II. Albania's Economic and Social Transitions

Institute on East Central Europe

Summer, 1996

Sami Repishti

Adelphi University

Allow me now a few introductory remarks concerning this subject. Some observers have characterized economic development in Albania since 1992 as a two-sided miracle. On one hand, great strides in many aspects of macroeconomics have been made. On the other hand, Albania is the country that remains the poorest in Europe and will require significant outside assistance in the years to come. Albania benefits from the advice and the assistance of many international organizations, such as the World Bank, the IMF, the European Bank for Reconstruction and Development, the PHARE program of the European Union, and the United States government, as well as of several NGOs in Albania. The main lesson delivered to Albania has been the adoption of shock therapy in transforming from a highly centralized economy into a free market. The process known as "privatization" was adopted first in agriculture, in which over 65% of the population still works, then in domestic trade, and subsequently in small and average-sized economic enterprises. Nineteen ninety-five may also see the privatization of the decrepit large state enterprises. Almost all trade and price controls have been liberalized.

Now the goal is twofold. In addition to the areas of immediate needs, economists should also think of building a solid foundation for future growth and increased productivity. The legal framework for this reform is under construction. Foreign investment laws seem to be attractive to foreign investors. The situation has improved for labor, company accounting, bankruptcy, banking, and central banking. Tax and custom codes have been restructured, and a commercial code has been established.

The areas suffering most include exports, which are four times lower than imports, causing an increasing trade deficit. In 1994 Albania's foreign trade deficit was at least a billion dollars. Exports are also being crippled by the war in Yugoslavia, the embargo, and the poor infrastructure, which makes the movement of merchandise outside the country difficult.

The aggressive privatization program has generated great difficulties for large sections of the population. To provide a safety net for the victimized, to face the nearly $300 million a year loss from the embargo in Yugoslavia, and to balance imports and exports, will be a daunting job for anyone who wants to control the budget deficit and also to control Albanian currency. And finally, Albania must reorganize the state bureaucracy and modernize its judicial system, in order to secure a proper atmosphere for the rule of law.

Albania benefits from an influx of foreign remittance sent by the boat people of 1991, who have provided the daily bread for tens of thousands of Albanian families and eased the heavy pressure of unemployment, which is still too high. However, the housing shortage is acute, and food, health services, and education cannot rely on the present industrial infrastructure, which is incapable of supporting a modern functioning economy. Foreign aid, therefore, remains crucial. Albania will still have an uncertain future in both economic and security areas, while the ongoing conflict in former Yugoslavia continues. Financial experts have concluded that the legacy of 47 years of communism has brought a poverty level far exceeding that of any other European country. A dilapidated infrastructure, non-performing and inefficient industries, a health system that is almost non-existent, poor environmental conditions within urban areas, and the ability to trade effectively with its neighbors: these challenges are compounded by the largest annual population increase in Europe.

There are several barriers to emigration due to the political and security climate of the region. In August 1994 alone, over 70,000 Albanian temporary workers were sent back by Greece. Health, education, and general welfare are greatly underfunded. Calls for privatization of secondary and higher education could be very harmful to the social climate. All of this affects the social fabric of Albania: for the individual, for the family, and for the nation.

The distant past, Turkish, and the recent past, communist, have profoundly affected Albania's present social, cultural, and political life. A major factor is the loss of faith in government institutions. Mechanisms of repression seem to have left indelible marks in the consciousness of Albanian society. Most Albanians are convinced of a better future and have accepted the shortcomings of the old order and the need for modernization. The communist revolution in Albania may be a textbook case for theoretical revolution, namely, the destruction of the old order and the introduction of the new. The tragedy that shook Albanian society is that the cure turned out to be worse than the disease. And the faith one may find elsewhere to overcome defeat has been almost irrevocably shaken in Albania. The result is that despite three years of admirable progress in many fields, the fifty years of dictatorship, hostility, confusion, and fear, as well as the specter of an uncertain future, remain factors of desperation in the consciousness of many Albanians.

Yes, Albanian society still worships the concepts of word of honor, oath of allegiance, promises to be kept, chivalry, stoicism, hospitality, and so on, but it appears that the social environment destroyed by the collectivism imposed by communism on the eternally individualistic Albanians, now in the process of regrouping, is not conducive to further fostering these values. For many, now running after fast and unscrupulous ways of getting rich fast, these pillars of declining Albanian traditions seem to be shadows of a past possibly gone forever. And yet previously they were the glue of Albanian society: the parameters of the daily life of the majority, and the code of conduct as individuals and members of their social groups.

