Algeria's publicly-owned commercial banks are a shambles. But the country's ruling cliques see them as their personal kitties and block all attempts at reform.
Algeria's publicly-owned commercial banks are in a parlous state and widely considered a major hindrance to economic reform. The country's ruling clans consider them their own private property, jealously shielding them from the winds of free-market change.
The 1990 Currency and Credit Act (LMC) passed under the reform minded prime minister Hamrouche did bring about a slight improvement, wresting the Bank of Algeria from its thralldom to the Ministry of Finance.
But vested interest raised such threatening hackles that the government had to give up on its wish to free publicly-owned commercial banks from the politicians in power.
Indeed, so deeply entrenched is resistance to change that Finance Minister Benachenhou, a self-avowed free marketer, has ruled out any prospect of privatizing banks. Efforts at reform are confined to cautious tinkering, which bespeaks the tensions the coveted banking sector arouses between the rival clans who rule Algeria.
Clear course of inaction
A 1995 decree led to the creation in 1996 of state-owned holding companies that brought together the players in sectors slated for privatization. Fuelled by rumors that Bank for Local Development (BDL), hopes for bank reform were raised then dashed as the decree deliberately excluded the banking sector however. What does the government plan to do with the country's banks? The question has been all pervasive for since 1995 now and the answer is clear – nothing.
Yet nobody inside or outside Algeria has a good word to say for the sector. Market analysts, foreign investors, international institutions, trade partners and the local business community unanimously consider it a major obstacle to any opening up of the economy.
The failure of Algeria's commercial banks is patent. They came into existence in 1966 as part of independent Algeria's first three-year plan with two grand missions: to collect savings in order to boost development and to interface between investors and local business.
The centrally-planned economic policy gave them a de facto monopoly and marked management, services and customer relations. Mere government departments with absolutely no competition to keep them on their toes, they failed to invest and swiftly fell out of kilter with the requirements of the real economy.
Threat to national security
Abdelatif Benachenhou has put things in the bluntest of terms, stating that "the banking system is a threat to national security".
The root of all its ills is precisely that it belongs to the state which acts like a master banker, overruling management and helping itself. Loans are granted not on the basis of guarantees or solvency but in terms of political allegiance. The Zahed scandal, swiftly hushed up by the authorities, is typical. The Algerian Rural Development Bank lent a businessman, Zahed, $500 million without asking for any collateral. When the loan was due, he simply vanished, abetted by Algerian intelligence.
Algeria's five state-owned banks are owed over $4.6 billion, chiefly by private companies closely tied to political barons. The Finance Minister's hands are tied and he is reduced to appealing to the intelligence services to help recover the debt.
Senior officials might be expected to started legal proceedings to retrieve all the debt that has gone astray. Not a bit of it. Just like his predecessors Benachenhou is wary of crossing the poor payers – army officers, RND and FLN parliamentarians and former ministers.
The banks have little choice but to go on as they are, which suits the Algeria's ruling clans just fine. They can go merrily on plundering the country's wealth safe in the knowledge that the state-owned banks can make them millionaires. That is their prime mission. And one they are very good, too. — ( Algeria Interface )
By Hamid Tozer
© 2001 Mena Report (www.menareport.com)
