ALGIERS, Algeria: A new highway to span the country. More than a million new homes. Schools, hospitals, a subway for the capital.

With a brutal civil conflict behind it, Algeria is using an energy windfall for a projected US$144 billion (€109 billion), five-year development program to improve living standards and encourage a broad economic boom.

But as the government pumps oil and gas profits into public works, it is plagued by an old problem: beyond energy, the economy has failed to take off.

"The development program is trying to catch up with the infrastructure lag from the 1990s, which is a very good thing," said Theodore Ahlers, head of the World Bank's Maghreb office.

"But the key is to have a way to ensure strong growth and creation of jobs outside hydrocarbons in the long term ... The battle is far from won."

Algeria ranks third among Africa's oil-producing countries, and has proven oil reserves of around 12 billion barrels. Richer in gas than in oil, its gas production has risen to account for almost half the country's energy output.

Much of the Algerian Sahara, where the country's oil and gas is extracted, remains unexplored.

Nonetheless, President Abdelaziz Bouteflika has warned that Algeria's recent growth has been generated by a resource that could be exhausted within a few decades.

That growth has been in line with other countries in the region at around 5 percent. But it is driven by public spending, and Algeria has attracted lower levels of foreign investment than its Maghreb neighbors, Tunisia and Morocco.

Hydrocarbons provide 98 percent of Algerian export earnings and more than three-quarters of total state revenues, while domestic industry remains weak.

For analysts, that is cause for alarm.

"We have not yet grasped that there is an obligation to pass from an economy dependent on hydrocarbons revenues towards a competitive and international economy," said Ahmed Benbitour, who headed Algeria's energy and finance ministries before becoming prime minister from 1999-2000.

Benbitour said sectors like tourism and agriculture, where the country has huge potential, had been hampered by mismanagement.

For now, energy profits have more than made up for any shortfalls, allowing this country of 33 million to turn round its public finances with impressive speed.

With oil prices hovering around US$60 (€45) a barrel in 2006, the country slashed foreign debt to US$4.7 billion (€3.5 billion), from a high of around US$40 billion in the mid-1990s and US$16.5 billion just one year ago. Foreign exchange reserves have jumped to US$75 billion (€57 billion).

The windfall has also permitted the country to invest fast. Last year Algeria pledged to buy military equipment from Russia in return for debt cancellation in a deal worth an estimated US$7.4 billion. Much greater sums have gone into the five-year development plan, due for completion in 2009.

But analysts say structural problems that have long afflicted the Algerian economy linger: a labyrinthine bureaucracy, widespread corruption, limited access to land and loans, and a tax regime that is one of the world's most complex.

They point to the slow progress of privatization and single out a banking system that is crippled by bad loans and scandals — the largest of which, surrounding the collapse of Khalifa Bank, is the subject of a major trial.

The government increased civil service pay by around 15 percent last year, but wages in sectors like education and health remain low, contributing to a "brain drain" of thousands of skilled Algerians who emigrate each year.

Security has been another problem. From 1992, Algeria suffered a civil conflict that pitting a military-backed government against Islamic extremists that left up to 200,000 dead.

The fighting, which has been reduced to sporadic, small-scale attacks, spawned a trail of trafficking and plunder, with armed groups laundering their booty through business.

The informal economy also flourished, and is now estimated to employ 1.5 million people. In Algiers, it is ever-present. Young men charge drivers for "guarding" cars parked on public streets, while others scratch a living selling contraband cigarettes by the piece.

Former prime minister Benbitour questioned whether the government's five-year plan can put the economy on track, saying money was still being misdirected due to a lack of parliamentary controls.

The World Bank has also raised concerns about the quality of the public works, and is reviewing investment in education, health, transport, alongside the Algerian government.

"The needs in all those areas are obvious," said Ahlers. "Algeria has the resources now to respond to them. The issue is their capacity to plan and execute those in a way that produces results."

The government says those results are already coming, pointing for evidence to falling unemployment.

According to the National Office of Statistics, the jobless rate has dropped from over 30 percent in 1999 to 12.3 percent in 2006, though some economists challenge these figures.

There are also signs of wider economic reform.

The first of several major state banks, Credit Populaire d'Algerie, is expected to be sold this year. Electronic transfers are being phased in and the country's first international cash dispenser was installed last month.

Bank sales are part of a larger privatization program launched in 2003.

Tourism is being promoted and the financial sector gradually modernized.

But with reforms just beginning, some feel the wealth from energy, still the country's overwhelming source of income, is not spreading.

"At the moment it's only a small minority that is benefiting," said Nacer Djabi, a sociology professor at the University of Algiers "The great majority of Algerians continue to live with problems such as unemployment and housing."