WORLD BANK OFFICE CHIEF LEAVING ALGERIA CITING

C O N F I D E N T I A L ALGIERS 001741

SIPDIS

SIPDIS

E.O. 12958: DECL: 12/04/2017
TAGS: ECON EFIN IBRD AG
SUBJECT: WORLD BANK OFFICE CHIEF LEAVING ALGERIA CITING
LACK OF ECONOMIC REFORM

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


1. (C) Summary: The World Bank is withdrawing its resident
office director (resrep) here, since the Algerian government
appears uninterested in implementing new reform strategies.
The resrep, a long-time observer of Algerian economic issues,
told the Ambassador November 21, that President Bouteflika
seems unwilling to delegate genuine authority to any official
to coordinate economic policy, and that with its foreign
exchange reserves bulging, the GoA is not inclined to move
forward quickly on reforms generally. Instead, the GoA
appears to concentrate its hopes on its huge, USD 120 billion
infrastructure construction program. The resrep said the
World Bank had concluded the program would help some, but its
utility was limited by dismal planning and project
management. The economic outlook for sustainable,
private-sector-driven growth in the non-hydrocarbons sectors
of the economy is still poor, the resrep concluded. The
withdrawal from Algiers of the World Bank resrep, an
important economic reform advocate, will make it all the more
important that Algeria's key partners, such as the U.S., keep
raising economic reform issues. End Summary.

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WORLD BANKER SEES DISARRAY IN ALGERIAN ECONOMIC POLICY
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2. (C) Yves Duvivier who was the World Bank resident
representative for three years (please protect source
throughout) told the Ambassador on November 21 that the Bank
was recalling him to Washington. The Bank had decided, he
said, not to keep a resrep in Algeria any longer. The
Algerian Government was not working on many reforms and
appeared entirely disinterested in working with the bank on
new reform avenues. Duvivier commented that the surge in
Algerian energy export prices had given the GoA an abundance
of foreign exchange reserves and robbed the GoA of any sense
of urgency in addressing structural economic problems.


3. (C) Duvivier noted that there is no one truly in charge
of economic policy in Algeria now. Minister of Industry and
Private Investment, Temmar, wants to be the key official, but
Duvivier told us that Temmar confided to Duvivier privately
this autumn that Bouteflika was ambivalent about empowering
Temmar. Duvivier said that while Energy Minister Khelil is
influential on energy issues, and Finance Minister Djoudi is
on specific government bQet issues, there is no broad
coordination between stove-piped ministries.


4. (C) Duvivier opined that there is no one in the Algerian
government with a vision of how the Algerian economy could be
in terms of growth driven by diversified private investments
and a liberalized business climate. The World Bank receQd
a request from Minister Temmar, in 2005, for detailedQQsessments of how other countries had diversified their
export bases. The bank team provided studies about China,
India and Malaysia and the resrep offered repeated bank team
meetings with the Algerian government afterwards to flesh out
Algerian thinking. The Algerian government to date has never
responded. Temmar told Duvivier that the Algerian government
wants to revive its old Planning Commission (Commissariat du
Plan) to be responsible for working out strategies, but the
Commission is still moribund. The World Bank identified
specific sectors, such as ports and port management, that
hinder economic growth but found the Algerian government
reluctant to address them due to political sensitivities
(corruption). Duvivier concluded that Algeria's business
climate will stay mediocre, and the chances of sustainable,
private-sector-driven growth will stay limited. One Algerian
official told Duvivier in the summer of 2007 that the World
Bank should stop comparing Algeria's business climate to that
in other countries; Algeria, this official allegedly stated,
is not a "results-driven" country.

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HUGE INFRASTRUCTURE PROGRAM OF LIMITED UTILITY
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5. (C) In the meantime, Duvivier concluded, the Algerian
government makes economic decisions on a day-by-day basis
with little thought to medium or long-term consequences. He
highlighted that the Algerian government's huge
infrastructure program (which President Bouteflika's calls
the Algerian Economic Growth Support Plan and so far totals

about USD 120 billion) is, in fact, a collection of scattered
projects that are not integrated into a broad strategy. Many
of the projects were dusted off the shelves where they had
waited for years. Some of the infrastructure projects may be
useful; others probably will not be. Duvivier noted that in
its recently published report on the Algerian government
expenditures and the infrastructure program, the World Bank
concluded that public investments in Algeria were relatively
inefficient compared to neighboring countries, and that the
Algerian government should slow down its infrastructure
programs to allow for better management of ongoing projects.
(Duvivier noted that the World Bank had to water down its
criticisms substantially in order to secure Algerian
government agreement to release the report, and it still took
nearly two years to get the approval in August 2007.)

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SOME POSITIVE STEPS BY ALGERIAN GOVERNMENT
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6. (C) Duvivier pointed to some positive changes. The
privatization of the large state-owned bank, Credit Populaire
d'Algerie, would be a major step forward. (Comment: On
November 27, the government officially announced the
postponement of this privatization. End Comment.) Duvivier
also said that with World Bank help, the Algerian Government
had finally privatized urban water system management, which
should result in substantial improvement for the populations
of Algiers, Oran and Annaba. He said the Algerian government
was inept in its first water system privatization, that of
the Algiers system, and there were genuine questions about
the transparency of the process. The Algerian government
improved its technique substantially for the subsequent
privatizations in Oran and Annaba, the resrep stated.

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SOME OTHER AGENCIES LEAVING TOO
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7. (C) Duvivier said the Bank is withdrawing him, because
its project portfolio has dropped from 13 projects early in
this decade to just one now (the remaining project aims at
building Finance Ministry administrative capacities).
Duvivier commented that he was sure that some Algerian
government officials were pleased, since they are tired of
World Bank nagging behind closed doors. Other officials, in
contrast, were surprised that the World Bank will not keep a
resrep here. Duvivier noted that several United Nations
agencies also are withdrawing their representatives from
Algiers, including the International Labor Organization.
This is partly due to their inability to secure much change
in Algerian policy and practice, and partly as a cost-saving
measure. Looking forward, Duvivier noted that the World
Bank has formally proposed to the Algerian government that
the Bank set up a Partnership Agreement with the ministries
of Finance, Health, Rural Development and Industry/Private
Investment, and with the Central Bank and the think-tank
National Economic and Social Council to help each of these
Algerian entities with their own projects. Duvivier said the
World Bank is waiting for an answer.

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COMMENT
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8. (C) We know Duvivier from the 1990s when, as a World Bank
project officer, he helped fund a cooperative agreement
between the Algerian Finance Ministry and Fannie Mae in the
U.S. to help establish an Algerian mortgage guarantee agency.
(This agency now is ineffective and a U.S. Treasury OTA
project will try to help.) He was well connected in Algiers
and is not inclined to excessive pessimism. His analysis of
the weakness of Algerian economic policy is very similar to
what Ambassador heard December 2 from the CEO of one of
Algeria's largest private-sector industrial conglomerates who
bemoaned that no one in government here can make binding
decisions on commercial policy issues except Bouteflika
himself. The lack of urgency that Duvivier sensed is quite
apparent to us, and the departure of an IBRD resrep here
takes away an influential advocate of reform. The Bank's
International Financial Corporation will maintain a
representative but our sense is that Duvivier was really
trying to channel Algerian efforts into useful reforms. His
absence will be a loss. That, in turn, makes it all the more

important that Algerian's key economic partners like the U.S.
keep raising microeconomic and structural reform issues
ourselves.
FORD