, in all likelihhod, not immediately recoverable in any case. An encouraging, departure, then, from a policy that would inevitably have resulted in innumerable bankruptcies.
Yet such debt rescheduling remains no more than a short term remedy. In the longer term what is required is a reorganisation of the banking sector that will stress good accounting practice when it comes to the awarding of loans.
The growth of the Lakah group, and of many other businesses, has been financed by loans that bear no relationship to profits -- either real or projected -- or to existing assets, the value of which is generally inflated to an unsustainable degree. It is the resulting discrepency between the real value of assets and loans granted that has led to such unprecendented publicity being given to the resettlement in the Lakah case.
Small investors and businesses, on the other hand, who cannot likewise engage in a cat and mouse game with the government, are justifiably exasperated: do they need to have borrowed so much that it threatens the collapse of a bank before they too can renegotiate repayments, they ask. A justifiable question given that it is those who have run up debts indiscriminately who have all the clout.
Smaller businesses, including many operating within core industries that are struggling to survive, may not enjoy the needed political connections but they still require a degree of confidence in the banking sector. The extension of billions of pounds to the Lakah group for the import of medical equipment is unlikely to enhance that confidence.
The truth is that senior personnel with responsibility for risk management have consistently granted loans based on a system of cronyism rather than on the credit-worthiness of the applicants, or a realistic assessment of the future profitability of projects. And at a time when producers who desperately need input at competitive rates find their capacity to access funding seriously curtailed, the government has consistently turned a blind eye to businessmen who have built paper fortunes by import and real estate speculation.
The banking sector must take its fair share of blame for the confusion in priorities that has seen a refusal to support manufacturing -- which generates much needed employment -- in favour of unrealistic speculative schemes. It must, too, shoulder the blame for repeated currency shortages and the increasing pressure on the exchange rate.
The government would do well to undertake an additional step along the road to tranparency by allaying, with credible facts and figures, investors' concerns over the public sector banks' current capitalisation and degree of exposure to risk. And the banks themselves must be encouraged -- with as much severity as needed -- to adopt regulatory codes of good practice, so that business acumen, combined with vision, stands a chance of succeeding in a manner that supports the interests of the national economy --which is the interests of the majority of Egyptians, rather than the few.
Related stories:
Lakah buys time 31 August - 6 September 2000
Business blues 24 - 30 August 2000
