Albanian economy in race against time

[Reuter / Janet McBride]

TIRANA, March 7 (Reuter) - Albania risks lurching from
political to economic crisis if it does not move swiftly to end
violence which has flared across the south of the country,
economists said on Friday.
Western firms that had been tempted to pump money into
developing over 300 km (170 miles) of spectacular Adriatic
coastline and recovering oil and metal deposits may reconsider
after last weekend's insurrection in the south.
An alarming drop in consumer spending that accompanied the
rise and fall of fraudulent pyramid investment schemes is also
threatening to suffocate domestic enterprise.
Retail sales dropped by half at the end of last year as
Albanians poured their meagre savings into the pyramids. When
they crumbled in January, people scrambled to exchange leks for
dollars, driving the domestic currency down by up to 50 percent.
On Friday the lek was quoted at 134-137 to the dollar on
Tirana's grey, open-air currency market, compared with 104 at
the beginning of January.
``The country needs to get back to a normal business
environment. There are major difficulties ahead and if they are
not overcome soon the costs will be higher,'' said Carlos Elbirt,
the World Bank's resident representative in Tirana.
``The destruction is in itself a big problem. In addition
there is the question of how much damage there has been in terms
of business that will not materialise.''
Oil firms, including Occidental Petroleum Corp of the United
States and Austria's OMV AG , have been drilling for oil
offshore. Some have also been eyeing on-shore sites. Other
foreign firms, mainly from Italy and Greece, have put money into
producing textiles and shoes in Albania.
Analysts say events over the past two months will have done
little to instil confidence abroad. ``Obviously, taken on its own
the current situation is very bad for foreign investment,'' said
a western economist who declined to be named.
Without outside help the ruling Democratic Party will
struggle to put the economy back on track. Investors in the
failed pyramids have taken to the streets to demand repayment of
up to $2 billion sunk in the schemes but the government, faced
with a gaping budget deficit, does not have the cash.
The European Union, Albania's biggest source of foreign
funds, has said future aid will depend on Tirana's willingness
to toe the international line. An International Monetary Fund
mission, which was due to arrive later this month, is likely to
be delayed.
``Albania needs an agreement with the IMF, enhanced job
creation programmes and an improved infrastructure. Recent
events have highlighted weaknesses,'' an analyst said.
But the World Bank's Elbirt said the picture was not all
gloom. Blessed with abundant natural resources, Albania had the
potential to shed its tag of Europe's poorest nation.
Economic growth, although slowing, was still healthy at
between six and 10 percent last year and the recent panic on the
currency market had subsided, easing pressure on the lek.
``Albania is a rich country, relatively speaking. It is a
good location, it has good agricultural land, fishing resources,
tourism and mineral resources,'' Elbirt said.
``Society has learnt from bad experience. Albania has paid a
high price to learn pyramids are no good and money does not grow
on trees. The future of Albania will be without pyramids and
that is a precondition of development.''