BLACK MARKET CURRENCY TRADE GAMES GLOBAL ECONOMIC

C O N F I D E N T I A L SECTION 01 OF 02 ALGIERS 001148

SIPDIS

E.O. 12958: DECL: 10/21/2018
TAGS: ECON EFIN PGOV AG
SUBJECT: BLACK MARKET CURRENCY TRADE GAMES GLOBAL ECONOMIC
CRISIS

REF: ALGIERS 1120

Classified By: Charge d'Affaires, a.i. Thomas F. Daughton;
reasons 1.4 (b) and (d).


1. (C) SUMMARY: While key members of the Algerian government
feel immune to the global economic crisis (reftel),Algeria's
currency black market is integrated into the world economy in
ways the state never has been. On October 13, black market
currency traders suspended transactions across the entire
country, waiting to see what would happen on Wall Street
after the Dow Jones lost some 1500 points during the week of
October 6-10. The shutdown was at least tolerated by the
government, if not actually supported, as it deployed extra
police to known currency trading areas and reduced the flow
of traffic as a precaution. Since October 13, black market
currency trading has resumed, but according to Oran
economists, trading has become more deliberate with traders
now scheduling larger transactions to give them time to check
world markets via cell phone. The phenomenon highlights the
dual nature of Algeria's economy -- divided between a
state-controlled, protected market and an informal market
that accounts for as much as 40 percent of Algeria's economy.
By serving as an economic release valve, it is the latter
that gives Finance Minister Djoudi and other officials the
luxury of feeling insulated and vindicated by the current
global crisis. END SUMMARY.

WALL STREET IN THE SHADOWS
--------------


2. (C) The Dow lost more than 1500 points the week of October

6. The following Monday morning, black market currency
trading suddenly ceased in a coordinated action in major
cities across Algeria. Oran Chamber of Commerce President
Ali Habour told us on October 19 that the traders communicate
with each other via cell phone and text message, and were
able to coordinate their action even as "they are perfectly
plugged into the world market" on their own. "Those guys are
Wall Street," he laughed. Trading resumed after October 13,
but Oran economist Abdelbaki Benziane said that traders are
now more wary, scheduling delays for verification on major
transactions. The head of an academic research center in
Oran told us that visitors regularly convert the officially
unconvertible dinar to dollars and euros in the back seats of
cars, with the purchase of five or ten thousand dollars not
uncommon in a single transaction.

AVOIDING A RUN ON AN ILLEGAL BANK
--------------


3. (C) Algiers' Port Said district, the center of the illegal
currency trade in the capital, is always bustling with
activity and is known informally as "el Borsa" -- the stock
exchange. On October 13, traffic through the busy
intersection was restricted, with additional police present
to limit pedestrian traffic as well. Benziane said the
shutdown of the currency trade in response to market
conditions was significant because the informal economy
represented "some 40 percent" of Algeria's total economy. As
a result, the police were necessary to prevent informal panic
from erupting as Algerians and foreigners alike converged on
the currency traders in the equivalent of a bank run.
Economist Mohamed Bahloul said on October 18 that the
informal currency trade was not only tolerated but actively
used by the government as a tool to allow the flow of hard
currency. Without it, he said, it would be necessary to make
the dinar more convertible, and a convertible dinar would
risk rapid capital flight, potentially destabilizing the
country.

COMMENT: THE INVISIBLE HAND
--------------


4. (C) Beneath the official surface of the Algerian command
economy, significant economic activity in Algeria is already
tied directly to global markets. This activity, as embodied
by Algeria's informal currency traders, occurs off the
official radar screen but is an integral part of daily
commerce across the country. The coordinated October 13
action highlighted the dual and Janus-faced nature of
Algeria's economy. Treasury Director General Hadji Babaammi

ALGIERS 00001148 002 OF 002


told us October 6 that the current crisis proves that Algeria
has "made all the right moves" in protecting its economy and
preventing full conversion of the dinar. Yet given the
market demand for capital flow, it is ironically a process
that resists full government control -- the informal economy
-- that allows Babaammi the luxury of his point of view. It
is clear that the government needs the informal economy, but
it is not clear to what extent it participates in it.
Ultimately, said Bahloul the economist, when market forces
and uncertainty are visible on the street while the
government trumpets that it has everything under control, the
resulting contrast causes ordinary Algerians to realize how
out of touch with reality their central government actually
is.
DAUGHTON