US embassy cable - 05ALGIERS883

C O N F I D E N T I A L SECTION 01 OF 02 ALGIERS 000883 
 
SIPDIS 
 
STATE FOR NEA/MAG 
GENEVA FOR USTR 
 
E.O. 12958: DECL: 05/02/2015 
TAGS: ECON, EINV, AORC, AG, USTR, WTRO, WTO 
SUBJECT: TEMMAR: MUCH WORK REMAINS ON WTO ACCESSION; 
GOVERNMENT RESHUFFLE HOLDING UP REFORM 
 
REF: USTR EMAIL GUIDANCE (4/29) TO M. PIGNATELLO 
 
Classified By: Ambassador Richard W. Erdman, reasons 1.4(b)(d). 
 
SUMMARY 
------- 
 
1. (C) Ambassador called on Presidential Economic Advisor 
Temmar April 30 to conduct an informal discussion, based on 
guidance from USTR, on Algeria's WTO accession progress, as 
well as to follow up with the status of banking reform, GOA's 
internal IPR reform, and movement on the east-west highway 
project.  The planned government reshuffle, which had not yet 
been announced at the time of the meeting, was largely blamed 
for the delay in the reform agenda.  Temmar did not seem to 
be well-informed about the details of the February Working 
Party meeting in Geneva, but indicated that the GOA needed 
still to press ahead with the accession work.  On banking 
reform, he was less optimistic, unable to explain fully the 
behavior of banks who opposed reform, while still 
acknowledging that under the current system they had no 
incentive to change.  Once an authoritative decision were 
made, he believed Algeria would move quickly to reform the 
sector.  Ambassador informed Temmar that GOA software piracy 
had not abated in the aftermath of Prime Minister's Ouyahia 
directive to GOA ministries.  Temmar expressed concern and 
suggested that Microsoft send him a letter explaining the 
current situation so they will have a basis for taking 
further action.  Meanwhile, Algeria had settled on an 
approach for the east-west highway project and would be able 
to move forward once the new cabinet was formed. 
 
2. (C) COMMENT: The May 1 appointment of Temmar to the 
position of Minister for Participation and Investment 
Promotion (MPPI), which occurred subsequent to this meeting, 
means that he will now oversee the ongoing privatization of 
the approximately 1,000 remaining state-owned enterprises. 
This position enables him to continue to influence the course 
of economic reform toward greater liberalization. 
 
End Summary and Comment. 
 
 
TEMMAR RECEPTIVE TO USTR'S WTO COMMENTS; 
GOVERNMENT RESHUFFLE DELAYING ACCESSION WORK 
-------------------------------------------- 
 
3. (C) In an April 30 discussion with Ambassador on Algeria's 
WTO accession progress, Temmar reacted favorably to USTR's 
suggestions on how Algeria could move forward.  He understood 
that USTR wanted to see audio-visual and energy services 
market access offers.  Audio-visual in particular was a 
sensitive area for all acceding countries, he said, and 
Algeria was just one of many parties in the debate.  As for 
energy services, Algeria had decisively chosen to open its 
energy market with the final passage of the Hydrocarbons 
Reform legislation by the Conseil de la Nation (Senate) on 
March 31.  Any difference in the law as it was passed and how 
it was being applied was due to bureaucratic delays in the 
new law's implementation.  Temmar did not seem to be aware of 
the details of the Working Party negotiations regarding the 
classification of energy services.  Reacting to the 
suggestion that either he or his personal representative be 
in regular communication with USTR, Temmar said that he 
should have kept in touch with USTR before waiting to hear 
the suggestion from the Ambassador. 
 
 
BANKING SECTOR REFORM DELAYS 
EXPLAINED BY SEVERAL FACTORS 
---------------------------- 
 
4. (C) Algeria was the only country, Temmar said, where the 
banks have so much money that they have no incentive make 
loans to anyone.  Instead of borrowing money from the Central 
Bank (CB), they were actually giving money back to it, 
preferring to earn interest at rates of 0.75% from the CB 
instead of higher rates from private borrowers or businesses 
who actually need the money.  Bank profitability under these 
circumstances simply did not matter.  President Bouteflika, 
Temmar said, had not reacted favorably to banks' 
unwillingness to lend and had instructed a lowering of 
interest rates in order to encourage investment.  Ambassador 
said a more fundamental problem was President Bouteflika's 
blocking of state bank participation in foreign investment 
projects in Algeria, on grounds that this was tantamount to 
the "poor helping the rich."  The President needed to be 
persuaded that the importance of foreign capital was not the 
amount of capital entering the country, but its ability to 
mobilize idle domestic capital, generate economic growth and 
jobs, and transfer technology and management skills. 
Ambassador noted that Bouteflika had almost killed the 
Indian-Algerian Ispat steel project two years ago because of 
domestic participation.  This project was an excellent 
example of how foreign and domestic capital, working in 
partnership, could turn a deficit-ridden, privatized state 
enterprise around. 
 
5. (C) Ambassador's own discussions with Citibank revealed 
that at least one larger investment project was encountering 
delays because of the difficulties of putting together a 
syndicate without Algerian bank participation.  Temmar 
insisted that Bouteflika was changing his mind on this issue; 
this point of view dated back six to eight months ago. 
Instead of Bouteflika's objections, a key practical barrier 
to loans was the CB's rule that banks require guarantees of 
180% of the value of a loan.  (Ambassador raised the same 
issue with Presidential Chief of Staff Belkheir May 2. 
Belkheir acknowledged the Ambassador's point and said he 
would raise this with incoming Finance Minister Medelci, whom 
he would see later in the morning, with a view to continuing 
the process of persuading the President about the benefits of 
partnering foreign and Algerian capital.) 
 
6. (C) Banks were incapable of creating their own change, 
Temmar said.  The manual operations of a bank were easy, but 
management experience was not easily obtained.  This fact 
made banking reform difficult to implement, and the situation 
in Algeria was particularly ironic: the politicians wanted 
reform, and the banks opposed it, which is the opposite 
experience from most countries.  Ambassador reminded Temmar 
that he had promised to provide to Paul Volcker a copy of the 
GOA's financial reform plan when it was ready.  Temmar said 
the plan was not yet ready, but reiterated his willingness to 
provide Volcker a copy as promised.  (Comment:  The Financial 
Services Volunteer Corps says this will be the best way to 
engage Volcker, which we believe would be very helpful in 
encouraging the right banking/financial reform decisions 
here. End Comment.)  Temmar noted that, at the recent Euromed 
banking conference in Madrid, Morocco revealed that it had 
privatized 70% of its banking sector.  Algeria was losing 
time, he said, but added that when decisions were finally 
made, the GOA would move quickly. 
 
SIEVERS