Currency and Exchange Rates
The Central Bank set the daily price of the Algerian dinar, keyed to a basket of currencies most widely used in payment for exports but primarily linked to the United States dollar and the French franc. The dinar has had a long history of being overvalued, resulting in a runaway black market on which the dinar was traded at several times the official rate for many years. In a serious attempt to bring down black-market rates and thus achieve convertibility for the dinar, the government decreed a major devaluation in mid-1990 and allowed the dinar to drop about 52 percent, from DA8.5=US$1 in July of that year to DA16.6=US$1 in March 1991. Although this step helped the authorities meet IMF demands for reaching a new standby agreement, they were concerned about the raised price of imported consumer products and the potential social implications for the poorer majority of the population. The considerable gap between prices and economic costs for certain essential commodities, such as energy products, prompted the government to institute a policy of gradually reducing consumer subsidies while recognizing the importance of price supports in protecting the most disadvantaged people. Whereas the government tempered its policy of moving rapidly to a system in which almost all prices were to be determined by market forces, in 1991 it adjusted the prices of subsidized products, electricity, natural gas, and petroleum products. These steps resulted in reducing total 1991 subsidies by DA9.6 billion.
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