On 27 November Tarek Amer became the new governor of the Central Bank of Egypt, succeeding Hisham Ramez. Ramez's departure was welcomed by many businessmen, bankers and Forex company owners who claimed that he failed to deal with the dollar shortage and adopted policies that battered investment and trade. During Ramez's 32-month tenure, the value of the pound fell by 27 per cent against the dollar. In fact, while the pound has been losing ground since the 2011 Revolution, the pace quickened after Ramez took office. The greenback traded at LE5.95 in 2011, then increased to LE6.05 in 2012 to jump to LE6.89 by the end of 2013. The pound strengthened to LE7.14 in mid-2014 and stabilised for a while until, under market pressure, the CBE devalued the pound three times in 2015, the last devaluation being in October when the pound reached LE8.03 just days before Ramez resigned. Each increase in the official rate was followed by a bigger jump in the parallel market rate to reach LE 8.7 last month. The devaluations were aimed at shutting down the parallel market, a plan Ramez failed to realise. In February, Ramez imposed deposit caps allowing a monthly maximum of $50,000 and forced banks to prioritise food and medicine when supplying scarce dollars. The controversial deposit cap aimed at discouraging use of the black market by depriving those who want to exchange dollars outside official channels of a place to keep their funds. And while the decision succeeded in narrowing the gap between the official price of the dollar in banks and its value in the black market to only LE0.05, compared to LE0.60 two weeks before it was imposed, and despite the fact that it helped to double the bank's dollar liquidity over a period of a couple of weeks, according to statements by bankers to local media, it triggered criticism of Ramez by importers and other businessmen unable to acquire dollars. The measures made it hard for companies to get credit to pay for imports. Goods accumulated at ports and some factories stopped production and exports declined. Ramez followed this up by another controversial decision requiring investors who sell shares of Egyptian companies listed in foreign markets to repatriate their profits to Egypt in pounds, not dollars. This was intended to counteract the trend of some investors buying the shares of these companies in the local market, then changing the shares to global depository receipts (GDRs), then selling the GDRs abroad to get dollars without having to deal with the restrictions on dollar deposits. However, those decisions failed to staunch the flow of dollars and the margin between the two markets soon increased. “With each new CBE decision we used to stop buying and selling transactions until things would calm down. Then we resumed our speculation,” an unlicenced foreign exchange dealer told Al-Ahram Weekly. “We are aware that the dollar value will increase again, as we understand that the government is currently unable to pump enough dollars to cover the market needs and eradicate the black market,” he added. But can Amer do what Ramez could not? “Neither Amer nor any other banker will be able to deal with the black market as it currently stands,” Ahmed Selim, a banking expert, said. The monetary policy managed by CBE is just part of the economy puzzle, and monetary policies alone cannot solve the problem as long as the sources of foreign currency are drained. Selim explained that to deal with the problem, the CBE should have huge reserves to cover imports of the next six months and to inject enough liquidity in the market to increase the greenback supply. After stabilising at $36 billion on the eve of the 2011 Revolution, reserves kept losing momentum, hovering at around $15 billion on average over the last two years. In October reserves were $16.4 billion after severe declines in both August (by $500 million) and September (by $1.7 billion), which coincided with the repayment of loans and Eurobonds expiry. The decline in reserves is expected to continue in light of the continued fall in tourism receipts, especially after the Russian plane crash in late October. While tourism receipts increased by 27 per in 2014 compared to the year before to reach $7.5 billion, it declined during the first quarter of 2015 by 43 per cent following a bus bombing that took the lives of three South Korean tourists in Tuba. Moreover, exports, another source of foreign currency, have witnessed drainage over the last seven months due to the scarcity of dollars needed to import raw materials. And while Egypt was betting on the new Suez Canal to increase the receipts of the waterway, the slow growth in international trade, together with falling economic growth in China, negated this possibility. Canal revenues have declined for the last three months. Foreign direct investments reached $6 billion in 2014-2015, falling well short of the projected $10 billion. The decline in world oil prices is adding to the problem as it limits the ability of Gulf countries to extend grants or aid to Egypt, as was the case after the removal of Islamist president Mohamed Morsi in 2013. “To be fair, Ramez managed the situation in a very professional way. What else was he supposed to do in such a dead end? Selim asked. “Ramez opted to deal with the dollar shortage through rationalising imports. Maybe he did it the wrong way or some people lost because of these decisions but I don't think there was any other solution,” Costantinos Loizides, general manager of Piraeus Bank Egypt, said. Loizides pointed out that the CBE is already adopting very flexible monetary policies to help improve dollar liquidity. “And by the way, Egypt's monetary policies on this level exceeds by far many European countries, including Greece,” Loizides said. These flexible monetary policies, according to the last interview Ramez conducted before leaving office, made it inevitable that the reserve level would be kept as is, in light of the continuous deterioration of resources, by prioritising dollar expenses. The policy angered businessmen who accused him of failing to make the dollar available, adversely affecting exports and industry. Ramez defended his policies, saying that the CBE provided importers $60 billion last year. He added that accusations that his policies led to a decline in exports are without merit as the fall in revenues from oil exports is due to the decline in oil prices; non-oil exports witnessed only a two per cent drop. “Does it make any sense to import apples for $400 million?” Ramez asked. “Is it a can't-live-without commodity for Egyptians? And how is it that Egypt imports sugar for $2.6 billion even though it has a huge stock of locally produced sugar?” He said that if such irrational imports policies continue, a lot of national industries will shut down and Egypt will not find dollars to cover its real needs. Ismail Hassan, CBE governor from 1994 to 2001, said Ramez tried to use monetary policies to solve the problems of the whole economy. What should be done, Hassan suggested, is to involve other ministries in rationalising imports by classifying imports according to their importance. The dollars needed to import the most important commodities should be made available. Imports in the less important categories should be subjected to customs duties, with luxury items bearing the highest duties. There should also be a national policy to fix industry problems. “We should stop importing commodities that have local substitutes, even if it is of a lower quality so that we save the value of these imports,” said Hassan. Getting out of this dilemma won't be through the further devaluation of the pound, a demand by the IMF as well as exporters, and one that was rejected by Ramez out of concern of its effect on the rate of inflation. And it seems that Amer is following the same approach. Soon after the announcement of Ramez's resignation, Amer met with bankers and businessmen. He surprised them by increasing the set value of the pound by LE0.20 to LE7.83. While the step led to an instant decline in the dollar rate in the parallel market by LE0.30 on the same day, to reach LE8.2, it returned to LE8.60 a few days later (a full 40 piastres higher). This is a relatively high value, taking into consideration that the CBE injected $1 billion into the market to cover part of importers' demands. The writer is a freelance journalist.
