Countries of the World/COUNTRYS.BIN/dp/0008/00089.txt

Text File | 1991-06-24 | 27KB | 427 lines

$Unique_ID{COW00089}
$Pretitle{244}
$Title{Algeria
Chapter 3B.   Public Sector Finances}
$Subtitle{}
$Author{Fadia Elia Estefan}
$Affiliation{HQ, Department of the Army}
$Subject{algeria
foreign
government
bank
development
loans
early
credit
million
banks}
$Date{1985}
$Log{}
Country:     Algeria
Book:        Algeria, A Country Study
Author:      Fadia Elia Estefan
Affiliation: HQ, Department of the Army
Date:        1985

Chapter 3B.   Public Sector Finances

     In Algeria currency and credit have been standard tools for managing the
economy and, except for certain black market transactions in foreign currency,
have remained under strict government control. Official budgets have covered
in detail not only the accounts of the central government and the state
corporations but also, separately, those of subnational administrations and
public utilities. The balance of payments generally has reflected changes in
foreign trade and has been closely supervised so that external financing might
be avoided. Nevertheless, foreign loans to finance development projects have
long been an important factor in the country's economic life.

The Banking System

     Before French colonization, Algeria's money economy had been based on
gold and silver coins. After the French takeover the colonial administration
began to organize the banking and financial system to serve the needs of the
colonists and the foreign trade between Algeria and metropolitan France. Most
Algerian banks were branches of French banks, and little was done to meet the
needs of the domestic economy and the Algerian people. It was only after
independence that the North African country gained control of its monetary and
credit needs.

     With the loss of much of their clientele and export business after
independence and in the welter of administrative confusion and restructuring
that characterized the period, the private banking system tended to mark time
(except to the extent that it was associated with the hydrocarbons sector),
withering in the process until it was nationalized and consolidated. In 1963
the Central Bank of Algeria was established to replace the Colonial Bank of
Algeria as the sole source of currency issue, to manage the foreign exchange
reserves, to act as fiscal agent for the government in international financial
transactions and, since 1971, to supervise the commercial banks. In view of
the increasing number and importance of state companies having direct
association with the treasury and of the government's rigorous exchange and
price control policies, the Central Bank had little room for maneuvering
before 1971. Then, as a consequence of the government's review and
rationalization of its fiscal-monetary apparatus and a desire to shift its
development financing mechanism from the treasury to the banking sector, the
Central Bank was placed in an increasingly advisory and policy position and
given an increasing degree of discounting responsibility. In the same year, a
body known as the Credit Council was created as the highest authority on
monetary and credit policy.

     In mid-1985 the banking and financial system consisted of the Central
Bank, three commercial banks, and four savings and development banks. Joint
financial arrangements existed between Algeria and other countries, including
a few between French and Algerian banks, one between Algeria and Tunisia, and
one between Algeria and Libya. The most important commercial bank was the
National Bank of Algeria (Banque Nationale d'Algerie), which held about 60
percent of total bank deposits and served the private and public sectors
alike. The Foreign Bank of Algeria (Banque Exterieure d'Algerie) handled the
energy and foreign trade sectors. The Popular Credit of Algeria (Credit
Populaire d'Algerie) financed the smaller sectors, such as fishing and
tourism. The decentralization efforts of the early 1980s further specified the
manner in which each bank would operate. Some new banks were formed to take
over certain matters. The Agriculture and Rural Development Bank (Banque de
l'Agriculture et du Developpement Rural-BADR) was assigned responsibility for
loans to the farming and food processing industries. The National Fund for
Provident Savings (Caisse Nationale d'Epargne et de Prevoyance) became a
savings bank that also offered housing loans. The Bank of Manufacturing and
Services (Banque des Industries de Transformation et des Services) catered to
the lighter industries and the service sector. The Algerian Development Bank
was the only bank specializing in long-term (10-to 20-year loans). Credit
requirements on big corporations were tightened, and credit among the state
corporations was prohibited in order to force the latter to pay more regularly
at the amortization period.

     The government has used credit policy rather effectively to implement
economic development. Using the national development plan as a framework, the
monetary authorities have decided the extent of credit to be channeled to
various sectors, industries, or even particular enterprises. The banks have
had little voice in establishing credit policies; they have only implemented
them. Liberal economic policies in the early 1980s lowered the interest rates
charged on business loans, and even consumer loans that had been prohibited in
the 1970s were eased.

     On April 10, 1984, the Algerian franc, Algeria's currency throughout the
colonial period, was replaced by the Algerian dinar. Bank notes were issued in
denominations of five, 10, 50, 100, and 500 dinars, and coins were issued in
denominations of one, two, five, 10, 20, and 50 centimes and of one and five
dinars. Since the late 1970s the Central Bank has established a daily exchange
rate between the dinar and the United States dollar on the basis of a fixed
relationship between the dinar and a basket of currencies and, separately, the
exchange rate between the dollar and each of these currencies. The basket has
included most West European currencies and the Canadian dollar. In mid-1985
the exchange rate was DA5.3 to US$1; the dinar had deteriorated from an
average of DA5 to US$1 in 1984 and of DA4.8 to US$1 in 1983.

     Some banks were authorized to deal in foreign currencies when business
letters of credit or transfers of salaries required it, but these institutions
had to clear their foreign currency positions with their foreign customers
daily and report their transactions to the Central Bank. A law promulgated at
the close of 1983 obligated Algerian workers on each return trip to convert a
minimum amount of their foreign currency into Algerian dinars. Any amount in
excess of that minimum (the equivalent of DA700) benefited from an exchange
rate premium. In 1985 Algerians traveling abroad could take with them a
maximum of DA1,500. The travel allowances, however, were insufficient, and
Algerians often bought foreign currency on the black market at three or four
times the official rates. In the early 1980s a government source estimated the
value of undeclared remittances sold on the black market at around DA2 billion
to DA3 billion annually.

Domestic Budget

     Annual budgets, which are approved by the National Popular Assembly, are
prepared in close conjunction with the development plans. The budget is
presented in three sections: the central government's current expenditures,
the central government's capital expenditures, and the state corporations'
planned investments. Generally, the central government's current expenditures
have been financed from current revenue, and oil revenues have been used to
finance investments in development programs. The state corporations'
expenditures have been funded from their own operating income, central
government subsidies, bond sales, and loans. Budget deficits of the central
government have been handled by domestic borrowing and occasional recourse to
foreign loans. Financial management has been conservative: whenever receipts
are lower than expected, expenditures are sternly reduced; if any province
(w