Morsy rules out currency devaluation

[TonyC]

"Egypt's new president said on Monday he would not impose new taxes or devalue the country's currency and that his government would rely instead on investment, tourism and exports to fix an economy ravaged by a year and a half of political turmoil.

Mohamed Morsy, 61, has a window of opportunity to push through economic change while he still commands political goodwill 50 days into his tenure as Egypt's first freely elected president, economists say.

Yet he must tread carefully to avoid angering a population that rose up to oust Hosni Mubarak last year partly because of high inflation and the widespread belief that the fast economic growth in the last years of the former president's rule was not reaching the poor.

Among measures that have been proposed by economists are a reduction in the value of the currency, which has fallen by only 5 percent over the last 18 months despite the drop in demand from tourists and investors.

But asked if his government had any thought of devaluing the Egyptian pound, Morsy said: "No. Definitely not. This is completely out of the question."

Morsy was speaking to Reuters in his first interview with an international news organization hours before leaving for China, where he hopes to attract investment and improve economic ties. Next month he flies to the United States on a similar mission.

"I am seeking out the interests of the Egyptian people in the east and the west. I will go wherever these may be," Morsy said, speaking from the ground floor of the presidential palace.

"The interests of the Egyptian people require that we balance our relations with the whole world."

Full report at http://www.egyptindependent.com/news/mo ... evaluation

[Hafiz]

There will be a few problems in keeping the Egyptian currency where it is and most of these will be about food.

The drought in the US and a poor harvest in the Ukraine will cause problems for Egypt (and elsewhere). Prices for grain and maybe oil seed will increase across the world and the cost of bread is likely to increase as a result - and maybe other staples. Price increases might cause unrest. Increased food subsidies (to avoid unrest) may be difficult to finance. Some commentators draw a link between unrest in the Islamic over the past few years and the previous food price hike.

Whether they increase subsidies or not or not, more expensive grain imports will affect the balance of payments and the already depleted exchange reserves. These problems of more expensive imports. worsening trade deficit and depleted reserves to support the currency and buy overseas grain would normally lead to a devaluation - but a devaluation will lead to further increase in import prices..

Not much wiggle room to move in this situation. Maybe the Chinese or the oil and gas sheiks will come to the party. Should also make the government even more desperate for tourism to pick up.

[Who2]

And the Nile Valley was once known as 'The Bread basket of the World....

[HEPZIBAH]

And the Nile Valley was once known as 'The Bread basket of the World....

And I thought that was Tunisia! But then I suppose the Romans would have needed a very large Bread Basket to feed their far flung empire.

[Chocolate Eclair]

Most of the villager make their own bread now anyway, its only us incomers that buy our bread from the bakeries etc.

Has anyone noticed how tight things are getting, people now desperatly doing their best to get money, business's now chasing money. In Luxor the other day they wanted to charge 1.5LE extra for a phone scratch card, there are more beggers in the streets than ever, and the number of vehicles that have no license plates is forever growing. The latest thing is trying to off load half built buildings, (At the same price as a completed one) I cannot imagine what it will be like next Summer after the failure of this up and coming Tourist Season?

Those people who rely on Tourism must be getting very low on funds, and may have to resort into Orfi Marriages to bail them out!!
I appreciate that some will not like this last comment, but it does appear that a lot of European women, leave their brains behind them when the leave Europe!! But they all seem to bring their Bank Balances, that quickly dwindle...
GOOD OLD EUROPE!!!!

[LivinginLuxor]

That some shops add a pound or so to the price of a phone card is not a new reaction to poverty. Many shops on the West Bank have been doing that for years!

And as far as I can see, with my limited knowledge of Luxor, the number of beggars on the street has not increased significantly either.

[A-Four]

Back to the LE.

If this president says he will not de-value the LE then he will have to continue to pay the high price of keeping it at that rate. If the world is to believe him then the Bank of Egypt will be flooded with TERM deposits. For the next few years, as far as the West is set, cash is king. If Egypt is to offer 9 to 11% on cash, I can see no better return (for low no risk) anywhere else on the world markets. However what one president says today may change tomorrow. I am sure we all remember the antics of Harold Wilson, George Brown and the ever green, and I do mean green Norman Lamont, God bless him.

This past week Morsy was in China, he took with him seven government ministers, which tells me, he's looking there for forward investment into Egypt, but as we all know this will come at a high price to China.

[A-Four]

Back to the LE.

If this president says he will not de-value the LE then he will have to continue to pay the high price of keeping it at that rate. If the world is to believe him then the Bank of Egypt will be flooded with TERM deposits. For the next few years, as far as the West is set, cash is king. If Egypt is to offer 9 to 11% on cash, I can see no better return (for low no risk) anywhere else on the world markets. However what one president says today may change tomorrow.

This past week Morsy was in China, he took with him seven government ministers, which tells me, he's looking there for forward investment into Egypt, but as we all know this will come at a high price to China.

[Hafiz]

I know that this is not on point about the currency but the food issue is closely connected.

Al Ahram has published some ‘government’ figures which beggar belief about the budget mess the new government finds itself in. Not only does Egypt import ¾rs of its grain but it subsidies its local production of grain. It also subsidies the consumption of bread at five times the sales price! I know that Egypt is a poor country and food must be provided to the poor but these budget arrangements just don’t make sense and the costs are escalating wildly. In any case the consumption subsidy is available to all rich or poor which seems unjust. The relevant quotes are:

“The amount subsidized per loaf of bread will climb to 24.08 piasters (around a quarter of LE1). This is up from 19.8 piaster per loaf in 2011 and even higher than the 23.3 piaster figure seen in 2007/2008.

