ALGIERS IN RAMADAN 2007: RICH BUT NOT HEALTHY

C O N F I D E N T I A L ALGIERS 001344

SIPDIS

SIPDIS

EB FOR PDAS DIBBLE

E.O. 12958: DECL: 09/17/2027
TAGS: PGOV PINS ECON AG
SUBJECT: ALGIERS IN RAMADAN 2007: RICH BUT NOT HEALTHY

Classified By: Ambassador Robert S. Ford, reason 1.4 (b) and (d)


1. (C) Summary: Normally Ramadan is a festive time for
Muslim communities but Algiers, at least, is grumpy. There
is a prevailing sense that government economic policy is
adrift and unable to cope even with relatively simple issues
like food supplies. Bigger issues like pervasive
unemployment are so serious that in this country with huge
foreign exchange reserves dozens of young Algerians are
taking to small boats every weekin a desperate bid to float
across the Mediterranean and find low-paying jobs in Europe.
This week criticism of the government ratcheted up a notch
with the best-selling newspaper running a front-page story
highlighting the corruption of some of President Bouteflika's
immediate family and top aides (ref A). The President's
brother fired back immediately in a newspaper he quietly
finances, accusing critics of the President of stirring up
regional grievances under cover of attacking Bouteflika's
national reconciliation policies. Behind the scenes the
question of presidential succession still looms even if
Bouteflika appears to be somewhat healthier. Moreover, the
key job of number two in the intelligence service remains
unfilled and reportedly the subject of disagreement among top
officials. We do not sense that the Algerian government is
in meltdown or that its stability is at immediate risk. We
do sense that Algeria is stagnating and if that continues it
will provoke real stability problems over the long term. End
Summary.

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RAMADAN: HARDER TO LAY OUT A BIG TABLE
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2. (C) Ramadan is nominally a time for introspection and
making amends with fellow Muslims, but we find instead that
Algerian media, political and business contacts mostly are
uneasy about the sense of drift in economics and
governance. Newspapers highlighted that Morocco, not
Algeria, won the USD 1 billion Renault car plant announced
last week. Boualim M'Rakchi, the head of the Algerian
Business Owners Confederation (in French, CAP) grumped to
us on September 12 that Algeria was the biggest single market
for Renault vehicles in Africa and the plant should
have come here. The French Ambassador told us September 17
that the Algerian authorities had passed word to him about
their unhappiness, but he noted, Algeria with its cumbersome
regulations was never in the running. (India
and Romania were Morocco's competition, he said.)


3. (U) Even more than the huge Renault plant, potatoes
symbolize public frustration with the Algerian government.
Local prices have soared; a report in el-Watan newspaper
September 13 quoted a price of DA 100 per kilo (about USD
0.75 per pound) in one western Algeria city, a record. There
are also public complaints about rising prices for
flour, bread and milk. The prime minister has blamed
speculating wholesalers for the leap in potato prices, while
the agriculture and commerce ministers are blaming world
markets. A cartoon in the September 17 Le Soir d'Algerie
compared a carton of potatoes to a barrel of oil. A
September 17 cartoon in leading Arabic daily el-Khabr showed
an Algerian consumer, patches on his pants, trussed up like a
sheep in front of the butcher's block while Prime Minister
Belkhadem urged him to be strong. Chawki Amari, the wicked
satirist in el-Watan, observed on September 15 that the
government will blame everyone but itself. Food prices in
Ramadan are especially sensitive since the culture calls for
big meals after a long day of fasting. A small NGO leader
told Poloff September 18 that potato prices were three times
higher than they were only a few years ago and that the 2007
Ramadan period was financially very difficult for Algerians.
He noted that many people go into debt during Ramadan in
order to keep up appearances in front of family and
neighbors.

