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DE RUEHRB #1002/01 2911701
ZNR UUUUU ZZH
R 171701Z OCT 08
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC 9246
INFO RUCNMGH/MAGHREB COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC

UNCLAS RABAT 001002 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD MO
SUBJECT: MOROCCO REMAINS SHELTERED FROM INTERNATIONAL 
CRISIS, BUT REPERCUSSIONS FROM EUROPEAN SLOWDOWN LOOM 
 
REF: A. RABAT 893 
     ¶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 
Summary. 
 
¶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 
"autarky." 
 
¶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 
climate. 
 
¶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 
Comment. 
 
 
 
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Visit Embassy Rabat's Classified Website; 
http://www.state.sgov.gov/p/nea/rabat 
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Riley