In an effort to protect the financial market in Albania, the national bank took the decision yesterday to lower interest rates by 0.5 per cent. According to the Governor of the Bank of Albania Fullani, the reduction of basic interest rates to 5, 75 per cent will influence a drop in costs of bank loans. Yesterday’s decision by the Bank of Albania is the first step the country undertakes to counter effects of the world crisis on Albania’s financial market. In December, the Minister of Finance warned foreign banks operating in Albania not to transfer their liquidities outside of the country, but the Albanian government did not publish any procedure or mechanism to prohibit the transfer of capital from foreign banks in Albania to their mother banks outside of the country. A whole chain of foreign banks operate in Albania, chiefly Greek, Italian and Austrian. With this act, the Albanian authorities finally accept that Albania is not immune to the effects of the world financial crisis, which is becoming a major economic crisis. Albanian authorities tried to broadcast tranquilizing messages to the public, insisting that the world financial or economic crisis would not have any effect on Albania. It appears that the fundamental argument behind claims of insignificant effects of the world economic crisis on a country like Albania is based on the idea that the economy of Albania is still not an integral part of the European economy and even less so integrated into the world economy. However, this argument now appears not so convincing if we bear in mind the fact that more than 90 per cent of the financial market in Albania is controlled by the Italian Bank Intensa SanPaolo, the Austrian Bank Raiffeissen, Greek Banks (AIFA Bank, National Bank of Greece, etc), French banks such as Associate Generale etc.
Perhaps the most convincing argument behind the insignificant effects of the world financial crisis in Albania should be sought in the phase of Albania’s economic development, in brief, in the backwardness of the Albanian economy. This could be one of the first cases of benefiting something good from being in a weak position. PM Berisha, who is facing a very difficult challenge of winning a second four year term on 28 June this year, yesterday excluded every scenario possible of economic slump as a result of the global crisis. Speaking in Davos, Switzerland, at a meeting of the World Economic Forum, Berisha stated that Albania has not been seriously knocked back from the economic crisis and that there is very little chance of this happening. According to the Albanian PM, Albania offers an example of a classical economy in which derivative branches did not develop. PM Berisha claims that the banking system in Albania functions according to classical rules of not granting credits above 50-70 percent of the deposits. Local experts uphold the same argument. However this method of very prudently granting loans in Albania, say the political analysts, is linked also with the relatively weak situation of the state institutions, with the lack of experience of the Albanian society to build businesses on credits. To avoid bad credit in a country where there is no address system and where there is almost anarchy in property ownership titles, the banks have been compelled to apply extreme procedures and high interest rates.
In the meantime, the world crisis has begun to have its effect on Albania too. Over the last six months the banks have very obviously cut back on granting credit in comparison with one year ago, although bank loans currently stand at 55 per cent of bank deposits.
Another danger which should be taken into account by the Albanian authorities is the foreign capital that is predominant in Albanian banks. For example, the banking crisis in Greece, where loans surpassed deposits by six billion dollars, will have its own effects on Albania, where Greek Banks will tighten loaning and suspend investments. The danger also stems from the possible displacement of capital from the branches of Greek banks in Albania to Greece, which would cause a lack of liquidity and a freezing of crediting. The initial effects on the Albanian economy have begun to become visible in relation to the remittance money from Albanian emigrants which has dropped fifteen percent, as well as direct foreign investments (FDI) which have decreased ten percent.
All the indicators are there that the Albanian economy will not be seriously knocked about by the world economic crisis, however, it has become more than clear, that Albania is not immune to it.
2009 is an electoral year and it is understandable that the government and other actors in Albania will be focusing growing attention on the economic crisis which had now arrived in Albania.