In an essay on Kosova, my friend Dr. Janet Reineck speaks about the acceptance of inevitability of vuajtja - in Albanian, "suffering." Albanians in Kosova, she wrote, cope with marginality by cultivating their identity as an oppressed people. Albanians, she said, accentuate an ideology of persecution in order to transform the inferiority associated with marginality into a sense of superiority associated with uniqueness. Unlike Albanians in East Albania, Albanians in the Republic of Albania, or West Albania, do not wait for independence to be secured for all. Independence is a blessing they have enjoyed since 1912. What they have been waiting for is a new society with a greater sense of justice and more compassion. There are unknown economic difficulties introduced by the transition period from a centralized economy to a free-market economy, with its shock therapy, and the psychological transition to the so-called cultural freedom, where each village, each district, every town had to make its own decision concerning the structure of its own society. Freedom of worship, freedom of movement, and mass emigration turned out to be too much for both the rulers and the ruled. It is even more so when one sees a class of unscrupulous beasts illegally accumulating fabulous wealth at the expense of those suffering unjustly. And the government is unable to eliminate corruption as a way of life. Freedom and democracy, the driving ideas of the post-communist revolution in Albania, have lost much of their appeal. Although a few die-hards still dream of a return to the dictatorship of the past, personally I believe the past is dead forever in Albania.

I knew my Albania in the days when history seemed frozen. It reminds me of the old town in Harper Lee's To Kill a Mockingbird, in which people shop in the stores around the town square and take their time about everything: a day was 24 hours long, but seemed longer. There was no hurry, for there was nowhere to go. There was nothing to buy and no money to buy it with. Nothing to see outside the boundaries of the town. Nothing to see, nothing to do, and nothing to hope for. Unlike in East Albania, where Albanians were faced with a modus mori with their neighbors, a quest which often ended with ethnic cleansing, Albanians in West Albania have found a modus vivendi, which actually meant that their political life and the destinies of the people were controlled by decisions made elsewhere. Since 1991, they have had the opportunity to break the vicious cycle. And that is freedom. The lifetime struggle of past and present generations between totalitarianism and democracy, between the politics of destiny and politics of free will, has been won.

If this is not crystal-clear to many, it is because, as George Weigel put it, the defeated were not told clearly that they had lost. Many of them do not believe that they did. This has also slowed down the reform process in several post-communist societies. Albania today, a society previously ruled by a small elite with absolute power, finds itself, to use an existentialist expression, "condemned to be free." In every step they make, there is a choice to be made. Is it done freely, or is it controlled by outside forces strong enough to fight against individuals' freedom? Looking at the former communist countries, we cannot help seeing the shadowy side of the post-communist revolution. I am referring here to the chameleonic ability of the former communist nomenklatura to transform themselves overnight into businessmen, partly because of their abilities, and partly because of their illegal seizure of substantial assets that theoretically belong to the people. This rapid increase in personal wealth inevitably brought a dramatic increase in criminality. Without a firm establishment of the rule of law, the situation is a prescription for disaster. Lawlessness means that the politically powerless are at the mercy of the powerful. There is certainly a danger in the translation of ex-communist political power into new, capitalist economic power, and then into political power. This economic power coupled with appeals for equality and security, and the degree of internal cohesion the ex-communists still have, could be a serious threat for the democratic process of reforms in Albania.

One final point. Presently Albanian society does not seem to fully grasp the meaning of being free, of thinking and acting freely as individuals as well as social groups. One of the reasons, in my humble opinion, is the government's failure to provide a catharsis for many suffering Albanian souls. No legal effort has been made to deter the return to public office of the ex-communist functionaries. No effort has been made to document communist crimes there. No effort has been made to condemn them, and an overly-generous policy forgives the criminal. This attitude has had a devastating effect in the minds of the victimized majority. This very effort to come to grips, legally and honestly, with the questions of responsibility for persecution and degradation during the 50 years of the communist regime, will have a salutary effect, a kind of cleansing effect, on the political psychology of the Albanian people. It will also be a boost to their hopes for a better and safer future in that unfortunate land. Albanian society must heal its wounds. Religion is one way, in my opinion, and secular justice is the second categorical imperative.

