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Globalization Challenges to Egypt’s Production SectorsGone are the old days when a regulator feltthat he did his job once he had translatedinternational standards of supervision andregulation, and added some localingredients and flavors. Quality ofsupervision does matter, a credit cultureshould be established, and corporatestructure and governance is of crucialimportance.Despite the numerous proposals that havebeen put forward to establish a ‘new’global financial architecture, so far littleprogress has been made. The debacle inSeattle and the growing anti-globalization(and anti - capitalist) movementdemonstrate that these proposals havehardly gained ground. It may be the casethat the developed countries see no valuein revolutionizing the international system.In the international financial environment,the G7 currently put an emphasis on threeissues: more market-sensitive riskmanagement; stronger prudential standards;and improved information disclosure andtransparency, in a way to equip themarkets to reward good behavior andpenalize bad.External Pressures on theEgyptian Economy Since 1997/98The relatively strong economicfundamentals resulting from the ERSAPhelped Egypt lessen the impact of thefinancial crises that faced some otheremerging markets in 1997 - 1998.Nevertheless, by the end of the decade, theEgyptian economy faced some unfavorableconditions. This was partly due to theaccumulation of external pressures, and theinternal economic policies that were appliedto overcome their impact. The outcome ofthese pressures resulted in a deterioration ofthe external position that was reflected in aslower pace of real GDP growth rates.During the three years 1997/98-1999/2000,the accumulated overall deficit of thebalance of payments reached US$10.4billion. This deficit was financed either byofficial international reserves, whichdeclined by US$5.3 billion (or 51 per centof the accumulated deficit) and reduced netinternational reserves (NIR) to US$ 15.13billion by the end of June 2000, or by thedecline of the net foreign assets (NFA) ofthe banks by about US$ 5.1 billion (orabout 49 per cent of the accumulateddeficit). This decline in the banks’ NFAraised concerns regarding the future of theexchange rate while the deterioration ofthe NIR raised other concerns andexpectations.Pressures started with a limited outflow ofportfolio investments in 1997/98, coupledwith a decline in tourism income, andintensified by the deterioration of internationaloil prices. This has negatively affected thecountry's overall balance of paymentsposition.The decline of international oil pricesseverely hit Egypt’s oil exports receipts,which declined from US$2.6 billion in1996/97 to about US$1 billion in1998/99. This decline represented around61.5 per cent of the revenues from oiland gas exports of the previous year.Although the downward trend of oilprices has been reversed since early1999, the Egyptian oil trade balancechanged to show a deficit, for the firsttime, in 1998/99. This deficit continuedduring 1999/2000. The continuation ofthe trade deficit after the surge ofinternational oil prices indicated thatthere is a structural problem in the oilsector (see Table 3.16).The relatively strongeconomicfundamentalsresulting from theERSAP helped Egyptlessen the impact ofthe financial crisesthat faced some otheremerging markets in1997-1998.Egypt Human Development Report 2000/2001 - 59