Monetary Policy in Algeria (1999–2019): An economic and monetary history approach[La politique monétaire en Algérie (1999-2019). Une approche d'histoire économique et monétaire]

Algeria has done its best to limit its exposure to debt in foreign currency, thanks to the hydrocarbon income receipts. However, given the limited diversification of its export base, government finance and monetary policy have been highly dependent on the proceeds from gas and oil. In chapter X, Fatiha Talahite analyses Algeria's monetary policy during the rule of President Bouteflika from 1999 to 2019. Most of this period, until the downward choc of 2014, has been characterized by a boom in external revenues, thanks to high hydrocarbon prices. The government implemented a countercyclical policy mix aimed at stabilising the economy by protecting it from external shocks. Since 2002, the influx of hydrocarbon export revenues not absorbed by the economy has led to a chronic excess liquidity of the banking system. The Bank of Algeria's policy, whose principal objective was to target inflation, consisted mainly in recovering liquidity from primary banks. The absence of any real credit market deprived the economy of the instruments needed for transmitting monetary policy measures to growth. The Revenue Regulation Fund (FRR), created in 2000 to cushion the effects of erratic oil price fluctuations on the economy, helped to freeze excess money supply due to the monetisation of large foreign exchange reserves, leading to a huge accumulation of idle savings by the Treasury, in a context of structural underfinancing of the economy. Gradually, this fund was diverted from its purpose. Used since 2006 to finance growing budget deficits, it has contributed to the opaque leakage of public spending, leading to resource waste and widespread corruption. The economic downturn in 2014 caused a liquidity shortage that the Bank of Algeria tried to curb through an "accommodating" monetary policy, which proved ineffective due to the rigidity of the banking system. This impasse led the authorities to resort massively to quantitative easing, amid a political crisis that paralyzed any government initiative in terms of structural reform. At the end of Bouteflika's fourth term, the prospect of having to resort to devaluation of the dinar and external debt to curb the crisis of financing twin deficits brought back the nagging question of financial sovereignty, which the regime thought it had exorcised since the end of structural adjustment programmes in 1999. Overall, although Algeria has managed to achieve more external stability than some hydrocarbon-rich countries such as Venezuela, Nigeria and Angola, it has not reduced its dependence on hydrocarbon exports nor its vulnerability to external shocks. Based on a narrow conception of sovereignty, this policy has been weakened by the lack of legitimacy of institutions. It has been massively contested by the February 2019 hirak uprising, which claims popular sovereignty as the only source of legitimacy for the government.