13 - 19 December 2001
Issue No.564
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Al-Ahram Weekly Online 13 - 19 December 2001 Issue No.564 |
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Free-market feelings
The tragedy of 11 September came at a time when the Egyptian economy was going through a painful recession. Analysts anticipated that a deterioration in foreign exchange earnings would result from the events. As for the likely shift in external payments, optimists expected a moderate decline; pessimists foresaw a huge increase related to importers' rush to profit from falling international prices, and the upward trend in foreign exchange outflows.
The pessimistic view proved quite realistic. Demand for foreign exchange is accelerating on a scale analogous to that seen after the 1997 Asian crisis. This has placed the exchange rate for the Egyptian pound under severe pressure, and must have drained Egypt's international reserves.
The problem is how to cut demand for foreign exchange. Rather than imposing restrictions, the government has appealed to citizens' patriotism. Then the Central Bank announced a temporary change in its import-financing policy, back-pedaling less than a week later. Fearing the move would be seen as a retreat from free-market policies, the government reaffirmed its refusal to control imports and capital movement. This erratic policy generated confusion, and enormous profits for speculators.
The government expects a private sector-driven economy to respect the public good and patriotic necessity. Unless it recognises the futility of this policy, a disaster will ensue. It should seek to govern the market through careful macroeconomic policies. There is no point in winning the trust of investors, who have been unresponsive to development needs, at the cost of endangering national economic interests.
* This week's Soapbox speaker is an adviser at the National Planning Institute.
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