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GOVERNMENT ECONOMIC POLICY A MESS
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4. (C) Over dinner with Ambassador September 12, Samir
Ait-Awdia (please protect),an Algerian businessman in the
potato processing business, blamed the Algerian government
for higher potato prices. He recalled that in 2006 the
agriculture ministry changed its specifications about which
potato seeds could be imported, compelling importers to shift
to a seed type not previously used in Algeria. Algerian
farmers found the seed produced only small harvests in the
Algerian soil and so sold off even the potatoes used as seed
crop for 2007. The result was a drastic drop in potato
production this year and a boost in prices. The agriculture
ministry didn't consult any industry or farming associations
before changing the import requirements. The businessman
further recounted how earlier this summer his company asked
to rent a plot of land for which it would provide equipment,
seeds and workers to grow potatoes. Even though the company
was willing to provide all the investment and most of the
annual potato harvest to the agriculture ministry, the
officials rejected the project because they had never seen
such an arrangement. Ait Awdia, joined at the table by
former Commerce Minister Bakhti Belaid (please protect) and
Ahmed Tibbaoui (again, protect),another former senior
government advisor now in real estate development, exclaimed
that ultimately President Bouteflika bore the responsibility
because he discouraged innovation and kept docile men like
the current agriculture minister in place. (Tibbaoui and
Belaid recounted at length stories of how Bouteflika 6-7
years ago was sarcastic with ministers who disagreed with him
and would not listen to advice on economic issues.)

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BOAT PEOPLE ANOTHER SIGN OF THE MESS
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5. (C) Another very visible symptom of Algeria's economic
distress are the hundreds of young people seeking
to flee the country in small boats to Spain, France and
Italy, where they hope to find low-paying manual jobs under
refugee status. During the second week of September, Italian
and Algerian ships intercepted over 100 such "harraga,"
according to Algerian press reports. September 17 newspapers
reported that the Tunisian Coast Guard had intercepted
another three dozen young Algerians trying to float to Malta
or Italy. As another sign of the desperate employment
situation here, the senior management officer for British
Petroleum told us September 11 that the company received over
3,000 applications when it advertised for 30 engineer
positions earlier this summer. Meanwhile, nearly every week
there are small, localized riots and demonstrations generated
spontaneously over local grievances. For example, on
September 16 there were sharp riots in a town outside Tlemcen
when the police shot a young man to death in an apparent
accident. Haithem Rabani (protect),an experienced Algerian
journalist summed it up with Ambassador September 18: a very
lucky few young Algerians -- maybe five percent he claimed --
can find work at a decent company; the rest can either try to
flee to Europe, they can rot on the street corners of Algeria
or they can join terrorist groups.

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WHAT TO DO ABOUT TERRORISM ?
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6. (C) This journalist warned that we should not discount
the ability of groups like Al-Qaida in the Islamic Maghreb
(AQIM) to recruit, and many of our contacts sense that
terrorism in Algeria is far from finished. President
Bouteflika meanwhile appears determined to try to build a
moderate center among Algerians. Rabani listened on live
radio to Bouteflika's speech in Batna after the September 9
assassination attempt against him, and noted that the
president urged moderates among both the Islamist camp and
the secularist camp to come together. Government-controlled
media hammer this message home. Islamist hardliner and
former Islamic Salvation Front vice-president Ali Benhadj,
arrested after denouncing the Algerian security forces'
involvement in politics in an Arabic satellite station
interview, was suddenly released from jail on September 13.
Press reports claimed the police released him after receiving
a phone call from an unidentified senior GoA official.
Business and media contacts speculate that it was either the
Presidency or the interior ministry that weighed in on behalf
of Benhadj's release as a gesture to the Islamist camp that
many of these contacts despise.
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ATTACKS ON BOUTEFLIKA GET PERSONAL
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7. (C) Bouteflika is coming under public attack on multiple
fronts, however. Newspapers with an adamant
secularist editorial line, such as the best-selling
Arabic-language el-Khabr and the French-language el-Watan
and Liberte, bitterly criticized the release of Benhadj and
warn constantly of the risks of treating the Islamist
threat lightly. Even more interesting and unusual was the
page-one banner article in the September 15 edition of
el-Khabr headlining that Bouteflika's two brothers and the
daughter of former top presidency counselor Larbi Belkhair
profited from the corrupt Khalifa Bank. The article, citing
sources close to an ongoing French judicial investigation of
Khalifa, reported testimony by former bank officials that
Bouteflika's lawyer brother Abdelghani received large
sums of money from the bank gratis with which he bought an
apartment in Paris. Bouteflika's brother Said allegedly
received a credit card with no spending limit and for which
he paid no bills. Belkhair's daughter allegedly
received free funds from the bank that she used for import
trade in Algeria. The article also reported allegations in
the French court that the President's former protocol chief,
now Algeria's ambassador in Rome, also took money
from Khalifa. To make the attack all the sharper, el-Khabr
retrieved a photo from the archives showing
Bouteflika shaking hands with bank founder Mu'amin el-Khalifa
years before the bank collapsed and left
thousands of depositors without any of their funds. All of
our journalist contacts this week were certain that
el-Khabr would not have printed such an article without at
least tacit encouragement and pledges of protection from
Bouteflika opponents in the intelligence service. (See ref

