Magharebia

The global debt crisis prompted concerns in Algeria about the safety of its investments in foreign currency reserves. Finance Minister Karim Djoudi issued a reassuring statement on Saturday (August 13th) to dispel fears about whether the crisis could result in financial losses for Algeria.

"Our investments are secured at three levels: the capital is guaranteed, they are covered against exchange risks and they are liquid, which means that we could withdraw them at any time," Karim Djoudi said in an interview with APS.

Djoudi explained that Algeria had three options for where to put its financial reserves: speculative markets, banks, or government bonds. He rejected the first two outright.

"When you are responsible for managing the nation's money, you don't speculate," he said. Even though the financial gains can be considerable, the risks are higher. Addressing the possibility of depositing funds in banks, he noted that banks were vulnerable to collapse.

In the face of such risks, Algeria has chosen to place its currency reserves in government bonds, which have minimal risk. "For there to be any problem with such investments, it would need the state in question to go bankrupt or to disappear," Djoudi explained.

He went on to give an assurance that those reserves were safeguarded against exchange risks, because part of the receipts from exports, received in dollars, had been converted to euros. The losses experienced on investments in one currency are offset by gains in the other.

Djoudi would not reveal the amount of those investments, simply explaining that the interest rate was 3%, which "broadly" covers current inflation. The value of Algeria's currency reserves officially stood at $160 billion in 2010. Estimates put it at around $170 billion in the first half of 2011.

"In the short term, there is no justification for fear about currency reserves invested in American debt," said Lies Kerrar, chief of the Humilis Finance practice. Kerrar said that worries were due more to the "spectre of a new recession and its impact on hydrocarbon prices as was the case in 2008".

Djoudi also announced a number of measures to cover exchange risks which should soon be implemented. The arrangements, agreed upon at the last tripartite meeting, should be put in place by the Banque d'Algérie before the end of 2011.

He said that financing the 2010-2014 five-year plan, estimated to cost $286 billion, would not be a problem due to public savings of an estimated 40% of GDP, providing 12,000 billion dollars a year.

The amount of Algeria's foreign debt is around $5.2 billion, he said, while external public debt has been reduced to less than $480 million. The Fund for the Regulation of Receipts (FRR), which constitutes the public savings, amounts to 4.8 trillion dinars (approximately $64 billion).

The minister also said that the draft 2012 finance bill provides for growth of 4.7% and inflation of 4%. The proposed legislation will be based on a reference price for oil of $37 per barrel. The supplementary finance bill for 2011 forecast growth of 3.9% and inflation of 4%.

"Algeria's foreign assets are completely safe. Every country in the world invests abroad when they have a financial surplus," Dr Salah Mouhoubi, an economist and member of the National Economic and Social Council (CNES), told Magharebia. "Algeria has American Treasury Bonds. Do not forget that this debt belongs to the world's foremost economic power. These investments are completely safe."

Mouhoubi added that some people think Algeria should be buying foreign companies to bring in profits. "You have to remember that Algeria's currency reserves only represent three years of imports. Algeria is not going to risk losing those resources by indulging in unsafe operations," he explained.

"But, of course, there has to be a debate. That's democracy," he said.