Fears Of Currency Devaluation Mount In Egypt Throughout the government's transitional period, the Egyptian pound remained stable because the government shored it up through foreign reserves. As those reserves reach dangerously low levels, concern is mounting that a major currency devaluation is imminent.
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Fears Of Currency Devaluation Mount In Egypt

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Fears Of Currency Devaluation Mount In Egypt

Fears Of Currency Devaluation Mount In Egypt

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Over the past decade, the United States has faced constant challenges in the Arab World, some related to 9/11, others not. The revolutions of the Arab Spring have altered the political landscape. In Egypt, the new president, Mohamed Morsi, has been struggling with a sour economy, trying to shore up the currency, the Egyptian pound, and facing an uncertain future. Merrit Kennedy has this report.

MERRIT KENNEDY, BYLINE: Traders are bent over computers on the stock market floor in downtown Cairo. The market has been volatile since Mubarak was ousted, swinging up and down with Egypt's political unrest. But the benchmark index has been steadily climbing in the last month.

Samer Atallah is an economics professor at the American University in Cairo. He says that political uncertainty was causing investors to flee, but...

SAMER ATALLAH: Now it's pretty clear, so I think it is plausible that investors, tourists, would start to go back to the country. I think the mood of stability, economic stability, is on the rise.

KENNEDY: Wael Samir, the manager of a small currency exchange, is also cautiously optimistic.

WAEL SAMIR: (Foreign language spoken)

KENNEDY: He says that for several months after the revolution, people were exchanging large sums of Egyptian pounds for dollars because they feared a major drop in the currency. Now, he says, business is running as usual, even though the pound has gradually dipped to its lowest level against the dollar in seven years.

So far, Egypt has managed to avoid the doomsday scenario of its currency bottoming out by propping up the pound with foreign reserves. But now those reserves are running low, estimated at less than half of what they were in 2010. To stave off devaluation, Morsi has been courting foreign investors and has formally requested a 4.8 billion dollar loan from the International Monetary Fund. If he's successful, these influxes of foreign currency would reduce pressure on the pound.

A delegation of more than 100 American business leaders is in Cairo this week to assess business opportunities in Egypt and promote it as an investment destination for the world. Abdullah Khattab, an economic adviser to President Morsi, says he's confident that the pound can remain stable.

ABDULLAH KHATTAB: So we are expecting more flow, inflow of currencies in the coming months, so for me I see no reason for expecting devaluation for the currency.

KENNEDY: But Iman Ismail, the CEO of the Egyptian Mortgage Refinance Company, isn't as confident. She says that the government could contain the impact of a managed, gradual devaluation. But because Egypt imports much of its food -it's the largest importer of wheat in the world - a major devaluation would cause the price of food to dramatically increase and heighten political instability.

IMAN ISMAIL: So depreciation will have a very negative impact on the vast majority of people.

KENNEDY: And even if Egypt manages to secure foreign investment and loans to avoid devaluation, economist Samer Atallah points to much larger economic issues.

ATALLAH: Structurally the Egyptian economy is ill. These injections of foreign currency just keep us afloat for a few years and then the structural problems keep on arising.

KENNEDY: There's a widening trade deficit and Egypt's industries don't match the skills of its labor force. More than a third of Egyptians live under the poverty line. Unemployment is high and the gap between rich and poor is huge.

ATALLAH: It's overwhelming, the amount of problems they inherited from the Mubarak regime. It is. It is overwhelming.

KENNEDY: For NPR News, I'm Merrit Kennedy in Cairo.

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