Algeria's Hard Road to Prosperity

A new austerity law aims to turn around dire economy in three years but people are reluctant to tighten their belts further

THE bananas that hang in bunches like giant spiders are the lone cheery note at Abdelkarim's fruit stall in the Algerian capital's central market.

"What's to be happy about," says Abdelkarim, barely visible behind the yellow arachnids that hover over a display limited mostly to apples and a few pears. "At 200 dinars a kilo [about $5 a pound] the bananas aren't exactly hot sellers. People remember that they were half the price last year," he says.

"But the law says we have to do without imports, so we get what we can locally at the prices we can, and decorate to remember the rest," says Abdelkarim, pointing to the faded promotional photos of kiwis that frame a portrait of Elvis. "It's a mean law," he adds, "and I can tell you people don't like it."

The law the fruit vendor refers to dates from October, when the government of Prime Minister Belkaid Abdesselam announced the immediate application of a "war economy" aimed at turning around Algeria's disastrous economic and financial condition over the next three years.

Government officials say it is a "war" Algeria is fighting with itself, to accept years of austerity while reforms in the country's centralized, public-owned economic system are implemented. But the discourse of Mr. Abdesselam and other leaders sounds just as much like a war being fought with "foreign powers" set on thwarting the country's turnaround.

Abdesselam's plan is to stabilize the economy by drastically limiting spending - on nonessential imports such as bananas and kiwis - until increased energy sales starting in 1995 allow an easing-up. With new fields and pipelines coming on line, Algeria expects a major jump in export receipts - primarily in natural gas deliveries to Europe.

In the meantime, one priority is to keep a lid on the country's explosive social condition - primarily by maintaining job-laden public industries and by addressing a dire housing shortage. An indefinite curfew imposed Dec. 5 only adds to the tension.

But the government is walking a thin tight rope. Saddled with a $25 billion foreign debt, repayment of which siphons off 80 percent of the $12 billion in annual energy export revenues, Algeria is desperate for fresh loans.

Such loans will be hard to come by unless the government agrees to restructure its debt. But the government refuses to consider a restructuring that would be accompanied by externally imposed economic reforms.

"Twenty years of debt experience in the third world shows us that restructuring, as practiced by international institutions, results in a snow-plow effect," says Abdel-Madjid Bouzidi, economic advisor to Algerian President Ali Kafi. "You just push everything off farther down the road, and never do get rid of it."

The economic adjustment programs that generally accompany debt-restructuring plans are equally poorly viewed here. "Not only are objectives imposed, but so are the means for achieving them," Mr. Bouzidi adds. "National independence and authority are the victims."

That line of reasoning earns an echo even among economists often critical of the government's action. "Algeria is a very nationalist state, it's difficult to imagine it allowing international institutions to run the economy," says Ali el-Kenz, director of the Center for Applied Economics Research at the University of Algiers.

The extent to which Algeria's colonial experience - which ended 30 years ago with independence from France - still marks the country's psyche is evident not just in discussion of the debt in general, but in criticism of France's handling of a major share of the debt.

Last year Italy, which has become increasingly involved in Algeria's development in recent years, agreed to renegotiate its Algerian debt, including a conversion of expensive short-term debt into less onerous long-term loans. But so far France - Algeria's largest creditor with nearly $6 billion of its debt - has refused to take similar action.

The French claim the size of their debt holdings prompts them to be more careful.

From the Algerian government's perspective there is no financial justification for France's reluctance since Algeria has always paid its debt. So they conclude France's motivation is political. "It's a neocolonialist attitude that wants to impose its conditions on us," Bouzidi says. "It's a very short-sighted approach because a healthy Algeria represents a significant market for France."

Bouzidi says Algeria also assumes that France is "out to sabotage our deepening ties with Italy" by placing a cloud over Algeria's investment environment. "By adding to the difficult situation here, the French are telling the Italians and others that they'd be better off keeping out of what France considers its private hunting ground."

Many observers here and elsewhere, however, say the government is causing many of its own problems. It remains uncommunicative about its economic program and takes actions that perpetuate fears of a sharp return to government monopoly. Those concerns were born with the naming of Abdesselam, considered the architect of Algeria's state-controlled heavy industrial development in the 1970s, and have grown as the government has continued to pour large sums into antiquated industrial plants.

In its defense, the government points to the first-ever naming of a private-sector business leader as minister - over small and medium industries - as a sign of its intention to pursue a mixed economy. Officials say they want to pursue "partnerships" with countries and private companies that can bring Algeria the technological and management expertise it needs.

The difficulty for the government, some observers say, is that the economic crisis, which had already struck the poor, is now delivering a full blow to the middle classes, who are unlikely to stand by as their situation deteriorates.

"The government is trying to pursue an out-of-date program with a population that knows why the Soviet Union crumbled," says a dairy-products vendor not far from Abdelkarim's bananas. "When you tell people these days they can't have the imported cheese they like, they start to lose their patience."

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