Dr. Kemal Dervish

World Bank

Time is short, so all I am going to try to do is focus on some key points and present what I think are perhaps the issues that are most important to focus on when debating the economics of the Albanian transition and thinking about the future. It is an extremely important and unique case, and I think over the next few years books and articles will appear analyzing it in much greater depth than what is available today.

First, I would like to address the initial conditions. They were really as bad as you can imagine. I have traveled a lot, having been with the World Bank for over ten years. There are worse cases in some other continents, but it really was very, very bad. It was bad to start with in 1990, because the whole system had completely ground to a halt in the 1980s, despite whatever small achievements were made earlier. The 1980s were a truly dismal period, except in the education field, where the communist regime actually achieved a lot. But apart from that, in infrastructure, in industry, in agriculture, it was a disastrous situation in 1990. And then the two transition years made it worse because there was a collapse. There was really no decision-making on the government side. Also there were some key mistakes made during this transition period. And while I agree with Professor Pano that one has to look at the positive side of that period, too, because it opened the door to a lot of what happened afterwards, it is crucial to stress that, particularly on the economic side, some major mistakes were made during this period. For example, the enterprise law, which was at that time presented as a reform, as something good, basically handed the enterprises over to workers' collectives, Yugoslav-style, and made it very hard to get the privatization process going afterwards. We have learned throughout Eastern Europe that one of the biggest obstacles to privatization in a market-oriented sense are workers' councils that basically control the enterprise. And the enterprise law that was passed during the transition period in fact took away from the government the ability to privatize the enterprises. Another very bad thing that happened were 80% wage payments to workers, whether they worked or not, which was of course at the root of the inflationary spiral and the complete loss of control of the budget that occurred in 1991.

Inflation in the second half of 1991 had reached annual levels close to 400%, what one starts calling hyperinflation. The budget was totally out of control, as was monetary policy. A complete economic collapse of the country followed the political collapse. It is under those conditions that the 1992 elections took place, and that Albania had to put together the pieces in the spring and summer of 1992. I think for those who study this period in the future, it will be one of the really interesting cases of stabilization. Because within a year, inflation was brought under control. In 1994 it was under 15% overall. There are very few post-communist countries that can match that. So I think one very strong message is that the stabilization success has been impressive and surprising.

There were two key ingredients: the realization by the political leadership that you cannot do things halfway on stabilization, and a very strong commitment - one that we in the international institutions in Washington wish existed more often - to really stick to the IMF program. And the IMF did play a key role in this. Second, there was a majority in parliament. Parliaments in some other countries do not have a majority and consequently lack the ability to stick to the tough rules in the beginning. Another point I would like to stress is that now, after three years of experience in various European, former Soviet-bloc countries, one lesson is very clear: those countries that act up front, courageously, and in a comprehensive way to combat inflation and to stabilize their currency are definitely the ones that are doing better in terms of output growth and overall economic performance. Albania is an example of a country with a very low level of income, great poverty and difficult initial conditions, but you have other examples: Estonia, for instance, or the Czech Republic. And then you can compare these countries to those in the ex-Soviet Union that have failed to stabilize or are now stabilized, but it took them a very long time. One sees that the economic performance in the countries that have very courageously stabilized definitely is superior-- not in terms of stabilization, but in terms of actual output behavior.

There has been, of course, support for Albania. Particularly in 1993, the international community mobilized a very remarkable amount of support from many sources: the European Union, Italy, Greece, Turkey, and from the U.S. There were the leading donors in 1993, along with the World Bank and the IMF. It was a honeymoon period when everything seemed to be going right. It was hard to believe. Sometimes we were really wondering "Can this be true? Can Albanian inflation be way below anybody else's in Eastern Europe? Can privatization in agriculture go as fast as it is?" I remember wondering how they could possibly privatize so quickly without getting into major feuds in villages over who owns what land and who can control what, and frankly I must confess, I still do not understand how it happened. But agriculture was de facto privatized, largely with a minimum amount of disruption. And frankly I am still a little mystified by this.

That is the positive side. Prices were stabilized and the lek actually appreciated. One of the best investments you could have made in 1993 was to put your dollars into lek accounts at 26% interest on them and have the leks appreciate vis-a-vis the dollar by 30%, for a total return of 56%.

