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East-West Debt news, update october 2003: ALGERIA

Algeria: reconstruction efforts strain budget

With the shaky political situation and a recent series of natural and man-induced disasters, Algeria finds itself in a growingly uncomfortable domestic and international position.

Earlier this year the Algerian government approved a $1.8bn package to rebuild the areas hit by a major earthquake. The money will be spent on reconstructing housing and infrastructure destroyed by the tremors which struck the regions of Algiers and Boumerdes on May 21. The two-year program will initially focus on building 20,000 new homes. Thousands have been killed or injured. The tremor led to the collapse or the partial destruction of hundreds of buildings, villas and houses.

The industrial regions of Rouira and Reghaia where the big factories and economic businesses are situated, were severely affected by the quake. Hundreds of factories and businesses were totally or partially destroyed. Some villages have almost been wiped out completely.

This latest disaster adds its share to the nation's dramatic financial situation and liabilities. The history of the country's hefty debt goes back to the 1970s, when the government used the borrowed money to make investments in development projects and meet rising consumer needs. When the debt amounted to $16.9bn in 1980, the government imposed a borrowing limit, which reduced the debt by 1984. Due to the significantly higher cost of servicing debt as of 1985, the debt-service ratio grew from 35 percent to 80 percent in the years 1985-1988. Amortization payments reached $6.2bn in 1990. Despite the falling oil production and prices, the government avoided rescheduling by obtaining soft finance and trade credits.

By the end of 1990, the country's external debt exceeded $26bn, of which almost $2bn was in short-term loans. To reduce the debt-servicing burden, the government subsequently concentrated on obtaining medium- and long-term loans to repay its financial obligations as soon as they became due.
Also, to boost its efforts to obtain more bilateral lines of credit, the government has discouraged importers from borrowing from suppliers. Countries that have bilateral credit lines with Algeria include Belgium, France, Italy, Japan, and Spain.

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