Mohsen al-Gedamy has run a successful business for the past seven years importing beans, a staple food for many Egyptians, but after the currency was suddenly floated late last year he now faces bankruptcy.
He is among thousands of importers caught out by the float in November, which has since halved the official value of the Egyptian pound, leaving them with ballooning dollar debts.
"We've been handcuffed and thrown into the sea," Gedamy said in an interview in a Cairo cafe after a three-hour drive from his home town of Minya in Upper Egypt to explain to his bank that he cannot repay his debt at the new rate.
They say their predicament will worsen shortages of essential goods in Egypt, where the government is undoing state controls in return for international loans vital to stability since a 2011 uprising scared off investors and tourists.
President Fatah Abdel al-Sisi, elected in 2014 after ousting Egypt's first freely elected government amid mass protests, is under pressure to revive the economy, keep prices under control and create jobs to avoid a backlash from the public.
Protest demands in the 2011 revolution included "bread, freedom and social justice" which meant importers of essential goods like Gedamy had been given special treatment until now.
The government told banks to prioritize such companies in distributing scarce foreign currency and many importers took out credit lines from their banks, depositing collateral of about 120 percent at the official rate of 8.8 per dollar.
While they understood the risk of a currency devaluation, they believed the central bank would provide dollars to cover import backlogs if it adjusted the exchange rate, just as it did when it devalued the pound in March.
On Nov. 3, the central bank floated the pound without covering the import backlog, and it depreciated to near 19 pounds per U.S. dollar.
Gedamy has an overdraft amounting to $900,000. He had left collateral of around 8 million Egyptian pounds but now the bank is demanding he pay another 8 million pounds. He says it has already taken legal action and that he could face imprisonment, although the government is in the process of scrapping that penalty for bankruptcy.
Ahmed Hindawi, who imports wheat, another staple, is in a similar situation.
"We are not facing difficulty, we are facing bankruptcy. My debt with the bank is equal to 150 percent of my equity capital," he said.
His firm has accumulated overdrafts worth $2.5 million with his bank. Even though he left a collateral of 24.4 million pounds for the loan, his bank now expects him to pay an additional 28 million pounds, he said.
"I cannot cover that. I will have to tell them 'thank you very much, come and take my company, along with its factory and the clothes on my back … I will leave the company to them and be on my way," Hindawi said.
"If we all do this the economy will halt."
BANKRUPTCY
In a full page ad in the state newspaper Al Ahram, trade and industry firms appealed to Sisi late last month to intervene urgently.
Bankers had estimated the accumulated overdrafts at near $10 billion and the firms warned that if their companies went bankrupt it could mean the loss of two million jobs and a shortage of essential goods.
The banks, which do not want to take on any loss themselves, are backing them up.
"The debt is in dollars, not Egyptian pounds and it is not the bank's problem that the exchange rate was changed," said one Cairo-based banker, who asked to remain anonymous because he is not authorized to speak to media.
"The central bank should have closed all the backlog for the importers before the free float. I think it will intervene. They cannot leave the companies this way," he added.
The Egyptian cabinet approved the country's first bankruptcy law on Wednesday, which would abolish imprisonment in cases of bankruptcy, but it needs to pass through parliament before it can be implemented, a process that could take weeks or months.
Ditching its currency peg helped Egypt secure a $12 billion three-year loan from the International Monetary Fund to support a reform program under which the government has introduced Value Added Tax, cut electricity subsidies and sharply raised import duties, all in the space of a few months.
These have had a big impact on ordinary people, making intervention from the central bank or the government to help importers politically unpalatable.
Last month, Central Bank Governor Tarek Amer ruled out intervention in the currency market, dampening hopes it might provide an exceptional dollar sale to clear backlogs at a stronger Egyptian pound rate for struggling importers.
"The market thought we would still need to support the new FX regime. No," he said. "We want this newborn child to start standing on its own feet and supporting itself."
