Algeria – Military Returns to Center Stage

Until mid-February, all indications were that President Abdelaziz Bouteflika would seek a fifth term at an election scheduled for April 2019, despite significant physical limitations caused by a stroke he suffered in 2013 and questions surrounding the actual role of the 82-year-old leader in making the most important decisions. Two months later, the election has been postponed, Bouteflika has been forced to retire, and Abdelkader Bensalah, the leader of the upper legislative chamber, has assumed the presidency on an interim basis, pending an election that must be held by early July.

The security forces did not respond to the prolonged bout of unrest with violence, and instead applied pressure on Bouteflika and the ruling FLN to yield to popular pressure. However, Bouteflika’s resignation has not brought a restoration of order. Demonstrators are demanding a more thorough purge of top members of the political establishment, including Bensalah, whose fate will say much about how the political crisis might unfold.

The interim president has a solid constitutional claim to his current position, and he is unlikely to surrender it unless he comes under heavy pressure from the generals. As such, his premature departure, which would inevitably require a further postponement of elections, would conform to the common understanding of a coup, and would likely be accompanied by a declaration of the suspension of the constitution, and followed by a period of rule by a junta or a nominally civilian caretaker government installed by the military.

But even in the more likely event that Bensalah remains in his post and elections are held as planned on July 4, it is a safe bet that Lt.-Gen. Salah will keep a close eye on events, and that he and his military colleagues will do their best to limit the risk that an election held in the near term might add to uncertainty, rather than facilitating the restoration of order. Salah is likely to judge that the best way to achieve that objective is to ensure that the political process continues to operate within the current constitutional framework, but with a restoration of the influence of the military, which eroded over the course of Bouteflika’s long tenure in the presidency.

Whoever ends up replacing Bouteflika on a permanent basis will inherit serious economic challenges that will require urgent action. The government has attempted to curb demand for foreign currency by imposing import restrictions, and has sought to meet its financing needs with a five-year program that relies on borrowing from the central bank. However, on current trends, it will not be long before that strategy is no longer viable, but foreign borrowing will come at a high price unless the government presents a credible program of structural reform that prioritizes economic diversification and a long-term strategy for fiscal stability that does not rely on income from the production and sale of oil and gas.

As for the near-term economic outlook, the disruptions caused by the protests will have a negative impact on growth potential, but the unrest has mostly occurred far from the country’s oil and gas facilities, and sympathy strikes have not yet affected the energy industry. That said, the political uncertainty will delay, if not derail, the progress of investment deals to develop onshore and offshore oil and gas deposits, limiting the potential for any significant acceleration of real GDP growth in 2019, and dampening the prospects for a strong rebound over the medium term.

Since 1979, The PRS Group Inc., has been a global leader in quant-based political and country risk ratings and forecasts. This commentary represents a sneak peek from our upcoming political risk reports. For more information please contact us at (315) 431-0511 and sales@prsgroup.com, or explore a subscription to PRS Online and/or ICRG Online today to receive political risk updates.

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