The second major problem, of course, in all these transition economies has to do with privatization. And as I said, in agriculture it worked very well. It was done quickly, up-front, and with a minimum amount of debate. I guess it was done at a time when there was a strong, cohesive political will behind it. Housing was also privatized very rapidly in Albania, much more rapidly than in any other country in Eastern Europe. There is a very deep and difficult debate on privatization in all Eastern European post-communist societies. We at the World Bank, thinking economically, were very much in favor of auctions. Even for the small firms and shops. Everything should go to the highest bidder. We should not favor the persons who happen to be working in the shops, or a particular political constituency. The best economic, efficient way is auctioning. The problem, of course, not only in Albania, but in all of these post-communist societies, is that the people with money, means, knowledge, and connections are the old elite. If you privatize rapidly after a collapse of an old system through an auction method, the old political elite, which was also the economic elite in the old system, will simply become the new capitalist elite and own the capital stock. And that is a problem. Not from a purely economic view, perhaps, but from a social, political, societal point of view. Can you have a privatization process where you let the old elite basically take over the new basis of capitalist power, which is, after all, the means of production? A lot of these societies got stuck on this point. There is always the hope of having foreigners come. You do not want to sell the whole country to foreigners, but most post-communist societies are happy to have investors come in. However, in Albania, with the Balkan situation, with the war in Bosnia, Western investors are scared. So this was a very important debate. It was not necessarily always put in this way, but it slowed down the whole reform process on the privatization front.

One method that has been used in many countries to circumvent this problem is to distribute vouchers to the population. In Albania, they are called "privatization lek." Not to all perhaps, but to people above a certain age, people who qualify, who have not committed crimes and things of that sort. This provides the purchasing power to allow the population at large to participate in the privatization process. And frankly, I believe that it is a very good method. It is used everywhere, and it has to be used in Albania too. I think the will is there for voucher privatization in Albania now. This method will mitigate the problem of the old elite becoming the new owning class. But I believe a key mistake was made: the whole thing got mixed up tremendously with the restitution issue. Of course people who lost, who were persecuted, have a moral claim. But when you have too many claims - some people have claims because they have money, other people have claims because they suffered, others have claims because they are politically influential - the whole thing becomes an impossible task. And unfortunately what happened is that instead of letting the privatization leks have their value determined in the market and not precommitting to their actual worth, the Albanian government made promises to certain people, saying "We will give you 1,000 privatization leks."

Unfortunately, when you write "1,000 leks" on that piece of paper you are stuck, because if this piece of paper is worth less than 1,000 leks, the people are going to accuse the government of not keeping its promise. The reason it was done in this manner is because of the restitution issue, so that the claims of old owners, political prisoners, and so on would be satisfied. But it has now created a real problem for the privatization process which will somehow have to be solved.

There is a clear sense that after the first two years of great success, there are real problems now. The kind of enthusiastic mood that things are going well, that growth is picking up, has been subdued over the last four or five months. One aspect of this is definitely political: the referendum and its aftermath, increasing political tensions, and the increasingly antagonistic political debate are hurting the whole atmosphere of the country and the confidence people have in the economy.

But there is a second, more purely economic factor at work: the infrastructure is absolutely insufficient to sustain the amount of private economic activity that has been taking place in Albania. The increase in private economic activity is extremely rapid. We think that Albania's GDP had a growth rate of 11% in 1993 and 8% in 1994, but I cannot stand by these numbers; the statistics can be very misleading. But there are other statistics, e.g., the use of electricity, which went up by 30% over two years. The number of cars increased five- or sixfold over this period, which clearly shows that there is a lot of private activity, and an increase in private prosperity of at least certain groups. I am sure there are many regional variations. Unfortunately the infrastructure - the amount of power that is being generated in Albania, the quality of the transmission lines, the water-supply pipes, the roads - is in a horrible state. To repair and strengthen Albania's infrastructure is a more difficult problem than stabilization. To stabilize you must have a good macroeconomic policy, you need a responsible central bank, you have to do the right things with the exchange and interest rates-- and that can be done. It may be difficult but it can be done. You need money to renew the infrastructure. There is no way around it. It will not happen by a policy decision. One needs funds, a combination of internal funds, which are very hard to generate in Albania, and external investments. And foreign aid is not going to be available in sufficient amounts to do this. People have already helped Albania a lot. So the only way that the infrastructure can really be strengthened significantly is by involving private foreign investors in the process. Through concessions, through privatization, by attracting Greek, Italian, Turkish, German firms that are interested in participating in the rebuilding of the infrastructure in Albania. This is really a key challenge, since the whole process of development of growth will be stopped no matter what happens in the shops and in agriculture and so on unless the key infrastructure can be put into place. For that you need a minimum amount of government, and this is a debate I have had with President Berisha, who is very gung-ho on privatization and very market-oriented. But markets work best with at least a minimum amount of good government. Not big government, but good government. For example, to privatize the power sector, you need at least a minimum amount of regulation. To make agreements with foreign investors the government has to play a regulating, not a controlling, role. In order for that to happen, the key people must be paid much higher salaries. You cannot operate a ministry by paying directors $80 a month. The third challenge now involves civil service reform which would redefine the role of government and makes it smaller, as there are still too many state employees. But those who do stay and work have to receive a minimum salary and a minimum livelihood, so that they can play the necessary complementary role to the private sector. These are the challenges. But Albanians have a tough time accepting that within the government bureaucracy one person should earn five times as much as another person. And yet without that, one cannot create the incentives and the work-habits that are needed.

