CAIRO: After building his practice in the United States – a run that climaxed in his admittance before the Supreme Court and appointment as full partner at Baker and McKenzie, an international law firm – Taher Helmy returned to Egypt, where he has since been one of the nation’s most aggressively pro-market advocates.
He helped found the Egyptian Center for Economic Studies, the British Egyptian Businessmen Association and Egypt’s International Economic Forum. For a time, he headed the American Chamber of Commerce.
Last week Helmy, preparing to speak at this year’s Euromoney conference, sat with Daily News Egypt to discuss what the world’s recent financial mayhem means for Egypt, for capitalism and for the state’s reform agenda.
(Disclosure: Taher Helmy is invested in Egyptian Media Services, the publisher of Daily News Egypt.)
Daily News Egypt: What does the meltdown of the US financial system say about the efficacy of free markets?
Taher Helmy: We have been fighting for many years to promote a market economy in this country. I helped establish the Egyptian Center for Economic Studies, the first economic policy think tank in the country, independent and non-profit. The concept was basically to promote the idea that the market economy is better for this country, and for the citizens of this country.
Now governments in Britain, in the United States and in Europe are literally nationalizing the banks. There are some people saying that the capitalist system is failing. Obviously, that’s not the case.
What’s happening in the United States and Europe is a temporary measure to get the global economy going again. We don’t want to say there’s a retraction from a market economy in the United States or anywhere else in the world. That kind of argument is nonsensical.
We in Egypt have adopted a policy of a market economy. We have adopted the policy of being part of the global economy and the global market. The interdependence of the world economy is obvious to everyone and has become even more obvious as a result of the recent economic crisis that we are witnessing today.
Given that Egypt is a part of the global economy, how will the crisis affect it?
We are very fortunate in that we will not be affected in the same way that the advanced economies have been.
The reasons are that, first, our economy has not reached the sophistication that other advanced market economies have reached, in terms of the financial markets and in terms of adopting derivatives and complex financial products.
Second, our mortgage law has just recently been adopted and our financial leasing has been recently adopted, so the mortgage issue has not grown in Egypt in the way it has in the world economy. Sophistication and complexity, these are the two key words.
The third reason that we are faring reasonably well is the fact that we have very seriously reformed our economy in the past four years. Whether it is monetary policy, whether it is fiscal policy or whether it is trade policy, we have accomplished a great deal.
We have also reorganized and strengthened the banks. We have reduced the number of banks dramatically by merging the smaller banks into stronger entities and we have injected new management into the banking system, including government-owned banks. We have lots of examples of private-sector individuals that used to work for major leading US and European banks that have now taken over in public sector banks. We were also successful over the past four years removing public-sector debts from the banking system.
Financial markets aside, where will a worldwide slowdown hit Egypt hardest?
The financial crisis will affect a number of sources of revenue for Egypt.
Our exports will be affected, because all of global trade will be affected.
Our imports could also be affected, again because of the slowdown of global trade. We import a lot of our requirements, for example our food requirements.
And because of the slowdown in trade I expect our revenue from the Suez Canal will be affected. I also expect that our revenue from tourism will be affected because there will be less disposable income for a lot of people in the world, and tourism may not be at the top of their lists. Egyptian remittances from abroad will also be affected.
Major projects, especially infrastructure projects – which are our hope and chance for the next few years – will be affected to some extent because the funding for these projects require foreign banks.
Infrastructure projects are funded by way of project finance. And these projects usually require billions of dollars. A substantial part of this used to come from foreign banks. It will take time for the foreign banks to adjust under the current financial crisis, so it may affect the ability of Egypt to fund the wide array of infrastructure projects that require project finance.
In addition, banks’ requirements for funding may become more stringent.
It’s not going to be as easy for us to fund our major projects. This is very important because, over the next few years, if FDI goes down, we will have to rely on more infrastructure projects to get the economy going, which means the government has to play a higher role than in the past.
What exactly is the government’s role now?
Today, more than ever, public-private partnerships will be important. The government may need to jumpstart the economy by working even closer with the private sector. We still need high economic growth rates, because we need jobs.
Under current circumstances, there is no time, there is no space and there is no room for delays, bureaucracy or complications from the government.
Everybody has to work very efficiently and in a very cooperative manner.
So the government will have to assist in that way, which doesn’t cost them very much. At the same time, they have to start assisting by being a partner in some of these major infrastructure projects.
