Exporters and travel agents are at loggerheads with the government over the fate of their foreign currency earnings. Sherine Abdel-Razek and Niveen Wahish sift through the confusion The government is asking exporters and travel agencies to voluntarily relinquish their dollar incomes to the banking sector in what experts deem a reversal of its liberalisation policies. Nearly a month after the government's move to liberalise the exchange rate and the ensuing depreciation of the Egyptian pound against foreign currencies, banks are still incapable of covering local dollar demand. Even the increase in the official dollar rate has not convinced dollar holders to use the legitimate exchange channels. People are now either hoarding dollars in anticipation of further increases in its price or resorting to the flourishing black market. The gap in the supply-demand structure has pushed the dollar up to LE5.5. Reports discussed by the cabinet last week revealed that there is a leakage of hard currency out of the official market, which includes the banking sector and the licensed foreign exchange offices. Official estimates suggest that since the floatation of the currency, exporters have delivered a total of only $650,000 to banks -- a negligible percentage when compared to the daily exports revenue figure of around $17 million (based on last year's total exports figure of $4 billion). In moves aimed at regulating the movement of the hard currencies in and out of the banking sector, a flurry of meetings between the cabinet, banking officials and businessmen took place during the week. The Federation of Egyptian Banks (FEB) met with members of the Federation of Egyptian Industries (FEI), exporters, as well as representatives of hotels and travel agencies to encourage them to deliver their dollar- denominated income to the banking sector, while assuring them that banks are ready to meet their foreign currency needs. The blaring headlines were as confusing as the official statements on the outcome of the meeting. It was not clear if exporters and travel agencies will be legally obliged to deliver all their income to the banks or whether they had been requested by the government to do so voluntarily. Adding to the confusion came a half-page advertisement in the daily Al-Ahram paid for jointly by the FEI, FEB and the Federation of Chambers of Commerce. It was written in the form of an appeal to dollar earners in the country to help in solving the problem by "giving up" their dollar income to the banking sector. "It is not obligatory to give up our foreign currency. We took the initiative and approached the Federation of Egyptian Banks with a plan that we are still studying," said Elhamy El-Zayat, head of the Federation of the Chambers of Tourism. "We are currently working on a plan according to which travel agencies will transfer a percentage of the hard currency income they deposit to Egyptian pounds in order to inject the needed dollars into the banking system. In return, banks will be committed to provide us with the hard currency whenever we need it." The percentage has not been decided yet. The business community is now wary of the consequences of not channelling their foreign currency earnings through the banking system. "There is nothing in any law that the government could use to force us to give them our dollars," said one indignant exporter. "But they [the government] could still make our lives miserable, by delaying subsidy payments, giving us a hard time in releasing our inputs from customs, tying up our paperwork and so forth." Lack of assurances regarding the limits of these voluntary obligations has stirred a great deal of uncertainty in the business arena. "We have not received any explanations for what has appeared in the media during the past week," said the head of the Egypt branch of a multinational travel company. "However, I hope they do not place restrictions on the way hard currency income is used, as this will be a violation of the investment law." He added that multinationals working in the sector will not appreciate such restrictions on their revenues, especially at a sensitive time with war looming ahead. When the economy was fully state- controlled, exporters were required by law to hand over their hard currency revenues. This was gradually eased in the 1970s until it was lifted completely in the 1990s. "Today nothing would compel businesses whose earnings are in foreign currency to deliver them to banks. Yet, the government is banking on the conscience of industrialists and their interest in keeping the Egyptian economy afloat," said a banker who preferred to remain anonymous. However, the banker said the government cannot go back on the reform measures it has taken and force such a move on businessmen. "Travel agencies will find a way not to deliver the required percentage of their revenue, even if it means submitting fake contracts," the banker said. He also raised the question of how the banks, faced with a further expected decline in forex revenues due to the pending war, will be able to keep their side of the deal and provide tourism companies and exporters with foreign currency on demand. Meanwhile, if people can sell their dollars at a higher price on the black market, what would be their incentive to sell them to banks for less? "The gap between our revenues and expenditures in foreign currency must be covered by any means, whether through the use of Egypt's foreign currency reserves or through borrowing from international financial institutions," the banker said. In another attempt by the government to monitor the flow of hard currency and prevent it from finding its way into the black market, it announced early last week that the new unified banking law, currently under discussion, would stipulate that national banks should own 51 per cent of the capital of foreign exchange companies. The draft law, approved by the cabinet last week, caused an outburst of anger on the part of forex companies and was dubbed as "nationalisation".Two days later, the government announced it was removing the article from the draft law.
