FROM THE OFFICE OF PUBLIC AFFAIRS

I am very happy to be here in Algiers. It was most gracious of former Prime Minister Hamdani to host this gathering, and invite leaders of your economy and your government, as well as representative of American companies active in Algeria.

The United States and Algeria have many ties, but one is especially symbolic. Just a few days from now, on the Fourth of July, we shall be celebrating the anniversary of our independence. The next day you will be celebrating yours. In 1962, three months after the independence of Algeria was achieved, President Kennedy spoke of your "proud history as a people, which goes back for thousands of years, and the great place Algeria can play in North Africa and throughout the world." In that spirit, we welcome the progress you are making toward domestic peace, stability and national reconciliation. We look forward, as you do, to the continued strengthening of your relationships with other nations and with international institutions. And we especially commend President Bouteflika for the role he played, as chairman of the Organization of African Unity, in achieving a truce agreement between Ethiopia and Eritrea.

The developed nations of the world, such as the United States, share with you a commitment to economic progress. It is no longer a matter of big power politics, as it was during the cold war. It is a simple case of demographics. The labor force in the U.S. and Western Europe is aging. In the next twenty-five years, almost all of the world's population growth as well as a great deal of the growth in productivity is going to take place in countries such as yours. This is where the expanding markets and the manpower are going to be. Huge amounts of private capital are coursing around the world today, looking for attractive areas for investment.

The developing countries have a reciprocal desire for this capital to look with favor upon them. Even those that are blessed with essential natural resources want to diversify their economies. They want to train their population for productive work in a globalized economy. They do not want the benefits and opportunities of the information age to pass them by. Those nations, from Central Europe to Asia, which have successfully made the transition from central planning to market economy over the last twenty years have enjoyed impressive increases in their standard of living. Those that join them will be in position to maximize the benefits that come from globalization and minimize the risks.

Experience shows that investment capital flows to those countries that offer a conducive investment climate - a predictable and transparent regulatory system, a vibrant and independent private sector, and established infrastructure to support new business ventures, and educated workforce, and physical proximity to other buoyant markets. A business-friendly environment is created by forward looking governments that plan and then enact the necessary reforms - sometimes painful and politically unpopular ones- to lay the groundwork for sustained growth. This involves reforming and reducing the role of the state in the economy, liberalizing the trade regime by lowering tariffs and other barriers, and investing tin the country's human capital through increased spending on education and health care. Only then will private business activities take hold and prosper, and create much-needed jobs.

Experience throughout the world shows that market-based economic systems provide the best environment for creating jobs, generating economic activity, and raising living standards, both in our own country and around the world. But we also believe that markets by themselves do not necessarily create the conditions needed for them to function well. When it comes to investment generating factors such as developing a skilled work force, maintaining sound macroeconomic policies, managing national debt, providing full and accurate information for private investment decisions, and protecting intellectual property rights, government action is needed for markets to produce the best results.

The Algerian economy has been making the transition from central planning which characterized it for so many years, to a market economy. American investors have been steadily increasing their stake. U.S. investment in Algeria is increasing at a rate of $500 million a year. We are the third largest customer for your foreign trade. Our companies have signed contracts, o ver the past year, to supply hundreds of millions of dollars of products and services in areas from air traffic control to agriculture. One of our largest financial institutions, Citibank, has begun operations here. We are participating fully in Your International Fair fir the first time since 1993. The US Government encourages American investment in Algeria and we hope, over time, there will be increased access for products from Algeria and other members of the US-North Africa Economic Partnership to US markets.

Private capital, as well as international financial institutions, are taking a fresh look at the benefits of investment here as conditions are becoming more peaceful. They will be watching how the government implements its very exciting announced policies. At the same time, increased revenue from the petrochemical sector offers the wherewithal for public investments, in both infrastructure and human capital that will enhance your attractiveness to private investment. Successful diversification, by the same token, will reduce the economy's vulnerability to future swings in world oil prices. Algeria needs to proceed with bank privatization in tandem with privatization of the industrial sector.

You have taken impressive measures recently to restore macroeconomic stability and move toward a more market-based economy. You have successfully brought inflation under control and have pursued remarkably responsible fiscal policies, leading to reductions in both government deficit and external debt. You have overhauled your housing policy, in the face of pressing needs, and made a start in opening the banking sector to new domestic and foreign entrants. You have enacted an investment code and trade legislation designed to make Algeria more attractive to foreign investors. And you have the beginnings of a securities market, which, as it grows, will make it easier for venture capital to seek opportunities.

