Algeria black economy menaces growth-Bouteflika

By William Maclean

ALGIERS, March 12 (Reuters) - Algeria's informal sector is a threat to economic growth but not to its overall stability, President Abdelaziz Bouteflika said on Wednesday of a growing phenomenon critics say is dominated by Islamist businessmen.

In written replies to submitted questions, Bouteflika added that the government was trying to modernise the centralised economy, boost the private sector, which was "still young", and reduce the OPEC member country's dependence on oil and gas.

"Wherever it exists and whoever the culprit, the informal economy is a danger that threatens economic expansion, notably through unfair trade, the decline in production, the loss of tax income, as well as the risks for public health and security," he said.

"These are phenomena that we find everywhere in varied degrees, including in developed countries. In Algeria this phenomenon exists of course, but not to a level that represents a danger for the stability of the country."

Economic commentators say the black market, apparently tolerated by state officials as a safety valve for youth unemployment, now has a sizeable hold on the weak non-energy sector and could pose a political menace if it keeps growing.

The big country on the southern shores of the Mediterranean, almost totally reliant on oil and gas for its foreign exchange earnings, is gradually recovering from 15 years of often brutal conflict between Islamist rebel groups and government forces.

The Islamist revolt has largely been quelled and analysts say Islamist groups are on the defensive politically, but they have emerged as important economic players through their black market role.

The National Economic and Social Council government think tank estimates the parallel market in Algeria is worth 32 to 38 percent of non-oil GDP.



A COMMAND ECONOMY

Bouteflika told Reuters the government was fighting graft, money laundering, smuggling and forgery, while promoting control mechanisms and creating "new economic champions".

"The reforms have...allowed for banks to take a bigger role in the economy, reduced fiscal pressure, the liberalisation of foreign trade, the commercial convertibility of the national currency, simplification of customs formalities."

The International Monetary Fund said Algerian real GDP growth rose to 4.6 percent in 2007 from two percent in 2006, reflecting strong growth in the nonhydrocarbon sector, driven by services and construction and public works.

The president, who has launched an $150 billion economic reconstruction programme, is accused by critics of hesitating to reform a command economy dominated by loss-making state banks and blighted by inadequate access to credit.

But Bouteflika suggested that centralisation of the economy, entrenched after independence from France in 1962 by an embrace of socialism and collectivism, would eventually weaken.

"The private sector is still young in our country. It is, of course, only the product of our economic history. As you know, our economy was essentially administrative and centrally managed for many decades."

"Nonetheless you can see that several private Algerian industrial firms are doing business today and have been leaders in different economic sectors for some years now." (Reporting by William Maclean, editing by Philippa Fletcher)