TIRANA, June 15 During his electoral campaign, Premier Berisha has many times denied the International Monetary Fund was to have a new mandate in Albania. On the other side, opposition leader Edi Rama has included a new agreement with IMF in the top priorities of the next legislation if his side is to win in the June 28th elections.
At the end of the IMF’s last mandate in January 2009, Berisha refused to agree to a new proposal with the international institution, arguing that Albania had been “promoted” among the mid level income countries, a sign of successful economic reforms and therefore not needing further assistance and supervision from the IMF.
Yet, despite the declarations from the electoral camps, local and international experts are of the opinion that Albania has no other alternative but to renew its relationship with the Fund.
“IMF will come and we shall see what agreement we can reach,” stated an anonymous Albanian official to Reuters. “We need IMF for statistics, structural reforms, and the guarantee it provides.”
“The only way to save ourselves from the mounting interest payments of our public debt is to renew our partnership with IMF,” another official, also anonymous, said for Shqip, one of the main Albanian newspapers.
Albania, due to its economic success, graduated in 2004 from the list of countries that could benefit from soft loans from the Fund. However, the partnership with IMF continued after 2004 with valued assistance from the international institution in fiscal reforms and its role as a trusted intermediary to help the Albanian government receive financing under favorable conditions. As an example, when the partnership was still in place, the Berisha government managed to receive a 230 million euros loan with interest rates equaling Euribor rates plus 1.25% and with IMF serving as a guarantee. Earlier this year, without the partnership in place, the government took another loan of 250 million euros with interest rates of 9.65% plus Euribor rates. That’s a difference of 6.15% in total interest rates including change in Euribor rates, which were 2.25% lower than in 2008. The loan itself matures in 2012 and the only alternative for the Albanian government is to refinance it by issuing Eurobonds. That in itself is impossible without the likes of the IMF and World Bank serving as guarantees.
The ending of the partnership could not come at a worse moment. Budget revenues are stagnant while expenditures have peaked record levels. The World Bank refused to provide a loan to the government under the argument of illogical administration of public finances that included an increase in pensions and administration salaries in a situation of economic stagnation. JCR Ratings, an international company specializing in debt evaluation, changed it forecast for the future economic stability of Albania from “stable” to “negative”, based on expected effects from pre-electoral populist spending on inflation and on the general financial health of the country.
The IMF itself warned in February that the “halt of the partnership happened in a difficult moment of global crisis” and “elections could pull focus away from the macroeconomic stability of the country”. Same warnings were issued by the World Bank and Central Bank of Albania (BoA). Only a few months ago Ardian Fullani, BoA Governor, advised the government to restart talks with the IMF.
What the IMF brings to the table
The relationship between the IMF and a member country is in substance a commercial one with mutual benefits. Countries on the brink of financial and economic crisis can benefit from funds provided by the likes of the WB and IMF and in return they should self-police their ability to pay back debts. The IMF, like the World Bank, is funded by developed countries in order to supervise economies of the developing world and prevent possible crisis to have a regional, or even a global impact.
Albania is far from a possible crisis, financial or economical, but it is in desperate need of self-policing, not only because of irresponsible spending and high cost borrowing for short-term benefits (such as wining the June elections), but also, like any other country today, it is faced with a worldwide economic crisis that cannot be avoided only by good will and absurd domestic preventive measures. In this regard, under the supervision of the IMF, Albania can reform its budget deficit, its public spending, and possibly refinance its public debt under easier conditions.
However, in order for the partnership to be effective, the IMF should not only assume a role of consultancy, but also make use of enforcement mechanisms, which can only be achieved in certain situations. Some experts, like Adrian Civici, Dean of the European University of Tirana, says that, “ưoliticians can be irresponsible whether they have an agreement with IMF or not.” Sherefedin Shehu, deputy minister of finance, has previously declared that, ” The IMF is not needed as long as the country is not in a financial crisisŢ which reflects, perhaps, the fact that the current legislation perceives the IMF as a last minute Good Samaritan, ready to intervene on a moment’s notice.
That is clearly not the case. If the IMF was to be invited only in the face of a real crisis, it won’t mean the Fund will be ready to open its sack of money according to Albanian wishes. The whole idea is that a partnership will, at the very least, prevent such a situation, rather than deal with it, which surely would be much more painful.
As many experts agree, Albania needs the IMF for the experience it brings and because of the immature governmental policies that can bury the country with a debt it cannot pay.
A new invitation to the IMF to return to Albania will have opposite effects on the country’s image. On one hand, it will surely be a sign that the country is not ready yet to stand on its own feet. On the other hand, however, it will show that Albania can reflect on its mistakes and is willing to learn from them. And while we do that, we can rest assured our pride will recover.
Signs of renewed collaboration
Despite the lack of agreement, Albania remains an IMF member. During the last few months the IMF has offered advice to the Albanian government on more than one occasion. However, in contrast with other members, currently Albania cannot profit from IMF funds, but the relationship continues on a consultancy and technical assistance level.
Last week in Washington, the General Directory of Taxation (GDT) singed a long term agreement with IMF to receive technical assistance. The agreement, after year long negotiations, was reached during a meeting of taxation departments from the Balkans and Hungary to study the recent reforms and the administration of revenues from these countries during the period of the current global economic crisis.
For two days, IMF experts studied data of the Albanian fiscal system, the current fiscal reforms, and the proceedings of the Millennium Challenge Program, financed by USAID, concluding with a positive evaluation. Indeed Albania was the only country recording a growth in tax revenues despite the crisis, but it is also true increased tax revenues don’t necessarily translate to real economic growth and that in itself requires an analysis of its own.
The IMF agreed to financially support the information technology of the Taxation Department, which should improve service toward business.
The agreement is a sign that both sides are not cutting ties with each other, but that they are building a new form of collaboration. Listening to Berisha, a return toward a former type of partnership sounds impossible, but it is also true that after the elections a new reality check of the Albanian economy will be made, undisturbed by the electoral fanfare. Whoever wins will be forced to take a more realistic approach, and that, by all chances, will include the relationship with IMF.
