NDP insiders and opposition figures alike told Al-Ahram Weekly that Prime Minister Atef Ebeid's government's survival depends on the way it deals with rising prices and the dollar squeeze The ruling National Democratic Party's (NDP) first annual conference ended on 28 September with a vote of confidence for Prime Minister Atef Ebeid's government. NDP insiders told Al-Ahram Weekly, however, that this was no blank check, reports Gamal Essam El-Din. In order for Ebeid's government to survive, they said, it had to do something about both the dollar squeeze and the seemingly endless rise in the prices of basic goods. The government's failure to deal with these two issues over the first half of 2003, they said, had negatively affected the ruling party's image The conference also provided recommendations for how the government may want to deal with these matters. To curb rising prices, the NDP recommended that customs duties imposed on imports of ready-made garments and basic foods (especially flour, maize, oils, sugar, tea, beans and lentils) be reduced. "Egyptian families spend almost half of their incomes on these basic goods. The reduction of tariffs on these goods will make their prices affordable for Egyptian families, and thus relieve them of a major financial burden," the recommendation said. The conference also recommended that the government play the central role in the import of goods from abroad. Some NDP insiders said that the private sector's increasing role in this sphere had led to serious market imbalances. "Some private sector businessmen managed to monopolise the import of some basic goods (especially flour and sugar)," said an NDP insider, "and hence manipulate the market for their own personal gain." Many saw no contradictions between encouraging the government to play a larger role in importing strategic goods and the party's stated liberalisation and privatisation policies. "Privatisation does not mean you leave the market and the lives of citizens to the mercy of a gang of unscrupulous private importers," another NDP insider said. Others pointed to demonstrations that took place on 10 and 28 September -- protesting the current economic situation -- as being clear signals that Ebeid and his cabinet needed to act fast. During a meeting with the ministers of external trade and finance, the conference's "Economic Trends" committee said the government must be aware that the recommendations being made were binding. "In fact," said Committee Chairman Mahmoud Mohieddin, "these recommendations represent President Mubarak's directives, and that's why they must be implemented." According to Mohieddin, the only way that "the government will be able to carry on would be via a solid base of popular support. The party is willing to help the government and see it move forward. President Mubarak said a market economy does not mean that the government should liquidate its social responsibilities. A strong government is a government that is capable of delivering a balance between liberalisation and social responsibilities at the same time," Mohieddin said. In response, Finance Minister Medhat Hassanein emphasised the government's commitment to implementing the conference's recommendations. "All foodstuffs imported by the Commodities Authority will be exempted from any custom duties. Custom duties on basic foods imported by the private sector will also be brought down by 15 to 20 per cent," Hassanein said. According to Hassanein, the government also plans on submitting a new bill aimed at amending the Unified Tax Law to the People's Assembly. "This bill is aimed at giving government and public sector employees [around 5.5 million] new exemptions on their incomes." Opposition leaders, however, warned that reducing customs duties on basic food imports and providing citizens with major income tax exemptions could negatively affect two large sovereign sources of income (taxes and customs), both of which the government depends upon to cover the budget deficit (currently standing at around six per cent of GDP). "By adopting these recommendations, the government might end up facing another crisis, in the form of a ballooning budget deficit," said Abul-Ezz El-Hariri, a leftist Tagammu Party MP. Ebeid, meanwhile, attributed the dramatic rise in prices more to an increase -- ranging from 40 to 60 per cent -- in global prices of food crops than to the devaluation of the Egyptian pound. The prime minister said his government is committed to cushioning limited-income citizens against sudden and abrupt price rises. "This is not a setback for liberalisation, but an inevitable manifestation of the government's social obligations," Ebeid said. As for the dollar squeeze, Ebeid admitted that stabilising food prices also required stabilising the foreign exchange market. Addressing the conference on 28 September, the prime minister said the federation of banks, the Central Bank of Egypt, and the government must work together towards this goal. Ebeid said the government would cooperate with banks to meet importers' foreign exchange needs. "Banks now have good databases on exporters, which they will use to ensure that three quarters of their [foreign currency] receipts go to banks. This is essential for guaranteeing that foreign exchange is readily available all the time." Ebeid also said that banks would open new channels for deposits featuring higher interest rates on the Egyptian pound, in order to discourage citizens from hoarding dollars. The prime minister also expressed hopes that recent gains in both tourism and commodity exports would help secure a balance of payments surplus. The conference also recommended that the government reinforce the need for greater cooperation between the Central Bank and the banking sector as whole. NDP insiders agreed with opposition figures that the ultimate panacea for the dollar squeeze is boosting exports, attracting greater volumes of overseas investments and reducing imports. "This will not happen unless there is a complete change in the country's political and economic structures," El-Hariri said.
