Appearance of stability a cornerstone of Egyptian economic policy
Two seemingly divergent reports involving Egypt this week were, in fact, intricately linked, at least from the perspective of the Egyptian authorities. The first concerned a generally complimentary report by US-based Merrill Lynch, which credited structural reforms by the Egyptian government for a $2.7 billion reduction in the country’s balance of payments deficit between 1999 and 2000.
The second involved a confirmation by the Egyptian security authorities that they were holding three individuals accused of belonging to the outlawed Muslim Brotherhood. According to an official at the Interior Ministry, the order to arrest the men had been given after two of them had applied to run for Egyptian parliament's Shura Council, or upper consultative body.
The two reports are related inasmuch as they both underscore Egypt’s resolve in dealing with the foreign business community. The country is intent on being considered home to a modern, stable and dynamic economy, which could act as a bridge between the West and the markets of the Middle East and Africa. To serve that end, it will do all that it can to eliminate any elements of political uncertainty, which could cause the country to be considered suspect to the outside world.
The course of events in the region has done little to enhance Egypt’s efforts to present itself as a paragon of stability, and the country’s reputation was stung by pro-Palestinian riots, which deteriorated into a generally anti-Western protests. Eleven members of the Muslim Brotherhood were recently arrested on suspicion of “inciting the masses” over Israel’s clashes with the Palestinians.
In part to counteract the problem, Egyptian President Hosni Mubarak chose to take a proactive approach in attempting to facilitate dialog between Israel and the Palestinians, and so reduce the level of violence.
The Egyptian proposal, which was presented together with the government of Jordan, calls on Israel to freeze settlement construction prior to a truce, and then resume negotiations for a peace deal at the point where the parties left off under the previous Israeli government. But, while being careful not to reject the plan outright, the Israelis balked at the conditions, and also insisted on a two or three-month test period—as opposed to the four weeks that were suggested.
The Egyptian government is intent on portraying the country as a safe and attractive destination for foreign investment, and that means avoiding at almost all costs the impression that it is home to hotbed of anti-Western—and particular anti-American—sentiment.
During a recent speech to the US Chamber of Commerce, Mubarak stated that Egypt is anxious to promote its exports to the North American market and to attract investment, at the same time that it is being is weaned off US economic assistance, which equaled $735 million last year. In 2000, bilateral trade between the United States and Egypt totaled $4.2 billion, including $3.3 billion in US exports to Egypt.
The linkage between the two economies includes coordination of monetary policy. On April 24, Egypt’s Central Bank announced a 50-basis point cut in its discount rate to 11 percent. Analysts said that the cut, the second in less than a month, paralleled the US Federal Reserve interest rate cut the previous week.
Last year, as part of its general reform package, the Egyptian government abandoned a nine-year pegging of the Egyptian pound to the US dollar, of approximately EP 3.44. But the country now finds itself struggling to stabilize its pound-dollar exchange rate. Although the official rate stands at EP 3.89, there is often a shortage of dollars to meet customer demand, causing black market rates to skyrocket.
Meanwhile, Mubarak is striving to finalize a free trade agreement with the United States—similar to that enjoyed by Israel and Jordan—by which Egypt could offer US companies a “doorway” to Africa, the Middle East and Europe.
The Bush administration is likely to take its time before warming to the Egyptian proposal. In the meantime, Egypt will continue to try and project an image of friendly stability—at almost all means. — (Albawaba-MEBG)
© 2001 Mena Report (www.menareport.com)