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Before the economy sinks

Ziad Bahaa-Eldin , Wednesday 4 Jan 2017
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It isn’t every day the General Federation of the Chambers of Commerce together with the biggest Investors’ Association in Egypt — representing most of the Egyptian private sector — publish an appeal to the president complaining about the policies adopted by the government and the central bank, as they did last week.

The call for help is illustrative both of economic mismanagement and the lack mechanisms and channels to resolve differences and manage competing interests society.

The origin of the latest problem is the upheaval in the currency market over the last year. Companies importing equipment, raw materials, or other products borrowed from banks in foreign currency to meet their needs, but couldn’t make loan payments in the same currency, either because it was not available in the official market or because buying it outside of it became a crime carrying the risk of prison.

So banks demanded coverage of the debt in Egyptian pounds, as a guarantee for future payment. When the pound value collapsed, these companies’ debt suddenly doubled, leading them to realise significant losses at year’s end. And where this could have been an ordinary commercial dispute of the type seen around the world when currency prices change markedly, it became a full-blown crisis in the last few weeks due to the fact that it involves dozens of companies, that the delay in unifying the price of the pound exacerbated matters, that these companies and their workforce are now in jeopardy, and that the tax revenue the state was expecting this year may be significantly lower given the steep decline in corporate profits.

This is not the first crisis resulting from recent economic decisions, and I don’t think it will be last. But the problem is not actually about the decision to float the pound, which I still believe was a sound, necessary step, though late in coming. The heart of the problem is that the state acted as if simply floating the pound, raising energy and fuel prices and customs fees, and introducing the VAT are its economic policy, when in fact it was necessary to follow up on these decisions with programs and policies to increase investment and employment, bring back tourism, encourage exports, and protect the poor from the price increases in necessary goods and services that inevitably follow such decisions.

Instead, having seemed serious in recent weeks about correcting the economic course and working as a team, the government now looks to have stumbled, taking reluctant, contradictory steps without articulating a clear vision of what it hopes to accomplish.

This was demonstrated in its failure to anticipate and then to swiftly deal with a sugar crisis, then a fertilizer crisis, then a pharmaceutical crisis, then the imported poultry crisis, in the ongoing shortage of foreign currency despite the float, out-of-control price hikes, the public recriminations between various ministries and public agencies, and most recently the public appeal directed at the president. In each of these crises, the state didn’t seem prepared or even cognizant of the predictable outcomes it should’ve been ready for.

Part of the problem is that the state thinks that because people haven’t reacted to its economic decisions by revolting or demonstrating in the streets, then such economic policy is a success. In fact, there is a crisis and the anger at economic mismanagement is spreading across all social classes. And if investors’ associations have the resources to express their anger in paid ads, it doesn’t mean other segments of the population happily accept this out-of-control situation. They just lack the means to voice their demands and problems.

This brings me to the issue of demands and interests. It’s not unusual to have competing, mutually incompatible interests in society—in fact, that’s the norm. Workers’ interests are not employers’ interests; the demands of importers will certainly run up against those of producers and manufacturers; pensioners have different concerns than youth looking for jobs, and major global firms have a different perspective than artisans and small craftsmen.

Countries don’t make economic strides by assuming some imaginary, idealised social consensus. They advance and grow when they’re able to manage competing class and social interests in a balanced, democratic way—when local councils, parliament, the media, NGOs, labor unions, and business associations are strong, independent, and truly representative of their members’ interests, and when channels are open for continuous, collective, social bargaining.

But with a weak parliament, the absence of elected local councils, state control of the media, unions, and civil society, the pillory of everyone who opposes government policies, and dialogue limited to those with influence with the powers that be, people will have no choice but to petition the president or look for other channels of protest.

*The writer holds a PhD in financial law from the London School of Economics. He is former deputy prime minister, former chairman of the Egyptian Financial Supervisory Authority and former chairman of the General Authority for Investment.

A version of this article was published in Arabic in El-Shorouq newspaper on Monday, 2 January.

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