Frozen assets: Egypt rumour mill triggers rush from dollar accounts

News, November 2003, www.aljazeerah.info

Cairo, By Hala El Saadani,

Gulf News | 28-11-2003

"If you've got dollars in an Egyptian bank, you'd better hurry up and withdraw them, because the government is going to freeze everyone's hard currency accounts. Everyone knows it's coming, and they're trying to protect themselves."

The word came from someone who heard it from someone of course, but the source was pretty highly placed in the banking industry, so they must have known what they were talking about, right? Maybe, just maybe.

Since last January, domestic panic over Egypt's economic situation has increased; despite efforts to stem the tide, Egyptians seem to be more determined than ever to dollarise what assets they can. The previous year had witnessed some concerns, as the government adjusted the price of the US dollar in stages, taking it from a little over three Egyptian pounds to a little over four pounds, but with the January announcement that the pound would be floated, all hell seemed to break loose.

The price of the dollar has gone up two pounds in less than one year, officially trading at 6.12 pounds now and selling for at least seven pounds on the black market. This rise affected consumers and companies alike, creating a liquidity crisis and more than a little unhappiness on the streets.

The rumour about frozen dollar accounts did not materialise out of thin air, and even though the government previously denied that they had any such plans, it's growing stronger again. Companies involved in exports or imports are already unable to actually touch their dollar assets and companies working in tourism are required to hand over a certain percentage of their hard currency earnings, so it's not a long shot that pretty soon the average Egyptian will have to give up any hard currency he has and be happy that the banks will allow him to withdraw in pounds. In what seemed like an ominous move, the Central Bank slashed interest rates on dollar accounts to zero, announcing that those of us who have dollars in the bank should consider the rising dollar value as enough of a return and not expect interest as well!

The effect of all this on the common working man is scary. People watch their spending power dwindle as prices go up and the value of the pound plummets. Companies are cutting salaries or letting people go, desperately trying to reduce their expenditures. Why them, you may ask? Don't employees here get paid in pounds? There is an actual liquidity problem, especially for companies executing projects for the government, because it takes so long for them to get paid, causing a chain reaction of late payments.

Besides, in any shaky economic situation, companies are likely to batten down the hatches and conserve as much of their resources as they can for the coming storm. Individuals who can afford it are buying up hard currencies on the streets, and surprisingly enough, they're not alone. They are joined in this black market treasure hunt by quite a few big companies (including a telecom giant) who are buying up hard currencies so they can meet some of their commitments.

At least, that's what the rumour says, but given the fact that the government is releasing none of its foreign currency reserves, it's not a rumour that anyone questions.

What happens to those who have no resources to conserve? People like Sayed, a chauffeur, who isn't likely to be able to buy dollars on the black market to insure his little family. He spoke with a mix of fear and confusion: "Everything is becoming more expensive you know. Food prices have doubled, and some people say that the price of gas might go up too, like bread." Short-lived riots had broken out when the government announced that they would no longer produce the five-piaster subsidised loaf of bread. Instead, the smallest size (smaller than the old five piaster loaf) would now cost ten piasters.

Sure, there is anger, but there is also something that seems to be a lot like apathy. Why aren't more people taking to the streets and protesting the deteriorating situation?

Perhaps the words of Khadija explain it best: "We've gotten used to a steady decline in the quality of life, and the overriding emotion is fear that we won't be able to provide for our families. So if the choice is worrying about whether I can pay for my son's new school clothes or about how active I'm being in protesting the economic situation, which one do you think I'm going to choose?"

Earth, a planet hungry for peace

The Israeli apartheid (security) wall around Palestinian population centers (Ran Cohen, pmc, 5/24/03).

The Israeli apartheid (security) wall around Palestinian population centers in the West Bank, like a Python (Alquds, 1/25/03.

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