To conclude, one has to remember and stress that three years is a very short period. No country has developed in three years, indeed no country has developed in five or eight years. This is a long-term effort, and there will be ups and downs and crises ahead. The beginning, however, despite the criticisms, despite the weaknesses that I underlined, on the whole has been impressive and very successful.

David Kideckel

Central Connecticut State University

I want to echo Dr. Dervish's remarks about Albania's uniqueness in Eastern Europe, at least in the southern tier, compared to Bulgaria and Romania, so far as its rural development challenge is concerned. My own experience, of course, is mainly in Romania, where there was also a kind of explosion at the end of communism in December 1989, with the execution of the Ceausescus and the spontaneous decollectivization. Touring Romania and Albania, I could not believe the difference in the destruction of the rural commons in Albania, compared to Romania. The fury was remarkable, with burned-out buses, destroyed clinics, schools and roads, virtually anything and everything that intimated of some kind of common sharing or a certain relationship to the former socialist government. In addition to the destruction of rural capital, as an anthropologist, I also was concerned with the destruction of social capital and various social linkages that came about at the end of socialism and in the transition economy. The possibilities of cooperation to a great extent were blanketed, and there is an almost knee-jerk, visceral response by Albanian rural citizens when one mentions whether or not it would be possible to link up to share their assets, to share their labor, to share their energies in some kind of way. Cooperation is in most instances a virtual non-starter as an issue, and given the paucity of resources in the Albanian environment, it truly is a difficult thing.

In addition to the destruction of social linkages, there was also a delegitimization of government which, in a minimal way, as Dr. Dervish points out, is a necessity for rebuilding the Albanian rural network. Nevertheless, in Albania one can identify some very positive circumstances that also make it something of an exception when compared to Romania and Bulgaria. The energy of the population is remarkable. I was impressed with the entrepreneurial spirit, the willingness to experiment when resources were available, the education of the population, their pride and their dignity as well. It shows, I believe, a potentially great future if the immediate circumstances of economic decline can be arrested and transformed.

The basic challenge of the Albanian transformation, as Dr. Dervish pointed out, is privatization, and my particular concern is that of privatization of agricultural production and economic life in the rural areas. Yes, Albanian agricultural privatization was one of the most thorough and rapid in the East European-- literally overnight approximately 80% of the land was at first forcibly taken back and redistributed very widely throughout the Albanian rural communities. While this is certainly reasonable to point to as a great success, it has certain drawbacks as well, because the distribution of land in Albania in rural communities is also incredibly wide-spread, with the average holding per family of about 1.4 hectares divided in a number of oftentimes dispersed parcels, and in the mountainous areas there could be incredible difficulty of reaching these dispersed parcels. In addition we see in the rural areas a very rapid, growing population, and a very young population at that, so while the rural agricultural privatization of land proceeded apace, the way it proceeded created certain problems in and of itself.

Again, I want to echo Dr. Dervish regarding the lack of infrastructure in the rural areas. You cannot help but see the lack of roads, the leaking of water everywhere throughout the system. Somebody told me that approximately one-third of the water supply is lost in the canals and pipes as it moves from the surrounding areas down to Tiranë. The Chinese tractors that still are the mainstay of Albanian agriculture, puttering along the sides of the road are very interesting, and that is about all I can say about them.

