Reflections on East Asia from the Banks of the Nile

The paper draws some lessons for the Egyptian economy from recent crisis episodes in Latin America and East Asia. Egypt is striving to achieve higher sustainable growth rates to increase the welfare of its population. Opening up the capital account presents both opportunities and dangers. Recent experience has shown that opening up would allow the economy to benefit from capital inflows but would also expose it to their volatility, with sudden adverse consequences to economic activity, employment, income and monetary stability. The authorities must pursue reforms with vigor and continue opening up the economy, including its capital account while paying utmost attention to critical aspects of policies and institutions. A more flexible, but disciplined, macro -economic stance is needed, while accelerating the development of the financial sector's infrastructure/ regulation, as well as greater transparency and disclosure. Key to this equilibrium is the health and competitiveness of the banking sector. Banks enhance or worsen the features of asymmetric information that characterize investment relationships between economic agents. This becomes critical at times when shifts in investors' sentiment can precipitate a crisis, as in the Mexican or East Asian experience.