Not facing a crisis

The government's policy statement sought to infuse a troubled local market with optimism and reassurance, but not everyone was impressed, writes Gamal Essam El-Din
Faced with a host of formidable economic problems, the government this week presented parliament with a policy statement iterating its confidence in the economy.
Admitting that the fallout from the 11 September terror attacks has exacerbated foreign currency shortages in an already cash-strapped economy, Prime Minister Atef Ebeid maintained that the repercussions will not spell disaster for the national economy.
"Egypt is not facing an economic crisis," he said firmly. "Our economic foundations are secure. Our foreign currency reserves are enough to cover imports for more than one year. We are able to service our foreign debts. Our growth rate stands at 4.8 per cent -- two times higher than the population growth rate," Ebeid optimistically told parliamentarians this week.
The new year saw the government grappling with a shortage of foreign currency that has led to a devaluation of the pound, threatening to increase the prices of basic commodities. A long-standing recession has aggravated the situation, as has the need to meet its international obligations by opening up its vulnerable market to foreign competition.
In his third policy statement since his appointment as prime minister in 1999, Ebeid outlined the financial losses Egypt has suffered since 11 September and listed the government's plans to offset their negative effects.
Ebeid acknowledged that the attacks hit the government at a crucial time, cutting foreign exchange revenues by $2 billion and causing problems related to the foreign exchange market to surface.
To recoup this loss, Ebeid said the government has opted for external borrowing. "We soon mobilised all efforts to get help from our friends and managed to obtain the required amount," he explained. He was optimistic that such financial assistance, coupled with a flexible exchange rate system, will ultimately bring lasting stability to the foreign exchange market.
To redress the foreign exchange gap further, Ebeid stressed that next year top priority will be given to boosting exports and reducing imports: "We will allocate LE400 million to boosting our most competitive exports."
Within the same context, he pointed out that several measures will be adopted to combat recession and spur demand and public spending in the domestic market. Top of this list is the possibility of cutting interest rates on bank loans that the Central Bank of Egypt (CBE) is currently debating. Furthermore, Ebeid added, LE2 billion in soft- term credit will be pumped in to help limited-income classes obtain low-cost housing through the mortgage law.
The prime minister also noted that an International Monetary Fund mission that visited Egypt last year reported very favourably on the government's running of the national economy. "In particular, the IMF mission expressed great satisfaction that the state budget deficit in 2000/2001 did not exceed 1.2 per cent of GDP," said Ebeid.
Such confidence, however, triggered a strong reaction in parliamentary and economic circles. A minor row erupted when Ebeid expressed optimism about the government's ability to increase non-oil exports to $700 million annually.
In an unprecedented incident, Kamal Ahmed, an independent MP from Alexandria, shouted at the prime minister to "respect our intelligence." When parliament Speaker Fathi Sorour threatened him with expulsion from the session, however, Ahmed, initially supported by shouts from opposition Muslim Brotherhood MPs, walked out of a silent hall.
Otherwise, the tone of the statement and Ebeid's attempts to allay fears about an impending economic crisis fell on many deaf ears. Even conservative analysts close to the government, disagreed with the prime minister's evaluation.
"Egypt is very far from defaulting on its foreign debt, which, compared to Argentina, for example, is quite modest," said one high-ranking economic source who preferred to remain anonymous. "It is also true that we enjoy sufficient dollar reserves to cover imports for one year. But I disagree that Egypt's economic foundations are secure. The prime minister was not quite correct about that assertion."
According to the same source, the 1997 financial meltdown in Southeast Asia and the assault on America have clearly demonstrated that the major sources of foreign exchange receipts -- tourism and workers' remittances -- are at the mercy of global downturns. "These two sources of foreign currency are two basic pillars of Egypt's economy, which Ebeid claims are secure," the source said.
This analyst also pointed out that the budget deficit announced by Ebeid on Tuesday was inconsistent with figures previously released by the minister of finance. "It is not quite true that the state budget deficit currently stands at 1.2 per cent of GDP. The correct figure, as recently announced by the finance minister before parliament, is 4.3 per cent of GDP. This last figure is still far from risky, but it is very likely that it can swell to dramatic levels because of the increasing local debt, which currently stands at LE200 billion or 60 per cent of GDP," the source said.
Mustafa El-Said, a former economy minister, told Al- Ahram Weekly that Ebeid's statement was "very disappointing... The prime minister indicated that Egypt is once again resorting to external borrowing. That is a very easy and tempting solution in the short term, but extremely risky in the long term. We may very well become the next Argentina if Ebeid insists on his optimistic approach and takes the country once again into a quagmire of foreign debt," El-Said explained.
"Egypt's economic crisis is largely due to the great deficit in the trade balance. The CBE's directives, issued on 19 November, were a step toward addressing this deficit, but Ebeid's government was too weak to resist the pressure of the importers' lobby," El-Said continued.
After his statement, Ebeid was surrounded by disgruntled MPs from Port Said, which has been in an uproar since the government imposed prohibitively high customs duties on garment imports last week. They complained that the government's new tariff system has dealt an unbearable blow to business in their constituency. The complaints of Port Said's inhabitants will be summarised in an interpellation (a question that must be answered by the government) that leftist MP El-Badri Farghali will direct to Ebeid. During the current session, the prime minister is already facing other interpellations about corruption in the banking system, the government's failure to address the foreign exchange problem, and the proliferation of private monopolies.
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