A loaf is eventually sold at 5 piasters to the end consumer…The document shows that total bread subsidies are expected to rise to LE16.2 billion, a hearty 49.5 per cent increase over the 2011/12 financial year.

Local wheat producers will receive LE7.46 billion for their 3 million tonnes crop, 80 per cent more than the LE4.1 billion paid in the current financial year.”

http://english.ahram.org.eg/NewsContent ... ive-f.aspx

[A-Four]

If this is true Hafiz, then with in a year the Government of Egypt are going to find itself in very big trouble, even if they do de-value the currency. Wheat grain price on the world market is climbing by the day, by October the true results of world grain yeild for this year are in, the price will rocket. Egypt will have to buy their requirements on the value of the $ and not the LE.

It is just over a year now that I wrote on here that Egyptian farmers were allowed to grow banana, at the expense to wheat. Egypt must have a common policy with regards to agriculture to sustain its huge population, failure in dealing with this problem will see the fall of any government. In the days of the Roman Empire, Octavian, who later became Augustus, held Egypt as his (and future emperors) own property, which then was the grain basket of the empire. When the citizens of Rome received their FREE weekly flour ration, it was carefully stamped with a notice that this was a gift from the Emperor and not the Senate,.................Oh the power of bread.

On a separate note, I learn that the present day Greek Govenment have been instructed to sell all its national assets, which they say will be so by 2020, the total income will be around $50 Billion, what that government has not told its people, is that at the present rate this amount will be sufficent to pay the interest (ONLY) for the next four years on its present debt. - Again I say, expect Greece to leave the Euro by Christmas, then next year, we shall all be enjoying very cheap holidays on their islands once again.

[Hafiz]

For A4 I don't know whether the figures are true but if Al Ahram are publishing them they are probably the government's view as the government appoints the editor.

Agree with you about diverting farming to banana exports - its mad - but the Mubarak economic policies were mad.

As to Greece - I have no sympathy for those 11 million freeloaders - they were not forced at the point of a gun to take on these unbelievable debts. The amount spent to 'save' them is beyond belief. However if we begin a post on Greece it may never end.

Nerveless I'm tempted. The Greeks will never meet any conditions of the cheap EU 'loans' - for example they can't even sell surplus Government assets because they lack a property registry - something even Egypt has. Also in the period since independence from the Ottomans they have been in default for about a third (or more) of the time. They have form. They have always been a bad bet.

From the point of view of Egypt (which has a low debt ratio) it must be galling for them to see the river of money spent on saving the Greeks whilst the Egyptians fight for a few billions to save 90 million people. For a relatively small investment of money or food the west could do a lot in Egypt.

Whether they devalue or not I hope the new government is given a chance and that will involve it being able to feed its people at affordable rates.

[A-Four]

I so agree with you here, this is why China has stepped in. With regards the West, China even out did Germany as Russia's No1 trading nation earlier this year. Today, Saturday I stood in a Q that reached out the door in Dagenham, for 30 mins to remove a certain amount of money from LLoyds Bank, most of my money is now out of the U.K., thank God. None of the British banks have learnt any thing from the disaster of 2008.I remember Alister Darling getting a face to face view, and made a statement, only one to the BBC before he was silenced by Gorden Brown. Europe and the U.K., face the abyss. I do not see any thing good coming from there for at least 20 years.

Egypt must now look towards the East for its future, as the U.S.A. it certainly looks to its West now, and will no longer bother about Europe's back door. As for Nato' well that is a spent force. So one might ask where will that leave Israel,............you are on your own old boy.

[Teddyboy]

"So one might ask where will that leave Israel,............you are on your own old boy."

I do hope you're wrong there 'old boy'! If Israel is left on her own, and to her own devices when she feels a new combined threat coming from her Muslim neighbours, then the Middle East and all the Arab nations could find themselves in real danger of being annihilated!

There's (still) a lot to be said for 'old pals' and the myriad associations behind the 'old school tie' when it comes to calming troubled waters!

[A-Four]

It is just over a year now that I wrote on here that Egyptian farmers were allowed to grow banana, at the expense to wheat. Egypt must have a common policy with regards to agriculture to sustain its huge population, failure in dealing with this problem will see the fall of any government. In the days of the Roman Empire, Octavian, who later became Augustus, held Egypt as his (and future emperors) own property, which then was the grain basket of the empire. When the citizens of Rome received their FREE weekly flour ration, it was carefully stamped with a notice that this was a gift from the Emperor and not the Senate,.................Oh the power of bread.

On a separate note, I learn that the present day Greek Govenment have been instructed to sell all its national assets, which they say will be so by 2020, the total income will be around $50 Billion, what that government has not told its people, is that at the present rate this amount will be sufficent to pay the interest (ONLY) for the next four years on its present debt..

Forgive Me for bringing this old story up from the past, but I am pleased to say that the Egyptian government has finally realised that wheat is a very important commodity to the Egyptian economy. For such a long time now the nation has been importing vast amounts of wheat to feed the people, remembering that it was this lack of bread that first lite the fuse of the so called revolution.

At last, from now on, Egyptian farmers for the first time will be paid the true international market rate for the production of wheat, so we can say goodbye to the silly banana plantations, that have cost a fortune to produce for a return of profit that is almost ridiculous .

I thought it might be interesting to leave my comment on regarding Greece's problem as seen by me way back in 2012.