Thursday, October 16, 2008

Unhappy to regain independence

Gjergj Erebara in Tirana
It was a routine news. International Monetary Fund concluded its periodical negotiations with Government of Albania last week. IMF had conducted such negotiations three times per year since 1991, except during 1997 year of civil unrest. All was the usual news, well known for Albanians, with IMF verdict on what government had done well and what was wrong. But was one exceptional element: The fact that IMF mission in Albania ends on January 2009, and that Albanian Government and Central Bank will resume full independence. They will be free to decide on monetary and fiscal policies without prior advise of IMF. Newspapers gained momentum to remember that this was the last mission, although the very last mission will come in November. Political opposition gained momentum to attack the government. Head of Socialist Party, Edi Rama, denounced publicly that “government had decided to oust IMF in an electoral year, in order to spend deliberately public funds to gain support”. He announced also that his government will accept IMF supervision if his party come to power after general elections scheduled for the next year.
For journalists and experts, Mr. Rama's denouncement was absurd. All were well informed that IMF mission was scheduled to end in 2006, but was extended for another three years, in order to observe the conduct of the new right wing government who had deliberately promised to halve tax rates and to double wages and pensions. A government decision to “expel” IMF simply does not exist. But Mr. Rama have hit straight in terms of political propaganda. Since IMF had left the country shortly before pyramidal scheme default and civil unrest of 1997, when Mr. Berisha, now Prime Minister was president, while Mr. Ridvan Bode, today Minister of Finance, held the same duty in that time, Mr. Rama had tried to say to Albanians that Mr. Berisha can sent the country again in chaos. The government was not interested or was unable to clarify its position in this issue. IMF representative in Tirana Ann Margaret Westin issued a declaration trying to clarify something, but in this moment, the majority of media outlets are highly critical against the government and no one was really interested about the truth. The news in the media was: “IMF is waiting for government decision for a new agreement”.
The end of IMF mission was supposed to be an important moment for Albania. The moment of regaining independence in economic decision-taking after 17 years of IMF rule. But no one is enjoying this.

Albania and IMF
Since 1991, IMF was considered as the real government of Albania. The agreement was simply: If Albania obey to IMF advises, World Bank will offer cheap loans to rebuild the country. “In 1994, we had to obey in order to receive money to pay salaries”, former Prime Minister Aleksander Meksi told to me. IMF word was a strict rule till 2005. Government frustration from IMF officials produced some degree of public discontent. Business lobbies were anger by seeing that they were able to influence government officials or even whole parliamentarian body; but their attempts to push for decisions that were in their interest or to block decision that they considered harmful, were halted many times from a single IMF official: “the permanent representative in Tirana”. In 2003, when conservative US businessman Steve Forbes visited Albania, the then head of Chamber of Commerce of Tirana, Mr. Luan Bregasi, gifted to him a sword jocking that “maybe he will not go to kill IMF”. Mr. Koco Kokedhima, another well known businessman and publisher, declared in front of a wast media coverage: “IMF and World Bank want that we die in silence”.
In these times, local producers of beer, flour and vegetable oil, were convinced that if import duties for such goods will be lifted, as IMF advised/ordered, they have to go into bankruptcy.
Media outlets in Albania today are owned basically by the same group of businessmen but last week, almost all newspapers supported Mr. Rama when he said that IMF should stay. This was not a surprise, since IMF was unable to control the government of Albania since 2005. The last battle between IMF and business class of Albania was fought in November 2005. (Should be checked). IFM had ordered the government to introduce for the first time Value Added tax for apartments and commercial buildings sold from construction companies. The strong lobby of construction entrepreneurs, managed to manipulate both right and left wing governments and two parliamentarian bodies, and halted that decision.
World Bank have removed Albania from the list of countries under development who receive low interest loans, to the list of countries who can afford commercial loans. Done this, IMF had lost its main pressure mechanism. The right wing government have pursued radical tax policies and have increased salaries for public servants well beyond IMF advices.

