TEMMAR: MUCH WORK REMAINS ON WTO ACCESSION;

C O N F I D E N T I A L SECTION 01 OF 02 ALGIERS 000883

SIPDIS

STATE FOR NEA/MAG
GENEVA FOR USTR

E.O. 12958: DECL: 05/02/2015
TAGS: ECON EINV AORC AG USTR WTRO WTO
SUBJECT: TEMMAR: MUCH WORK REMAINS ON WTO ACCESSION;
GOVERNMENT RESHUFFLE HOLDING UP REFORM

REF: USTR EMAIL GUIDANCE (4/29) TO M. PIGNATELLO

Classified By: Ambassador Richard W. Erdman, reasons 1.4(b)(d).

SUMMARY
--------------


1. (C) Ambassador called on Presidential Economic Advisor
Temmar April 30 to conduct an informal discussion, based on
guidance from USTR, on Algeria's WTO accession progress, as
well as to follow up with the status of banking reform, GOA's
internal IPR reform, and movement on the east-west highway
project. The planned government reshuffle, which had not yet
been announced at the time of the meeting, was largely blamed
for the delay in the reform agenda. Temmar did not seem to
be well-informed about the details of the February Working
Party meeting in Geneva, but indicated that the GOA needed
still to press ahead with the accession work. On banking
reform, he was less optimistic, unable to explain fully the
behavior of banks who opposed reform, while still
acknowledging that under the current system they had no
incentive to change. Once an authoritative decision were
made, he believed Algeria would move quickly to reform the
sector. Ambassador informed Temmar that GOA software piracy
had not abated in the aftermath of Prime Minister's Ouyahia
directive to GOA ministries. Temmar expressed concern and
suggested that Microsoft send him a letter explaining the
current situation so they will have a basis for taking
further action. Meanwhile, Algeria had settled on an
approach for the east-west highway project and would be able
to move forward once the new cabinet was formed.


2. (C) COMMENT: The May 1 appointment of Temmar to the
position of Minister for Participation and Investment
Promotion (MPPI),which occurred subsequent to this meeting,
means that he will now oversee the ongoing privatization of
the approximately 1,000 remaining state-owned enterprises.
This position enables him to continue to influence the course
of economic reform toward greater liberalization.

End Summary and Comment.


TEMMAR RECEPTIVE TO USTR'S WTO COMMENTS;
GOVERNMENT RESHUFFLE DELAYING ACCESSION WORK
--------------


3. (C) In an April 30 discussion with Ambassador on Algeria's
WTO accession progress, Temmar reacted favorably to USTR's
suggestions on how Algeria could move forward. He understood
that USTR wanted to see audio-visual and energy services
market access offers. Audio-visual in particular was a
sensitive area for all acceding countries, he said, and
Algeria was just one of many parties in the debate. As for
energy services, Algeria had decisively chosen to open its
energy market with the final passage of the Hydrocarbons
Reform legislation by the Conseil de la Nation (Senate) on
March 31. Any difference in the law as it was passed and how
it was being applied was due to bureaucratic delays in the
new law's implementation. Temmar did not seem to be aware of
the details of the Working Party negotiations regarding the
classification of energy services. Reacting to the
suggestion that either he or his personal representative be
in regular communication with USTR, Temmar said that he
should have kept in touch with USTR before waiting to hear
the suggestion from the Ambassador.


BANKING SECTOR REFORM DELAYS
EXPLAINED BY SEVERAL FACTORS
--------------


4. (C) Algeria was the only country, Temmar said, where the
banks have so much money that they have no incentive make
loans to anyone. Instead of borrowing money from the Central
Bank (CB),they were actually giving money back to it,
preferring to earn interest at rates of 0.75% from the CB
instead of higher rates from private borrowers or businesses
who actually need the money. Bank profitability under these
circumstances simply did not matter. President Bouteflika,
Temmar said, had not reacted favorably to banks'
unwillingness to lend and had instructed a lowering of
interest rates in order to encourage investment. Ambassador
said a more fundamental problem was President Bouteflika's
blocking of state bank participation in foreign investment
projects in Algeria, on grounds that this was tantamount to
the "poor helping the rich." The President needed to be
persuaded that the importance of foreign capital was not the
amount of capital entering the country, but its ability to
mobilize idle domestic capital, generate economic growth and
jobs, and transfer technology and management skills.
Ambassador noted that Bouteflika had almost killed the
Indian-Algerian Ispat steel project two years ago because of
domestic participation. This project was an excellent
example of how foreign and domestic capital, working in
partnership, could turn a deficit-ridden, privatized state
enterprise around.


5. (C) Ambassador's own discussions with Citibank revealed
that at least one larger investment project was encountering
delays because of the difficulties of putting together a
syndicate without Algerian bank participation. Temmar
insisted that Bouteflika was changing his mind on this issue;
this point of view dated back six to eight months ago.
Instead of Bouteflika's objections, a key practical barrier
to loans was the CB's rule that banks require guarantees of
180% of the value of a loan. (Ambassador raised the same
issue with Presidential Chief of Staff Belkheir May 2.
Belkheir acknowledged the Ambassador's point and said he
would raise this with incoming Finance Minister Medelci, whom
he would see later in the morning, with a view to continuing
the process of persuading the President about the benefits of
partnering foreign and Algerian capital.)


6. (C) Banks were incapable of creating their own change,
Temmar said. The manual operations of a bank were easy, but
management experience was not easily obtained. This fact
made banking reform difficult to implement, and the situation
in Algeria was particularly ironic: the politicians wanted
reform, and the banks opposed it, which is the opposite
experience from most countries. Ambassador reminded Temmar
that he had promised to provide to Paul Volcker a copy of the
GOA's financial reform plan when it was ready. Temmar said
the plan was not yet ready, but reiterated his willingness to
provide Volcker a copy as promised. (Comment: The Financial
Services Volunteer Corps says this will be the best way to
engage Volcker, which we believe would be very helpful in
encouraging the right banking/financial reform decisions
here. End Comment.) Temmar noted that, at the recent Euromed
banking conference in Madrid, Morocco revealed that it had
privatized 70% of its banking sector. Algeria was losing
time, he said, but added that when decisions were finally
made, the GOA would move quickly.

SIEVERS