Egypt has decided to float its currency in a move that has reduced the Egyptian pound’s value by almost 50% against the US dollar.
One dollar is buying 13.5-14 Egyptian pounds, up from the nine Egyptian pounds the central bank was trying to keep it at.
Egypt’s central bank said the move was one of a list of reforms designed to strengthen confidence in the economy.
The country’s main stock index jumped by more than 8% on November 3.
The central bank has also increased interest rates by 3 percentage points to 14.75%.
The move is a key requirement of the IMF, from which Egypt is asking for a $12 billion loan over three years.
The IMF’s mission chief for Egypt, Chris Jarvis, said the move would make more foreign exchange available and would “help foster growth, job creation and stronger external position for the country”.
Although the liberalization should help Egypt to strengthen its economy, it will make life harder for Egyptians and the cost of all imported goods will rise sharply.
Image source Flickr
Another reform it is facing is reducing or removing altogether state subsidies on fuel to meet IMF conditions. It has already cut subsidies on household electricity and increased the price of sugar by 40% for some Egyptians.
Egypt imports about a third of its sugar needs but a shortage of hard currency has meant traders have struggled to buy from outside the country.
The military has been told to distribute a one-off package of basic food items, including sugar, at half price, to cushion the effect among the poorest.
Egypt has struggled to attract foreign investment since the political turmoil in 2011 during the so-called Arab Spring that saw former president Hosni Mubarak overthrown.
The change of regime dented tourism numbers, one of Egypt’s most important foreign currency earners, and prompted a general fall in international investor confidence.
The decline in hard currency income was exacerbated by the central bank’s efforts to prop up Egypt’s own currency. It was trying to hold it at the official rate of 8.88 Egyptian pounds, although on the black market dealers could buy far more Egyptian pounds.
The central bank said in a statement it had moved to a “liberalized exchange rate… to create an environment for a reliable and sustainable supply of foreign currency”.
A central bank auction of dollars was being held on November 3, allowing supply and demand to determine the value of the pound for the first time in decades.
Banks will be allowed to open their branches until 9pm and over the weekend to allow more transactions.
Egypt’s economy is the second largest in the Arab world, after Saudi Arabia.
Greece has failed to repay €1.6 billion loan to the International Monetary Fund (IMF), hours after eurozone ministers refused to extend its bailout.
However, eurozone ministers say they will discuss a last-minute request from Greece for a new two-year bailout on July 1.
Greece is the first advanced country to fail to repay a loan to the IMF and is now formally in arrears.
There are fears that this could put Greece at risk of leaving the euro.
The IMF confirmed that Greece had failed to make the payment, shortly after 22:00 GMT on June 30.
“We have informed our Executive Board that Greece is now in arrears and can only receive IMF financing once the arrears are cleared,” said IMF spokesman Gerry Rice.
Gerry Rice confirmed the IMF had received a request from Greece to extend the payment deadline, which he said would go to the board “in due course”.
With the eurozone bailout expired, Greece no longer has access to billions of euros in funds and could not meet its IMF repayment.
The European Central Bank (ECB) has also frozen its liquidity lifeline to Greek banks. Meanwhile, ratings agencies have further downgraded the country’s debt.
Eurogroup chairman and Dutch Finance Minister Jeroen Dijsselbloem earlier said it would be “crazy” to extend the Greek bailout beyond its June 30 deadline as Athens was refusing to accept the European proposals on the table.
Greece’s left-wing Syriza government, elected on an anti-austerity platform, has been in deadlock with its creditors for months over the terms of a third bailout.
Speaking after the conference call with other eurozone ministers, Jeroen Dijsselbloem said that a Greek request for a new €29.1 billion European aid program would be considered in a telephone conference on July 1.
According to new reports, Greece may submit new proposals on July 1 that rein in its spending
Greece’s request on June 30 asked for funds from Europe’s bailout fund – the European Stability Mechanism – as well as a restructuring of Greece’s public debt.
German Chancellor Angela Merkel earlier said she had ruled out further negotiations until after July 5 referendum, which will ask Greeks if they want to accept the deal offered by their creditors.
The Greek government took the unilateral decision to hold a vote last weekend, angering eurozone ministers.
Polling stations have opened in Romania in the country’s parliamentary elections.
Opinion polls suggest a large win for the governing coalition led by Prime Minister Victor Ponta and Senate President Crin Antonescu.
But the result could trigger renewed political instability as Romania negotiates a vital loan agreement with the International Monetary Fund (IMF).
Victor Ponta and so called centre-right President Traian Basescu have been bitter enemies since Ponta’s government tried to impeach the president last July.
Analysts say that, in the event of Victor Ponta’s Social Liberal Union (USL) winning, the president may ask someone other than Ponta to form a government.
President Traian Basescu has said clearly he will use his powers to appoint a prime minister “in the national interest”.
Given the enmity the president feels towards Victor Ponta and his coalition, it is hard to imagine he has the leader of the Social Liberal Union (USL) in mind.
However, any attempt to appoint someone else may result in a constitutional crisis.
If the USL wins a clear majority, analysts say the president may ask someone other than Victor Ponta from within USL to become prime minister, using the argument that the USL is not a party but a coalition.
Opinion polls in Romania suggest a large win for the governing coalition led by Prime Minister Victor Ponta
If the USL falls short of a majority, Traian Basescu could ask one of his allies in the Right Romania Alliance (ARD) to try to form a coalition.
Opinion polls have put the ARD in second place, but far away vs. USL.
Any prolonged political instability could unnerve markets and threaten a crucial IMF loan agreement.
Romania’s current loan agreement expires in early 2013.
President Traian Basescu barely survived July’s referendum on his impeachment after turnout fell below the 50% needed to validate the vote, even if 7.4 million people were against him.
He said Romanians had “rejected a coup” by staying away from polling stations.
The row between the two men has alarmed Romania’s EU partners and parlayzed political decision-making.
Romania and neighboring Bulgaria joined the EU in 2007, but Brussels has put both countries under special monitoring because of concerns about judicial independence, corruption and political influence in state institutions.
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