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  Algeria's Economy, The Vicious Circle of Oil and Violence

BRUSSELS, 26 October 2001: Algeria’s crisis is not only the result of the struggle between the army-backed regime and armed Islamic groups. The country is in a deep economic crisis that also perpetuates violence. The massive revenues generated by the oil sector assure the military regime’s political dominance by maintaining an extensive patronage network. There is therefore little incentive for the government to develop a viable and transparent market economy, or to pursue democratic reforms.
A new report by the International Crisis Group, Algeria’s Economy: The Vicious Circle of Oil and Violence, traces Algeria’s economic slide, especially since the oil shock of 1986. It describes how both the public and private sectors have exploited the gaps in a culture of corruption and profiteering to distort the privatisation process and prevent genuine competition.
Meanwhile most of the population is excluded from the benefits that strong oil and gas revenues and market liberalisation promised. Incomes have stagnated, unemployment has risen and little is spent on social services, health or housing. The authorities have failed to respond to any pressure to open up politics or the economy. In the current period of international resolve against terrorism, with Algeria claiming to be fighting its own war against “terror,” few serious demands have been placed on the regime.
However, ICG consultant George Joffé warns: “There is a real risk that the neglect and contempt with which Algeria’s rulers treat the population could foster renewed recruitment to radical Islamist organisations. The dearth of political and economic alternatives could add weight to the Islamists’ cause.”
Paradoxically, Algeria has never been better placed in macro-economic terms to promote the reforms proposed by international financial institutions. The Saharan oil fields, far from population centres, have been sheltered from the conflict. Demand in the hydrocarbon sector has increased with Spain, Portugal and Italy now importing the majority of their natural gas from Algeria. However, this has made these countries - and France for complex historical reasons - reluctant to risk relations with the Algerian authorities by pressing for essential political and economic change.
Algeria needs a comprehensive program of reform – but will not implement one without considerable pressure from the European Union, U.S., World Bank and IMF. Western governments have favoured stability over change in Algeria, but now a mafia-style regime has come to constitute a factor of instability in itself.

Contacts: Katy Cronin or Sascha Pichler at ICG Brussels, tel +32-2-536 00 64 or 70, [email protected]
All ICG reports are available on our website www.crisisweb.org.

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