Cablegate: Morocco Remains Sheltered From International

Published: Fri 17 Oct 2008 05:01 PM
DE RUEHRB #1002/01 2911701
R 171701Z OCT 08
E.O. 12958: N/A
B. RABAT 853
C. RABAT 254
1. (U) Summary: Government and private sector leaders
continue to project confidence that Morocco will successfully
weather ongoing volatility in international markets. Central
Bank Governor Abdellatif Jouahri, Finance Minister
Salaheddine Mezouar, business confederation chief Hafid El
Alamy and others have repeatedly stressed in recent days that
Morocco remains sheltered, thanks to continued restrictions
on the country's capital account, which limit the ability of
Moroccans to invest abroad. "Autarky" has thus replaced
"globalization" as the adjective of choice to describe
Morocco's international engagement. Not all agree that the
Moroccan economy will be spared in a broader sense, however,
The independent Centre Marocain de Conjoncture (CMC) has
predicted that GDP growth will slow by 1.5 to 2 percent this
year as a result of the international crisis, well above
Mezouar's own prediction of slippage of 0.2 percent. End
2. (U) Financial Autarky Has Saved Us: Moroccan government
and private sector leaders have congratulated themselves in
recent days that the country remains sheltered from the
international financial crisis and is not at risk of "direct
contamination" from it. This message has been conveyed
separately by Government spokesman Khalid Naciri, Finance
Minister Mezouar, CGEM President El Alamy, and Central Bank
Governor Jouahri in separate press conferences over the last
week. In contrast to their earlier tendency to celebrate
Morocco's competitiveness and participation in the global
economy, the emphasis instead has been on the ways in which
Morocco remains insulated from world financial markets, via
continued restrictions on the country's capital account.
3. (U) Central Bank Governor Abdellatif Jouahri has
repeatedly reiterated that Moroccan banks are not exposed to
the international credit crisis, as they did not purchase
instruments based on subprime or other mortgage assets in the
United States or elsewhere. He told the "Economist"
newspaper this week that total international exposure is
limited to 30-34 billion MAD, or less than 4 percent of
banking sector assets. Similarly, even with a broad
definition of foreign investment in the Casablanca Exchange,
he notes that it represents only 6 percent of market
capitalization. Asked about the similar explosion of credit
to the real sector that has occurred in Morocco, where
mortgage loans, for instance, rose by over 45 percent from
2007 to 2008, he stressed that the Central Bank has
carefullly monitored the risks assumed by the banks, and
issued a series of circulars to ensure enhanced bank control
of them. In a recent meeting with Econ Counselor, Jouahri's
deputy, Mohammed Faouzi, noted that lending standards in
Morocco remained high, and that even with the rapid growth in
credit for mortgages, such loans still only represent 13-14
percent of Moroccan GDP, a fraction of levels in the U.S. or
Europe. Where there were abuses in the past, as when certain
lenders offered loans for more than 100 percent of the value
of a property, the Central Bank stepped in to limit them.
The bank also moved recently to raise its lending rate to
banks by a quarter of a percent, though it requested that the
banks not pass the increase along to their customers.
4. (U) From his private sector perch, El Alamy, who is
himself the owner of a leading insurance company, has echoed
the argument that the international exposure of Morocco's
financial sector is extremely limited. In a press conference
this week, he was at pains to reassure those worried about
the insurance sector, noting that while insurers have had the
right to invest up to 5 percent of their assets abroad since
new regulations were introduces by the Exchange Office in
August 2007, no insurer has yet taken advantage of the
possibility. "We preferred to place our money in an economy
that we understood," El Alamy noted, arguing thereby that
"financial autarky" can sometimes be beneficial. Mezouar
echoed this point in his own recent press conference, leading
Morocco's preeminent business magazine "Economie et
Entreprise" to comment ironically on the sudden conversion of
the country's leading advocate of "globalization" into one of
5. (SBU) But Risks Remain for the Real Economy: Mezouar was
critical in his public comments of those who have spread
"panic" about the risks to Morocco from the international
crisis. He predicted that GDP would slip only 0.2 percent as
a result of fallout, and implicitly criticized those like the
Centre Marocain de Conjoncture who have predicted a 1.5 to 2
percent fall in growth. Lahbib Idrissi, Deputy Treasury
Director at the Ministry of Finance, amplified on this
critique in a recent meeting with us, arguing that the CMC's
prediction was "intuitive" and not based on any close
analysis of specific sectors. He argued that more time is
needed to weigh the impact on Europe before one can assess
what the fallout here will be. Observers concur, however,
that if Morocco's financial sector is not well integrated
internationally, its overall economy is increasingly
dependent on international, and particularly European
developments. Mohamed Terrab, head of the country's largest
exporter, the Office Cherifien des Phosphates (OCP), told us
last week that he agrees with the analysis that Morocco's
dependence on Europe renders it vulnerable to follow-on
effects from a slowdown there. Key transmitters, he said,
would be export growth, tourism revenue, and flows of both
direct investment and transfers from Moroccans resident
abroad. The latter three are critical to counterbalance
Morocco's structural trade deficit and to maintain the
country's external reserves, which now total 9 months of
imports (down from 12 last year as a result of rapid import
growth). Idrissi concurred, judging that of Morocco's export
industries, textiles is particularly vulnerable.
6. (U) In recent press interviews, however, Jouahri has also
sought to highlight the opportunities that the international
crisis may offer Morocco. He suggested that Morocco may even
benefit in some sectors such as tourism and off-shoring, as a
result of its cost advantage over European rivals. He
highlighted Morocco's potential for back-office banking
operations, for instsance, in addition to the off-shoring
that already exists in the high tech and call center areas.
In addition, he opined that as a low-cost destination,
Morocco could woo European travelers to substitute Morocco
for more expensive European destinations. Already, the
Ministry of Tourism has set up a task force to devise
strategies to best position Morocco in the new international
7. (SBU) Market Mayhem: Meanwhile, the Casablanca Stock
Exchange has experienced its own difficulties over the last
month, which some ascribe to another impact of the
international crisis: the fact that "panic" does not respect
borders. Idrissi argued that the fundamentals of Moroccan
companies remain strong, and that there are no objective
grounds for sharp swings in either a positive or negative
direction. Nonetheless, the market has moved sharply
downward in recent weeks, giving up its gains for the year
(ref b.) Exchange officials told Ambassador in a recent
meeting that while the correction coincided with sharp drops
in international stock prices, it was due more to Moroccan
equities being overvalued on the basis of their
price-earnings ratio. Mezouar has encouraged investors not
to be swayed by a "herd mentality," and instead to continue
to focus on the sound fundamentals of Moroccan companies.
8. (SBU) Comment: For now, Morocco is in a waiting and
watching mode, with the Central Bank carefully scrutinizing
the balance sheets of Moroccan banks and setting up a
monitoring unit to keep tabs on developments in international
markets. Despite the public confidence of Moroccan
officials, if Europe sneezes, Morocco will find it hard not
to catch a cold. While there is a potential silver lining
for Morocco if European firms do seek lower cost
alternatives, as Jouahri has argued, it is hard to believe
that tourism, and thus Morocco, will not be negatively
affected if the world financial crisis continues. End
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