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U.S. DEPARTMENT OF STATE
ALGERIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES
BUREAU OF ECONOMIC AND BUSINESS AFFAIRS





                            ALGERIA

                    Key Economic Indicators
       (Millions of U.S. dollars unless otherwise noted)


                                   1992  1/  1993  2/  1994  3/

Income, Production and Employment:

GDP (at current prices)           45,300    46,500      N/A
GDP Growth Rate (pct.)               2.3       2.6      N/A
GDP Per Capita (USD)               1,674     1,694      N/A
By Sector:
  Agriculture                      5,450     5,700      N/A
  Industry                        16,592    22,100      N/A
  Services                        14,142    15,700      N/A
Labor Force (millions)               6.2      6.45     6.70
Unemployment Rate (pct.)              22        24      N/A

Money and Prices:  (annual percent growth)

Money Supply                        23.9      21.2      N/A
Consumer Price Index                31.8      20.8     31.0
Commercial Interest Rate              17        20       22
Exchange Rate (dinars/USD)          21.8      23.0     40.0

Balance of Payments and Trade:

Exports (FOB)  4/                 11,510    10,330      N/A
Imports (CIF)  4/                  8,300     7,770      N/A
Current Account Balance            1,290     1,010      N/A
Exports to U.S.                    1,694     1,711    1,232
Imports from U.S.                    677       898      821
Trade Balance with U.S.            1,017       813      411
External Debt                     26,349    24,600      N/A
Debt Service Payments              9,277     9,100      N/A
Gold and Foreign Exch. Reserves    3,318     3,300      N/A


N/A--Not available.

1/ World Bank data.
2/ U.S. Embassy estimates.
3/ Data as of August 1994.
4/ Merchandise trade.



1.  General Policy Framework

    With a rapidly growing population of about 27 million
people and tremendous natural gas and petroleum reserves,
Algeria has the potential to be a major market for American
exports.  Algeria has an aging industrial sector in need of
new investment.  The infrastructure of its cities is
inadequate and often employs antiquated technologies.  With
the vast bulk of its territory desert, Algeria also will
remain a substantial market for agricultural exports.

    This potential for American exports of goods, services and
investment so far has not been fully realized, due mainly to
Algerian government mismanagement of the economy.  With the
exception of the state-owned hydrocarbons sector, an efficient
economy able to compete internationally has never evolved.  As
a result, hydrocarbons exports still account for about 97
percent of Algeria's foreign exchange earnings.  The low level
of petroleum prices in 1993 left Algeria unable to finance
needed imports and also make payments on its foreign debt.

    During 1994, however, the Algerian government began in
earnest a broad program aimed at freeing more hard currency for
imports.  It concluded an agreement with the International
Monetary Fund (IMF) which allowed it to close a debt
rescheduling agreement with its Paris Club creditors.  The
subsequent rescheduling of about five billion dollars in
payments will make possible a substantially higher level of
imports in 1995.  The government is also negotiating a
rescheduling of payments due on its five billion dollar
commercial debt.  Meanwhile, Algeria also signed the Uruguay
Round agreements which now await ratification by the country's
legislature.

    In conjunction with its IMF accord, the government also
enacted measures to transform eventually the state-managed
economy to one guided by market forces.  Beyond the structural
measures discussed in section 3 below, the government reduced
its budget deficit from about nine percent of GDP in 1993 to
about three percent in 1994.  It cut a broad series of
consumer-good subsidies and raised energy prices.  It also
restrained government expenditures and limited wage increases
to the roughly two-thirds of the labor force who work in the
government, public and private sectors.  The government has
financed its budget deficits primarily by borrowing from the
Bank of Algeria (Central Bank) which increased the money
supply.  The government had little choice, since monetary
policy instruments are relatively rudimentary.  There are no
bond sales to finance government spending, and much of the
money circulating in the economy is outside government control
in the parallel market.  Reduced bank financing for the
government budget deficit and public-sector enterprises has
slowed money supply growth from about 22 percent in 1993 to
roughly 14 percent in 1994.  To attract some of the liquidity
back out of the parallel economy into the formal commercial
sector, the government raised interest rates at the banks. 
These measures should reduce inflation in 1995 from the roughly
30 percent level of 1994.

    The period of transition for an economy in which the
government-owned sector is so predominant will take years. 
Moreover, the ultimate success of the reform policies will
remain linked to an improvement in the unsettled political and
security situation.


2.  Exchange Rate Policy

    The dinar is still not a fully convertible currency. 
However, the structural readjustment changes put into effect
this year, such as the debt rescheduling, the devaluation of
the dinar and an easing of controls on imports and access to
hard currency, have made it somewhat easier for companies to
buy the hard currency necessary to pay for imports.  In April,
after negotiations with the IMF, the Algerian government
devalued the dinar by forty percent, setting the official rate
at USD 1 equals 36 dinars.  By November that value had fallen
to an official value of USD 1 equals 41.7 dinars, versus a
black market rate of approximately USD 1 equals 65 dinars.  To
establish the exchange rate, the Algerian Central Bank sells
foreign currency to the commercial banks once a week, thus
tying the exchange rate to commercial demand.  Central Bank
officials anticipate that by 1995 foreign currency sales to
banks will be made on a daily basis.

