FINANCE MINISTER DETERMINED TO BUILD PRIVATE SECTOR

C O N F I D E N T I A L SECTION 01 OF 02 ALGIERS 001120 SIPDIS CAIRO PASS TO TREASURY ASEVERENS E.O. 12958: DECL: 10/14/2018 TAGS: EFIN ECON EINV AG SUBJECT: FINANCE MINISTER DETERMINED TO BUILD PRIVATE SECTOR REF: ALGIERS 728 Classified By: Ambassador David D. Pearce, for reasons 1.4 (b) and (d). ¶1. (C) SUMMARY: Finance Minister Karim Djoudi told the Ambassador that Algeria's economic situation is generally strong, and that Algeria will weather the current global economic crisis relatively unscathed. Djoudi shared his vision for the Algerian economy, and said that his priority now lies in reducing the size of the public sector, and increasing the breadth and depth of the private sector outside of the oil and gas industry. He stressed the need for Algeria to create new incentives for investment in sectors such as agriculture, housing and services, and noted that this may best be achieved through the empowerment of small and medium sized businesses. He did not focus on the recruitment of foreign investors, but rather, on the development of a positive economic climate that would encourage both domestic and foreign investment in key sectors. He said that Algeria must take advantage of current high oil prices to build the infrastructure necessary to spur such investment. Djoudi also noted our bilateral cooperation programs with his ministry, and said he was interested in further cooperation in the area of small business development, as well as technical assistance that might flow from recently revived negotiations on a bilateral customs agreement. END SUMMARY. TOLD YOU SO -------------- ¶2. (C) Finance Minister Karim Djoudi gave the Ambassador a run-down of Algeria's economic highlights during the Ambassador's introductory call on October 5. He noted that Algeria seems poised to weather the storm that has battered the global financial markets, echoing comments made the previous day in public testimony before the parliament. Djoudi has led other government officials in praising Algeria's decisions to pay down its public debt, keep its currency only partially convertible, and grow its foreign exchange accounts to USD 137 billion in safe treasury bills rather than creating a Gulf-style sovereign investment fund, crediting these decisions with providing Algeria immunity from the current global financial shocks. ¶3. (C) Minister Djoudi noted that the failed 2007 privatization of the state-owned bank Credit Populaire d'Algerie (CPA) proved the need for strong rules regarding the transfer of public assets and the need for Algeria to improve the "visibility" of its economic strengths and markets. Djoudi told the Ambassador that Algeria's economic growth outside of the hydrocarbons sector is approximately six percent, with rates of production increasing 5.5 percent overall, and 4.5 percent outside of the oil and gas sector. He noted that Algeria's public debt has been reduced to under six billion dollars in both international and domestic debt balances, and that inflation remains in check. He noted that the Algerian insurance market is now open to foreign companies and is a growing sector, and said that Algeria continues to gain new "commercial partners" in various sectors. The minister lauded the government's two massive infrastructure programs launched since 2001; the first, he said, was worth USD 200 million, and the current program that will run through 2009 will cost USD 250 million. Djoudi lamented, however, that Algeria still imports significant volumes of agricultural products, and noted "food security" as a priority issue. GROWING SMALL BUSINESSES -------------- ¶4. (C) Djoudi shared his vision for Algeria's economic future, which, he said, requires a reduction in what he called the "public economy" and an expansion of the private sector. He said Algeria needs to grow its economy outside of the oil sector, and the way to do this is through the development of small and medium-sized businesses. "Fundamentally," the minister said, "we need permanent investment in the private sector." He said the government is providing incentives, "both fiscal and legal," to encourage ALGIERS 00001120 002 OF 002 investment, but that "concrete" measures were necessary to develop new markets and enhance the competitiveness of Algerian businesses, and to increase the "visibility" of Algerian markets and products. Djoudi said the government will encourage microfinance loans to spur growth in the agriculture sector, which he highlighted as a key sector for development along with housing and services. The government, he said, must act now to grow the private sector, while it still has the wherewithal to do so from oil revenues. "We must utilize the open window that we now have as a result of high oil revenues," the minister said. OPEN TO COOPERATION -------------- ¶5. (C) On the subject of bilateral relations and the Treasury Department's Office of Technical Assistance (OTA) programs, Djoudi was eager to revive the program on small business credit assessment with the Small Business Administration that stalled after the Minister Delegate for financial reform and her staff were relieved of duty in the June cabinet reshuffle (reftel). Regarding the bilateral customs cooperation agreement that the ministry recently indicated an interest in completing, Djoudi noted that he would like to see technical assistance provided in practical areas like counterfeit detection, since "our people need very specific training, rather than information exchange alone." ¶6. (C) COMMENT: Djoudi's focus on small and medium-sized business development as a means to achieve measurable economic diversity was backed up by specific plans such as micro-lending to key sectors, in contrast to similar discussions with the Ministry of Small and Medium Enterprises which focus on aid and training to artisans and craftsman. Djoudi clearly felt vindicated by the current global economic crisis and seems intent on encouraging Algerians to invest in their own country and create their own businesses. He noted the need to develop new domestic markets, to help Algerian businesses handle price sensitivity when competing with international marketers, and to sensitize Algerian businesspeople to the ideas of competition and risk. Always cautious, Djoudi did not take high oil prices for granted but rather as a window of opportunity. We have already followed up with Customs and Border Protection at the Department of Homeland Security, who are also interested in concluding the customs agreement Djoudi highlighted. PEARCE