TRIPARTITE AGREEMENT REACHED TO PROMOTE PRIVATE

UNCLAS SECTION 01 OF 02 ALGIERS 001828 SIPDIS SIPDIS 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 SIPDIS 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 -------------- ¶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 ALGIERS 00001828 002 OF 002 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