11/14/2016 Egypt Averts Economic Collapse, for Now ­ The New York Times

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SundayReview | EDITORIAL Egypt Averts Economic Collapse, for Now

By THE EDITORIAL BOARD NOV. 5, 2016 Egypt took an important step toward saving its economy from collapse when it decided on Thursday to allow its currency to float freely, thus paving the way for a $12 billion loan from the International Monetary Fund. Yet much more remains to be done to bring the country back from the edge of economic disaster, where it has teetered since the 2011 Arab uprising, which pretty much destroyed tourism and ushered in years of political instability.

A result has been a lack of foreign currency, which has forced many Egyptians to buy dollars on the black market, reduced imports of everything from sugar to cars and led to layoffs in some companies. After President Abdel Fattah el­Sisi seized power in 2013, Saudi Arabia and the United Arab Emirates provided billions of dollars in aid. That saved Egypt, but it also allowed Mr. Sisi, who fears popular unrest, to ignore the I.M.F. and its demands for structural reforms as a condition of its lending.

Mr. Sisi, a former general who has become an authoritarian and repressive leader, is not known for his economic expertise or political courage. But several factors — further economic deterioration, rising criticism of his government and pressure from the United States — have combined to change his mind. Even so, he waited until now to accept a deal that was tentatively approved in August.

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Ahead of the float, scheduled to begin on Sunday, the Egyptian central bank had devalued the currency by nearly 50 percent, an effort to guide the level at which it should eventually trade. The move was designed to wipe out the advantage of the black market, which siphoned money from the banking system. Fuel subsidies were also cut. Egypt had already been addressing the I.M.F. requirements that it pass a value added tax, reduce electric subsidies and raise $6 billion in external financing.

The I.M.F. welcomed the flexible exchange rate and said the new system means that people will be prepared to sell dollars as well as buy them, injecting more money into the economy by attracting foreign investment and encouraging tourism and exports. But as Tarek Amer, the head of Egypt’s central bank, acknowledged on Thursday, “It’s going to take around one and a half years to see changes” in the economy as a result of the decision.

Whether poor Egyptians can hang on that long is unclear. The price of many subsidized staples, including bread, sugar, rice and cooking oil, could rise. Inflation across the board is already at a seven­year high, about 15 percent, and food prices are even higher. More anger and deprivation could lead to popular unrest, further taxing a country that has experienced enormous upheavals, including the overthrow of President Hosni Mubarak in 2011 and the ouster of his successor, Mohamed Morsi of the Muslim Brotherhood, two years later.

Mr. Sisi and other Egyptian leaders will have to convince the public that they have a plan that can rescue the economy without hurting the poor. More broadly, to put Egypt on a path to revival, they must educate and provide jobs for millions of young Egyptians; attract foreign investment to help move many of the nearly seven million government workers to the private sector; reduce the army’s role in the economy; and develop a political system in which ordinary Egyptians, not just the military, can have a voice.

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A version of this editorial appears in print on November 6, 2016, on page SR10 of the New York edition with the headline: Egypt Averts Economic Collapse, for Now.

http://www.nytimes.com/2016/11/06/opinion/sunday/egypt­averts­economic­collapse­for­now.html 2/3 11/14/2016 With Shock Reform, Egypt Throws Out Rules It Long Lived By ­ The New York Times

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MIDDLE EAST With Shock Reform, Egypt Throws Out Rules It Long Lived By

By THE ASSOCIATED PRESS NOV. 12, 2016, 1:09 A.M. E.S.T. CAIRO — From as early as the 1950s, Egypt's rulers have had an unspoken social contract with Egyptians: Forfeit genuine democracy and freedoms and, in return, you get to live on the cheap with heavy state subsidies keeping down prices of basic items and services — bread, sugar, rice, fuel, water and electricity.

Now Abdel­Fattah el­Sissi, the latest in Egypt's string of military officers­ turned­presidents, has had to do the unthinkable to rescue the tanking economy of the Arab world's most populous nation.

The currency has been floated freely for the first time and subsidies are being substantially cut. Prices have jolted upward as the Egyptian pound plunged in value and, overnight, fuel and gasoline became more expensive. The measures, carried out hours apart on Nov. 2. have caused panic among a population where poverty, unemployment and inflation are already high.

At the same time, his government is keeping the iron grip it has held the past two years, curtailing freedoms, giving security forces a free rein, jailing thousands and managing a media machine that demonizes dissidents.

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The question is how long el­Sissi can keep a lid on discontent while, it is hoped, reforms bring economic growth that will ease the pain. Already, some voices are calling for political reforms as well.

On Friday, Egypt received its reward for the painful shock therapy measures when the International Monetary Fund approved a $12 billion bailout package, including an immediate first installment of $2.75 billion. The hope is that the bailout plus reforms will salvage state finances and signal to international investors to start putting money back into the country.

