The Asian crisis and its effects on the Egyptian economy
Egypt, Economics, 3/21/1998

Egypt does not suffer from the problems that led to the economic crisis in Asia.

This was stated at a symposium on East Asia, arranged by the Egyptian Center for Economic Studies in cooperation with the Cairo Center for Economic Information, in which a great number of economic and financial experts, businessmen, international banks and monetary funds participated.

Abdel Shakour Shaalan, the representative of the Arab states on the International Monetary Fund's board of directors, stated that there is no need for changing the current value of the Egyptian pound in relation to the US dollar and that no changes are likely to happen in the financial system which determines the value of Egyptian currency.

Shaalan said the current system is serving the Egyptian economy well, and added that Egypt is not suffering from the problems that led to the crisis in the Asian economies, referring to the short-term debts which total $1.5 billion in Egypt. That amount is offset by Egyptian reserves of foreign currency, which total about $20 billion -- 12 times the volume of these debts. In Korea, the value of short-term debts by last December had reached nearly 400% of the country's foreign financial reserves.

John Beige, an economic expert at the World Bank in the Middle East and North Africa, said that the over valuation of Asian currencies and unproductive internal investments such as in real estate were factors in the collapse of the Asian currencies.

Other analysts attribute the Asian crisis, to the combination of excessive amounts of short term loans from foreign sources that the governments were not aware of through inadequate "monetary" monitoring systems, in addition to other fundamental factors such as the prevalence of cronyism in certain countries that prevented the proper allocation of financial resources based on market needs and in a transparent manner in bank lending operations.

China, due to the lack of convertibility of its currency, is the only major country not affected so far by the East Asian countries' crisis. In addition, the main source of investment in China has been direct investment in plants and equipment, which is not readily affected by the mood swings of stock market investors, and currency speculators.

However, China will be effected by the crisis due to its exports to Asian countries that are and will be in a much weaker position to import Chinese products, and may, force a devaluation of the Chinese currency to keep Chinese wages competitive with those in other Asian countries. If China does devaluate its currency, however, there is fear that this will lead to a downward spiral in devaluation of currencies between the regional countries to compete for exports.

Recently, there has been mention of another political factor that may have effect on some Arab states. Economic experts in Egypt, at a symposium held by the Legislation and Economic Association, warned of US capital strategy in the Arab states that depends on the comprehensive support for Israel, aimed at marginalizing Arab states, and taking advantage of the southeast Asian crisis on "terms of trade."

Egypt continues to enjoy a healthy economic growth rate with low inflation, and a growing internal and export market with a good foreign currency reserves in relations to its short term external debt. Egyptian enlightened focus on internal and external economics, successful privatization programs, and practical policies that give economics highest priority have served Egypt well, analysts say.

Despite some temporary setbacks in the tourism sector, which constitutes a large sector of the economy, Egypt with its stable government and open environment for business is projected to continue on a path of positive economic growth.

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