By Lamine Chikhi

ALGIERS, Aug 12 (Reuters) - Aziouz, an Algerian businessman,
pays people to smuggle merchandise into the north African
country hidden in their suitcases.

He is not a drug trafficker -- just an ordinary shopkeeper
trying to keep shelves in his store stocked in the face of tough
new restrictions on imports imposed by the government.

"French cheeses, chocolate, coffee and perfumes are at the
top of my list," said Aziouz, who did not want his full name
published because what he is doing is illegal. "I prefer to pay
air travellers to bring me what I need in their luggage."

Since the restrictions were introduced last year -- part of
a trend towards economic nationalism that has also seen foreign
investors targeted -- they have been the focus of mounting anger
in Algeria's business community.

That reached a peak last month when the national airline
said some of its planes had been grounded because restrictions
made it hard to import spare parts.

The unhappiness could present a challenge for Algerian
President Abdelaziz Bouteflika, who has spearheaded the policy
of economic nationalism.

"(The restriction on imports) is not a popular decision,"
said Hafid Sualili, an economics commentator with Algeria's El
Khabar newspaper.

"It's not a good decision for Bouteflika's nationalist
economic policy. It will give credibility to supporters of an
open economy."

The government says it imposed import restrictions to
protect domestic producers. It says they cannot compete with
poor-quality foreign goods dumped on the Algerian market by
unscrupulous businesspeople.

The tough stance on imports and foreign investment has so
far been popular with large numbers of Algerians, who look with
nostalgia to the country's Socialist past.

Many people in Algeria applauded when one of the biggest
foreign investors, Egypt's Orascom Telecom <ORTE.CA>, was hit
with hefty tax demands. It is now negotiating the sale of its
lucrative Algerian unit to the state.

However, some observers believe import restrictions could
turn the tide of opinion, especially if they start causing
inconvenience for ordinary Algerians.

LETTER OF CREDIT

The focus of the business community's complaints is a
regulation stating that before they can bring goods worth over
1,500 euros ($1,900) into the country, importers must obtain a
letter of credit from a bank to cover the value of the goods.

Until the rule was introduced, it was usual for suppliers to
ship the goods on trust, with the bill settled later.

Imports are a sensitive issue for Algeria, which is the
world's eighth biggest exporter of crude oil but has little
manufacturing industry, forcing it to import most of what its 35
million people consume.

The new measure creates the biggest headaches for small
entrepreneurs, like the shopkeeper with a sideline in smuggling,
who lack the cashflow to obtain a letter of credit or the
resources to negotiate all the red tape involved.

But the measure has also caused difficulties for law-abiding
large-scale businesses.

One importer said Algerian banks were so overloaded by the
volume of letters of credit they were having to deal with that
the process sometimes took up to 14 days. Outside Algeria, it
usually takes between two and five hours.

Those delays -- added to the existing problems of congested
ports and slow customs bureaucracy -- frequently resulted in
ships waiting for days because they were unable to unload.

"It costs me $45,000 a day for the ship and the demurrage,"
said the importer, using the term for fees which have to be paid
to a ship's owner when it is delayed unloading.

"I think in the past year I've probably paid $2 million in
demurrage and other fees ... It's been getting worse," said the
importer, who did not want to be identified.

In the clearest sign yet of the mounting unhappiness, the
head of the state-owned national airline said flight delays over
the busy summer season were caused, in part, by planes stranded
on the tarmac without any replacement parts.

The new import arrangements are a "real catastrophe," local
newspapers quoted Air Algerie chief executive Abdelwahid
Bouabdallah as saying.

A shipping industry executive said he could not understand
how the imports system could continue functioning. "Surely
they'll reach a point when the shops become empty?" he said.

There is already anecdotal evidence that the supply chain is
under strain. A computer supplier said it did not have one model
in stock because a consignment was stuck in customs. A furniture
store said its summer collection was also held up.

Some imported food items can suddenly disappear from the
shelves of convenience stories, and then re-appear weeks later.

There is so far no direct evidence that the restrictions are
pushing up prices. Inflation jumped last year, but this was
driven by rises in the price of food produced inside Algeria.
Official figures in June put annual inflation at 5.4 percent.

Nevertheless, the government has been sufficiently worried
by price rises to draft a law imposing caps on the price of some
consumer products. [ID:nLDE65T2BN]

Ministers have hinted they may ease some minor aspects of
the import restrictions, in particular to streamline imports of
essential spare parts, according to local newspapers.

That is little comfort to software importer Reda Shouikh,
who said he had been forced to suspend his business activities
because of the restrictions.

"My belief is that a country which produces nothing cannot
survive if it stops imports," he said.
(Additional reporting by Christian Lowe; Writing by Christian
Lowe)