VZCZCXRO0365
PP RUEHTRO
DE RUEHAS #1330/01 2611125
ZNR UUUUU ZZH
P 181125Z SEP 07
FM AMEMBASSY ALGIERS
TO RUEHC/SECSTATE WASHDC PRIORITY 4471
INFO RUEHBP/AMEMBASSY BAMAKO 0247
RUEHEG/AMEMBASSY CAIRO 0940
RUEHMD/AMEMBASSY MADRID 8628
RUEHNM/AMEMBASSY NIAMEY 1299
RUEHNK/AMEMBASSY NOUAKCHOTT 6043
RUEHFR/AMEMBASSY PARIS 2344
RUEHRB/AMEMBASSY RABAT 1938
RUEHTRO/AMEMBASSY TRIPOLI
RUEHTU/AMEMBASSY TUNIS 6788
RUEHCL/AMCONSUL CASABLANCA 3062
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 ALGIERS 001330 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN EAID PREL AG
SUBJECT: GOA EAGER BUT CAUTIOUS ON FINANCIAL REFORM 
 
 
¶1.  SUMMARY: The Algerian Ministry of Finance leadership 
recognizes it should foster predictability for foreign 
investors, diversify its economy away from hydrocarbons and 
reform its financial sector.  It is eager for U.S. assistance 
to meet these goals, but fearful of any sudden shock to its 
financial system particularly in the wake of the August U.S. 
credit crisis.  Despite its stated goal of using the 
"overliquidity" in its budget to create financial instruments 
and diversification, the GOA appears likely to continue 
financing large infrastructure projects from its budget 
rather than develop domestic capital markets to finance the 
USD 150 billion program.  END SUMMARY. 
 
¶2.  An interagency economic delegation led by Bureau of 
Economic Affairs PDAS Elizabeth Dibble and Commerce DAS Holly 
Vineyard met on September 8 with Minister Delegate Fatiha 
Mentouri at the Algerian Ministry of Finance.  Mentouri laid 
out Algeria's goals in several areas and solicited U.S. 
assistance in key sectors to drive towards necessary 
financial reform. 
 
THE DISEASE 
----------- 
 
¶3.  According to Mentouri, the GOA is pursuing financial 
reforms along four major axes.  The first of these is the 
need to enhance the payments system, and to replace cash 
transactions with checks, credit cards and other tools.  She 
acknowledged that transparency and traceability would be 
central to these efforts in order to combat terrorist 
financing.  The second axis is the modernization of the 
information systems critical to the operation of a modern 
bank. 
 
¶4.  Mentouri identified the mortgage sector as the third 
major area for improvement.  Demand, she said, is very high, 
but the GOA was very "cautious after what happened in the 
U.S. in August."  Finally, Mentouri pointed to the 
hyperliquidity that exists in the Algerian economy and 
asserted that the GOA needed to assess credit risk as a first 
step towards putting this wealth to work.  Foreign bank 
expertise, she said, would be critical towards this end. 
 
THE CURE 
-------- 
 
¶5.  Mentouri expressed a clear GOA desire to have a U.S. bank 
team visit "and stay" in Algeria, in order to embed itself in 
Algerian financial services and assist the finance ministry 
on the road to reform.  She also solicited U.S. input to 
provide training on risk assessment, so that Algeria could 
adopt the U.S. standard both on risk assessment and also on 
loans and investment in small and medium enterprises. 
Mentouri acknowledged Algeria's need to mobilize its massive 
savings to diversify its economy and encourage investors, and 
hoped the U.S. would be able to help Algeria create the 
financial instruments to do so. 
 
¶6.  PDAS Dibble and Treasury regional attache Alex Severens 
highlighted the positive impact that a successful bank 
privatization would have on encouraging other foreign banks 
to come to Algeria.  Dibble pointed out that the large-scale 
English language training desired by the GOA would accompany 
the daily operations and cooperation of an American bank 
bidding to buy the Algerian state-owned Credit Populaire 
bank.  Mentouri said the GOA is "totally convinced" of the 
value and expertise it would gain from the presence of a 
large U.S. bank but she was careful not to predict which way 
the sale would go. 
 
¶7.  The Ambassador referred to plans to secure U.S. technical 
assistance for the Algerians in the area of mortgage markets 
and small business lending later this year.  He pointed to 
the October ministerial meetings with the International 
Monetary Fund in Washington, and offered to help arrange 
Algerian visits to Fannie Mae and the Small Business 
Administration on the side.  Mentouri was enthusiastic about 
the idea and said she would recommend this to her superiors. 
 
COMMENT: TALK IS CHEAP 
---------------------- 
 
ALGIERS 00001330  002 OF 002 
 
 
 
¶8.  Mentouri was clear and straightforward about the GOA 
desire to have U.S. advice and assistance in financial 
services reform, and appeared to recognize the urgency in 
showing some kind of concrete steps to attract foreign banks 
and businesses to Algeria. Since the overall value of the 
infrastructure program now is approaching USD 150 billion, 
developing a domestic financial market would eventually help 
financing the ambitious program.  However, in informal, 
off-hand remarks at the conclusion of the meeting, she made 
it clear that the GOA would also continue to finance 
large-scale infrastructure projects such as the East-West 
highway from its cash budget rather than from any kind of 
capital market.  (Indeed, we are hearing that the GoA is 
moving to extinguish much of the public debt.)  By contrast, 
the GoA is moving ahead on banking reform.  It wants to 
engage the Treasury Department's help with a revamping of its 
banking supervision system, and also move ahead with the 
major privatization decision on Credit Populaire d'Algerie. 
The GOA is thus not plunging ahead across the board on 
financial sector reform.  It is, instead, moving ahead in a 
very cautious and controlled manner.  What remains unclear is 
whether it is possible for the GOA to move slowly and in only 
limited areas and still fix a financial sector that all 
economic observers acknowledge is a huge brake on economic 
growth. 
FORD