Government Role

Government Role

The spirit of jealously guarded independence was the driving force behind the new republic's economic plans. The government's policies, in turn, were initially dictated by the political philosophy of a group of freedom fighters with varying degrees of commitment to a socialist ideology. Such an ideology favored a self-sufficient economy that would satisfy the basic needs of the masses. But these same economic policies also evolved in response to a combination of other factors. These factors included the legacy of an untrained labor force left by the colons and an early obsession with intensive projects for national development even at the expense of imposing severe hardships on consumers. Other elements influencing economic policies were soaring prices, spiraling unemployment, runaway population explosion, and popular discontent. Ultimately, later and more pragmatic leaders realized that liberalization of the economy, political life, and social infrastructure was inevitable.

In the immediate postindependence period, the government concentrated on investment in large-scale heavy industry turnkey projects, such as steel mills and oil refineries. The early 1980s saw a reversal of this policy. Large enterprises were broken into smaller, more efficient units, and larger amounts of the investment budget were shifted to light industries, such as textiles, food processing, and housing construction. The government retained a preponderant economic role, however, in large strategic state companies, such as the National Company for Research, Production, Transportation, Processing, and Commercialization of Hydrocarbons (Société Nationale pour la Recherche, la Production, le Transport, la Transformation et la Commercialisation des Hydrocarbures--Sonatrach). Sonatrach was established in 1963 but was divided in 1980 into thirteen more autonomous and specialized units. The government's austerity program, which directed hydrocarbon revenues toward national development, and the continued aversion of the authorities to labor-intensive sectors such as agriculture and manufacturing created more acute unemployment problems and unprecedented food shortages. The 1986 oil price crash forced the government to rethink its petroleum-dependence policies and pay more attention to agriculture and other sectors.

The October 1988 bread riots, however, were probably the precipitating event that caused Benjedid to embark on a serious program of political and economic liberalization. Some of the more significant economic reforms came in the form of legislation promulgated in 1990 and 1991. The new laws defined specific regulations governing such critical issues as foreign investment and trade, joint ventures, repatriation of capital and profits, and recourse to international arbitration of disputes. The extent of progress made in implementing these new laws in the 1990s will be a major factor in determining Algeria's economic outlook. Another important determinant is the future course of hydrocarbon prices. This factor, although beyond the government's control, has prompted it to initiate a policy of diversifying hydrocarbon earnings by increasing both natural gas and liquefied natural gas (LNG) exports, as well as condensates and petrochemicals.

The World Bank World Development Report, 1989 gave Algeria high marks for its efforts to move its economy from a directed system based on central planning to a more decentralized, market-oriented system. The results of this change included returning to individual farmers land collectivized in the 1970s, privatizing low-productivity state farms, establishing autonomous public enterprises, and giving the Central Bank of Algeria (Banque Centrale d'Algérie; hereafter Central Bank) the authority to control credit and money supply. Since the establishment in January 1963 of the Central Bank to replace the French Colonial Bank of Algeria and act as the government's financial agent, the banking system has been under state control. New legislation on banking and credit introduced in 1986 and 1987 defined relationships between the Central Bank and commercial banks and allowed the latter to provide credit to state enterprises and private companies alike.


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