And what will happen after IMF
Minister of Finance Mr. Ridvan Bode, think that after IMF, Albania will enter under the supervision of European Commission. Since the country aim to become a full member of EU, the terms of Maastrecht Treaty will be obligatory. Albania will join EU in 2014 according to an optimistic schenario. Till then, the Office of Economic Policies in Albanian Parliament should carry on the supervision of budged planing and fiscal policies, while Bank of Albania, who by law is an independent institution, will act as adviser. Albania have commissioned an independent evaluation of its foreign debt. International evaluator Moody's assigned to Albania the nation's first-ever sovereign ratings of 'Ba1' country ceiling for foreign-currency bonds and an issuer rating of 'B1' for the debt obligations of the government. Ba1 means “obligations rated Ba are judged to have speculative elements and are subject to substantial credit risk”.
But many peoples here think that Albanian politicians are not enough amenable to restrain their desire for impressive decisions. The role of IMF is to protect peoples from irresponsible governments. Now the core question is if Albanian Politics is enough responsible for this. IMF in its yearly report on Albania for this year, reminded that “popular politics is the main risk for Albanian Macroeconomic stability”.
According to Selim Belortaja, well known expert who lead Albanian Center for International Trade, not only Albanian politicians are not able to show any sign of responsibility in public spending, but also Albanian financial institutions are not enough prepared to act independently.
“Albania had save its financial stability only because after any government decision was a IMF official. You should keep in mind that till now, the only institution that evaluate GDP growth is IMF”, said Belortaja.
“Despite enormous number of achievements pretended by the government, state budged is still under heavily political pressure. Many small interest of daily politics could have big impact on stability”, - said Zef Preci, head of Albanian Center for Economic Research and former minister of Economy. “Till now, IMF data were the most important source of financial transparency of the country. In the next year there will be less transparency”, - he add.
Mr. Adrian Civici, Dean of European University in Tirana, think that in this discussion we should note the difference between knowing what is good and what is bad and the fact that some politicians can consciously take harmful decision. “I don't think that a new agreement with IMF is necessary”, - he said. “I think that now Albania have the necessary know how to go in the right decision. Is some politician act in irresponsible way, this this can happen despite the fact if there is an agreement or not”.
I have contacted several experts from right and left wing politics as well from civil society and academics. Almost all of them think that Albania is not enough prepared for economic independence. Some of them remind the fact that many of MP's have not the minimal knowledge about economics and many leading politicians in the country have the bad habit of refusing a consultation with experts on important decision.
Last December for example, the Prime Minister Sali Berisha promised in parliament that the government will offer a 40 euro gift for some 600k retired workers. Its minister of Finance, Mr. Ridvan Bode, said publicly, “I have not enough money for that”. The Prime Minister replied abruptly: “Than you will sent to the pensioners a postcard with your name on it instead of a gobbler for the new year eve”. Mr. Bode obeyed and spent the money that were intended for investments. Mr. Berisha have also promised to rise public sector wages and pension payments in the next May, only two months before the election. This is the first time that the government increase salaries so early.
As for the next big question, that if the 17 year old collaboration between Albania and the Fund was positive, most of them agree: “It was positive”.
“It was a little harsh as collaboration, but very effective. Many decision were imposed”, said Mr. Belortaja.
“This was the most effective collaboration that Albania have had”, - said Mr. Civici. “Any Albanian official was clear were to go”.
At least in statistics Albania is the “good schoolboy of IMF”. In 1991, Albania had a rappelling inflation, a mere 250 USD GDP pro capita, and none foreign currency reserve. Now inflation is as low as in Eurozone, Albanians enjoy 6300 USD GDP pro capita. But not all are convinced about that. A study about inflation in Albania conducted by Prof. Fejzi Kolaneci for New York University of Tirana, found that data's about inflation in the country had been so much manipulated since 1994. “We have studied inflation in Albania using several different methodologies, including Milton Friedman Law and Kolmogorov Theoreme and found that nothing fit”. By contrasting inflation data with basic theories on this topic, Professor Kolaneci found simply that inflation data's were manipulated.
A expert who work for the government and as a result, refuse to speak on record, shown to me an old piece of newspaper dating in 1998, were IMF have published its projections about Albanian Economy, were the most clamorous claim was that IFM advise will expand the country's export, something that not really happen. Many experts doubt that inflation was broadly constrained by using currency exchange rate.
Till now, Albania have not a independent evaluation on GDP growth. Usually, officials said that GDP growth had been as the same as predicted. Evaluations change only with the government. When in 2006, Albanian Statistical Institute reevaluated GDP data's for the period 2002-2006, they found very different reality.
Despite such acclaims, many experts sees IMF as the institution who saved Albanians from irresponsible politicians. Now the country is near the achievement of its independence. There is a national stereotype in Albania about that. Many thinks that the country can develop faster if some big power invade us of some decades. This stereotype derive from Second World War, when Albanians had seen a tremendous change in those few years under Italian Occupation. Almost 1500 km roads were build in less than three years by Italian investments. In terms of road buildings the last 17 years had been as useful as Italian Occupation. And although that many experts believe that Albania can develop faster without IMF, many politicians are not so happy to regain independence.

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