Algeria: oil prices forcing dinar down

But IMF holds that currency is still overvalued

14 May, 16:53

    (by Diego Minuti) (ANSAmed) - ROME, MAY 14 - Algeria seems to have grown accustomed to a steady depreciation of the dinar, which since January has lost 10.5% of its value against the dollar and is down to 87.7 dinars per greenback. In the first few weeks of 2014, instead, the dinar was about 78 to the dollar. The 20.4% depreciation marks a dangerous, steady decline of the currency. The uninterrupted devaluation is not a consequence of the dinar competing against benchmark currencies (dollar, euro, pound sterling); it is instead a result of the decisions made by the Algerian central bank. Valuations are adopted as part of a controlled oscillation mechanism based on parameters that have oil prices (in dollars) as the key element. Therefore, the issue is that of oil prices, which are now leveling off (between 60.50 dollars per barrel for WTI crude oil and 66.81 for the Brent) but are down on a year ago, after months of steep decline. International institutions nonetheless say that the dinar is still overvalued, with the International Monetary Fund (IMF) putting the ratio with the euro at 1 to 120, while the current one is 1 to 111.7774. Analysts and authoritative representatives of the Algerian financial world (such as former Algerian central bank governor Abderrahmane Hadj Nacer, who spoke to the TSA site) say that the dinar is likely to continue falling. Algerian financial institutions are considered to have little they can do given a national economy conditioned by - or, some say, 'held hostage by' - what happens on world markets that set oil prices. And so, despite being a major exporter and having based its economy mostly on fossil fuels, Algeria is practically a mere spectator, while international speculation determines oil prices. Meanwhile, Algeria pays a very high price for imports to meet local requirements. (ANSAmed).

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