CHAPTER TWO: HISTORICAL CONTEXT AND CURRENT CHALLENGES 81. It is important to point out that Algeria‟s economic and social development was characterised by distinct phases marked by recession and/or growth. After an initial development phase that focused on intense and structured industrialisation with heavy intervention from the government (1962–1987), Algeria underwent a crisis period before engaging in a process of reform and liberalisation. The ambitious public investment programme during the country‟s first development phase benefited from the rise in oil prices on international markets, and particularly after the first oil price crisis in 1973. At the end of this initial phase, and with the first signs loss of impetus, Algeria embarked on a process of reform and liberalisation. 82. The second phase in Algeria‟s development took place at the time when adjustment programmes were being implemented to respond to the economic crisis, a time of increasing imbalances and the explosion of foreign debt. Three economic stabilisation programmes of the International Monetary Fund, which enabled the rescheduling of external debt, were implemented in 1989, 1991 and 1994. However, reforms implemented within the framework of structural adjustment programmes had a negative impact on the economy. This gave rise to negative economic growth, with the recording of an annual average of –0.5 per cent between 1987 and 1994. Further, per capita income dropped by –2.4 per cent per annum during the same period. Inflation greatly increased during this time, recording an annual average of 19.6 per cent due to the liberalisation of prices and the devaluation of the dinar. This period was also characterised by a sharp increase in unemployment as a result of slowed economic activity and the restructuring of public companies. Unemployment rates increased from 17 to 25 per cent between 1986 and 1994, reaching a record 28 per cent in 1995. The deterioration of the economic situation therefore continued and contributed to political instability and social upheavals. 83. The third phase in Algeria‟s economic development began in the mid-1990s and was characterised by a marked improvement in the economic situation. There was significant revival in economic growth, which recorded an average of 3.1 per cent between 1995 and 2000. Per capita income improved notably, increasing by 0.9 per cent on an annual basis. The rising trend of inflation also dropped, registering an annual average slightly above 6 per cent for the same period. Although the restructuring of companies continued, unemployment rates stabilised following an increase in the government‟s capital account and public investments. After a serious economic crisis in the 1980s and early 1990s, Algeria was back on track in terms of growth and development. This facilitated support for political reforms and strengthened the democratisation process and multi-partyism. 84. This growth consolidated in the fourth phase beginning in 2000, benefiting from public investment programmes that were made feasible by the marked increase in oil prices on international markets. These periods of Algeria‟s recent economic history are proof of the strong correlation between economic performance and the evolution in international oil prices. Although it is not the only factor behind economic growth, the oil sector made a positive impact on performance when prices were high. This influence is felt as a result of the 49