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Al-Azhar’s online manuscript project delayed	Committee approves bank law amid criticisms
Following a rash of M&As, Kraft bites into Family Nutrition	Local construction, oil firms eye post-war subcontracts
New forex rules inspire fear and loathing	Oil ministry changes export strategy
Petrochems sector nurses dreams of export	State media feels the bite as ad sales plummet

new forex rules inspire fear and loathing

three months after the so-called flotation of the currency, economists are finally coming to terms with the fact that the move wasn’t all it was cracked up to be. some observers might even say – in light of new regulations forcing companies to sell 75 percent of their hard currency earnings – that official monetary policy is being de-liberalized, moving instead towards tighter government control.

while january’s “free float” announcement represented a substantial devaluation, in which the egyptian pound lost roughly 20 percent of its value against the us dollar, the greenback remains as elusive as ever. it has also become obvious that the black market has more than a little fight left.

as of april 8, the pound was reportedly trading at around £e 6.20 to the dollar on the black market, while the latest official bank rates hovered around £e 5.80. while this is certainly an improvement on the pre-devaluation differential, it still represents a wide gap between reality and illusion.

“my judgement is that the currency market isn’t working well yet,” said ahmed galal, executive director of the egyptian center for economic studies, a cairo-based think tank, on april 15, during a seminar on the exchange rate held at the center. “it’s better than before, but... there are still two different rates. people aren’t rushing to change their dollars into egyptian pounds, and people still can’t get dollars. from this, i conclude that the currency market still isn’t working correctly,” he said.

in the absence of the “totally free currency market” promised by prime minister atef ebeid, it would appear the government’s policymakers have struck out instead on a program of repressive half-measures, in an attempt to solve the seemingly intractable foreign currency shortage.

at first, the techniques employed were legitimate: the central bank of egypt (cbe) reportedly released a substantial sum of foreign exchange – said to be in the neighborhood of $300 million – to banks, allowing them to finally offer hard currency to their corporate clients. additionally, interest rates on local currency were raised in the hope of making the egyptian pound more attractive to depositors. meanwhile, foreign exchange bureaus that had allegedly dabbled in illicit currency deals were shut down.

the pound was also bolstered by external developments, as when washington announced it would extend $2.3 billion to cairo in loan guarantees and economic grants, aimed at offsetting the negative effects of the nearby war on iraq on the local economy.

but as these orthodox measures, and the help from abroad, proved insufficient to kill the parallel market, the state’s economists were moved to take more radical steps.

first, banks began receiving instructions to limit the amount of foreign currency-denominated cash withdrawals their clients could make to $10,000 daily. although the restriction was later retracted, the move enraged corporate clients and filled individual holders of dollar-denominated bank accounts with dread.

it was on march 24 that government economic policy moved outside the pale, when the prime minister made another, less welcome announcement. henceforth, all companies – either private or state-owned – that earn forex-denominated revenues, would be “obliged to sell 75 percent of their foreign currency income to banks within one week of the date of its receipt, at the official exchange rate on the date of the transaction,” the state press explained. such companies, the decree went on, “have the right to keep 25 percent of their income in private accounts.”

additionally, firms dealing with foreign currency would be expected to provide the ministry of foreign trade (mft) with regular accounts of their forex-denominated transactions. the mft – along with other relevant authorities – would then ensure that 75 percent of these proceeds went to certain “approved” banks within seven days.

and there was one last thing – the regulations would be applied retroactively, meaning that all foreign currency made after january 1, 2003 was fair game. one shocked observer suggested that the move was like “applying the emergency law to the economy.”

analysts, meanwhile, fear that the decision will have the opposite effect than that intended. rather than bringing more hard currency into the market, they warn, the move will only serve to spook market participants, who will – anticipating even tighter controls down the road – take steps to safeguard their money from the depredations of arbitrary policymaking.

one head of a multinational firm with operations in egypt, for example, said he had cleaned out the company’s bank accounts upon learning of the daily withdrawal limit. according to other sources, several companies have already made preparations to transfer revenues to offshore accounts rather than face the new regulations.

legal sources have even suggested that the decree amounts to a de facto expropriation of company assets – in blatant violation of the laws currently governing foreign exchange and investment.
the company head agreed, saying the move was, in effect, “a form of nationalization,” which is “contrary to the foreign exchange law, the investment law and the constitution,” the latter of which prohibits the expropriation of private assets.

amal rashad, assistant general manager at the export development bank, said that the new regulation would primarily affect the export and tourism industries. she added that the rule would put a strain on the country’s exporters in particular, the bulk of whose revenues are in foreign currency. the government, she said, “is forgetting that many exporters need imported raw materials for the products they manufacture. “how will these companies,” she asked, “be expected to pay for these imported materials” if they must surrender the bulk of their foreign exchange earnings?
yet despite the disturbing precedents, central bank governor mahmoud abul-eyoun, also speaking at the eces seminar, maintained that monetary policy reform is right on track. the question as to whether or not the currency market was functioning adequately, he said, “is best expressed by the [exchange] rates, which are moving – and this implies freedom.” since january 29, he continued, “the official exchange rate went from £e 5.35 to £e 5.83 today [april 15],” pointing out that the price movement represented a real depreciation of the currency of about 8.8 percent.

while he didn’t mention the new currency restrictions per se, he added, tellingly: “we need discipline – for market participants, banks and exchange companies. this doesn’t mean force. but people must know that their interests are the same as the interests of the state.”

he went on to say that – thanks to the increased confidence in the cbe and the banking sector as a whole after the devaluation – a hefty $1.1 billion had entered the market since january 29. “thank god that at least some people have faith in the banking system,” he added.

but at least one observer expressed skepticism as to the source of the newfound hard currency. “i don’t think he’s making up the $1.1 billion figure,” opined alaa abou-alam, a cairo-based financial economist. “but i suspect this money is probably coming from the proceeds of the new 75 percent rule governing forex.”

adam morrow

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