10 - 16 May 2001
Issue No.533
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Al-Ahram Weekly On-line 10 - 16 May 2001 Issue No.533 |
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The real pound
Sir- Mohamed Metwally's interview with Gamal Essam El-Din, "Counting on the Troika" (Al-Ahram Weekly, 12-18 April) is a clear thumbs up for the Egyptian economy and the current government's economic policies. By focusing on the "full half of the cup" option, as he calls it, in evaluating a national economy, Metwally is able to put most of the blame on the previous government, headed by Kamal El-Ganzouri, while expressing his strong admiration for Ebeid, Boutros-Ghali and Hassanein (the Troika).He goes on to say "we emphasise that international investors have strong confidence in this very strong economic team, which has so far managed to take great steps ahead." Then he lists several performance achievements, including the expectation of "more exchange-rate flexibility, which would bring the Egyptian pound to its earlier 3.40 level against the dollar." Would that this would happen. By contrast, Goldman Sachs is quoted on the same page of Al-Ahram Weekly as saying that the rate "needs to be reduced by at least 22 per cent against the dollar." The wide divergence in outlook for the equilibrium level of the Egyptian pound is quite noticeable.
Briefly, my comments are as follows: First, I am not aware of "the empty or the half of the cup" theory of macro-economic evaluation, I wonder how it operates in the real world. Second, was it not under the previous government that Egypt did its debut GDR for Commercial International Bank and continued to open up the Egyptian capital markets to portfolio inflows, as well as accelerating the pace of privatisations to attract foreign direct investments? Third, while it is reasonable to assume that the present government has generated strong confidence on the part of international investors, as Mr Metwally asserts, perhaps it would be reasonable to ask him to explore why capital inflows have remained so low and Egyptians have continued to shun their currency?
For a pragmatic assessment of Egypt's economic performance, I refer Mr Metwally to the Spring 2000 issue of Arab Banker. In addition to the collective interview with seven leading bankers in Egypt, I also urge him to look at the interview with his colleague, Mohamed Abdel-Hadi.
The main hurdle encountered by Egypt's economic reformers is not their competence, or where they received their graduate training from. It has much more to do with the fact that they have been hamstrung by Egypt's fixation with trying to maintain the parity of the Egyptian pound with the US dollar until September 2000. Only then was some flexibility allowed. The previous tight-money policy drained liquidity from the domestic economy and effectively tied the hands of those experienced ministers he refers to. This view is supported in a recent article written by Mohamed El-Erian and Mahmoud El-Gamal, who found that the important determinant of monetary policy in four out of five Arab countries (between 1990-1999), including Egypt, was the exchange rate. Their conclusion: "the main element underlying the policy approach in the sample countries was the adoption of the exchange rate as a nominal anchor."
George Kardouche
London
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