    In 1994 the Algerian government made it easier for
investors and private citizens to buy and to hold foreign
currency.  Algerian banks allow deposit accounts denominated in
a foreign currency.  The most restrictive control still
limiting the ability of potential investors to import products
is the commercial banks' requirement that an importer deposit
the full cost of the imported item and also a percentage of the
cost in the bank before it will ask international banks for
letters of credit.  The banks justify this extra charge by
saying that their costs have risen.  This extra dinar margin
also protects the Algerian banks from losses stemming from
additional devaluations.  International banks have been
reticent in extending new credit lines to Algerian banks
because of the debt rescheduling and because of a longer term
concern about the political unrest in Algeria.


3.  Structural Policies

    Prior to the initiation of its reform policies, the
government controlled many prices directly and allowed fixed
profit margins on many others.  In April 1994, the government
eliminated controls on prices for agricultural equipment and
spare parts and lubricants.  These measures should lead to an
increase in U.S. exports of these products.  The government is
also moving towards eliminating the requirement that producers
notify it of their prices with an obligation that they simply
publish their prices.  This should encourage more efficient
pricing policy, especially in sectors such as food industries
and construction which could utilize American inputs.

    Government officials stress their desire for foreign
investment and have sought to streamline the application
process.  In October 1993 the government issued an investment
code which liberalizes the regulatory environment outside of
the hydrocarbons sector.  The code provides investors with a
three-year exemption from the value added tax on goods and
services used as production inputs and a two to five year
exemption from corporate taxes.  It also cut the duty on
imported goods to three percent and placed a ceiling of seven
percent on an employer's contribution to local social
security.  The government, in November 1994, was preparing to
create an agency, modelled on success stories in Morocco and
Tunisia, to determine incentive eligibility and shepherd the
applications through the maze of Algerian bureaucracy.  In July
of 1994 the government opened to foreign investment up to 49
percent of selected public-sector enterprises:  there is no
limit on ownership shares of the subsidiaries now owned by
public-sector firms.  An influx of foreign investment, however,
hinges on improvements in the security situation.


4.  Debt Management Policies

    The fall in oil prices in the last quarter of 1993
triggered a balance of payments crisis that obliged Algeria to
conclude an IMF agreement and seek debt relief.  The Algerian
government had resisted debt rescheduling, preferring to carry
a heavy payments load (in 1991 debt service payment consumed 75
percent of export earnings, and in 1992, 77 percent) rather
than permit outside "interference" in the monetary management
of the country.  The Algerian government was facing 9.3 billion
dollars of debt servicing in 1994 and the possibility of export
revenues reaching only USD 8.8 billion to USD 9 billion. 
Unable to secure large new inflows of credit, the government
could continue on its old policy track no longer.

    After the IMF approved Algeria's reform program on May 31,
1994, Algeria reached agreement on June 1 with its official
(Paris Club) creditors to reschedule USD 5.3 billion in
principal and interest payments falling due between June 1994
and May 1995.  An eventual agreement with commercial debtors to
reschedule commercial debt payments coming due is expected to
further reduce Algeria's debt substantially.  Central Bank
foreign exchange reserves quickly recovered from 1.5 billion
dollars in December 1993 to 2.8 billion in August 1994.  This
provided Algerian commercial banks far easier access to hard
currency for their customers.  In addition, the World Bank
released 150 million dollars in July 1994 as part of its loan
for public-sector reform.  However, because of the debt
rescheduling, some commercial and official creditors have been
reluctant to extend new credit lines to Algerians, thereby
limiting Algerian importers' ability to take further advantage
of the government's reform measures.


5.  Significant Barriers to U.S. Imports

    The government has deregulated the foreign trade sector
significantly, but some controls remain.  The list of items
which may not be imported was reduced from 107 products to 85
in April 1994.  Those items still on the list are foods,
consumer goods and machinery produced in the Algerian public
sector for which the government wants to extend trade
protection.  The government has indicated it will eliminate
this list entirely by early 1995, thus opening up many new
product areas to potential U.S. exporters.  The government
maintains a second list of products for which an importer must
receive a special permit.  This list includes a number of goods
in which American producers enjoy comparative advantage, such
as wheat, flour, barley, powdered milk, medicines and medical
equipment.  Some Algerian business people have complained that
the necessary permits are difficult to obtain.  It is unclear
when this second list will be abolished.