And then of course, the population drain. The one thing that Albania exports is people, its youngest, most energetic, and entrepreneurial. This is an incredible problem. Spending a few nights in the city of Vlorë, on the Adriatic, walking along the harbor, one was struck by the number of pontoon boats. I counted about 40 of them, each of which was planning to bring about 20 individuals across the straits to Brindisi. The Albanian police were paid off and people were leaving the country en masse. Young people, women, children were leaving to seek their fortune, if only temporarily, in Italy. And this too is a significant problem that the Albanians must face.

The early stages of the transformation and the problems that the Albanian people were confronted with were, I think, nobly addressed by the international community. The international community recognized the serious lack of resources and the critical problems in food supplies and worked together to deal with these issues. There was an outpouring of aid from virtually every corner of the developed Western world that was humanitarian in nature. This aid was absolutely necessary to improve health and safety and to maintain the minimal production of Albanians, but it also in its own way created certain problems. For one thing, it produced a degree of dependency, and an artificial view on the part of the Albanian population as to what could be expected of the international community.

As an anthropologist, one of the things that I have looked at is cargo cults. We read about our cargo cults in Melanesia, where the natives believe that goods are going to drop down from the sky, and where no production processes or necessary economic exchange exists. In many instances people expect hand-outs or they do not know how to go about accessing foreign assistance. In addition, while the offer of resources was made altruistically, it fueled, or accelerated, what people in the West would call corruption. Individuals with access to knowledge and networks were able to secure resources for their own use, which fueled the social antagonism that existed in Albanian communities. Nonetheless, Albania is remarkable for its success in dealing with its problems and coming to grips with a potential economic cataclysm. There is a need for foreign private investment, but large-scale foreign assistance continues. Foreign assistance is still seen by Albania as critical for breaking the log-jam that was created in the post-transition period, characterized by an incredible subsistence economy and a lack of production for market. Albania today is still the darling of the donor community. Having done most of my work in Romania, I was struck at the difference between how donors look at Romania and Albania. First, Albania's previous isolation, its enforced extraction from the world's socio-political and economic system and its attempts at economic autarky make Albania a romantic place for donors and others, like myself, to visit. Its size is small - slightly over 3 million in population - and although the roads are difficult in places, it is still possible to drive from one end of the country to another in a relatively short period of time. Given its size, the donor community perceives that it is getting more bang for its buck. USAID, the World Bank and the like can point to their relatively great degree of success compared to a place like Romania. Albania is receptive: the Albanian people are remarkably open to Western assistance - much more so than Romania - are much less suspicious of Western assistance and have a much more positive view of the American presence in particular. Simply recall the picture in the New York Times when the Alia government fell: people literally lined the roofs of buildings in Tirana when James Baker first visited as Secretary of State. That picture is characteristic of the very positive attitude of Albanians towards the West, which also makes the foreign assistance presence relatively salutary. Another reason is the country's low level of development, which means that a slight change in Albanian agricultural or industrial production translates into a large percentage of transformation, which can be pointed to with pride in various donor documents. There is an incredible diversity of assistance programs in Albania, especially targeted to the rural areas, since it is the rural zones that are still seen as the ultimate source of Albanian economic strength, much as in Romania and in Bulgaria. Let me just mention a few of the organizations that are involved here. USAID mainly provides money to private voluntary and non-governmental organizations for co-developed direct assistance programs in the Albanian countryside. Programs such as those of VOCA, the Volunteers and Overseas Cooperative Assistance, seek to facilitate the development of cooperativism and cooperative work relationships in Albanian communities. The Land of Lakes people are involved in a program known as "Women in Dairying," where they seek not only to improve dairying practices in little communities, but also thereby empowering women by bringing them together in discussion groups to speak about their economic and political circumstances, about problems in cattle and milk production and the like. A new program that began earlier this year, the SARA program, or Support for Agricultural Restructuring in Albania, also supported by a USAID grant to the Winthrop Rockefeller Foundation and the Land Tenure Center of the University of Wisconsin, seeks to provide technical assistance to the Albanian government for the purpose of changing the manner by which agricultural education is provided and the gathering of agricultural statistics. The European Community, through its PHARE program, Poland/Hungary Assistance for Reforming Economies, is involved with its PICU program, or Project Implementation Coordination Unit, which provides technical assistance to the government, and its small and medium enterprises program, which offers credits for the privatization of and the development of small urban and rural organizations. Finally the multilaterals, the World Bank, the UNDP, and the IMF, are concerned with infrastructural change and structural adjustment.

