By artan pernaska
apernaska@tiranatimes.com
Short-term and long-term economic effects
A tendency of depreciation of the national currency, the Albanian lek, in its exchange rates towards the US dollar and Euro has been observed throughout the last months, breaking during the last weeks psychological resistance caps and making the tendency at least for a short time depreciation-oriented or on a high-level stabilization run. The short-time evolution of the exchange rates of the Albanian national money to the US dollar and Euro will be dependent on the evolution of the factors that have produced its fall or the introduction of new tendency-forging factors. But whatever be the future development in the exchange money market in the upcoming months, a certain short-term and long-term economic effect might be well under way.
Fall of lek in exchange rates makes cost of foreign debt higher to pay
The Albanian State might face unprecedented cost of foreign debt due to the devaluation of the national money lek (ALL) in its exchange rates towards the US dollar and Euro. Both exchange now at higher rates than a year ago and have broken psychological caps like 100 leke (ALL) to the US dollar (USD) or 130 leke (ALL) to the euro (EU). Therefore the slide of lek (ALL) can be deeper and make the cost of foreign-currency-expressed contracts more expensive to pay. The last time euro was as high as this and a little bit higher was in 2004 reports the local press. A considerable part of the foreign debt of the Albanian State is in US dollars and debts in Euro have been contracted only in the last decade. World Bank and other international institutional banks are the principal lenders to the Albanian State and, to a large degree, the debts that have been given were expressed in US dollars. It is reported that the highest borrowed value was lent by the World Bank in different debt contracts that are reported to reach 728 million US dollars (USD). The press underlines that the World Bank, an international institutional bank, operates in dollars. In consideration of the future debts that Albania might contract towards international institutional banks, this is potentially an efficiency-reducing factor, since Albania faces today a situation where the overwhelming majority of economic circulation is expressed in Euros, and since it is uncertain whether the investment of the money borrowed in US dollars in goods or services priced in Euros will have a disadvantageous effect or not. In any case, the exchange rates between the Us dollar and Euro, as well as the exchange rates between the Albanian lek and the US dollar or Euro, will be exercising factors on the cost and on the efficiency of future debts.
According to agreements with the International Monetary Fund and requirements for European Union admission, the total stock of debt of Albania should not be higher than 60 % of the GDP (Gross Domestic Product). With a total value representing more than 34 % of the domestic debt, Raiffeisen Bank that has today an extensive network in Albania, is reported to be the principal lender to the Albanian State.
Foreign-currency-expressed contracts
The depreciation of the Albanian lek in its exchange rates towards US dollar or Euro, does not affect only the cost of the foreign debt, but it affects, at a more extensive scale, all foreign-currency-expressed contracts. This depreciation produces consequences not only on a national level, but also on an individual and very private level.
Air-flight, bus and ferry tickets, tourism packets, part of the lodgings to buy or to hire as well as the foreign debt costs are now reported to be higher. The number of goods and services that are expressed in foreign currencies (mostly in Euros) is getting higher. The reasons for this is that part of the purchasing-power and consumption needs reside with Albanian migrants abroad or because goods and services offered in the Albanian market are consumed in foreign markets, like travel offers, for example.
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But part of this increase in foreign currency offers within the Albanian domestic market derives from the fact that fluctuant exchange rates make it difficult for local or foreign businessmen to stick their prices in the Albanian national money. Being read by Albanians at home or by Albanians abroad, books have, since a long time now, expressed a tendency of giving their price in Albanian leke as well as in Euros. Though this is not a generalized phenomenon, many books are now offered showing bi-currency prices.
Car sales are as well taking a tendency of being carried out in foreign currency, mostly in Euros. Part of the real estate market is also adopting Euro or US dollar as a target currency, and many prices of apartments to buy or to hire are advertising in Euro or in US dollars. Though there has been a kind of stagnation in the prices offered in the real estate market, some people think that a certain price fall has begun but is not visible because of the depreciation of the Albanian national money. According to this argument, at the same price shown in foreign currency for an apartment during the last months (and the sale delays seem to be prolonged), a price decrease is to be observed because of the actual effect of the exchange rates. This price decrease is supposed to be equivalent to the depreciation level of the Albanian lek towards Euro or US dollar over the observed period.
On the other hand, consumption goods like computers and cameras, that have a rapid change in offers of models and capacities, sell in Euros in most specialized stores. Such rapid circulation rhythms seem not disposed to support the fluctuations in exchange rates. Even some internet providers are now offering their services in Euros.
Tendencies of euroization of the domestic economy
The actual depreciation of the Albanian national money, lek, in the exchange rates towards the Euro or US dollar, might reinforce an earlier tendency of the domestic market to realize domestic transactions with foreign currency liquidities or transfers. This tendency, even at an earlier time, might have been induced by the inconveniency of fluctuations in the exchange market. The high volume of exchange in Euros might lead actors of the domestic economy adopt a long-term tendency of carrying out transactions in Euro. Not only is the highest volume of import-export realized with Italy and Greece, both Euro-zone countries, but Albania is today almost encircled by Euro-oriented countries. In the region, neighboring Kosovo and Montenegro operate in Euros and are today non-official Euro countries. Neighboring Macedonia operates in the national money, Macedonian Denars (MKD), but seems to be, in mid-term or in the long-term, Euro-oriented and Euro or other foreign currency can actually be used in some Macedonian stores.
During the last years, the volume of commercial exchange with these neighboring economies has increased. This increase is expected to continue, making Albania to face more and more Euro transactions, requiring exchange to and from the Albanian national money, lek, to Euro. In the long run, this might reinforce the tendency of the euroization of the domestic market.
