International Crisis Group warns of ‘economic paralysis’ in Algeria

The ICG warns that “a potential economic crisis could come as soon as 2019” in Algeria.
Wednesday 21/11/2018
Algerian youths sit near the Martyrs' Memorial in Algiers, last September. (Reuters)
Algerian youths sit near the Martyrs' Memorial in Algiers, last September. (Reuters)

WASHINGTON - The International Crisis Group (ICG) warned that Algeria’s ossified political leadership and failure to implement imperative economic reforms could be leading to a crisis. “A failure to reform,” the ICG warns, “could precipitate a new period of instability” in the North African nation.

In a report issued on November 19, the ICG said Algeria faces two major obstacles to undertaking the kinds of reforms that would be needed to break out of its economic paralysis: The entrenched, politically influential vested interests who want to protect the status quo “which benefits a state-dependent business class,” combined with the traumatic “memory of the political turmoil and bloodshed that followed austerity measures and political reforms in the 1980s and 1990s.”

The latter factor cannot be discounted. As the ICG report notes, “the memory of economic collapse that preceded and exacerbated political violence haunts even the most pro-reform policymakers. Algeria’s last experiment in economic liberalisation and political democratisation ended with a decade of internecine slaughter.” No Algerian wants a return to those bloody days.

These two factors are only reinforced by Algeria’s political stagnation: It is likely that the country’s wheelchair-bound, 81-year-old president, Abdelaziz Bouteflika, will be re-elected to a fifth term in April. Bouteflika came to office in 1999 and helped to bring peace to war-torn Algeria through massive government spending, which high oil prices facilitated, and national reconciliation. Algeria also largely avoided the unrest of the “Arab spring” in 2011, lending further credibility to the regime and its policies.

But in an environment of generally falling oil prices since 2014, conditions have changed: “New financial realities have rendered the preceding decade’s high spending unsustainable, rapidly emptying state coffers and increasing the deficit,” the ICG report says. According to official Algerian government figures, the country’s foreign exchange reserves have plummeted from $178 billion in 2014 to $88.6 billion in June of this year.

The ICG warns that “a potential economic crisis could come as soon as 2019… [and] thus overlap with tensions surrounding the presidential election.” The usual ingredients for political and social unrest also are abundant: Youth unemployment stands at 28%, the dinar has lost value, and economic growth is under 2%. The past year has witnessed strikes by doctors and teachers and protests by army veterans over eroding benefits.

Soufiane Djilali, founder of the Mouwatana Movement, which opposes a fifth term for Bouteflika, said: “There are signs we are sitting atop a volcano.”

Algeria’s government has made some small reforms, mostly spending cuts, and has promised others, such as subsidy cuts and greater economic diversification. But what is missing, says the ICG, is “an overarching strategy for reform… Algeria will have to make more than marginal technical adjustments to its economic policy.”

Algeria is cursed with a strong presidential system of government at a time when serious doubts exist about its president’s continuing ability to lead. Algerian television has not broadcast Bouteflika’s voice for several years and his public appearances are rare.

The fear of diverging from the status quo, however, is powerful, even when the status quo is deteriorating. Riccardo Fabiani, an analyst with the London-based consultancy Energy Aspects, told the Financial Times: “A new president would be a leap into the unknown,” with unknown consequences for the powerful elites who have benefitted politically and economically under Bouteflika. For these elites, a fifth term for the ailing president is the best — or the least worst — option.

Even for many ordinary Algerians, the prospect of renewed internal conflict as experienced during the tragic decade-long civil war has served to dampen expressions of opposition in favour of a status quo that has been bearable – up to now, that is.

The ICG concludes that “Algeria stands at a delicate juncture. Bouteflika’s administration, having leveraged Algerians’ past traumas into its own overextension, is unable or unwilling to confront succession.”

Bouteflika’s reelection in April seems all but certain, meaning that the succession question will remain unanswered for the time being. In the meantime, the ICG argues that the country’s leadership and elites should at a minimum try to “get ahead of the curve of a future crisis” by pushing for even small-scale reforms and initiating a broader national dialogue about the country’s future: “It is not too early to start widening the framework of a debate that is as much about how the Algerian social model should evolve as it is about technical steps toward remedial reform.”

The ICG is an international non-profit research and advocacy group that seeks to identify sources of potential violence and conflict at an early stage in order to forestall crises. Its leadership includes such prominent figures as Lord Mark Malloch-Brown, former deputy secretary-general of the UN; Carl Bildt, former prime minister of Sweden; Ellen Johnson Sirleaf, former president of Liberia; and billionaire investor George Soros.