Could the crisis cause the reform process to stall?
It cannot stall. It should not stall, especially in the area of legislative and regulatory reform. We still have a long way to go. If we were going to do something in two months before, we should do it in 10 days; if we were going to do it in a year, we should do it in one month. We need to make sure we don’t fall behind.
We have to continue with our reform, and there is no going back. I support and I agree with that 100 percent. Market economy is our way forward, the continuation of economic reform has to move forward, but now even more efficiently than in the past.
I support what was said by Prime Minister Nazif and what was said by Gamal Mubarak. I say yes, continue with the reform, but I say continue with the reform especially in the area of legislative, regulatory institutional reform, to make sure that the checks and balances, adequate supervision, transparency, and corporate governance are adhered to, to the letter. As we can see, even the most sophisticated legislative structure, the most advanced regulatory structure – in the United States – has fallen on its face. And you know the reason why? Because capitalists are creative but sometimes greedy and excessive.
How will the lessons of the financial crisis change the reform mentality here?
The people on Wall Street went over the edge, they became too creative, too complex. Some of them thought they were acrobats, they performed on a high-flying trapeze, and they fell. And now the taxpayers have to bail them out. So excess and greed basically pushed the United States and the global economy to the brink of failure.
Capitalism is sound so long as you have the checks and balances. But when capitalists misuse the freedom that capitalism provides, that’s when you falter. The extreme laissez-faire policies of the Republican Party, basically deregulation to the limits, has proven not to be the safe and sound way to proceed in the capitalist system.
As a lawyer, this is one thing I have advocated forever: Capitalism is not a free-for-all. It has to be regulated. It gives freedom for the creativity of the individua
l, no doubt about it. There’s nothing wrong with profit, but when it comes with excess and greed, it falters. When it comes without regulatory bodies, that’s a problem. And that’s what, in the United States in the next period, I expect we will have more of, turning away from laissez-faire to capitalism with more checks and balances. And that’s what we have to do in Egypt now. We need to learn from the mistakes of others.
How do you sell this to the public?
History has shown us that market economies around the world have succeeded and socialist economies have not. A market economy produces higher growth rates and higher standard of living than socialist economies.
There is no dispute over that. Even a place like China, which is the last bastion of communism, has adopted a market system, and, as a result, their economies have boomed. The market economy has been adopted even by the most severe politically communist regimes. All others around the world that follow socialist policy have disappeared.
The problem is how you safeguard the rights of the people in the context of a market economy. You have to protect the rights of every citizen in this country and that’s how they will be convinced that you are doing the right thing. You say that market economy will give you a higher standard of living, and that market economy does not mean disarray, it does not mean greed, it does not mean excesses for the few. It means a balanced system that benefits all citizens in this country.
Where will the money for new projects come from now?
I believe the time for private equity investments is now. If, in the next period, we make sure that we streamline our bureaucracy even more, if we continue our reform even more, we will be able to attract private equity, especially from the Arab world, and compensate for the loss of FDI from the rest of the world. We need to, frankly, get our act together 100 percent. We should not be lax.
Given still-lofty inflation, will it be possible to lower interest rates?
I believe that lower interest rates will happen. This is one of the factors that will reduce costs, no doubt.
Funding now is going to be very difficult. Bringing in foreign banks and project finance will be extraordinarily difficult in the current environment. We cannot give those banks an additional excuse not to fund Egypt through a lackluster performance of approvals and assistance.
But the point of the matter is, when you have an economic slowdown, inflation will also be lessened. Basically, what we all worry about, if we’re talking about monetary policy, is the balance between inflation and economic growth.
In a time like this, when there is a global recession, inflation should go down. My view is, yes, I think interest rates will be reduced. Inflation will not be the issue as much as economic growth and dealing with the recession.
How can you help the poor during the transition?
That is one of the major problems. I do not believe we should draw on trickle-down economics, because it’s slow by nature. Especially in the current economic environment, the government will have to come up with programs.
Some of the programs are to inject money into the economy in infrastructure projects, to get the economy moving and to create jobs. Today, the private sector may not be able to do these kinds of projects on its own. That’s where the government can lend a hand, in these major infrastructure projects.
That’s just an example. There should be social programs. There should be programs directed to the poor, specifically to the lower-income level rather than relying on trickle-down economics.
