Breakfast Wrap: Egypt’s State Bank Steps in On Oil Troubles, IMF Loan Is Islamic

“We would rather starve than eat off Riba,” Egypt’s President Mohammed Morsi said over the weekend.

It was an effort to reassure conservatives in his government that the request for a loan of nearly $5 billion in aid from the IMF would be compatible with Islamic banking principles.

Islamic law prohibits usury but applying interest in some circumstances is acceptable.

“This does not constitute Riba” said Morsi, in reference to abusive interest rates as defined by Islamic jurisprudence.

The irony is that Egypt will starve if it doesn’t sign this loan, which would act as a catalyst and barometer of confidence for other donors to come through on their pledges.  The very clear announcement comes a few days after the ultra-conservative Salafist Al Nour party also endorsed the loan.

At this point, Rebel Economy would like to ask this question: how has this controversial loan, which the Islamists lobbied against so fiercely last year, suddenly become sharia-compliant? We need details on how the interest rate is no longer defined as “Riba”.  Readers, if you have the answer, please comment below or get in touch on rebeleconomy@gmail.com. 

Meanwhile, it appears the IMF’s head, Christine Lagarde, is in on the conspiracy, and said no pre-conditions will be imposed on Egypt for the loan.

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Egypt’s ministry of petroleum has received an offer from Egypt’s biggest bank, state-run National Bank of Egypt to cover its billions of dollars of debt to foreign partners, Al Masry Al Youm has reported, citing unnamed sources (Arabic). 

NBE and the oil ministry are in talks on how to repay billions of dollars worth of oil debt owed to foreign partners (it seems to refer money owed to both banks and oil companies), adding that the country’s oil minister Osama Kamel is due to meet the head of NBE, Tarek Amer, to discuss further.

Egypt’s state-owned oil company the Egyptian General Petroleum Corporation has already paid 19 billion Egyptian pounds to foreign banks  during the first half of this year, bringing the total debt to 47 billion Egyptian pounds, versus  66 billion pounds at the beginning of 2011, Al Masry al Youm reports.

EGPC has also reduced total debt to foreign oil partners to $4.5 billion, from $6 billion, it reports.

This story opens a new dimension in Egypt’s oil problems.  Not only does Egypt owe foreign oil companies, but it also owes international and domestic banks billions for financing petroleum payments. The story is poorly sourced but it is an important nugget nonetheless.

I understand that NBE is one of many banks owed a large sum from the oil ministry, so this dynamic is interesting and could be pure propaganda conveying the strength of Egypt’s state banking.  It is also understood that NBE has stopped offering letters of credit to the oil ministry to allow it to fund petroleum imports because of its indebtedness.

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Some comment pieces that readers may enjoy.

Will Egypt sieze Libya for its oil? By Laurence Solomon, executive director of Energy Probe

If a new Arab union ever emerges in the form of an Islamic Caliphate, as Morsi wants, Libya’s oil would be at its disposal. Morsi and others may be wondering, though, why wait?

Egypt’s Muslim Brotherhood and the Coming Economy Storm  A slightly patronising piece by Andrew S. Natsios, who served as administrator of the U.S. Agency for International Development and as President George W. Bush’s Special Envoy to Sudan

Egypt faces four economic crises: rapidly rising food prices and budget deficits, a precipitous economic slowdown driving high unemployment even higher, and a long-term crisis over the water resources of the Nile River.  

In his opinion, Morsi’s technocratic government may be “incapable of dealing with these complex set of issues”.

 They may not fully understand the implications of what is about to happen.

An Egyptian Furniture Company Finds Success Amid Downturn – a nice feature on one company that has benefited from the depreciation in the Egyptian pound.  It means exports are more competitive and because imports are also more expensive, domestic products are seen as relatively cheaper, earning the business owner good revenue.

It’s one small example of how a currency devaluation isn’t as hellish some have described it to be.

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News from Abu Dhabi:

Abu Dhabi family-owned conglomerate Al Jaber Group, in talks to restructure at least $1 billion in debt, has proposed to extend repayment by five years, two sources familiar with the company’s plans told Reuters.

Al Jaber, which has operations in construction, aviation and retail, set up a creditor committee last year to negotiate the restructuring. It has not yet given a figure for its debt pile, estimated by some bankers at more than $1 billion.

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Ending on a happy note. Abu Dhabi’s investment fund, Mubadala Development, swung to a profit in the first half driven by a drop in investment write-downs and higher revenues at its key businesses.

Mubadala, which has stakes in General Electric and private equity firm Carlyle, made a profit of 851.54 million dirhams ($232.02 million) for the first half compared with a loss of 1.18 billion dirhams a year ago, it said in a statement on Thursday.




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