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US debt crisis may affect value of Algeria's foreign exchange reserves

(Xinhua)

10:32, August 12, 2011

ALGIERS, Aug. 11 (Xinhua) -- The U.S. debt crisis may affect the value of Algerian assets placed as bonds in the U.S. treasury, local media reported.

The local Echorouk newspaper Thursday quoted a source within the U.S. embassy in Algeria as saying that Algerian foreign exchange reserves placed as bonds in the U.S. treasury are estimated at 65 billion U.S. dollars, or 40 percent of the North African nation's GDP in 2010.

The paper further mentioned that such an amount is likely to make the impact of the U.S. debt crisis heavier on Algeria, given that the exchange rate of U.S. dollars dropped following the announcement of the U.S. Federal Reserve, on Wednesday, that it will maintain the value of the interest rate at around zero percent for the two upcoming years, amid an inflation rate varying between 3 and 3.5 percent since January 2010.

Echorouk indicated that Algerian foreign exchange reserves reached 173.3 billion dollars until the half of this year, of which 108 billion are placed in euro as bonds in some European countries which still enjoy the excellent AAA rate, noting that the Algerian government still rejected announcing these alternatives, amid growing concerns in the North African nation that the U.S. debt crisis would have destructive impact on its reserves.

Yet, the paper said the Algerian government is still inactive towards developments in the United States, although experts have urged to convert the U.S. dollar reserves into gold or euros, as soon as possible, to avoid any further unsuitable repercussions of the downgrading of U.S. credit.

However, the government is due to draw up the next year's budget with taking into consideration the 33 percent budget deficit in 2011.

However, some experts reassured Algeria about its reserves placed in the U.S. treasury. In this context, economist Abderahmane Mebtoul said that in case Algeria withdraws its foreign exchange reserves in the U.S. in the form of bonds of treasury, the latter may endure a heavy value drop, and selling them in the free market would inflict to the government heavy losses.

Mebtoul further suggested that it's better for Algeria to maintain its reserves in the U.S. for the moment, for they are safe there.

Elsewhere, the government has already announced an increase by 25 percent as the complimentary budget bill of 2011, to cover urgent expenditures to support staple food prices and housing projects, following popular protests in the North African nation in January.

Such measures and U.S. and European debt crisis are likely to curb Algeria's revenues and increase surplus of trade balance, due to the increase of import bill, which is expected to hit 50 billion dollars.

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