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