Dollar dirge
By Magdi Mehanna *
Ten days have passed since the Central Bank announced it was raising the price of the dollar from 395 piastres to 415, with a three per cent margin of fluctuation in the exchange rate.
Among the positive consequences of raising the price of the dollar is that it encourages exports, making life easier for exporters and correspondingly reducing the proportion of imports. This, it is thought, will address the banks' $900 million deficit, which has been a problem since January.
The move has negative consequences, too. While it may lead to relative market stability, eliminating the role of the black market and speculation, this state of affairs is not likely to last for very long. Within weeks the price of the dollar will rise again, the black market will return and the government will have to raise the official exchange rate once more.
In fact, there are those who expect the price to reach LE5 by the end of 2001. The reason for this is that dollars are not readily available in the market, and the supply deficit is expected to reach $1 billion by the first few months of next year. Where, one could ask the Central Bank, will the dollars come from, considering the actual volume of Egyptian exports? The only real source of dollars available to the Egyptian economy is the Central Bank's strategic reserves, but the government refuses to open them up.
The decision to raise the exchange rate is thus at best a temporary remedy that will not help regulate or stabilise the currency market. Supply must increase, and there must be coherent, specific policies addressing the issue. These are the only potentially effective solutions. Temporary measures such as the present one, in contrast, are risky ventures whose consequences nobody can determine.
*
This week's Soapbox speaker is editor-in-chief of Al-Wafd newspaper.
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