Algeria begins debt payoff under agreements

2006-06-02

Algeria has begun to pay off the $8 billion in debt it owes the Paris Club. Under an agreement signed last month, the debt will be paid off in six months.

By Mohand Ouali for Magharebia in Algiers -- 02/06/06

[Getty Images] Algerian Finance Minister Mourad Medelci

Beginning this month, under an agreement that Algeria signed on 11 May with the Paris Club, the African nation will begin to pay off the $8 billion of debt it owes the group of creditor nations. The Paris Club said the move reflected Algeria's economic recovery in recent years. Rich in oil and gas, the country has benefited from high energy prices.

Two other agreements were also concluded, the first with Portugal on 20 May for the repayment of $20m, and the other with the Netherlands on 22 May for the sum of $45m.

On Saturday (27 May), Algerian Finance Minister Mourad Medelci and Belgian Ambassador Baudoin Van Der Herst, concluded the fourth bilateral prepayment agreement for the sum of $255m, which was witnessed by Bank of Algeria Governor Mohamed Laksaci.

Under all four agreements, the total sum which Algeria that will have to repay in the next week is $1.9 billion. Medelci announced that the debt prepayment agreements reached with its creditors "further strengthens Algeria’s financial position and provides a boost to the progress already made".

Algeria will need to seal another dozen or so bilateral agreements in order to clear its debts to the Paris Club. The multilateral agreement stipulates that all the creditor countries concerned in the Paris Club will have to declare their intention to sign a bilateral agreement by no later than 15 June.

Of the 19 member countries of the Paris Club, 16 are creditors of Algeria. Ireland and Australia are not among them, while Russia wrote off a debt of $4.74 billion during Vladimir Putin's visit to Algiers on 10 March. Reuters news agency has reported that according to Russia's state arms exporter, the debt relief was in exchange for Algeria agreeing to buy $4.5 billion worth of Russian weapons. Algerian state radio confirmed the debt write-off, and said the country would spend the same amount in return on buying goods and services from Russia, without mentioning the arms deal.

According to Medelci, Algeria's foreign debts should fall to below $5 billion by the end of the year. To achieve this target, Algeria is due to reach a similar agreement with the London Club in September regarding $1 billion in debt. Unlike the Paris Club, the London Club, an informal group of private creditors, typically reschedules commercial debt.

Debts owed to international financial institutions will be prepaid in full by this summer, Medelci told the National People’s Assembly. Algeria prepaid a total of $1.215 billion to them over the course of 2005. It is now in the process of prepaying the sum of $2.655 billion of total debts of $3.107 billion, which will be repaid in full by this autumn.

Between 1985 and 2005, Algeria repaid a total of $117.9 billion of debts, of which nearly $84 billion was principal and $34 billion was interest.