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A couple days ahead of the informal OPEC meeting in Algiers regarding the stability of oil prices, Algeria has announced its plans to privatize their state banks in reaction to the decreasing price of oil, according to a senior financial official interviewed for Reuters, and like Saudi Arabia, appearing to hunker down and ride out the low-priced environment that is likely here to stay.
The official, who wished to remain nameless, said that Algeria’s government would enact reforms in order to allow foreign entities to make controlling investments in the six state-run financial institutions that account for much of Algeria’s banking industry.
The collapse in the price of oil has placed immense financial pressure on the North African state whose energy sector contributes to 60 percent of the federal budget and that earns 95 percent of export revenue via the selling of natural gas and oil. The Wall Street Journal cited International Monetary Fund estimates anticipating Algeria’s gross domestic product would fall by 3 percent this year, while oil and gas revenue will be half as much as 2015.
“The era of $100 a barrel is over. We have no choice but to change our policy,” the official mentioned to Reuters on condition of anonymity. The move may be telling of Algeria’s confidence that OPEC members will be able to reach an agreement regarding production levels for its members, and possibly Russia.
“Reforms will move slowly, but there will be no step backwards.”
The Organization of Petroleum Exporting Countries (OPEC) member has made spending cuts and sought alternative sources for financing in order to make up for the loss in oil revenue. The raising of taxes and peeling away at the deep welfare system has raised worries over increased social tensions.
Despite the government’s actions, Algerian oil minister Nourredine Bouterfa on Sunday expressed his optimism that representatives of countries at energy discussions starting this Wednesday in Algiers will at least agree to a framework for the freezing of oil prices. Yet prices tumbled by 3.5 percent on Tuesday alone as investors worry that a production freeze will not be reached at the upcoming International Energy Forum.
Algeria isn’t the only OPEC member leaning towards austerity in the face of low oil prices. Saudi Arabia for the first time will enact public sector pay cuts that include capping overtimes payments, suspending wage increases for “lower-ranking civil servants”, and chopping the salaries for ministers by 20 percent.
It seems like the biggest players, Russia included, is not holding out hope that prices will increase anytime soon.
By Erwin Cifuentes for Oilprice.com
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Erwin Cifuentes is a Contributing Editor for Southern Pulse Info where he focuses on politics, economics and security issues in Latin America and the Caribbean.…