KOSOVO CRISIS: CONTRADICTORY EFFECTS IN THE ALBANIAN ECONOMY

AIM JUNIOR, TIRANA, MAY 11, 1999

"The Albanian Government has suspended all investment and has reallocated expenses to cope with the refugee crisis", said a source from the Ministry of Finance in Tirana.

"The Albanian economy is under shock. It is a very big burden for our weak ribs", said Adriana Berberi, deputy Minister of Finance. "The Government is obliged to suspend the investments planned for the first 4-months period this year, in order to avoid the worsening of the situation towards chaos".

Investment planned for the first 4-months period this year was about 18 million dollars, but most of it was used to restore hospitals and to supply them with medicine. The Government is obliged to use a good part of this reserve fund to cope with the refugee crisis.

Since Milloschevic started his campaign of ethnic cleansing, over 400 thousand Albanians from Kosovo have entered Albania from the Northeastern border. While trying to recover from the 1997 crisis caused by the collapse of pyramid schemes, where thousands of people lost their life savings, Albania is facing a humanitarian crisis, which might become a financial crisis.

The Ministry of Finance says that they are trying to maintain the same microeconomic indicators defined at the beginning of the year in cooperation with the International Monetary Fund. This aimed at an increase of GDP at a level of 8 per cent and an inflation norm of 7 per cent. But the Ministry of Finance says that it will be obliged to review the budget deficit, which initially was planned to remain at the level of 5.6 per cent of GDP.

"We do not want to review these indicators and this was the aim of the visit of the Minister of Finance in the IMF and of the spring summit of the World Bank in Washington", Berberi said. Nevertheless, many things will depend on the development of events in Kosovo. In case there will be ground troops, the impact on the economy will be obviously great. In case there will be a political solution, we are able to cope with the situation also supported by the international community.

The international community has promised to help Albania to cope with the crisis by offering humanitarian and budgetary aid. The World Bank has already approved a credit of 30 million dollars to support the budget, while the European Community has granted 62 million euro to Albania. Albanian authorities have calculated that until the end of this year they will need a budgetary support of 220 million dollars and other 600 million dollars as humanitarian aid. According to their calculation, the daily cost to feed one refugee is about 3 dollars.

The decision of Paris Club to suspend for one year the debt liquidation of Albania and Macedonia, the poorest countries in the continent which are suffering the humanitarian crisis, is more a symbolic support than a financial aid. The foreign debt of Albania is 492 million dollars and within this total, the debt to the Paris Club is very small. Liquidation of foreign debt during 1999 is 23,3 million dollars where only 10 million go to the Paris Club.

The effects of the crisis are not obvious yet in the market. Despite an increase of 15% in the population of the country. Prices and local currency are relatively stable and at the same levels as one month before the Kosovo war started. The Bank of Albania states that the increased population and the lower production and investment at the moment are compensated by an increase of private services and money transfers. Hotels are enjoying a golden business moment due to Albania's position at the center of attention, due to the presence of international media and of humanitarian organisations in the country.

On the other hand, NATO is engaged in improving the country's infrastructure, which is the biggest handicap of Albania. There are indicators that NATO is starting to implement projects to improve the Northern roads of Albania, as well as airports which are in very poor conditions. The increasing private money transfers of Albanian refugees foreseen to reach up to 350 million dollars in 1999, are balancing payments in a country which imports almost everything. In addition, there are other money transfers done for deportees from Kosovo. Most of them have their families or relatives living in the Western countries, who are sending lots of cash into the country. This explains the fact that the local currency is being exchanged in hard currencies, American dollar and German mark, at same rates as one month ago. For the first time, Albanian exchange market is dealing with the Yugoslavian dinar at a rate of 1:6.8 lek.

"Sometimes wwar brings development", says Fiqiri Baholli, Director of monetary policies in the Bank of Albania. "For example, for the balancing of payments, NATO soldiers are exactly like tourists. They bring in cash money".

What troubles the Bank of Albania is the fact that long-term investments which bring development will not be realised. Nobody will take the risk of investing in a country at whose borders bombardments happen every day and where refugee exodus does never end.

Although one cannot talk about a war economy yet, if the crisis continues for long and if the international community does not react in time, the delicate economy of Albania might very easily collapse. The limited roads for importing might affect the market in lacking goods or increasing prices.

Albania hopes that the end of the Kosovo war will be at the same time the start for the reconstruction of the Balcan and a moment when it should take advantage to forget the past and its poverty.

LINDA SPAHIA (AIM Junior)