Albania's Second Coming

We may easily overlook Albania's recent Somali history when we are surrounded by countries like Germany with 4% inflation (down from 32% in 1997, primarily due to rises in energy and housing expenses) and China with GDP growth rates of 7-8% per year for the past three years.
Albania collapsed in 1997 when a number of pyramid schemes, which were sanctioned by the government, caused one third of the poor population to lose their little life savings. There were warlords, criminals, and 1,500 casualties when the mob rampaged through the army and police armories, stealing 700,000 firearms. In spite of a 7% decline in GDP that year, recapitalizing Albania's faltering banks required 5% of GDP. The International Monetary Fund has used Albania as an example for the past two years, and it is doing so again now. With a commitment of about $570 million and two thirds of that amount disbursed, the World Bank has sanctioned 43 projects in the nation since October 1991. And that's not even counting the $50 million set aside for agricultural development and the $100 million that came following the 1999 Kosovo crisis.

There have been massive financial commitments to the region from the likes of the Stability Pact, the European Union, the European Investment Bank (EIB), and the EBRD for projects involving infrastructure, crime prevention, and institution development. Like Macedonia and Croatia, Albania was hoping to reap the benefits of this influx as well as an eventual Stabilization and Association Agreement with the European Union. But "The EU'S capacity for making political promises is more impressive than our past record of delivering financial assistance," (aid commissioner Chris Patten conceded to "The Economist"). As a result of harmful bureaucratic infighting, the assistance was botched. "Serious financial irregularities" have lately cast doubt on the integrity of the European Union's embassy in Tirana.
If the infamously faulty government data are to be believed, the economic outlook has been cloudy ever since.
Like its war-torn neighbor Macedonia, Albania's fiscal deficit is over 9%. Foreign exchange reserves are sufficient to cover imports for nearly four months, while the (very low and long-term) external debt is at a record low of 28% of GDP, which is nevertheless more than exports (150%). As a result, the lek's (export-averse) steady exchange rate reflects this. However, the domestic portion is likely unsustainable, and the total public debt is 70% greater. Although they have been steadily falling, interest rates remain extremely high at 8% p.a., the money supply is still raging at a rate of +12%, and GDP per capita is below $1,000. Particularly in its northern rural areas, it remains one of Europe's poorest nations. Building and commerce account for the bulk of its GDP growth. The state of health and education is dismal and worsening. The economy is practically dollarized, and people vote with their wallets and feet, as they emigrate in large numbers.
Despite several achievements in 2000, such as the completion of land privatization and the vital mining industry, the funds intended to amortize public debt through privatization did not come to fruition. This hope is already cloudy due to global recession, Albania's closeness to the killing fields of Kosovo and Macedonia, and pessimism about growing economies. Albania would have been in a much worse position if it hadn't received $500 million in remittances from its 20% workforce working in Italy and Greece. Even now, unscrupulous individuals from the United States, Zurich, and Prague bring money for Albanian drug dealers and immigrant smugglers. Because of these illegal but economically vital funds, the government has been slow to privatize the ubiquitous Savings Bank (which holds 83% of all deposits but does not lend them out, owns 85% of all treasury bills, and has a 2% net return on equity), as well as slow to reform the bank system and implement anti-money laundering policies. International financial institutions exerted tremendous pressure on the government until the savings bank's pension plan operations were transferred to Albapost, the local post office.
Albania improved its budgetary situation (although its tax base is still small) and made significant strides in the underground economy (i.e., organized crime) in the years that followed, particularly by enhancing its customs department, which had been plagued by corruption and smugglers. Next year, lawmakers may finally pass the bankruptcy and mediation regulations that have been hotly contested, in addition to establishing a collateral register. The executive branches, as well as the Central Bank's activities, are undergoing a complete overhaul. The Albanians who stayed behind are feeling more energized than they have in a long time.
On the other hand, the issues are systemic. Out of all the countries in our modern world, Albania is one of the rare ones whose economy is based on farming (55%), not on industry (24%), or on services (21%). Even though women still make up 24% of the population, just 40% of the people live in urban areas. Archaeological tourism in particular shows promise. Although private automobile ownership was illegal in Albania until 1985, the percentage of paved roads is below 40%, and the number of computers and phones per 1000 residents is below 6. The annual amount of foreign direct investment is a pitiful $50 million, whereas aid per capita has increased thrice to approximately $160 since 1997. Despite subsidies of imported energy that drain budgets, economic activity is hindered by pervasive electricity shortages. In terms of human development, Albania ranked 100th out of 174 countries studied by the UNDP. In terms of under-five mortality, the country ranked 90th out of 175 countries studied by UNICEF. Peers were ranked 55–73.
Part of the problem lies with the isolationist policies inherited from the insane and paranoid Enver Hoxha. In Albania after Communism, the problems of mismanagement, corruption, criminalization of society, and tribalism are all equally to blame. It is expected that everyone accepts bribes; after all, a senior minister's pay is less than $1,000 per month, which is ten times the typical salary. Only 20% of the population lives below the official poverty line, thanks to a robust but rapidly deteriorating social safety net consisting of extended families, villages, and tribes. Local unemployment is nearly 20% due in part to these long-term relationships; additionally, over 25% of the employed are foreign nationals, the vast majority of whom are relatives.
Albania is extending its hand to its neighbors since its prime minister, Ilir Meta, is an economist by training and is relatively young at 32 years old (and was re-elected with astounding majorities). It has been a member of the Black Sea Economic Cooperation Pact since 1992, together with Greece, Turkey, and — get this — Azerbaijan and Armenia! This unlikely alliance is now pushing to have the Danube River reopened. If delivered via river, Albania's inexpensive goods may compete. Recent bilateral agreements between Montenegro and Albania addressed transportation on the Bojana River and Skadar Lake, port use, railway and road extension, and aviation rights control, among other issues. In spite of the fact that, unusually for geographical neighbors, Macedonia is not a major business partner, Albania has welcomed all of Macedonia's attempts to further regional economic and political integration. The future of Albania depends on regional cooperation and harmony. If the situation in the region were to worsen again, Albania would be one of the countries hit the most. This explains why it took an unexpectedly amiable position during the conflict in Macedonia. After much deliberation, Albanian leaders appear to have settled on a path from a "Great Albania" to a thriving Albania.
Wow, that's funny!

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