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Al-Ahram Weekly On-line 2 - 8 November 2000 Issue No. 506 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly On-line 2 - 8 November 2000 Issue No. 506
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region Interview International Economy Opinion Culture Features Travel Living Sports Profile People Time Out Chronicles Cartoons Letters Of monetary bondage
By Aziza Sami
The government has announced that it will issue $500 million worth of eurobonds in international markets to fund investments in the state's development plan. And while it is clear as to why this step is being undertaken -- given the shortage of available resources -- the question is whether this is the appropriate means of soliciting funding, given the economy's current state and the less than positive rating international agencies have accorded it in the past six months. Minister of Finance Medhat Hassanein says that the launch will be within the economy's borrowing capacity of $2.5 billion per annum. But this creditworthiness notwithstanding, the bonds -- in the absence of more radical measures supporting direct investment and productivity in the economy -- will constitute a potential burden, a liability that could well push Egypt into a new vicious circle of indebtedness.
Businesses are in fact sceptical as to whether the proceeds from the eurobonds will go into investment projects (no matter how good the intentions), or whether they will eventually find their way into government coffers, where dwindling currency reserves last June stood at less than $15 billion due to the CBE's repeated interventions into the market, aimed at stabilising the exchange rate.
And furthermore, in the event of the eurobond issue being successful, how will the government use it to support investments generating employment or exports, as opposed to the "megaprojects" that have siphoned off such vast quantities of much needed public and private funds? What will the government do to help producers overcome the eternal problems of taxation and restrictions on import requirements, and a bureaucracy whose monstrous capacity to obstruct has earned it international repute? Given the government's less than positive record in its past choices, investors need to be assured that these new decisions will not be followed through, yet again, in a hasty and sporadic fashion.
Just as borrowing by means of sovereign bonds must be supported by a major drive to address the economy's serious lack of productivity -- if it is not to prove self-defeating -- so must the government be more honest about how it intends to deal with the exchange rate, an issue on which obscurity has been translated into contradictory policies that convulse the market daily. Despite the pound's actual devaluation by almost 20 per cent over the past five months, Prime Minister Atef Ebeid still insists, as reported at a meeting with the American Chamber of Commerce, that "the pound will not be devalued," as though political announcements could camouflage what has become obvious to all: that the pound -- bolstered by means of cosmetic remedies -- is increasingly less reflective of the economy's fundamentals. This has resulted in a schizophrenic split between what reality is and what the government would have people believe. Even IMF officials have gone along with the masquerade, relegating the issue of the pound's devaluation to a later date, as if it had not already been devalued.
Central Bank Governor Ismail Hassan, for his part, has been voluble in his announcements, as if exaggerated statements could deflect attention from current disagreements between the CBE and the government on the exchange rate and the manner in which banks should deal with the matter.
Central Bank officials need to speak -- when they do so -- in a manner that is measured and well pondered. This is one lesson that might be learnt from the recent furore that broke out over one small remark on monetary policy made in an interview by the European Central Bank governor Wim Duisenberg, and which does not amount to a fraction of what our Central Bank governor (not to mention our prime minister) declare every day.
The situation is having debilitating effects on investors' capacity to estimate the feasibility of their projects, and to assess and convert future profits. More serious is the government's lack of awareness of the fact that investors' confidence, if shaken on the domestic market, can only affect Egypt's reputation on the international markets it is so keen to address.
Minister of Finance Hassanein's competence cannot be doubted, but he is, after all, working in a larger context. The eurobond issue, even if successful, cannot be more than simply a monetary tool to collect funds -- in other words a partial solution to a basic question.
Even well thought-out steps can go off the mark, when the overall plan needs to be better orchestrated.
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