Dr. Abadir is a founding member of the liberal party “Al Masreyeen El Ahrrar” (translates as Free/Liberal Egyptians) and member of the Political Office that heads it. He drafted its economic program in April 2011 (prior to its launch) and has been the Chair of its Economics Committee since September 2011, and Chair of the Data Analysis and Information Committee.
February 22, 2013
Guest Post: Reserves or no reserves, that is the question, by Dr. Karim Abadir
Honored to host a post by Dr. Karim Abadir, Professor of Financial Econometrics at Imperial College London. You can follow him on twitter @kmabadir His extended bio is enclosed at the end of the post.
Reserves or no reserves, that is the question
Egypt has not officially reported its reserves position to the IMF since December 2012. Now you may ask what’s behind this delay. I suggest you read the details in the last published report on http://www.imf.org/external/np/sta/ir/IRProcessWeb/data/egy/eng/curegy.htm and you’ll understand why. Egyptian total reserves were declared to be $13.6bn in January 2013 which, together with this link, means that net reserves are now in negative territory.
This zero-reserves day has been delayed by countries depositing monies to embellish our total headline figure (nobody queried thenet figure). Now we’ve hit zero. It’s not a forecast but something that’s already happened. The proof is in the link to the IMF webpage on Egypt, and Egypt has not sent the updated info since December 2012, presumably for fear of being exposed. Our short-term liabilities are listed in Sections II and III of the aforementioned IMF webpage, and they add up to more than our total reserves today. It means that we’ve started spending the deposits that should be returned soon to foreign governments. I’m not even counting the huge debts of Egypt’s Petroleum Company in the figure to deduct, nor am I making allowance for illiquid assets like gold that will have to be dumped in the market and sold at below their current value to pay for our debts. Not only is Egypt bankrupt, but it has also broken international law. The depositors have got us by the balls. One main difference between a deposit and a loan is that the former can be recalled. If there is no good reason for doing so, the depositor loses the interest due. Otherwise, compensation may even be due to the depositor, especially if it turns out that their money cannot be returned. Now that makes you wonder which assets is Egypt going to give to these countries in compensation? Let us not forget how debts to the British and the French led to Khedive Ismail relinquishing control of the Suez Canal.
But here’s another worrying logical conclusion. If our government broke the law and spent the deposits of foreign governments, would it not do the lesser evil of taking local deposits of hard currencies? In case you think this is science fiction, it is not. Countries in better economic positions than Egypt have had to resort to this. In 2001, Argentina did just that to face its crisis: foreign-currency deposits were forced exchanged into Pesos at an artificial exchange rate determined by the government. The question is, are your savings safe?
Bio: Dr. Karim Maher Abadir is Professor of Financial Econometrics at Imperial College London since 2005, where he was in charge of recruiting from 2006 then Group Head from 2007 to 2008 for Finance and Accounting academics. He holds a DPhil from Oxford University. His MA and BA are from the American University in Cairo. He attended school at the Collège de la Sainte Famille (Jésuites) in Cairo. He has also taught at the American University in Cairo, University of Oxford, University of Exeter, and the University of York where he held a joint Chair between the departments of Mathematics and Economics from 1996 to 2005 and was the Head of the Statistics Group. He is credited with having solved in his DPhil a major long-standing problem in Mathematical Statistics and Time Series that was open since the 1950’s, and with having predicted the timing of the recent recession and of the recovery a year before each happened. He was a Founding Editor of the Royal Economic Society’s Econometrics Journal for 10 years and has been Associate Editor of many journals. [Further details are in various editions of Who's Who in the World, Dictionary of International Biography, Cambridge Blue Book.]