    Aside from import controls, many importers still lack ready
access to foreign exchange by which they can finance imports
from the U.S.  Prior to the June 1994 Paris Club accord, there
was an acute shortage of foreign exchange, and the government
channelled the available hard currency resources into priority
needs, such as food imports.  As 1994 progressed, hard currency
reserves at the Bank of Algeria increased substantially. 
Nonetheless, imports were slow to increase for two reasons. 
First, well-established importers, most notably public-sector
enterprises, lack dinar liquidity with which to buy the foreign
exchange.  In addition, the Bank of Algeria in April 1994
ordered banks not to provide importers with foreign exchange
until they had undertaken careful study of the importers'
projects.  Many business people claim the banking system is too
bureaucratic to complete the studies quickly, and the
applications for hard currency have piled up.  Notably, private
importers have obtained only about 18 percent of the foreign
exchange allocated to imports in 1994, with the remainder
channelled to the public sector.

    To save hard currency, the Algerian government gives
preference to local engineering and construction firms unless
the technology needed is not available in Algeria.  The ability
of foreign firms to obtain contracts depends critically on
their ability to offer attractive financing.  U.S. Eximbank's
decision in April 1994 to suspend new medium- and long-term
financing will hinder U.S. firms' ability to find suitable
finance terms for Algerian customers.  Firms from countries
retaining extensive bilateral lines of credit with Algeria have
an advantage over U.S. firms in this regard.

    The government had maintained a monopoly on particular
services, most notably insurance and banking.  In November 1994
the legislature is reviewing a draft bill ending the
government's monopoly in the insurance sector.  The banking
sector, however, is opening up to private investors.  One
private bank now operates in Algeria, and a second bank has
received a license.  Foreign banks are allowed to have
representative offices in Algeria, but these may not engage in
commercial transactions.  A U.S. bank, Citibank, maintains such
an office in Algeria.


6.  Export Subsidies Policies

    About 97 percent of Algeria's export earnings come from the
hydrocarbons sector.  To date few other economic activities
able to compete internationally have emerged.  The government's
contractionary budget policies preclude it from offering any
kind of explicit export subsidy to foster new exports. 
Exporters do enjoy below-market priced energy, but to the
extent that the official rate for the dinar remains overvalued,
exporters pay an implicit tax as well.


7.  Protection of U.S. Intellectual Property

    Algeria is a party to the Universal Copyright Convention
and the Paris Convention for the Protection of Industrial
Property.  The government of Algeria has a good record of
respect for intellectual property rights.  Generally, Algerian
practice is to obtain authorization and pay royalties for
proprietary technology.  Copying of patented technologies is
generally beyond Algeria's technical capabilities.  There are
no reports of trademarks being counterfeited or suffering
problems obtaining registration.


8.  Worker Rights

    a.  The Right of Association

    Algerians have the right to form and be represented by
trade unions of their choice.  Government approval for the
creation of a labor union is not necessary, although limits are
imposed on union activities.  Unions may not receive funds from
abroad, and the government may suspend a union's operations if
it violates the law.  Unions may form and join federations or
confederations and affiliate themselves with international
bodies.

    b.  The Right to Organize and Bargain Collectively

    A 1990 law permits collective bargaining for all unions,
and this right has been freely practiced.  The law also
prohibits discrimination by employers against union members and
organizers and provides mechanisms for resolving trade union
complaints of antiunion practices by employers.  It further
permits all unions, whether longstanding or newly created, to
recruit members of the workplace.

    c.  Prohibition of Forced or Compulsory Labor

    Forced or compulsory labor has not been practiced in
Algeria and is incompatible with the Constitution.

    d.  Minimum Age of Employment of Children

    The minimum employment age is 16 years and state inspectors
enforce this regulation in the state sector.  It is not much
enforced in the agricultural sector or in the growing informal
sector, where economic necessity is forcing a growing number of
children into menial jobs.

    e.  Acceptable Conditions of Work

    The 1990 law on work relations defines the overall
framework for acceptable conditions of work, but leaves
specific policies with regard to hours, salaries, and other
work conditions to the discretion of employers in consultation
with employees.  A guaranteed monthly minimum wage rate for all
sectors is set by the government.  Algeria has a 44-hour
workweek.  A government decree regulates occupation and health
standards.

    f.  Rights in Sectors with U.S. Investment

    Nearly all U.S. investment is located in the hydrocarbons
sector.  The rights outlined above better enjoyed by Algerian
workers at these U.S. facilities than in the Algerian economy
at large.




  Extent of U.S. Investment in Selected Industries.--U.S. Direct
Investment Position Abroad on an Historical Cost Basis--1993

                    (Millions of U.S. dollars)
                                                                
              Category                          Amount          

Petroleum                                             (1)
Total Manufacturing                                    0
  Food & Kindred Products                   0
  Chemicals and Allied Products             0
  Metals, Primary & Fabricated              0
  Machinery, except Electrical              0
  Electric & Electronic Equipment           0
  Transportation Equipment                  0
  Other Manufacturing                       0
Wholesale Trade                                        0
Banking                                                0
Finance/Insurance/Real Estate                          3
Services                                               0
Other Industries                                       0
TOTAL ALL INDUSTRIES                                  (1)      

(1) Suppressed to avoid disclosing data of individual companies

Source: U.S. Department of Commerce, Bureau of Economic
Analysis
(###)


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