12 - 18 April 2001
Issue No.529
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Al-Ahram Weekly On-line 12 - 18 April 2001 Issue No.529 |
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Crisis management
The Egyptian economy is not alone in facing problems. Japan, the world's second largest economy, is reeling from a major crisis in its banking sector. Argentina is in the throes of deep recession and Turkey currently has to contend with political unrest following February's massive devaluation of the Turkish Lira and the consequent threat that inflation will spiral out of control.
The common denominator faced by decision makers in these countries -- or at least Argentina and Turkey -- has been the need to devise a workable exchange rate policy while at the same time furnishing the necessary incentives to investors. This has required a stringent streamlining of the countries' financial sectors and the activation of capital markets -- tasks with which Egypt's own cabinet economic group must surely be familiar, since they have, more or less, constituted a major challenge for the past five years. The difference, though, is that Turkey and Argentina are much larger economies than Egypt and are consequently more exposed to the global economy. The crises they face developed in such a manner as to demand action, both to limit potential damage and kick-start the economies, whereas in Egypt we appear to be facing a level, drawn out and never ending mini-depression.
In our apathy, though, we might still learn about the need to deal with situations as if they constituted a crisis, if only so we might start to resolve them. Domingo Cavallo and Kemal Dervis, the economy ministers of Argentina and Turkey, are both men whose competence has been recognised internationally. They have risen to the challenge, devising radical plans and formulating policies more supportive of domestic investment. Given that prospects for increased foreign capital inflows have been overshadowed by the slowdown in the US economy and, with it, the spectre of a world wide recession, increasing levels of domestic investment has become a strategic economic goal.
Cavallo, instrumental in resolving Argentina's economic crisis in the early 1990s, is working to maintain the peso's peg to the dollar, having ruled out the possibility of devaluation in the current climate. The negative impacts of an overvalued local currency will, it is hoped, be overcome by encouraging producers to become more competitive. Taxes levied on production, specifically on capital imports, will be totally lifted. And, at the risk of compromising, even if temporarily, Argentina's free trade with the Latin American Mercosur countries, local industry will be protected by raising tariffs levied on consumer imports.
In times of recession the government needs to undertake radical initiatives stimulating confidence in the market, insists Cavallo. The Argentine executive, accordingly, has been invested with emergency powers to enable it to implement its economy minister's prescribed formula.
In Turkey Kemal Dervis, the well-known vice-president of the World Bank, has been appointed to the cabinet with wide ranging powers. His objective is to stabilise the exchange rate, resolve liquidity problems and maintain foreign currency reserves at around $14 billion. He faces, too, the daunting task of reviving confidence in Turkey's debt-ridden banking system, at whose feet many of the current troubles can be lain. He also needs to accelerate privatisation in the face of complex political odds. Fifteen laws crucial to the success of his proposed reforms will be passed by parliament.
"A national crisis is also an opportunity to solve and eliminate long term problems," says Dervis.
Egypt, and not only Argentina or Turkey, possesses individuals with the ability to diagnose problems. But their presence is not felt on the national arena. Those who have entered the cabinet's economic group have found themselves hampered by political and bureaucratic restrictions. And qualified individuals from within the financial sector will not deign to work with the government. They know that should they attempt to become decision makers wielding authority, devising solutions based on vision and expertise, they will only be frustrated.
In our extended torpor we need to ask: must things reach crisis point before we begin to act? And should that happen, is there a Dervis or Cavallo whom we can anticipate?
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