Can Egypt’s new central bank chief calm currency crisis?

When Egyptian central bank governor Hesham Ramez quit, phones began ringing as bankers congratulated each other on the departure of a man they say refused to change course even as Egypt careered from currency crisis toward trade crisis.
Fresh blood at the top has raised hopes of impending change to a monetary policy that has failed to stabilize the pound, has angered importers and become personally associated with Ramez, whose currency controls have starved some businesses of dollars.
His named successor, Tarek Amer, who begins his four-year term on November 27, is seen as a dynamic and collaborative manager credited with transforming the fortunes of Egypt's largest bank.
Both bankers and importers have welcomed President Abdel Fattah al-Sisi's announcement; they are more comfortable with Amer's approachable style and say his arrival gives the central bank an opportunity to row back on existing policies without losing credibility.
"We were not going in the right direction and we are in a critical situation that requires out-of-the-box thinking," a banker at the treasury desk of an Egyptian bank said.
"There is optimism in the market that Amer will reverse some of the controversial policies that Hesham Ramez took."
Ramez took the helm at the central bank in February 2013, when the Muslim Brotherhood-led government was struggling to stabilize an economy hit by political turbulence in the wake of the 2011 uprising that swept Hosni Mubarak from power.
Foreign reserves at the time were US$13.6 billion, less than half their pre-uprising level and not enough to cover three months worth of Egypt's import needs.
The military removed the Brotherhood from power three months after Ramez took office, quickly securing billions of dollars in aid from Gulf Arab states opposed to the Islamist movement.
The money came in the form of grants, loans, central bank deposits and even energy products which Egypt imports.
Yet foreign reserves were only marginally higher at $16.3 billion in September than they were when he took over.
That is because tourism and investment are down but also because the central bank has dedicated much money to maintaining the pound at what analysts say is an artificially strong band.
Rocky path
The central bank faced increased pressure to devalue as the black market burgeoned, offering a lifeline to businesses unable to access enough dollars through official channels.
Ramez devalued the pound in January and February. He held the currency steady at 7.53 to the dollar until July when it was allowed to weaken again. The last round of devaluation came this month and the pound is now at 7.93 to the dollar.
But bankers have said the moves were too small, too late, too piecemeal and appeared to be made reluctantly, with one remarking that "no one knows what he's thinking. It's foggy".
Bankers say Ramez became fixated on crushing the black market even at the expense of an economy already trudging a rocky path back to economic growth.
Those who once supported his efforts to stabilize the pound began to reassess in February, when Ramez introduced banking controls including a $50,000 a month cap on dollar deposits, which killed the black market as businesses no long had anywhere to deposit dollars obtained unofficially.
The restrictions also force banks to offer dollars for imports of strategic goods such as some food ahead of non-essentials, drawing the ire of importers of luxury goods.
Ramez has strongly defended an approach he says was aimed at putting what dollars there are in Egypt to the best use.
"The businessmen refuse to admit that the country is facing a shortage of dollars and that it has to set priorities," he said in an interview published in Ahram Hebdo this month.
"Foreign currency reserves are falling, and like every country that is going through a similar economic situation, Egypt has to set its priorities."
Egyptian exports fell 19 percent in the first nine months of 2015, with some manufacturers saying currency restrictions made it difficult to open letters of credit to import some raw materials.
"Everybody has problems with the dollar and they personalize this problem with Hesham Ramez," said Tarek Abaza, executive director at Naeem Holding.
"They keep saying Hesham Ramez is killing business, is trying to kill the black market so he killed the economy himself … (The market) will have high hopes in Tarek Amer."
Management style
Bankers say Amer, who worked at Citibank, Bank of America and was previously a deputy central bank governor, is a team player better suited to building strong ties with global institutions such as the International Monetary Fund.
Some say he is more liberal-minded than Ramez. At the very least, bankers expect a more collaborative relationship.
"Amer always listened to the people he worked with, took in the opinions of experts. A very good listener who trusted his people, not the kind to just give orders," said a banker who worked with Amer at state-owned National Bank of Egypt (NBE).
NBE was in the doldrums when Amer took over in 2008, in the midst of the global financial crisis. Amer liquidated toxic assets, restructured the bank and raised the caliber of management, said a banker who worked there at the time. By the time he left in 2013, NBE was one of the most profitable banks in the region.
Turning around Egypt's monetary policy is a politically delicate balancing act that will not be so straightforward.
Amer has difficult choices to make. The central bank has faced pressure to devalue, especially since this year's rout in emerging markets currencies. But many oppose such a move, fearing it appeases business but stokes inflation in an import-reliant country where millions live hand to mouth.
That is a point Ramez has repeatedly made and for which he has support from the very top. When Sisi named Amer to take the job, he stressed the need to prioritize vulnerable Egyptians by controlling inflation and ensuring their access to food, medicine and fuel. Many people on the street would agree.
At the same time, calls by some businessmen to link the pound to a trade-weighted basket of currencies or to float the currency altogether carry their own considerable risks.
Bold changes may prove politically unpalatable in Egypt, where the government seeks stability and is loath to see a repeat of the street protests that helped unseat two presidents in three years.
"The fact that he wants a more liberal economic system in Egypt, which is exactly what Egypt needs to push economic growth to higher levels," said Angus Blair, head of Signet Institute, a Cairo-based economic think-tank.
"His predecessor … was too cautious for what Egypt needs and I think Mr Amer will take the more difficult decisions that Egypt needs to instil private sector and investor confidence to boost investment."
What fuelled Ramez's unpopularity in the banking sector was his interference in minute details including product pricing.
Bankers say he gave orders and but did not welcome feedback, sometimes lambasting senior bankers in front of their peers and creating an environment where experts were afraid to speak up.
But others said that regardless of Amer's credentials, few know how he plans to handle the crisis. Monetary policy, they said, was complicated and bigger than one man.
"Anyone who takes Hesham Ramez's place, in a while, will start receiving the same criticisms," one banker said.

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