[ALBSA-Info] Albania's economy needs investment-c.bank

[Iris Pilika]

INTERVIEW-Albania's economy needs investment-c.bank
01:12 p.m Jan 24, 2000 Eastern

By Linda Spahia

TIRANA, Jan 24 (Reuters) - Impoverished
Albania is basking in steady macroeconomic
growth after years of turmoil, but the country
faces a crisis unless the underlying economy also
blossoms, the central bank governor said on
Monday.

``Macroeconomic indicators are under control,
but on the other hand the real economy is not
growing with the same momentum, and a
deformed economy could lead to a crisis,'' Bank
of Albania Governor Shkelqim Cani told Reuters
in an interview.

Runaway inflation has been reined in to its
lowest level since Albania toppled communism in
1991 to deflation of 1.03 percent last year
compared with inflation of 8.7 percent in 1998
and 42.7 percent in 1997.

Gross Domestic Product (GDP) grew by eight
percent last year as well as in 1998, while the
budget deficit has been reduced to 5.5 percent
of GDP from 6.4 percent.

But investment is still woefully lacking, Cani said.
``The future of the Albanian economy has a
point of doubt -- we should be realistic about
that. Albania still lacks projects, growth in
production, new services and credit for
businesses,'' he said.

Investment in Albania's tattered infrastructure
and industry continued to be thwarted by
concerns over public order, rampant corruption
and smuggling.

Cani said Albania had not capitalised on
opportunities offered by aid from the
international community because it had no
projects to absorb the money.

Moreover, Cani said the sale of state
enterprises should be speeded up after constant
delays. The privatisation of Albania's biggest
bank -- the Savings Bank -- has been postponed
numerous times and is now earmarked for the
first half of 2000.

INEFFICIENT BANKING SYSTEM KEEPS
INVESTORS AT BAY

Albania has seen an explosion in the number of
private banks, but citizens as well as banks are
reluctant to invest money after having their
fingers burnt in fraudulent investment schemes
a few years ago.

Albanian businesses are also reluctant to use
the country's banking system because they see
it as inefficient. This has resulted of almost a
third of the total amount of notes and coins in
circulation being held in cash.

Some 200 billion leks ($1.48 billion) are deposited
in banks while 95 billion remain ($703 million) in
cash.

``The amount of cash in circulation is big
because Albania is a backward country --
banking is not yet efficient and the settlement
system is undeveloped too,'' Cani said.

The central bank and private banks are working
on improving settlement and plan to introduce
the Real Time Gross Settlement (RTGS) system
in two years.

In a bid to foster competition, Cani said the
central bank had granted the necessary banking
licences and eased monetary policy by lifting the
credit ceiling. But borrowing remained low.

``Bankers remain conservative and they don't
invest where they see risks,'' he said.

Cani also lamented the fact that although the
central bank had repeatedly lowered interest
rates on deposits, this was not followed by a cut
in interest rates on credits. Given that
government treasury bonds were yielding over
15 percent, there was no incentive for banks to
increase lending rates.

Last week, the Bank of Albania cut interest rates
for three and six month deposits to 8.0 and 8.25
percent respectively, both from a previous 9.25,
and rates for 12-month deposits to 8.5 percent
from 9.0 percent.

STOCK EXCHANGE MORIBUND

Albania's stock market also continues to suffer.
Launched four years ago, it suffers the ignominy
of still not having a single listed company. All
that is traded in Tirana is the odd treasury bond
on the secondary market.

Cani attributed the stark absence of shares to
the fact that most companies stumbled at the
first hurdle -- publishing certified balance sheets
for the last three years -- but also because the
country lacked the tradition of a stock
exchange.

Cani said it would take another two years before
Albania had a properly functioning bourse
``because the Albanian economy is not yet
ready for a stock exchange.''