New bank governor in Egypt faces old currency crisis

The question on the minds of many is whether Egypt’s new central bank governor, Tarek Amer, is an economic liberal who will relax the government’s grip on the pound’s price against the dollar.

Egypt’s new central bank governor, Tarek Amer, takes up his post on November 26 in the midst of another flare-up of the country’s never-ending currency crisis.

The question on the minds of many is whether he is an economic liberal who will relax the government’s grip on the pound’s price against the dollar and let supply and demand do its trick, or is he old school enough to rely on administrative measures to support the currency?

The outgoing governor, Hisham Ramez, whose four-year term was not renewed, was decidedly of the school of administrative measures. He believed in a strong pound whose problems were temporary, and that demand for it would increase as security and stability were restored after the political turmoil of the past four years.

He imposed ever stricter administrative measures to dampen demand for foreign currency as the promised surge in demand for the pound failed to materialise. Last January, he declared war on the black market, making business all but impossible for many importers.

Acquaintances say he took the black market’s mere existence almost as a personal affront. In the past few days, the central bank has cracked down harder than ever on dealers, closing many and driving the black market deeper into the alleyways.

Ironically, Mr Ramez had begun his career as a foreign exchange dealer, at Bank of America in the early 1980s. He quickly worked his way his way up the ladder, taking a senior job in Bahrain then in 1996 joining the smallish Egyptian Gulf Bank, which is owned mainly by private shareholders, and becoming chairman in 2006.

Mr Amer’s trajectory has been different. He graduated from the American University in Cairo in 1980 with a bachelor’s degree in economics, then worked at several foreign banks before joining Egypt’s biggest lender, the state-owned National Bank of Egypt (NBE). By 2003 he had become vice-chairman.

In 2003, Egypt was suffering from a currency crisis similar to the one it is in now. That year, the government drew up a new banking law that strengthened the central bank’s ability to set monetary policy, and in December it appointed Farouk El Okdah, a Wharton-trained banker and Mr Amer’s boss at NBE, as the central bank’s new governor, with a mandate to resolve the crisis. Mr Okdah brought Mr Amer with him to the central bank as his deputy chairman.

When the two men joined the central bank, the black market was raging despite a sharp devaluation of the pound the previous January. Together Mr Okdah and Mr Amer prepared the ground for a complete currency flotation. When the float finally happened in December 2004, many were surprised by the pound strengthening against the dollar.

It was only in December 2007 that Mr Ramez became a board member at the central bank, where he was often at odds with Mr Amer, who in turn was very close to the governor. When Mr Amer was appointed chairman of NBE in April 2008, Mr Ramez took over his position of deputy central bank governor.

Mr Amer’s time at NBE earned him the reputation of dynamic reformer. NBE was the last of Egypt’s four main state-owned banks to bring in managers from the private sector with the aim of making them operate more like private banks, a reform process that began with Banque du Caire in 2000.

The state banks had been lumbering under four decades of state bureaucracy.

In his first year, Mr Amer undertook a management shake-up, bringing in 140 new senior and 1,500 new junior managers. He entirely covered NBE’s provisions for non-performing loans and almost tripled net income, partly by selling investments in other companies.

When Mr Ramez took over as central bank governor in February 2013, Mr Amer immediately resigned from NBE, which because it is state-owned is under direct central bank control.

Like Mr Okdah and Mr Amer, Mr Ramez took control of the central bank during a currency crisis. A round of violent protests against then-president Mohammed Morsi in December 2012 triggered a run on the Egyptian pound that cost the government more than $2 billion to bring under control.

Mr Ramez at the time decided to forgo the country’s policy of a freely convertible currency. With little sign yet of a major increase in tourism and foreign investment, which were two of Egypt’s two main sources of foreign currency, the central bank has jumped from crisis to crisis.

Each time the country’s depleted foreign reserves approach $15 billion, considered the acceptable minimum, the bank has reluctantly allowed the pound to weaken, but never by enough to satisfy the market.

Mr Amer has earned the reputation of reformer, but at the same time he is considered to be extremely cautious, and may well be reluctant to let the pound fall too much if the political powers in the country disapprove.

Patrick Werr has worked as a financial writer in Egypt for 25 years.

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