Global Investing

Libya, Algeria — source of euro zone funds?

November 7, 2011

With the euro zone seemingly running out of friends, it may be time to get more creative about where the bloc finds fresh funds.

The BRICS nations — Brazil, Russia, India, China, South Africa — are ready to help the euro zone via the International Monetary Fund, Russia Foreign Minister Sergei Lavrov said today, dampening hopes that some of these countries might invest directly in the euro zone’s rescue fund, the European Financial Stability Facility (EFSF).

China, previously seen as most likely to stump up,  has complained about lack of detail about how to leverage the fund.

But Middle East countries that could afford to chip in include not just the Gulf economies, but oil producers Libya and Algeria, according to Stephen Murphy, a managing director at Egyptian private equity firm Citadel Capital.

FX reserves in Libya, Algeria are pretty substantial, Europe does not need to go as far as China to get funds.

Libya has foreign exchange reserves totalling $100 billion and Algeria comes in at $162 billion, according to Dec 2010 estimates. It’s small fry compared with China’s $3 trillion, but at numbers 20 and 15 in the world respectively, the figures are not to be sniffed at.

Libya has a population of only 6.5 million to share its oil wealth so  is unlikely to need international financial support after it toppled Muammar Gaddafi with the help of Western powers. It just needs project management expertise, Murphy says.

Algeria, however, faces problems of youth unemployment and political unrest. According to a blog from consultancy Inkerman today:

Algeria’s future is too close to call. However, the country will likely take a  different route than that of Libya. Look instead to see the country undergo sporadic bouts of unrest, whilst the government makes incremental changes.

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