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Last updated: December 26, 2012 7:10 pm
Legislative authority in Egypt has passed to an Islamist-dominated upper chamber of parliament under a controversial new constitution approved by referendum earlier this week.
The body, known as the Shura council, will temporarily be able to pass laws until a new parliament has been elected within the next few months, after the adoption of an election law.
Two-thirds of the members of the 270-seat council were elected earlier this year in a vote in which only 12 per cent of registered voters participated. The remaining 90 were appointed by Mohamed Morsi, the Islamist president this week.
In a television address to the nation on Wednesday, Mr Morsi urged all Egypt’s political powers to take part in a national dialogue to resolve lingering tensions and promised to take necessary steps to heal the economy.
He said he was considering possible cabinet changes and planned to introduce incentives to make Egypt a more attractive investment destination.
“The coming days will witness, God willing, the launch of new projects ... and a package of incentives for investors to support the Egyptian market and the economy,” he said
On Tuesday night, Mr Morsi signed Egypt’s new constitution into law hours after the electoral commission announced the final results of a referendum which showed almost 64 per cent of voters had approved it.
The rejection of the constitution by just over a third of voters and the low turnout of about 33 per cent, suggest the Islamist authorities may find it difficult to put in place the necessary political consensus to allow them to forge ahead with difficult reforms necessary to avert an economic crisis.
The secular opposition called for a No vote, saying that the constitution failed to provide strong guarantees of human rights. Many Egyptians have also been unsettled by provisions that allow Islamic clerics to wield potentially extensive influence over legislation.
The political turmoil surrounding the adoption of the constitution has delayed austerity measures agreed with the International Monetary Fund as part of a deal to secure a $4.8bn loan. The government has asked for a postponement of the loan until January.
“The government’s ability to implement difficult reforms has diminished because of the way the president’s handling of the disputes around the constitution has polarised the country,” said a Gulf-based analyst with an international bank. “There is now talk of the governor of the central bank resigning. If he goes it will be difficult to replace him. Who in the technocratic class will want to work with them now?”
Egyptian state television on Saturday announced the resignation of Farouk al Okdah, the governor of the Central Bank of Egypt, but the news was retracted hours later.
The government, however, has said it has launched a “dialogue” with different social groups on the proposed austerity measures and the minister of planning was quoted as saying they would not be implemented until the end of the talks in two weeks.
Standard and Poor’s, the rating agency, earlier this week downgraded Egypt’s long-term credit rating from B to B- citing “elevated” political tensions and warned of a possible further downgrade. On Wednesday, S&P downgraded three leading Egyptian banks, National Bank of Egypt, Banque Misr and Credit International Bank to B-/C because of risk related to their holdings of government debt.
As the sense of crisis in Egypt deepened, the central bank announced that it would guarantee all local and foreign currency deposits in the country’s banks. To prevent capital flight it imposed a $10,000 limit on hard currency entering or leaving the country with individuals. The new measure came as the number of people seeking to withdraw their savings from banks and to convert them into hard currency climbed.
Egypt’s foreign reserves fell to $15bn at the end of November down from $36bn at the beginning of 2011 just before the revolt which overthrew President Hosni Mubarak. On Wednesday the Egyptian pound fell to its weakest in eight years at almost 6.18 to the US dollar.
The manager of a Cairo exchange bureau who did not want to give his name told the Financial Times that he could no longer secure from banks the amount of dollars he required for his clients. He said that if he requested $500,000 he might be told that only $200,000 would be available. He said, however, that the shortages affected only US dollars and that other currencies such as euros were available.
“In the last few days we have started seeing clients other than our usual importers or businessmen,” he said. “We now get people who come in to ask if they could convert their savings to dollars. They request amounts of thirty or forty thousand dollars.”
Ashraf al-Sherif, a lecturer in politics at the American University in Cairo said tough economic measures such as an increase in the sales tax, or the reductions in fuel subsidies, part of the reforms agreed with the IMF, were likely to increase public discontent.
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