The same day gave a sign of the firm security hand. Calls for protests against the economic measures fizzled, with almost no one turning out in the streets. For days ahead of time, police had warned of harsh measures against anyone heeding the calls, which officials blamed on the banned Muslim Brotherhood.

But analysts warn that a popular backlash can still come.

"People are angry and frustrated over the rise in prices, but there is no leadership to organize protests. People cannot just take to the streets," said Khaled Dawoud, spokesman for the Democratic Alliance, an umbrella of six small left­center parties.

"But you cannot rule out something happening out of the blue given the widespread anger."

About 40 percent of Egypt's 92 million people live under or hover just above the poverty line — making them vulnerable to even small price hikes. Even before the measures, prices were going up on staples, electricity, and water. Now the Egyptian pound, which traded at 8.8 to the dollar before the flotation, is at around 17 to the dollar.

On everyone's mind are bread riots that erupted in 1977 and forced then­ President Anwar Sadat to back off his attempt to cut subsidies.

El­Sissi and his government have promised programs to cushion the impact, including shifting from general subsidies to cash help directed at the poor and greater steps to ensure only the needy receive subsidized goods.

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"What is required now ... is to liberate the political environment in parallel with the freeing of the economy from its shackles," political scientist Ahmed Abd Rabbou said in a column this week in the independent Al­Shorouq daily.

There is little sign of that happening.

During the 2011 uprising that toppled autocrat Hosni Mubarak, the millions who took to the streets chanted for a new social contract: Bread, human dignity and social justice.

Instead, the country was mired in crisis, first under nearly 17 months of direct military rule and later with an elected Islamist president, Mohammed Morsi of the Muslim Brotherhood, at the helm for a year.

El­Sissi led the military's ouster of Morsi in 2013 and was elected president a year later, promising stability and an improved economy. He launched a series of mega projects that brought the state and military more into the economy but whose benefits were questioned by economists, including an $8.5 billion extension of the Suez Canal and plans to turn 1.5 million desert acres to farmland.

His security agencies, meanwhile, jailed thousands, mostly Islamists, but also secular and leftist activists who fueled the 2011 uprising. A wide sector of the public backed the moves, convinced that stability was the priority.

"Under el­Sissi, Egypt entered a new contract: The contract of submission," said Negad Borai, a rights lawyer who was put under criminal investigation after he proposed legislation against torture.

"The validity of this contract and its continuity will hinge on the extent to which the state is willing to go to crush dissent."

In the weeks leading up to the currency flotation and fuel price hikes, pro­ government TV show hosts persistently berated Egyptians, saying they don't work hard enough, depend too much on handouts or consume too much food or fuel. They also talked up fears of the Brotherhood stirring up unrest, warning Egypt could fall into chaos like Syria or Iraq if a firm hand is not kept.

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In his speeches, el­Sissi echoed that with repeated calls, wrapped in nationalist language, for Egyptians to work harder and consume less.

Prominent analyst Abdullah el­Sennawi warned that Egyptians are being asked to sacrifice when the state is not.

"There are conditions for everything. In this instance, they include ending political oppression, releasing detained young people, a more just distribution of burdens, introducing strict and tangible austerity in state institutions and fighting graft with actions, not just words," he wrote in a column on Wednesday.

Michael W. Hanna, an Egypt expert with New York's Century Foundation, says the measures were way overdue but could have been taken earlier under better terms and more secure circumstances. Now the government must show it can shepherd the changes through.

"It's an open question whether this will transition to something more sustainable and the government is disciplined enough to see through a reform process."

Some economists have said the government not only has to push forward with the reforms but also lift the hand of the government and military from the economy to let in investment.

In an article published this week, Ziad Bahaa el­Din, a former deputy prime minister, prescribed a remedy that includes reviewing el­Sissi's mega­projects, regulating state intervention in the economy and improving the business climate. He also called for political reform, "without which economic performance will not improve."

But the state is deeply wary of easing its security grip.

Ibrahim Eissa, a critic of el­Sissi, wrote this week in the daily al­Maqal that popular anger is high, and authorities know that the lack of backlash so far is only "an artificial calm."

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"It's like a layer of ice that covers a lake of anger, concern, alarm and rejection for the policies of the current regime."

© 2016 The New York Times Company

http://www.nytimes.com/aponline/2016/11/12/world/middleeast/ap­ml­egypt­economy­fallout.html 5/5 11/17/2016 Egypt Free Floats Its Currency, Devaluing It Against the Dollar ­ WSJ

This copy is for your personal, non­commercial use only. To order presentation­ready copies for distribution to your colleagues, clients or customers visit http://www.djreprints.com. http://www.wsj.com/articles/egypt­free­floats­its­currency­devaluing­it­against­the­dollar­1478161036

ECONOMY | CENTRAL BANKS Egypt Free Floats Its Currency, Devaluing It Against the Dollar

IMF says move will improve Egypt’s external competitiveness, support exports and tourism and attract foreign investment

Some analysts warn the move to a free­floating currency risks stoking double­digit inflation. Above, Egypt’s central bank in downtown Cairo. PHOTO: REUTERS

By DAHLIA KHOLAIF Updated Nov. 3, 2016 4:13 p.m. ET

CAIRO—Egypt’s central bank floated its tightly controlled currency Thursday, in a surprise step that aims to draw foreign capital back to the country but risks pushing the price of goods out of reach for ordinary Egyptians.

