Algeria - Politics, government, and taxation

After a bitter guerilla war with France (guerilla wars are fought with non-conventional methods by small units against larger, more conventional armies), which held Algeria as a colony, the country finally achieved independence in 1962. But Algeria's economy was in a state of chaos. Skilled labor was in short supply, as the French had taken with them most of the skilled personnel who ran the country. Until the late 1980s, Algeria's successive governments reacted by instituting a highly centralized socialist system that ensured the government a central role in the economy. Algeria's first president, Ahmad Ben Bella, moved to nationalize land and property previously owned by the French colonialists, which by 1963 had fallen under state control. Oil companies were nationalized in 1971, while agricultural land was placed under the control of workers. During this phase, the government placed special emphasis on the development of capital-intensive heavy industry. However, these state-led development programs and socialist policies soon proved to be a failure. The agricultural sector was particularly hit by bureaucratic mismanagement, inefficiency, and graft.

It was not until 1985 that the government came to realize the high costs associated with its socialist policies. Falling world oil prices, coupled with a high food import bill and a growing foreign debt burden, forced the government to re-evaluate its policies and abandon socialist policies. High unemployment rates, a lack of consumer goods, and shortages in basic foodstuffs threatened the country's political stability, as signs of popular unrest began to manifest themselves in protests. In 1985, President Chadli Benjedid shifted the focus of the country's development plans toward building a diversified economy by placing greater emphasis on agriculture. Benjedid's economic liberalization program sought to reduce central planning and decrease government control over the economy.

Since independence, Algeria has been ruled by 1 party, the National Liberation Front (FLN), which has largely used its dominance to impose heavily centralized economic structures that were justified through socialist ideology. However, the regime's priority on heavy industry and centralized management led to the neglect of the agricultural sector and the basic needs of its growing population. The decade of the 1980s laid bare the failure of the FLN to achieve either a lasting political consensus or a sustainable basis for economic growth. The sharp decline of oil prices in the mid-1980s, coupled with an intolerable debt burden and a high food imports bill, precipitated a financial crisis that accelerated the decline of the regime's appeal. Civil unrest and widespread demonstrations in 1988 sent a clear signal that the government's command of the people's allegiance had worn thin.

In an attempt to reverse the situation, the regime experimented with democracy between 1988 and 1991. In June 1990, elections for local councils resulted in an astonishing victory for Islamic fundamentalists, with the Islamic Salvation Front (FIS) winning more than half the nation's towns and cities, including the capital of Algiers. In parliamentary elections in December 1991, the FIS continued to make impressive gains and appeared poised to take control of the government in the run-off vote slated for January 1992. Before this crucial election could take place, however, the army stepped in to put an end to this democratic experiment and its unforeseen consequences, canceling the elections, banning the FIS, and imprisoning its leaders. The military's decision to abort the electoral process led to the unraveling of what little political consensus and national unity once existed. The FLN had been discredited both by its inability to defeat the Islamists at the polls and its failure to manage the country's relatively rich economic resources.

Since 1992, Islamic militants have gone underground and launched a campaign of terror against the government. More than 75,000 Algerians have been killed in the ensuing armed struggle. Islamic militants have also staged attacks against the country's infrastructure —including telephone exchanges, electrical stations, rail links, and the international airport—as well as multinational oil facilities. The military has responded to growing terrorist attacks with a ferocious crackdown on militants. Since 1992, thousands of Islamic rebels have been killed by security forces during routine raids and ambushes. Even so, these efforts do not appear to have lessened the militants' resolve, and the spiral of violence continues.

Presidential, parliamentary, and local elections were organized in November 1995 through October 1997. These elections were aimed at transforming the military junta (a group of military leaders who rule a country) into a democratically elected government, and thus putting an end to the Islamic rebels' claims that the regime was not legitimate. However, with the army running the country, the political scene remains riddled with problems. Under pressure from the military, Gen. Liamine Zeroual, who won the 1995 presidential elections, announced his untimely resignation in September 1998, paving the way for the 15 April 1999 election of Abdulaziz Bouteflika, a 62-year-old former foreign minister. Bouteflika's election raised hope that the 7-year civil war may come to an end, but the violence is far from over. Shortly after taking office, Bouteflika declared general amnesty for Islamic militants who give up their arms and return to the fold of the nation.

Structurally, the Algerian government is a republic, with a president directly elected for a 5-year term and a bicameral (2-house) Parliament. The 380 members of the National People's Assemby are popularly elected for 4-year terms, while the 144 seats in the Council of Nations are filled with either members appointed by the president or elected by indirect vote. The prime minister is appointed by the president. However, this ideal government structure has rarely been achieved in Algeria, where ongoing civil and political struggles have meant the suspension, cancellation, and rescheduling of elections, and frequent interference by the military.

Since the 1960s, Algerian politics have been dominated by the military, which has constituted the power base of the regime. The role of the military, which has traditionally also played a big role in the economy, was briefly suspended in 1989 following the restoration of democracy in the country. By 1991, the military, which forms the bulk of the security apparatus, was back into politics to counter the Islamic insurgency. Today, the military in Algeria is stronger than ever and its powers are so extensive that no president can be nominated without the consent of the generals running Algeria behind the scenes.

The major source of government revenues comes from hydrocarbon receipts and customs duties , in addition to corporate, salary, road, and property taxes. According to the IMF, in 1999, taxes accounted for 13.5 percent of the central government's non-hydrocarbon revenue. Tax revenues decreased from 16.2 percent in 1997 to 13.5 percent in 1999, the direct result of the 1998 tax reforms, which sought to lower tax rates across the board. Taxes come in different forms. Taxes on goods and services account for the largest proportion of tax revenues, making up 6.4 percent of the total. Customs duties, which in 1999 accounted for 3.5 percent of tax revenues, are the second largest contributor. Taxes on income and profits and on wage income together accounted for 4.5 percent of government revenues.

However, tax evasion is a major problem, costing the government an estimated AD30 billion a year. Tax revenues dropped slightly from AD329.8 billion in 1998 to AD314.8 billion in 1999. The government's plans to press ahead with plans to improve tax collection measures in line with the IMF's recommendations are complicated by economic and political uncertainties—mainly the ongoing civil war.