Arabs Seek Safety in Dollars as Uprisings’ Euphoria Fades
As he watched Egypt’s revolt turn into a financial crisis that devoured 50 percent of the nation’s foreign-currency holdings last year, Ahmed El-Rifai started charging some clients in U.S. dollars.
The 32-year-old owner of Egyweb, a Web-development company in Cairo, says he may also buy real estate with his Egyptian pound savings, concerned that the loss of reserves will lead to a devaluation. That has already sent the pound down 3.8 percent since the start of last year. Iraq’s central bank says its dollars are fueling Syria’s black market. In Tripoli, Libya, dozens are queuing every morning at banks to buy the U.S. currency.
A year after popular protests from Tunisia to Egypt to Libya toppled rulers, transitions marked by violence have failed to lift economic hardship. Almost two thirds of Egyptians see the economy as the country’s biggest challenge, according to a survey by the New York-based International Peace Institute in September. Promised Western aid has yet to arrive, savings in foreign currencies have grown and government borrowing costs have surged.
“There is a distinct possibility that we get regression before we see progression,” Florence Eid, the London-based chief executive officer of Arabia Monitor, which provides studies on the economies and financial markets of the Middle East and North Africa, said by phone Jan. 11. “People are frustrated because the reasons that they revolted against to begin with are still there. Whoever said this was going to be smooth was naive.”
Exchange Rate ‘Pressure’
In Syria, where an uprising against President Bashar al- Assad’s rule is still raging, demand for dollars is so high that Mudher Salih, the deputy central bank governor of neighboring Iraq, said Jan. 10 that traders were buying dollars in his country to sell them illegally next door.
Since the ouster of President Zine El Abidine Ben Ali more than a year ago, the Tunisian dinar, which is pegged to a basket of currencies, has lost 3.9 percent. A balance of payments deficit of about 7 percent of economic output may lead to “pressure on the exchange rate,” central bank Governor Mustapha Kamel Nabli said in an interview at the World Economic Forum in Davos, Switzerland, on Jan. 27.
‘Not a Revolution’
Time savings and foreign-currency deposits in Tunisia rose 8.3 percent in the first 11 months of 2011, according to International Monetary Fund data on Bloomberg. The benchmark stock index fell 7.6 percent last year, the first annual loss since 2002. The market now has a capitalization of $9.6 billion, compared with $353 billion for Saudi Arabia, the biggest Arab bourse, according to data compiled by Bloomberg.
In Libya, where rebels killed Muammar Qaddafi in October, the dinar tumbled 20 percent against the dollar on the black market last year because of the central bank’s inability to sell enough foreign currency, the IMF said in a Jan. 26 report after a visit to the holder of Africa’s biggest oil reserves.
Egypt is in an “uprising, not a revolution, because change hasn’t been complete,” said El-Rifai. Foreign-currency deposits in local banks rose 15 percent in 2011 after the ouster of President Hosni Mubarak, central bank data show.
The pound may weaken 16 percent in the next 12 months, according to non-deliverable forward contracts, which provide guidance for investors’ expectations. Economic growth slowed to 0.2 percent in the third quarter from 5.5 percent a year earlier, amid clashes between security forces and protesters seeking an immediate handover of power from the military to civilians.
Foreigners sold $7.5 billion in Egyptian Treasury bills and bonds in the first nine months of 2011 after buying $8.6 billion the previous year, according to the most recent central bank data. The country’s international reserves tumbled 50 percent in 2011 to $18.1 billion. They fell to $16.4 billion in January, according to central bank data released Feb. 7.
The benchmark stock index plummeted 49 percent last year, the worst since 2008. While the stock market has started to recover, government borrowing costs have continued to increase, with the yield on the one-year treasury bills rising 532 basis point, or 5.32 percentage points, since the start of the uprising to a record 15.91 percent.
The EGX 30 Index has gained 30 percent this year. The yield on the 5.75 percent dollar bonds due April 2020, which touched a record 8.79 percent on Jan. 11, has dropped to 7.16 percent today after the country inaugurated its first elected parliament following Mubarak’s ouster and the government requested a $3.2 billion IMF loan that the interim military rulers rejected last year.
The spread between the official and parallel exchange rates in Libya has narrowed to below 10 percent as of Jan. 15, the IMF said, after Western governments started to release the country’s foreign holdings, frozen after the start of the rebellion. The yield on Tunisia’s 6.25 percent dollar bond due February 2013 fell 31 basis points this year to 4.38 percent, according to data compiled by Bloomberg, after the country staged parliamentary and presidential elections.
