Algeria went from a command economy in which the financial system was subordinate to the plan, through some initially hesitant changes, to a framework in which monetary policy came to play an important role but reform of the financial infrastructure and the transmission mechanism remained incomplete.

Years Targets and attainment Classification
1974-86 2-tier state-owned banking system heavily controlled along with central bank within context of development plan; Treasury acts as important financial intermediary; various monetary instruments available (open market operations, discount rate changes, liquidity ratios, rediscount ceilings) but only latter in regular use; monetary and credit growth affected by fiscal deficits; exchange rate managed (fixed) on basis of basket (weights not published, but large weight on USD) to limit effect of exchange rate variations on domestic prices (also special rate for remittances of emigrants); sustained appreciation in line with USD 1980-85 leads to overvaluation multiple direct controls MDC
1987-89 more active exchange rate management from late 1986 leads to sustained depreciation; start of wide ranging but cautious reforms to public enterprises, banks and central bank, but Treasury remains major financial intermediary unstructured discretion UD
1990-2017 reforms started in mid-1980s now amount to decisive move away from central planning towards market mechanisms, including flexible interest rate structure and new interbank money market, and plans for further moves to indirect monetary instruments; central bank given de jure independence 1990; major depreciation followed by forex and trade liberalisation 1991; implementation of reforms delayed, even partially reversed, by widening fiscal deficit related to civil strife following cancellation of end-1991 elections, but resumed 1994 with stabilisation programme; further major depreciation 1994 followed by managed float; (remunerated) reserve requirement for banks 1994; bank refinancing via central bank auctions of deposit facilities from 1995; interbank forex market from 1996; secondary market for Treasury bills from 1998; 2001 some weakening of central bank autonomy; increasing focus on price stability (with central bank inflation target of 4% from 2014) but monetary policy framework remains unclear (and monetary control imprecise), with weak monetary transmission mechanism and weak credit growth; difficulties in handling large oil revenues (which make for continuous structural liquidity surplus in banking system) and from high level of non-performing loans of public sector banks; very slow development of government bond market; persistence of parallel currency market with sizable premium; oil price fall 2015 means end to liquidity surplus, chance to restructure growth model and monetary arrangements, but outcome unclear loosely structured discretion LSD

Selected IMF references: RED 1973 pp83-90; RED 1975 pp42, 55; SR 1975 pp13-14; RED 1981 pp33-4, 48-9; RED 1982 pp1-2, 47-8; SR 1982 p14; SR 1986 p26; SR 1988 pp9, 17-18; SR 1989 pp10-11, 13-15; RED 1991 pp23-5, 27, 31-2; RED 1994 pp1-3, 27; SR 1995 pp15, 26; SI 1996 pp6-9; SR 1996 p14; SR 1997 pp6-7; SR 1998 p10; RED 2000 pp39-41; SR 2001 p28; SI Jan 2003 pp32-3; SR 2003 pp11-12, 21; SI 2004 pp77-8; SR Jan 2006 pp10, 13-16; SI 2008 pp14-15; SI 2014 pp3-25; SR 2016 p20; SR 2017 pp21-2.

Additional source: Zouache and Ilmane (2009).

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