War's toll: Egypt backpedals on market reform
Egypt's government issued a decree Monday, March 24, ordering both private and state-owned exporting companies to sell at least 75 percent of their foreign hard-currency earnings to state-owned banks, in a bid to stave off capital flight fueled by the war in Iraq. The new decree applies retroactively to all exports since January 1, 2002.
The government’s abrupt step is aimed at keeping the central bank's already depleted hard currency reserves, which officially stand at $14 billion, from further dwindling. It follows a move, implemented late January, in which the managed peg system was abandoned to allow the Egyptian pound to free float against the dollar.
Despite the pound’s effective devaluation of more than 20 percent, the move was rendered unsuccessful at eradicating the black market, which still offers better rates. While policymakers are hoping the new directive would guarantee the inflow of dollars into the national coffers, it is feared that the forced sale on the official market would backfire and dissuade companies from exporting or encourage them to turn to informal foreign exchange. — (menareport.com)
© 2003 Mena Report (www.menareport.com)