“There is a general long-term investor trust in Tunisia,” Philippe Dauba-Pantanacce, Dubai-based senior economist at Standard Chartered Plc, wrote in an e-mail. “We share that view and are confident that the return of political stability will lay down the foundation for an economic recovery.”
Ennahda, an Islamist party that was banned under Ben Ali, won parliamentary elections in Tunisia. Prime Minister Hammadi Jebali sought to reassure investors at the World Economic Forum by stressing that the government will ensure freedom and an independent judiciary. Authorities are targeting an economic growth rate as high as 4.5 percent, Nabli, the central bank governor, said in Davos last month.
Still, the pace of expansion will only lead to little job creation, Nabli said, adding that unemployment was probably more than 18 percent in a country that had an uprising in part due to joblessness.
Global aid hasn’t been forthcoming. Interim Prime Minister Kamal el-Ganzouri said on Jan. 30 Egypt has yet to receive Western aid pledged to Egypt and Tunisia by the Group of Eight major economies in May last year. Saudi Arabia and Qatar have provided $1 billion of at least $7 billion that was promised by Arab donors, he said.
One reason why aid has remained scarce is “political uncertainty,” Liz Martins, a Dubai-based senior economist at HSBC Holdings Plc, said in an e-mailed answer to questions Jan. 31. “How do you lend over the long term to a government that may not be there in a few months?”
After its summit in Deauville, France last year, the Group of Eight set up a “partnership” with the countries in the region to help the transition toward democracy. A U.S. government delegation said in Cairo last month America, the current G8 head, was looking forward to an Egyptian economic program that has popular support to help mobilize aid, Egypt’s Finance Ministry said in a Jan. 12 statement.
Relations between the two countries have since soured after Egypt sent 43 people working for non-governmental organizations, including 19 Americans, to trial over charges they have received illegal funding. Egypt’s actions “could have consequences” for American aid to Egypt, White House spokesman Jay Carney said Feb. 6. Egypt has received an average of $2 billion a year from the U.S. since signing a peace treaty with Israel in 1979.
As it awaits foreign aid, the country is planning to raise at least $2 billion from the sale of Islamic bonds and certificates of deposits to citizens abroad within the next two weeks, Finance Minister Momtaz El-Saieed said by phone Feb. 6.
Tunisia and Egypt are also anticipating more Arab support. Saudi Arabia is ready to provide Egypt with more assistance, the kingdom’s Finance Minister Ibrahim Al-Assaf said in a Jan. 27 interview at the World Economic Forum. Tunisia will seek about $5 billion in external financing in 2012, of which $500 million may come from the sale of dollar-denominated treasury bills in a private placement to the government of Qatar, Nabli said.
In the meantime, Mohamed Saidi, 37, who runs a clothing business, says he buys euros from unofficial dealers at as much as 13 percent above the official exchange rate. After the revolt, “currency traders have been wandering freely” in Tunis, he said in an interview. Nabli disputed the assertion and said banks have no restrictions on selling foreign currencies.
In neighboring Libya, people seek dollars from banks, some for business purposes, others to sell on the black market.
Mohamed El-Atrash, a 45 year-old owner of a textile factory, says he has to line up for hours to get dollars he needs to import raw materials. Ali Hadiya, a 35 year-old government employee, says he waits every day to buy dollars and sell them in the black market for profit “because my salary isn’t enough.”
As in Tunisia and Egypt, the revolts in Libya boosted Islamists persecuted under the former regimes.
For Egypt’s El-Rifai, the victory of Islamist groups in parliament elections has him concerned about “the direction the country is heading into.”
“I worry that they will abuse power to stay forever,” he said. The Muslim Brotherhood, whose party won the most seats, has repeatedly said it will stick to democracy.
Some aren’t taking chances. Abdulkadir Alroubaiy, a 65 year-old Lebanese doctor, flew to Cairo in December to pull out 470,000 Egyptian pounds he had deposited at the state-owned National Bank of Egypt to benefit from interest rates that are higher than in Lebanon.
After four days the bank, the Arab country’s biggest by assets, gave him the approval to take the money out in two equal installments separated by two months.
“This money is all I have from years of hard work,” he said by phone. “No one at the bank could explain to me why it has to take so long to get my money, but I am glad I was able to salvage what I did.”
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