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LETTER FROM THE EDITOR

The $6.4 question

it’s remarkable how many references to “January’s controlled currency flotation” have found their way into the pages of Business Monthly’s recent issues.

There are few aspects of the local economy that haven’t – in one way or another – been affected by the move.

Inflation’s another major theme, cropping up so often as to challenge the editor’s inventiveness – after all, rising prices are rising prices.

But this is all to be expected. That currency devaluation pumps up retail prices (particularly in a country so dependent on imports) is, if painful, at least logical.

The big question, now, is where the sliding currency will finally stop. As one local executive put it: “The economy’s booming: canal revenues are up, tourism is up, the stock market is doing well – when’s the currency going to stabilize?”

The “sell” price for dollars at local banks – not that they’re actually selling them – creeps up a piastre or two every week. Last I checked, towards the end of August, it was at £E 6.18. Meanwhile, people I know with dollars to sell usually can’t get much more than £E 6.4. That’s only a 20-piastre differential.

Add to this the weakness – from an international perspective – of the dollar. On May 29, the US currency fell against the euro to its weakest level since the introduction of the unified European currency in 1999 (even though the dollar’s bounced back a little since then). According to the August 24 edition of the New York Times, “Forecasts for the next 12 months have the euro rising in value to between $1.15 and $1.40.”

At the same time, Egypt’s domestic economic position is – in certain ways – improving.
Revenues from Suez Canal receipts in June were up 24.7 percent over 2002, despite the nearness of the waterway to regional hotspots.

Tourism, too, has done better than anticipated. The industry seems to recover from regional setbacks faster every time they happen. First after the Luxor attack, then during the war in Afghanistan post-9/11, and, most recently, during the Bush administration’s adventure in Iraq. Sure, room rates have been cut, but tourist numbers remain surprisingly high.

And the stock market – I mean, talk about a comeback. The Hermes Financial Index has risen a remarkable 39 percent from January to the end of August. It’s kind of ironic actually: just as we phased out our time-honored “Your Assets” section, which had dutifully tracked the performance of the Cairo & Alexandria Stock Exchanges through its heyday in the roaring ’90s, the bourse came lunging back, in a high-octane, post-war show of confidence.

So, the question remains: despite the better than anticipated indicators, why does the local price of the dollar continue to inch heavenwards?

One possibility is that the pound is simply still overvalued, despite its 45-percent plunge since January 2000.

The other possibility – put forward by Central Bank of Egypt governor Mahmoud Abul-Eyoun, among others – is that the pound is, in fact, undervalued, and that it’s only because of the pervading anything-local-is-bad-including-the-currency mindset that it continues to slip.

Verily, the local love-hate relationship with the US – combining a disdain for its foreign policy and an awe of its economic power, symbolized by the mighty doolar – is paradoxical. One source quoted recently in the pages of Business Monthly, for example, said that the dollar was a better investment than gold, because gold prices fluctuate while dollar prices only go up (although this maxim is only applicable in the Egyptian economy).

Granted, average citizens are feeling the bite of inflation, some acutely. But the indicators cited above suggest the possibility of a less dismal economic future in the mid-term. If such trends hold, maybe citizens will learn to have a little more faith in their economy – and their currency. Because, as long as the high demand for dollars – not entirely rational – persists, the coveted currency will perpetually remain just outside the cusp of officialdom.

Adam Morrow

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