CAIRO: With fears of a run on the banks, which opened Sunday after days of unprecedented mass protests around the country, and amid worries of over-consumption and overstocking particularly of food products, Egypt’s former minister of economy Sultan Abu Ali conveyed a message of restraint and hope, calling on businesses and individuals to “remain calm” and “get to work.”
“To prevent the economy from getting worse, I advise families and individuals to refrain from overstocking and over-consumption to prevent a disruption or shortage of supplies and to ensure that everyone can get the goods they need,” the former minister told Daily News Egypt.
“People should only withdraw money from banks which would sustain them for three days to a week, to prevent a run on the banks, which would exacerbate liquidity problems,” he added.
In a statement on state television Saturday, Governor Farouk El-Okdah said that the Central Bank of Egypt guarantees all deposits, whether in pounds, dollars or any other currency.
Okdah pointed out that the banks have a lot of liquidity now after the CBE directed LE 5 billion to banks around country. The CBE is allowing individuals to withdraw and deposit a maximum of LE 50,000 or $10,000 with no restrictions or a limit on transfers.
In an earlier statement Thursday, the CBE said it would gradually open branches of banks in all districts of Cairo and Alexandria as well as the capitals of the provinces, starting this Sunday, with opening hours from 10 am-1:30 pm.
Some 341 bank branches, including 152 in Cairo, opened across the country, Reuters reported.
Abu Ali urged people to go back to work so sectors can return to normal production levels, increasing supply, stabilizing prices and preventing inflation. According to Abu Ali, the most important outcome of Sunday is that people started getting their salaries.
While protests continued in Egypt for the 13th day demanding the ouster of President Hosni Mubarak, many citizens did go back to work, with some — namely in Cairo — leaving early to join others in Tahrir Square.
Back to business
“This Ministry of Finance’s speech [Saturday] was very reassuring and it is clear that the government is working on re-establishing all transportation, food and communication mechanisms necessary to restore normal business activity, and now they should start decreasing curfew periods gradually,” he added.
Magda Kandil, director of research at the Egyptian Center for Economic Studies, said, “I don’t think withdrawing money from the bank is the right thing to do at this point, if you want a safe, risk adverse strategy where your money will be gradually growing over time, keep it in the bank. The banks are insured and there is ample liquidity.”
According to Kandil, a run on banks at this point is not a realistic scenario because the country is emerging gradually from more than a week of mass protests, which she said the CBE managed well by closing banks last week.
“Now [the] political situation is getting better, and there is light at the end of the tunnel,” she said, adding that speeches made by Egypt’s new cabinet on Saturday have given some people a sense of security.
By promising the compensation of people who were affected during the crisis, ensuring people that subsidies will not be adjusted, she thinks the ministers have relieved the pressure on the average citizen, helping them make decisions to go out and spend and consume in a manner that is beneficial to the economy.
The central bank governor added in his speech Saturday that its foreign currency reserves now stand at $36 billion, which is enough to cover the countries import needs for a period of 9.5 months.
According to Kandil, reassuring people about food security and Egypt’s ample supply of wheat, and policies to relax some supply constraints will quell an impulsive rush to overstock and create added pressure on the economy.
Kandil advised a different strategy, however, for larger investors with significant portfolios in the stock market.
For long term investors with larger portfolios, who are more able to take risks and who can afford to be patient, “investing in the stock market now might be an attractive opportunity,” Kandil advised.
“Even though the exchange lost … 20 percent of its value, it is still undervalued,” she said. Kandil pointed out that the changes to the political situation now may be moving in the right direction.
“The fundamentals look good going forward; the reasons for the devaluation have been fading,” she added.
She explained that the political leadership has started by fixing the fundamentals underlying the regime instead of symbols of the regime, and although these changes are not the demands of the public, these political changes may have important economic effects.
“Changes are in the pipeline and it seems that the political process is growing and maturing over the medium term. This is most important from an economic point of view.”
Abu Ali said, “The most important thing to finally resolve this crisis, now that the president has chosen not to run again, is for him to leave now so we can get onto the path of political reform. These are the demands of the youth and if these demands are not met political and economic uncertainty will remain.”
Abu Ali commented that after Jan. 25, he is optimistic for Egypt’s future over the long run.
“In the long run, Egypt has very good prospects, and has the ability to improve in terms of growth, social equity and quality of life for all its citizens, but this will only happen if the current momentum is in the direction of democracy and freedom where anti-corruption, accountability and good governance dominate the political sphere,” he added.