The Central Bank of Egypt, which also raised interest rates by 3 percentage points, said the decision to “liberate exchange rates” was intended to return foreign-currency trading to the formal banking sector and away from a black market that has capitalized on months of acute dollar shortages.

The move led to a sharp devaluation of the Egyptian pound.

The National Bank of Egypt, the country’s biggest lender, and other state-owned lenders said on their websites that the dollar could be bought for 13 Egyptian pounds and sold for 13.50, down considerably from around 8.88 Egyptian pounds to the dollar. The Commercial International Bank, the country’s largest publicly traded lender, offered greenback for 14.30 Egyptian pounds and purchased it for 14.00.

A more flexible exchange rate is one of several requirements Egypt must meet to get final approval for a $12-billion loan from the International Monetary Fund—a would-be lifeline for the battered North African economy. The three-year loan, which was approved in principle in August, hinges on Egypt’s ability to secure up to $6 billion from bilateral financing, cutting subsidies and adopting a flexible exchange rate. Egyptian Prime Minister Sherif Ismail said last month that 60% of the bilateral financing has been secured.

http://www.wsj.com/articles/egypt­free­floats­its­currency­devaluing­it­against­the­dollar­1478161036 1/3 11/17/2016 Egypt Free Floats Its Currency, Devaluing It Against the Dollar ­ WSJ Years of political turbulence and an increase in terrorism have hurt Egypt’s main sources of hard foreign currency—tourism and foreign direct investment. With foreign reserves falling, the country was forced to ration dollars to pay for essentials such as wheat and medicines. This pushed local businesses to the black market to fulfill urgent needs for foreign currency.

In recent months, inflation has reached double digits and stood at 14.1% in Sept. Price hikes have hit Egyptian households hard and displays of anger have surfaced in a country where the government keeps a tight lid on dissent.

When formula-milk supplies ran dry, dozens of mothers staged a protest. Talk shows have allowed listeners to call in and complain about high prices and shortages of sugar and medicines.

In response, Egypt’s armed forces said last week it has prepared 8 million containers of basic goods that would be available to consumers at reduced prices.

Now, Egyptians are watching the pound’s devaluation with anxiety.

“What matters to me is how much will this affect my expenses, because it has been stretched to the maximum,” said Ahmed Fathi, a 32-year-old cabdriver and father of two. “They keep saying they’re working on bringing prices down, but they’re not.”

Timothy Kaldas, a nonresident fellow at the Tahrir Institute for Middle East policy, said the government was walking a tightrope between the need to keep a lid on inflation while also allowing investors to move money in and out of the country.

“If the government takes the right steps and acts transparently, these changes can have a clear positive impact on Egypt’s economy in the medium term,” he said. “That said, the immediate period will be quite difficult for the average Egyptian.”

Central bank Governor Tarek Amer said the government was committed to keeping inflation in check.

“Inflation rates already soared; this is history and we’re working on limiting this,” he told the media.

The central bank’s move bucked expectations. Analysts had expected it to opt for a managed float of the currency or announce a sharp devaluation.

The country’s reserves have hovered around $16 billion since the end of 2015, at half of the pre-2011 levels. But recent loans from the World Bank and Saudi Arabia helped replenish those reserves, which amounted to $19.6 billion at the end of September, compared with around $16 billion the month before, according to central bank figures.

“This is a very positive, courageous step on many levels, firstly, the extent of the move and secondly the fact that it is effective immediately,” Mohamed Abu Basha, Cairo-based economist with the EFG-Hermes, said.

“We are looking at what is very likely the end of the foreign exchange crisis.”

In a statement, the IMF welcomed the currency liberalization.

“The flexible exchange rate regime, where the exchange rate is determined by market forces, will improve Egypt’s external competitiveness, support exports and tourism and attract foreign investment,” it said.

“All of this will help foster growth, job creation and a stronger external position for the country.”

The interest-rate rise is aimed at guarding against the rise in prices a currency devaluation may bring. Egypt’s central bank raised the overnight interest rate, overnight lending rate and the rate of the central bank’s operation to 14.75%, 15.75% and 15.25%, respectively. The discount rate was also raised by 3 percentage points to 15.25%. http://www.wsj.com/articles/egypt­free­floats­its­currency­devaluing­it­against­the­dollar­1478161036 2/3 11/17/2016 Egypt Free Floats Its Currency, Devaluing It Against the Dollar ­ WSJ Following the central bank’s announcement, Egypt’s benchmark stock index soared to its highest level in at least six months. The EGX30 climbed 8.2%, before leveling off later in the day and closing with a 3.35% increase at 8810 points.

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