OPEC Member Algeria Replaces Central Bank Chief After Criticismby and
Local currency has weakened by about 30 percent since 2014
Central bank viewed as ‘spectator,’ professor Mechdal says
Algeria replaced long-serving central bank Governor Mohamed Laksaci, after he was disparaged for his performance during the plunge in oil prices that damaged the country’s finances.
Mohamed Loukal, former head of the Banque Exterieure d’Algerie, assumed the governorship during a ceremony in Algiers on Thursday, a central bank spokesman said by phone. Laksaci had been at the helm since 2001.
While other oil exporters in the Middle East relied on spending cuts and kept their currencies stable as revenue slumped, Algeria let the dinar weaken by about 30 percent since 2014 and maintained generous subsidies in an effort to prevent political protests. While a weaker currency was supported by international bodies including the International Monetary Fund, the decision proved deeply unpopular at home.
Laksaci was "criticized for his passive management of monetary policy," said Abdelkader Mechdal, a professor of economics at the University of Algiers. The central bank was viewed as "a spectator" as the dinar lost value, he said.
Loukal is unlikely to find the task any easier, and must prioritize making the dinar exchange-rate more flexible and devising currency hedges for local manufacturers, said Adel Si-Bouekaz, president of Algiers-based Nomad Capital.
Even now, the dinar’s real effective exchange rate remains "significantly overvalued," the IMF said last month. Algeria needs to reduce spending and introduce exchange-rate flexibility to be able to re-balance its economy, the lender said.
Razan Nasser, senior Middle East and North Africa economist at HSBC Holdings Plc, expects the dinar to fall to 120 per dollar by the end of 2016 from about 100 currently.
So far, authorities have filled the external funding gap by drawing on its reserves, which fell to $143 billion in 2015 from $192 billion two years earlier, according to the IMF. The government has also introduced import restrictions and is planning a 9 percent cut in spending in 2016. It started issuing debt this year as part of broader measures to help reduce its oil dependence.
"Import restrictions, while perhaps providing a temporary relief, introduce distortions and cannot substitute for reforms aimed at boosting exports," the IMF said. "As structural reforms take time to bear fruit, they should be started without delay.”