Algeria’s choice: Reform or collapse

By: John Spacapan

Algeria today looks strikingly similar to Libya, Tunisia, and Egypt in 2010. With high youth unemployment, a corrupt banking system, unsustainable social welfare programs, and an ossified ruling class presided over by an ailing dictator, Algeria is ripe for collapse.

With the exception of Chilean dictator Augusto Pinochet – a poster child for those who favor prioritizing economic over political liberalization – successful economic reforms among military dictatorships are rare. If, or when, Algeria collapses, the West must be prepared for severe economic and security consequences.

Algiers Al Casbah, Algeria. REUTERS/Zohra Bensemra.

During budget negotiations last year, Algerian lawmakers and economists agreed the country’s rentier state model of over-reliance on gas has failed. While the government enacted a 14% spending cut this year, it avoided essential, but politically unpalatable, reductions in subsidies for education, housing, food and healthcare. These programs form the backbone of Algeria’s $46 billion social welfare system. Additionally, Algerian President Abdelaziz Bouteflika didn’t have the will to trim Algeria’s military spending. Instead, he plans to cut Algeria’s already underfunded infrastructure programs. Such a strategy is unsustainable.

Bank reform, however, might be the issue that makes or breaks Algeria. From Hosni Mubarak in Egypt to Zine el Abidine Ben Ali in Tunisia to Muammar Qaddafi in Libya, now-deposed dictators across the region protected elites by treating the financial system as a toy for the military brass and political inner circle. While Algeria moved recently to privatize banks, this must not be mistaken for true liberalization. Absent is a crackdown on corruption or real reforms to create modern banking that attracts foreign direct investment. Bouteflika’s dilemma is that necessary reforms may empower a middle class to demand an end to Algeria’s decades-old dictatorship.
Al Qaeda could hamstring the European economy by controlling parts of Algeria, the EU’s second largest external source of natural gas.

Yet the United States, and more broadly the West, need not be as concerned with whether Algeria becomes a good investment as with the security implications of the country’s economic collapse. As we’ve seen elsewhere in the Arab World, economic uncertainty and poor infrastructure empower Islamist groups. On January 26th, for example, Al-Qaeda in the Islamic Maghreb (AQIM) leader Abdelmalek Droukdel called for Algerians to join jihad against 79-year-old Bouteflika, strategically positioning himself to benefit from Algeria’s economic and social failures.

The fall of Algeria, the largest country in Africa, would be a prize for al Qaeda. Western leaders already worry about Islamist groups in neighboring Libya; Algeria’s fall would compound the problem. The group could use a safe haven in Algeria to launch attacks on US ally Morocco and the young democracy in Tunisia. It would give the extremist group footing to destabilize not only the Sahel and sub-Saharan Africa, but also the Mediterranean. Al Qaeda could hamstring the European economy by controlling parts of Algeria, the EU’s second largest external source of natural gas. A reduction in Algeria’s natural gas output would lead to further European dependence on Russia, just one of the side effects of Algeria’s collapse.

The question for US policymakers today is whether they learned from the failures in Libya to ensure that if, or really when, Algeria breaks down, there is a holistic strategy in place to weather the storm.


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