The Algerian government understands that a comprehensive and determined program of reforms is still necessary to put the economy on a path to sustained growth. Private investors in Algeria and abroad will watch implementation of announced intentions very closely. The banking system not only needs to be restructured to a sounder financial footing but also needs to achieve greater efficiency, with stronger management and supervision. Privatization of state owned industrial companies needs to be accelerated and broadened. With higher oil prices helping your reserves, now is the time to seize the initiative and implement your structural reform program.

The telecommunications infrastructure needs to be updated and expanded so that it can operate with the efficiency that global business firms require. In addition, an improved institutional and legal framework is needed to protect property rights. The opening of the economy needs to continue and even accelerate. Allowing a foreign role in energy, transportation, utilities and telecommunications would be a good start. Privatization in these sectors would allow them to operate more efficiently and unlock their underlying potential and value. Algeria can also send a positive and valuable signal by accelerating its work to become a member of the World Trade Organization.

There is another role in the restructuring process that your government understands and has stated in its intention to reform. The deep-seeded reforms required of developing countries sometimes cause changes that result, in the short term, in less rapid economic growth and temporary increases in unemployment, even as their long-term benefits will be higher sustained growth and lower unemployment. If the people of a country are to be expected to accept these, they must have some confidence that a social safety net is in place to help them weather the transition and manage the risks of a market economy. Social programs should be aimed at developing human capital, so that people have the skills to change occupations and make other adjustments, at alleviating substandard living conditions. Economic reform cannot just show up in statistics. People must be able to see the change in their job opportunities and the conditions of daily life. With institution of mortgage guarantees and a secondary market, Algeria has taken an important new initiative in dealing with your prolonged and severe shortage of housing. But you need better medical facilities, more classrooms and more teachers, as well as expanded housing. These are needs that can and should be addressed by better targeting government resources taking advantage of recent lessening of economic pressures due to the rise in oil prices. Greater private investment in these sectors will free up government revenues for education and social investment.

I would now like to discuss the US-North Africa Economic Partnership and the role it can play in integrating this area of the world with the global economy. The purpose of the Partnership is to foster trade and investment both between the Maghreb region and the United States and within the region, in the interest of more rapid economic growth and long-term stability. The Partnership pursues these goals by encouraging the private sector to take greater advantage of both the trade and investment opportunities that exist in the region as a whole.

I first proposed this initiative almost two years ago, because I was struck by the desire of business people and government officials in this region to broaden their range of economic relations and forge closer commercial links with the United States. They wanted out know-how, and where possible our capital. We felt US companies would be most interested in trade and investment if they could operate on a regional basis. By investing in one country and then exporting to the entire region, they could reach a market of some 70 or 80 million people.

The US Government is very serious about this initiative, and I am proud to have my name associated with it. We have taken some important initial steps. There have two Ministerial-level meetings with Tunisia, Morocco and Algeria. We have formed a Steering Committee consisting of the Ambassadors of the three nations resident in Washington to work with senior officials of our government to monitor progress toward economic reform in North Africa, and on a range of investment promotion, technical assistance and educational programs that are planned. A number of senior government officials have visited the region and engaged in high level policy dialogue aimed at promoting economic reform and liberalization. Last April, 90 American business representatives heard ministers from the Maghreb speak in Washington about economic developments and opportunities for investment in their countries.

Currently, with funding support from Congress, our Treasury Department is providing technical assistance on debt management and financial reform. Our Department of Commerce is providing advice on commercial law and privatization and will set up a training program for Algerian commercial attaches. USAID is looking at the Global Technology Network in Morocco, Tunisia and Algeria to help businessmen in the US and North Africa contact each other for trade and investment. USAID has launched investor roadmap studies in the three countries, and we look forward to completing that process very soon. We will work with the Maghreb countries to expand their capacity to take full advantage of information and technology and integrate more fully into the global economy.

We are now ready to bring critical parties together. I am happy to be able to announce today that the US Government will sponsor the first ever official Investment Conference to be held for the Maghreb region. It will be held this fall in the United States. Our Trade and Development Agency will fund it. It will specifically designed to bring US businessmen together with prospective partners and clients in seeking out trade opportunities, establishing joint ventures and making investments.

The US Government can be helpful in these and other ways. But if the Maghreb countries expect to reap the benefits of being treated as an economic unit, they need to reduce internal barriers to trade and investment. Tariffs are high, ranging from an average of 24 per cent in Algeria to 34% per cent elsewhere in the region. Poor transportation, visa requirements and a closed border also create barriers to trade. All of these make it more difficult to invest in one country and export to the others.

In conclusion, with continued progress toward domestic peace and a revived world economy, Algeria has a significant opportunity to speed up its desired transition to a market economy. I hope we can see an intensified commitment here and in other Maghreb capitals to economic liberalization and to intra-regional integration. A brighter economic future awaits those countries, like Algeria, whose leaders have the foresight, the determination and the diplomatic skills to proceed in that direction.

Thank you.