SKOPJE, Macedonia, Nov. 19 (UPI) -- Albania, which not long ago resembled ravaged Somalia both politically and economically, has rebounded enough economically to return to the good graces of the International Monetary Fund.
Blessed with Chinese-level gross domestic product growth rates of 7-8 percent in each of the last 3 years and German-level inflation of 4 percent, Albania -- just four years ago the site of a civil war that dragged an already moribund economy into Third World depths, has completed a quick economic turnaround.
In 1997, the collapse of a series of politically sanctioned pyramid schemes in which one third of the population lost their life savings, Albania imploded. Mobs looted 700,000 guns from the armories of the army and the police and went on a rampage, in bloody scenes replete with warlords, crime and 1,500 dead. It took 5 percent of GDP to recapitalize Albania's tottering banks and overall GDP dropped by 7 percent that year.
Two years before that, Albania had been the IMF's poster boy. Since October 1991, the World Bank has approved 43 projects in the country, committed nearly $570 million and disbursed two thirds of its commitments. Additional aid was proposed from a series of international organizations, yet, as Chris Patten, the commissioner in charge of aid, admitted to The Economist, "The EU'S capacity for making political promises is more impressive than our past record of delivering financial assistance."
The aid was bungled and mired in pernicious bureaucratic infighting. The EU delegation in Tirana was recently implicated in "serious financial irregularities."
The economic picture, if notoriously unreliable official statistics are to be trusted, has been mixed since.
The budget deficit hovers around 9 percent of GDP. The external debt -- very soft and very long term -- is at a nadir of 28 percent of GDP, though 150 percent of exports and foreign exchange reserves cover more than four months of imports. This is reflected in the export-averse stable exchange rate of the lek.
And the overall public debt is much higher -- 70 percent of GDP -- and the domestic component may well be unsustainable. Money supply is roaring (+12 percent) and interest rates are punishingly high at 8 percent per annum -- though in steep decline.
With a per capita GDP of less than $1,000, Albania is still one of Europe's poorest countries, especially its rural north. Most of its GDP growth is in construction and trade. Health and education are decrepit and deteriorating. And people have been emigrating in great numbers and supporting the dollar over the lek.
Privatization receipts, which were supposed to amortize public debt, did not materialize. Negative sentiment toward emerging economies, Albania's proximity to the Kosovo and Macedonia killing fields and global recession make this prospect more doubtful. Had it not been for the $500 million in remittances from the 20 percent of the country's workforce, which is employed in Greece and Italy, Albania would have been even worse off.
Money from Albanian drug dealers, immigrant smugglers and other unsavory characters still filters in from Prague, Zurich, and the United States. These illicit -- but economically crucial -- funds may explain the government's foot dragging on the privatization of the Savings Bank, which holds 83 percent of all deposits and 85 percent of all treasury bills while giving a 2 percent net return on equity, and officials' reluctance to overhaul the moribund banking system and enact anti-money-laundering measures. It took crushing pressure by the international financial institutions to force the government to move the Savings Bank's pension plan business.
In the intervening years, Albania got its fiscal act together and made meaningful inroads into the informal economy (read: organized crime), not least by dramatically improving its smuggler-infested customs service. A collateral registry has been introduced and much debated bankruptcy and mediation laws may be enacted next year. Everything, from the operations of the Central Bank to the executive branches is being revamped. Those who remained in Albania are much more invigorated than they have been in a long time.
But the problems are structural. Albania is among the few countries in that rely on agriculture -- 55 percent of GDP -- rather than industry or services. Some 40 percent of the population lives in cities and female illiteracy is 24 percent. Tourism, especially of the archeological kind, is promising. But there are fewer than six computers and 40 phones per 1,000 citizens and less than 40 percent of the roads are paved (Albanians were forbidden to own private cars until 1985). Foreign direct investment amounts to a measly $50 million a year and aid per capita has tripled to about $160 since 1997. Pervasive electricity shortages, despite budget-draining subsidies of imported energy, hamper economic activity. Albania was rated 100th (out of 174) in the UNDP's Human Development Index and 90th (out of 175) in UNICEF's Report on the State of the World's Children (under-5 mortality). Its neighbors ranked 55-73.
The isolationist legacy of the demented and paranoid Enver Hoxha is only partly to blame. Mismanagement, corruption, the criminalization of society, and tribalism are equally at fault in post-Communist Albania. Everyone takes bribes -- not surprising when a senior minister earns less than $1,000 a month (10 times the average salary). A well developed, though fast eroded, social safety net through extended families ensures that only 20 percent of the population is under the official poverty line. But these extended ties are one of the reasons for local unemployment -- at almost 20 percent of the workforce. Migrant workers constitute more than 25 percent of those employed.
With a 32-year-old prime minister -- Ilir Meta, overwhelmingly re-elected this year -- an economist by profession, Albania is reaching out to its neighbors. As early as 1992 it joined the improbable Black Sea Economic Cooperation Pact, which lobbies for the re-opening of the Danube River. Albanian cheap exports are competitive only if transported via river. Albania signed recently a series of agreements with Montenegro regarding transportation on the Bojana River and the Skadar Lake, use of harbors, the extension of railways and roads and the regulation of aviation rights.
Despite the unusual fact that neighboring Macedonia is not an important trading partner, Albania has responded positively to all the Macedonian initiatives for economic and political integration of the region. It is here, in regional collaboration and synergy, that Albania's future rests. Should the region deteriorate once more into mayhem and worse, Albania would be amongst the first and foremost to suffer. Hence its surprisingly conciliatory stance in the recent crisis in Macedonia. It seems that Albanian politicians have wisely decided to move from a "Great Albania" to a prosperous one.
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