This is an impressive picture. In the words of one USAID hand, Tirana is "Donor City." But this creates problems in its own regard, and I want to touch on a few of those, beginning with coordination. There are problems of coordination of the donor activities in the Albanian community, as well as coordination by the Albanian government of donor activities. Though every single agency representative that I spoke with in Tirana this summer lauded the coordination and the great, close effective relationships that each donor institution has with every other, I believe this is more in word than in deed. People did not know who the current head of the EC program was, when the USAID representative would come back, whether an ongoing USAID program was in fact ongoing, and the like. Not only is there a lack of coordination, but there is also an incredible degree of competition between donors, both for identifying and developing programs, for which there are few reasonable models, and also competition over quality personnel. Given the small and incestuous nature of the donor community, there is even an attempt reportedly by the World Bank to steer one individual away from another donor agency, whose name will go unmentioned, and to be hired for their purposes in Albania as well. There is a lack of information regarding plans and the future, programs that donors seek to design and implement. And finally there has been a lack of interface between the donor community and the government of Albania. Only in recent months has a coordination office been set up in the Ministry of Food and Agriculture, but this seems to be essentially, at least in my very brief exposure, relatively ineffective and rather marginalized. Donors also frequently mention the problems of working with Albanians. East Europeans are rather angry about the use of foreign assistance money to pay Western consultants and technical assistants. The assistance that goes for economic transformation takes the form of restaurant meals and bar tabs and hotel bills that the large groups of consultants and technical assistants run up as they move from one capital or another. So there is a question about how Albanians should and can be used by the donor community.

Westerners, to a certain extent, point to a couple of problems about working with Albanians on a policy level. Certainly East Europeans, Albanians in particular, are involved in implementation activities, have extensive service personnel, truck drivers, surveyors, and the like. But at a policy level, they are not to be found. Westerners say that Albanians cannot make decisions, that they are really just confounded and confused by the remarkable transformation, that they are particularly caught up in these networks of jealousy and competition that are atavistic and remnants from the nature of Albanian rural social relationships. They also suggest that there is a good degree of corruption that is involved in the actions of Albanians when they are given a greater role to play in the donor community. To a certain extent, this all strikes me as a degree of orientalism, if you are familiar with Edward Said's interpretation of how the West interprets the East. I have seen Albanian individuals involved in a large-scale way, and that includes the World Bank's rural development fund which I found to be one of the more effective programs for rural transformation. They were effective because Albanians were involved at every single level of decision-making in terms of identifying certain necessary rural projects, in terms of hiring personnel, in terms of developing plans, in terms of providing plans to the World Bank and other crediting agencies, in terms of bringing these plans to fruition, and even in terms of evaluating the efficacy of these programs as they are implemented. So the sense of orientalism that the donor community speaks of, at least in certain instances, is a caricature and needs to be re-thought.

Even more important than the problems with relating to Albanians, are problems among the donors themselves, in terms of efficacy and trust and cooperation. We can only point to the Byzantine structure of European Union relationships and the need for equivalence between every one of the single parties in the European Union, as one of the critical problems in the efficacy of foreign assistance in Albania and elsewhere in Eastern Europe. Everybody, the Germans, the Italians, the French, the British, the Dutch, and so on must have a role and play a part in EU policy decisions, which makes coordination and timeliness of donor activities virtually impossible. My friends and colleagues at USAID are now reeling from the uncertainty of their future: will the agency be maintained? The USAID has had a long and checkered history and because of this to a certain extent is schizophrenic about how it ought to approach its role in Eastern Europe. Should it be equity-oriented? Should it be market-oriented? Will we have sufficient funds for Eastern Europe? Will all the money go to Ukraine? Will all of it go to Egypt and Israel? What will happen now as a result of the mid-term elections? And finally, the World Bank and other multi-laterals have been on the target end of world community attacks for their efforts and their lack of concern for events and circumstances at the level of the local community.

