CAIRO: Financial and economic analysts in Egypt have undermined the impact of the US credit crunch crisis on the performance of the Egyptian economy."The Central Bank of Egypt made a smart move recently by significantly changing the structure of its foreign exchange assets, said Angus Blair, head of the research department at Beltone Financial, "Decreasing the dependence on the US dollar has minimized the repercussions of this crisis on Egypt. Central Bank Governor Farouk El Okdah announced last March that Egypt has diversified its foreign exchange reserves over the 18 preceding months by cutting its holding of US dollars to around 57 percent of the total reserves from more than 90 percent. According to Blair, this crisis could even have positive implications on Egypt, as many international institutions are pumping more investments into emerging markets."Even though this market shift to this part of the world has started before the crisis, it has accelerated in the last few months and is likely to keep increasing, though not significantly, he added."The diversification of the basket of currencies is an excellent strategy, said professor Alia El Mahdi, director of the Center of Financial and Economic Research at Cairo University, "It is crucial to peg our currency with our trade partners, and Europe is by far our number one trade partner. "It is important to keep diversifying while not decreasing the dollar holdings significantly, El Mahdi added, "as the dollar will eventually pick up. On the other hand, Adel Beshay professor of economics at the American University in Cairo, believes that there is still an implicit relationship between the Egyptian pound and the US dollar. "We should not overlook the psychological element, Beshay said, "Part of the strength of any currency is the degree to which people believe in its value. "Even in the days when the Deutsche Mark or the Swiss Frank were much stronger than the dollar, Egyptians still used the dollar as the main foreign exchange currency, he explained. This point of view is affirmed by the steady decrease in the value of the Egyptian pound against the Euro since the breakout of the crisis, Beshay said. Despite this relationship between the two currencies, Beshay still doubts a potential slowdown of the Egyptian economy.On the trade front, Angus Blair believes that even with the dollar crisis, the Egyptian products are still relatively much cheaper; hence, they are not likely to lose their competitiveness in the global market."While exports might increase, we also have to take into consideration the European components in Egyptian products, said Adel Beshay, "Many of our exports are not entirely made in Egypt, and since the Euro has gone up, the cost of production will increase consequently. According to him, this could be an opportunity for Egypt to decrease the volume of unnecessary imports and rely on cheaper local alternatives. "In financial markets, this is not the end, said Beshay, "Naturally, the Europeans are not happy with this development which will decrease the competitiveness of their exports in the global market. "European central banks will be buying more and more dollars to regain the balance, he added, "I expect that everything will be back the way it was before the crisis by April of next year. The US credit crunch crisis has been causing panic in worldwide markets since the US Federal Reserve decided to cut interest rates from 5.25 percent to 4.75 percent last September for the first time in four years.In an attempt to ease the credit crunch and revive the housing market, this rate cut was followed by another quarter-point reduction to 4.5 percent by the end of October.This move drove the Euro higher against the dollar, hitting a record of $1.485, and provoking worries in the European markets about the impact of their soaring currency.
