ALGERIA STILL GUN-SHY ON BANK PRIVATIZATION

UNCLAS ALGIERS 000662

SIPDIS

CASABLANCA FOR USCS RORTIZ
CAIRO FOR TREAS ASEVERENS
COMMERCE PASS TO JREITZE

E.O. 12958: N/A
TAGS: EFIN EINV ECON AG
SUBJECT: ALGERIA STILL GUN-SHY ON BANK PRIVATIZATION

REF: A. 2007 ALGIERS 1638 B. 2007 ALGIERS 1748



1. (U) SUMMARY. Algeria's privatization of the bank Credit
Populaire d'Algerie (CPA) appears likely to remain on hold
for the foreseeable future. According to public statements
by the Minister of Finance and our conversation with the
President of CPA, the Algerian government continues to view
turbulence in global financial markets and troubles among
international financial institutions as reason to "protect"
the Algerian market and indefinitely suspend any sales of
interest in its public banks. The Algerians are watching the
health of foreign banks, and simply have no confidence that
they can attract what they feel are adequate bids for CPA
anytime soon. We will continue programming in the area of
internal controls and credit risk management, as Algeria
continues its slow process of economic reform. END SUMMARY.


2. (U) According to the May 10 edition of the
French-language daily Liberte, Finance Minister Karim Djoudi
told a member of parliament that he has renewed the hold on
the privatization of Credit Populaire d'Algerie (CPA) to
protect the Algerian market in light of what he called the
current world financial crisis. He was quoted as saying that
several of the banks originally interested in acquiring a
controlling interest in CPA have suffered from the subprime
mortgage crises, and are not yet capable of evaluating the
impact that crisis has had on their operations. On April 8,
Djoudi was quoted in the Arabic daily Echorouk el-Youmi as
saying that the privatization of both CPA and Banque de
Developpement Local (BDL) would not occur anytime soon,
because he could not risk allowing Algeria's developing
economy to be damaged by the ongoing "heavy disruptions"
experienced by global financial markets.


3. (SBU) CPA's President, Mohammed Djellab, told us on May
12 that the privatization of his bank will not take place
until there is greater certainty in the global financial
markets, especially among the leading banks who were poised
to bid on CPA in 2007 before the subprime loan crisis forced
several to pull out of the tender (reftels). Djellab
reiterated that the Algerians would prefer to see a strong
showing by an American bank. He also lamented the fact that
Citicorp, considered one of the leading contenders for CPA in
2007 (reftels),had again posted significant losses in April.
(Djellab surmised that these losses would leave Citicorp
unable to expand its presence in Algeria through a bid for
CPA in the near future.) He also noted recent troubles at
Societe Generale and Credit Agricole, two of the leading
French banks that had been interested in acquiring the
controlling interest in CPA. Given the scale of financial
turbulence, he said it would be unwise to open CPA for
privatization now, because no institution would be able to
properly value it, and he feels that there would be too few
banks willing to bid to make a tender worthwhile. Djellab
concluded that that no further action will be taken regarding
CPA's privatization until the Algerians review the financial
statements of the leading international banks that he said
are generally made public in June. He said that
privatization might be reconsidered if there was an
indication that the world's biggest banks had regained sound
footing, but he said that he did not expect this soon.


4. (SBU) COMMENT: The Algerians are confident that they
did the right think by suspending the long-awaited CPA
privatization in November 2007, and feel vindicated by the
ongoing distress in international financial markets and among
leading banks. Normally risk-averse, they saw the
possibility of the bank being undervalued -- or worse,
dragged down by the financial crises that have plagued
international markets since that time -- as potentially more
harmful to public confidence in the government's economic
reform strategy than any damage done by their sudden reversal
on privatization. The Algerians are watching the
international financial markets carefully, and still seem
particularly keen on winning the interest of an American bank
to diversify from the large French influence already present
in the Algerian financial markets. But, unsurprisingly, they
will not bow to an externally-imposed deadline, and appear
likely to simply wait out the current storm until they feel
they have an advantage. We will continue to offer
programming that will help shore-up internal controls at the
Central Bank and among Algerian banks, and assist with issues
such as credit risk assessment and management, which seem to
reflect the current approach of the Ministry of Finance at
this time.

FORD