B. For good measure, el-Watan newspaper on September 18 ran
a prominent story about how the son of Algeria's ambassador
in Paris -- himself known to be very close to Bouteflika --
had escaped justice in another story of bank fraud.)


8. (C) The Bouteflika camp's reply to the damning el-Khabr
article was swift. The September 16 edition of Djzair News,
an Arabic-language paper financed by Said Bouteflika,
headlined that el-Khabr was seeking to inflame regional
grievances within Algeria. The paper targeted an
editorialist in el-Khabr who had complained that the
President's national reconciliation policy was encouraging
terrorists. In a pious tone, Djzair News said the columnist
was trying to blame the President and his immediate team, all
of whom come from western Algeria, of inciting Algerians from
the eastern part of Algeria against the Bouteflika team.
Journalist Haithem Rabbani and another long-time Algerian
journalist, Mourad Ouabbas (protect),each told the
Ambassador in meetings this week that the fireworks between
el-Khabr and Djzair News reflect disagreements among the
senior Algerian leadership about both the utility of
maintaining the national reconciliation policy and also
resentment among some Algerian officials of the large
number of senior officials who hail, like Bouteflika, from
Tlemcen in far western Algeria.

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COMMENT
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9. (C) Algeria has a GDP of about USD 100 billion dollars,
and its foreign exchange reserves now exceed USD
90 billion -- almost three years of import coverage. It
therefore speaks volumes about the government's economic
policy management that the prime minister has to call a
special meeting of the cabinet to discuss potatoes.
President Bouteflika's lavish feting of the visiting
president of Malta -- while Algerians were worrying about
Ramadan food prices and the possibility of more suicide
attacks such as occurred in Batna and Dellys September 6-8 --
only fed observers' sense in the capital that the government
is not addressing Algeria's serious
core problems.


10. (C) Bouteflika has had a more active schedule so far
this September than he did a year ago -- perhaps a sign that
he is in better (if by no means perfect) health. That said,
the succession issue continues to loom in the
background. The French ambassador told the Ambassador
September 18 that he was hearing that senior Algerian
generals were talking quietly to potential successors to
gauge how comfortable these contenders would be with the
military. There is another important succession issue to
settle: replacing intelligence service number two Smain
Lamari, who died three weeks ago. Lamari played a huge role
in internal Algerian politics, often helping Bouteflika with
the national reconciliation process. Here, too, we hear
hints of disagreement among the top leadership about which
name to choose to replace Lamari.


11. (C) The preponderance of either western Algeria or
eastern Algeria in top leadership jobs is an old but very
sensitive issue in Algiers. Ten years ago under President
Zeroual, the East could claim most senior officials. Before
Zeroual, Presidents Chadli and Boumedienne and their aides
were largely from the West. An issue nearly invisible to
foreigners unfamiliar with Algeria, regionalism gnaws at
national unity itself. We do not sense that the Algerian
government is on the verge of a meltdown. Rather, it is
stagnating even as high energy prices and foreign exchange
reserves give the government options unimaginable ten years
ago. Algeria is rich, the French ambassador concluded, but
it is not healthy.
FORD