Currency restriction in Algeria: a measure that risks worsening the economic crisis
In a powerful analysis (see below), Soufiane Djilali, president of the Jil Jadid party, deciphers the recent decision of the Algerian government to cap the export of currencies at 7,500 euros per year. This measure, officially intended to stem capital flight, could, according to the expert, have counterproductive effects on an already weakened economy.
The diagnosis is clear: the dual foreign exchange market in Algeria, with a gap of more than 80% between the official and informal rates, reflects the structural dysfunctions of a rentier economy dependent on hydrocarbons. If the parallel market has long served as a safety valve for economic operators and individuals, its authoritarian regulation now risks causing a boomerang effect.
“It’s like wanting to treat a cough without treating the infection that causes it,” image Soufiane Djilali. The foreseeable consequences are worrying: relocation of the black foreign exchange market abroad, acceleration of capital flight and increased loss of investor confidence.
The analysis points out the paradox of a State which, by wanting to tighten its control, could precipitate what it seeks to avoid. Instead of creating an environment conducive to investments through structural reforms, this dirigiste approach risks further suffocating an economy already on an oil drip. In a context where hydrocarbon revenues are dwindling, this new restriction could mark a critical turning point for the Algerian economy. A reflection which invites us to rethink in depth the economic governance of the country, beyond cosmetic measures.
Hell is paved with good intentions
Will preventing Algerians from exporting the currency enrich the public treasury?
This November 21, government authorities have just decided to limit the export of currencies (obtained on the parallel market) to 7,500 euros or currency equivalent per year.
As all Algerians know, the currency black market is flourishing. The increasingly weak national currency is exchanged at rates more than 80% more expensive than the bank rate (258 dinars for 1 euro against 140 for 1 euro at the bank rate, at today’s rate).
The existence of this dual market, one official, the other informal, is the natural result of an unproductive, administered and rentier economy.
Despite the distortions that this system signified, it allowed an even precarious balance between the needs of the population and the economic sector on the one hand and the need for the State to preserve the foreign currency coming almost entirely from the export of hydrocarbons.
For a long time, the informal sector was fueled with the currency of migrant workers. Then, little by little, import over-invoicing exploded. It was necessary to circumvent bureaucratic obstacles and the archaism of financial circuits for the majority of operators, and/or take advantage of exorbitant advantages offered by the regime for the burgeoning oligarchy. The idea was to offset the costs of taxes and customs duties determined according to the purchase price with the “repatriation” of the surplus, paid in foreign currency to the supplier then exchanged on the parallel market.
Thus, a loop was created, allowing importers to gain the trust of suppliers by paying in advance and in cash for their orders, thus compensating for any possible failure to pay invoices due to untimely changes in laws governing foreign trade. .
Furthermore, the supply of currency to the parallel market allowed those who had available capital to invest abroad (purchase of real estate in Europe, financing children’s studies, even economic investment).
Commercial convertibility, which had been in place since the 1990s, opened the way for capital flight which was gaining momentum and which risked bleeding the public treasury dry and further weakening the national currency.
So the problem is real. The “D” system of “beznassi”, the supply of the market with “free import” products on a currency account supplied by the parallel market, the multiple and legitimate needs of Algerian travelers abroad… have become problematic.
Excessive level of imports, invasion of the national market by low quality products but allowing significant profit margins, weakening of the dinar hence the inflationary pressure and loss of the level of purchasing power and too often trafficking of all kinds.
All the symptoms of a chronically ill economy are there. The government, committed by its political promises and its official fight against the predatory oligarchy, had to administer a remedy to clean up this situation.
It is clear that the intention here is laudable. However, as the saying goes, hell is paved with good intentions.
In medicine, it is strongly discouraged to attack the symptoms without acting on the etiology, that is to say the origin of the disease.
Unfortunately, the government wants to prevent the outcome of a system while strengthening it. By blocking the “cough” without reducing the infectious causes of inflammation of the bronchi, we cause the patient to suffocate.
In this case, the ban on the export of currencies beyond 7,500 euros per year will have serious consequences on the viability of the national economy and on the morale of all citizens who will have to suffer harmful consequences. .
Among the first effects of such a policy is the eventual movement of the parallel market abroad. The currencies available for exchange will be acquired directly outside the country and will no longer enter Algerian bank accounts. Current foreign exchange circuits will expand abroad. The price of the dinar will not recover, on the contrary, and any Algerian with available capital will direct all their energy to buy the currency and “secure” their assets by hoarding them on the spot, waiting for the first opportunity to export them.
In other words, confidence in the economic policy of the Algerian state, already in poor condition, will deteriorate even further. Without trust, no economy. At best the money will be hoarded, at worst exported by other means.
National investment will decline, real estate will decline, the country’s economic elite will go into exile, citizens will experience shortages and… resentment.
Basically, the mentality of our leaders has been shaped by false ideas. Instead of creating the conditions for confidence, encouraging investors, reducing administrative burdens, limiting state interventionism and taking charge of market regulation, all measures which would have seen the return of capital to the country , current measures will undoubtedly have the opposite effect.
The stubbornness of our leaders in believing that they can decide from their office and their illusions of how an economy should work outside of any market reality will sooner or later cause the collapse of the country. The day, not so far away, when oil will no longer cover our gargantuan expenses, this power will cry conspiracy and blame its fuses.
