Albania - Overview of economy

Albania is Europe's poorest country; its annual gross domestic product (GDP) per capita was about US$1,000 in 1997, more than 10 times lower than in neighboring Greece. Liberated from Turkish domination in 1912, the country endured periods of anarchy, autocratic rule, and foreign occupation before being taken over by communists in 1944. Until the collapse of communism in 1989, Albania was ruled in international isolation by a rigid Stalinist regime. All economic activity was nationalized and the production of consumer goods and the development of the infrastructure were neglected while heavy industry was stressed. Since the collapse of the Soviet Union in 1989, market reforms have taken a foothold and a privatization program has

been in place since 1992, when the pro-market Democratic Party formed a cabinet.

Reforms have been slow, however, and the economy shaky as a result. Particularly disastrous was the 1997 collapse of several financial pyramid schemes ) that wiped out the life savings of half of the Albanian population, causing violent riots. The democratic government was toppled, and foreign investors fled in panic. The Kosovo refugee crisis of 1999 dealt another heavy blow. Albania has been plagued by corruption and inadequate reporting; the flow of goods crossing the frontiers has remained largely unknown, and tax collection rates have been unsatisfactory. Organized crime and the trafficking of drugs and stolen cars from western Europe are a major social problem.

The socialist government, in office since 1997, has curbed crime, strengthened customs inspections, improved tax collection, and carried on with privatization. Some 420 comparatively larger enterprises were put on the market after restructuring , including Albpetrol (oil and gas and pipelines), Albakri (copper mining), Albkromi (chrome), Telekom Shqiptar, and the Albanian Mobile Phone Company. Many state-held assets were liquidated. Stable and independent government institutions were still a dream in 2000, however, although younger technocrats had been involved in decision-making and a more informative economic database was created.

In 2000, the Albanian economy grew by 7 percent, although it started from a low base. The currency was stable, inflation was only 2 percent (in 1999), and money transfers from Albanians abroad fueled a house-building boom. The International Monetary Fund (IMF) cautiously praised the authorities for progress in structural reform and their commitment to reducing poverty. Foreign investments in 2000 reached US$143 million (up from US$43 million in 1999), a Greek-Norwegian consortium bought the first mobile-phone network, a Greek-British consortium bought the second mobile-phone license, and corruption diminished.

Poverty is still pervasive and the country is burdened by a large foreign trade deficit (US$690 million in 2000). Among the government's concerns are the improvement of agriculture and the obsolete road network, encouraging private enterprise, and liberalizing foreign trade. The opening up of free trade zones to attract investors is expected to be supplemented by an improved legal environment, a financial sector restructuring, and a strengthening of law and order (safety is still a big concern in Albania). Heavily dependent on foreign economic aid, in 1997 the country received US$630 million in financial support and a US$58 million poverty reduction and growth facility (loan) from the International Monetary Fund (IMF), the World Bank, and the European Union (EU). No considerable funding has yet been received from the Stability Pact for Southeastern Europe, a regional initiative backed by the EU and the United States. Albania has not yet started negotiations to become a part of the EU, which insists that more substantial reforms are needed before talks could start.