Nonetheless, there are some legitimate issues of interest within the Albanian government and within Albanian networks that influence the efficacy of foreign assistance. I want to echo Professor Pano's remarks about political fragmentation. The political process in Albania now is something that is truly up in the air and that is rife with suspicion - and unfortunately, it has been used in foreign assistance as well, such that aid monies and credits and the like have not been distributed in an even and open manner, but have been subject to political manipulation. I think of visits in Gjirokastër to a peasant family, a woman, her husband, and two children, and also down the road to a budding entrepreneur who had just purchased a pig farm and was trying to make a go of this enterprise. Both of these individuals spoke of the problems in identifying and gaining access to necessary assistance and even knowing where to turn to facilitate their economic activities. They went to their regional headquarters in Gjirokastër to speak to individuals who would allegedly have knowledge of such things and were turned away. Both of them said that they were denied access even to information, because of their refusal to join the dominant political party. This seems to be a process that is fairly widespread in Albania and needs to be examined in some great detail by donors as well as Albanians.

Another problem: center-periphery difficulties. Tirana may be Donor City, but it is essentially the only donor city in Albania. The critical problems of rural transformation are in the countryside and particularly in the mountainous regions to the north and in the east, which are also the areas of greatest ethnic instability. Here economic and ethnic instability feed on each other. And yet, perhaps because of geography, and perhaps because of the relative convenience of Tirana and its donor communities, you do not find a large-scale foreign assistance community presence outside the Tirana-Durrës-Kavajë corridor. There is a lot of information about assistance programs elsewhere in the country - USAID has been very effective in terms of advertising its programs on TV and in publications of one sort or the other. People know all about USAID programs and may even have met USAID personnel who have made short visits to these communities. But they do not come back, or so they say. There is no follow-up when people are interested. This lack of follow-up and persistent presence in the distant rural areas is also what has limited the ability of the rural transformation.

What works and what does not? Very quickly, where a general idea is applied, as is too often the case amongst foreign assistance programs, where you take one thing, one model and attempt to distribute it across the board, it does not work. The notion of cooperation has been a total failure. There are supposedly 85 private farmer associations, i.e., cooperatives, in Albania, that I have identified, but in reality they cannot be found, except for one or two. And where they do exist, it appears to be a family that has organized itself for purposes of seeking developmental credits and assistance. There is a need for development generated by local level decision-making processes and a need to separate rural developmental assistance from its formal governmental ties.

Discussion

Question: To what extent is the increase in value of the Albanian currency tied to informal export of petroleum products to the former Yugoslavia?

Question: When experts come from abroad for brief visits and the compensation of the experts' expenses vis-à-vis their Albanian counterparts is about on the order of 100 to 1, is this the most effective way of providing technical assistance or are there perhaps other alternatives?

Dervish:On the issue of the embargo and petroleum products, I do not know and cannot really answer that. There is a lot of trade going on in all the neighboring countries; the Former Yugoslav Republic of Macedonia, as we have to call it, as well as in Albania, Romania and Bulgaria, and some people are making profits out of that. But I think the fundamental reason why the lek as opposed to the ruble or the Ukrainian currency or the Romanian currency or whatever, held its value, was of course that there was a commitment by the central bank not to print money, and that was the whole centerpiece of the stabilization program. It was really the success of the stabilization program that made the lek a normal currency. One always takes the good things for granted, but it is a most important idea that a nation has a currency that is worth something and is not losing value by the day, as we can see also south of the U.S. border. That, I think, is the main thing.

The issue of donor overdose, it is a real problem everywhere, not only in Albania, but especially in Albania. And obviously good technical assistance is needed, but quite honestly not all of the experts in Donor City are really that good, and I have very often found out that some of the experts know less about the topic than an Albanian engineer who is working on the water supply system. The trouble is, we cannot pay an Albanian civil servant out of our consulting funds, because that would be a conflict of interest. I wish we could use half of the money we are spending on the foreign experts simply to supplement the salaries of the good Albanian engineers and accountants and so on, but we cannot. Obviously, the World Bank cannot be a paymaster to Albanian civil servants. What we really have to emphasize is training, not in the sense of bringing people over here for one year, because they stay. It has to be on-site training that takes place in Albania with short visits outside. I am pleased that my colleague noted that is what we did on the rural development project, which has worked very well. One has to bring in the foreign expert only when it is really necessary, and try to look very closely at the competence of the people who come. It is easier said than done.