TRIPARTITE AGREEMENT REACHED TO PROMOTE PRIVATE

UNCLAS SECTION 01 OF 02 ALGIERS 001828

SIPDIS

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E.O. 12958: N/A
TAGS: ELAB ECON EINV AG
SUBJECT: TRIPARTITE AGREEMENT REACHED TO PROMOTE PRIVATE
SECTOR DEVELOPMENT AND INCREASE SALARIES

REF: 05 ALGIERS 2481


1. SUMMARY: Tripartite discussions among representatives of
Algerian government, labor, and employers have concluded with
an unprecedented "pact" to promote economic development and
diversification of Algeria's economy while "aiming to
guarantee social stability." Parallel negotiations led to
increases in Algeria's minimum wage, public and private
sector salaries, and retiree benefits. End Summary.


2. On October 1, Prime Minister Belkhadem, joined by the
secretary general of Algeria's largest and only significant

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trade union (UGTA) and the head of the country's largest
association of private-sector employers (the Patronat),
signed an agreement known as the Economic and Social Pact.
First envisioned in 1994 and the subject of rounds of intense
negotiations since then, the pact calls for each part of the
"Tripartite" to promote Algeria's economic development and
diversification outside of hydrocarbons while ensuring a
social safety net for workers. The pact marks the first time
that business leaders have been able to participate in the
execution of a national program. The three parties had met
three times since March 2005, but were unable to come to an
agreement until now. Embassy contacts note that sidebar
discussions related to salary increases contributed to the
impasse. The economic and social pact will go into effect
January 1, 2007 for a period of four years, which
representatives at the Ministry of Labor characterized to us
as a "trial run." Embassy contacts stressed the significance
of calling the agreement a "pact" rather than an accord: in
their view, by signing it the parties have made adhering to
its principles a moral obligation.

AGREEMENT ON THE NEED FOR REFORM
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3. The pact's preamble starkly calls for Algeria to reform
its economy and avoid the mistakes of the 1980s, when the
country suffered from plummeting oil prices, soaring
unemployment, high inflation, and mounting debt. The text
places the agreement in the context of Algeria's recent trade
agreement with the European Union and its "imminent" adhesion
to the World Trade Organization. The pact highlights
Algeria's need to balance "social well being" with the goal
of "successful integration in a globalized economy based on
performance and competition." Thus, as Algeria develops its
non-hydrocarbon industries, it must ensure the protection of
marginalized areas and populations; the integration of women
and youth into the economy; the promotion of investment and
productivity gains in "post-petroleum" sectors such as
agriculture; battle unemployment and the informal economy;
and increase average Algerians' purchasing power.


4. Under the pact, the government agrees to modernize the
country's transportation infrastructure, promote financial
reform, provide tax advantages for the private sector,
streamline the distribution of land for industrial use, and
generally "improve the quality and effectiveness of how the
public sector involves itself in investment." Meanwhile, UGTA
agrees to promote competitiveness and encourage productivity
gains among its members. The Patronat, whose president told
us in September that his organization represents 73 percent
of Algerian enterprises in 42 of the country's 48 wilayas
(provinces),agreed to favor the "preservation and
development of jobs;" promote the diversification of
Algeria's exported goods and services; encourage youth
employment; provide decent and safe working conditions;
modernize the means of production and improve the quality of
Algerian goods; and battle informal markets and tax evasion.

WAGE HIKE, EVEN FOR THE RETIREES
--------------


5. Parallel negotiations resulted in an increase in
Algeria's minimum wage from USD 138 per month to USD 168 per
month. Representatives from the Ministry of Labor and Social
Security told us October 14 that 300,000 eligible Algerian
retirees would be guaranteed 75 percent of the minimum wage,
or USD 126 per month, as part of the agreement. The
government similarly agreed to raise salaries of Algeria's 3
million public sector employees between 20 and 25 percent,
which will be retroactive to October 1. Anticipating the
cost of increasing public sector salaries, Finance Minister
Medelci in July set aside USD 693 million for the rest of

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2006 and an additional USD 1.3 billion per year thereafter
for this purpose. Negotiations between UGTA and the Patronat
settled on similar increases in private sector salaries
ranging from 10 to 20 percent.


6. COMMENT: As Algeria continues to earn USD 4 billion per
month in hydrocarbon receipts, an increase in the minimum
wage and public salaries was a political necessity.
Algeria's working poor are elated by the increases, which
will help fulfill President Bouteflika's campaign promise to
advance the cause of Algerian workers. The success is also a
boon for the leaders of UGTA, who have been perceived by
their members as being too accommodating towards
privatization and hydrocarbon reforms (reftel). Such modest
nominal salary increases are unlikely, however, to have much
of an impact on how most Algerian families live. A recent
UNDP-financed report noted that one in three Algerians has
taken on loans to pay household expenses, while a 2005 UGTA
study declared that the average household needed USD 340 per
month -- or roughly double the new minimum wage -- to live
"normally." Nonetheless, the economic and social pact is a
positive demonstration of Algeria welcoming the private
sector into the economic reform dialogue. Though the scope
of its provisions is no doubt optimistic -- as are its
characterization of Algeria's WTO accession as "imminent" and
the need for "finishing touches" on the country's financial
reforms -- the pact can serve as a useful blueprint for
reform over the next four years. It is also a welcome
endorsement under PM Belkhadem's imprimatur of the private
sector as the "principal actor in the nation's economic
development."
DAUGHTON