Further consolidation of democratic structures and deepening of reform: a new phase in promoting democracy in Albania “I welcome you to this meeting, which is taking place at an important moment.” These were the words with which the DP Chairman, Mr. Eduard Selami, opened the meeting of the National Council. The expanded meeting, held yesterday in the hall of the National Museum, was also attended by members of the leadership: Mr. Sali Berisha, Mr. Aleksandër Meksi, Mr. Pjetër Arbnori, the DP Secretary General, Mr. Tomor Dosti, and the chairman of the parliamentary group and member of the leadership, Mr. Ali Spahia. Mr. Selami first gave the floor to Mr. Meksi, who delivered a central report on the DP’s main political priorities and the progress of economic and institutional reform to date. Mr. Arbnori spoke next. He discussed several shortcomings in the DP’s organization, as well as the lack of commitment within the DP, especially among those who had held posts in the state administration. Mr. Arbnori also spoke about certain manifestations of extremism, which in most cases are connected (Continued on page 2)

Mr. Chairman, Ladies and gentlemen, Every time we meet, we feel upon us the trust that the Albanian people placed in the DP on 22 March 1992, a day that stands out in the history of the Albanians. Since then, for more than 500 days (a full 17 months), we have all been working together to implement the electoral program on which we received the vote. In general, we are keeping our word and working on the basis of this program, which is also the political, economic and social program of the Democratic Government. We know the state of affairs in which we took power, as well as the difficulties of the transition period and the tense political situation in the region. The lack of quality in the opposition—or, rather, in our opponents—is now clear. For them, everything that is done in Albania is bad and against the interests of the people. The manifestations of left-wing extremism among PS leaders are the clearest indication of their insistence on the “Party Line” and their efforts to obstruct the country’s progress. Through its work, the DP has clearly demonstrated its determination to continue the country’s democratic transformation and reform the economy towards a free-market economy. It has also shown that we will achieve this through an uncompromising struggle against the PS and its allies, and against any extremism that seeks to separate the DP from its electorate and from its own political and economic program and democratic market principles. Albania’s emergence from a completely centralized autarkic economy and from 45 years of isolation was accompanied by a severe economic crisis. The lack of efficiency in the past and the deepening economic decline at the end of the 1980s, when the old structures were completely broken, brought about the total collapse of the economy, reducing the country to a level of poverty not seen in Europe for a long time. This is the current situation, but to move forward we must have a clearly defined policy and strategy. The Government’s program for 1992–93 sets out our path and objectives. The Government’s program for 1992–93 The main economic indicators before the Democratic Government’s program began. The years 1990–91 were characterized by a worsening crisis and its increasingly rapid emergence. Production fell into a state of collapse, inflation rose sharply, and the external debt situation deteriorated further. Industry had been in crisis for more than two years, with production falling by over 40 percent during 1991 and the first six months of 1992, while wages and incomes were completely exhausted. Agriculture also went through difficult moments of crisis as a result of the breakup of the former cooperatives and the destruction of the distribution system. In 1991, agricultural production fell by 24 percent, while field-crop production dropped to almost 30 percent of normal output. The crisis was also accompanied by a worsening budget deficit, which in 1991 rose to more than 40 percent of GDP, and monthly inflation of around 10–14 percent, together with a continuing devaluation of the lek and a depletion of foreign-exchange reserves. The Government’s program for 1992–93 Implementation of this program secured considerable financial assistance from abroad, including the World Bank’s critical imports loan, the “Stand-By” agreement supporting the balance of payments, and coordinated emergency assistance. In addition to this support, many foreign countries provided free food and humanitarian aid, development projects and technical assistance; the countries of the EC, the United States, Turkey and other EEA countries played a major part. At first, the Government focused mainly on a policy of gradual macroeconomic stabilization and establishing control over economic indicators, alongside a gradual transformation towards a market economy. The Government’s main objectives were: 1) stabilizing production in 1993; 2) macroeconomic stability; 3) expanding the social assistance network; 4) undertaking priority, far-reaching structural changes and fully reforming the price and exchange systems; 5) taking decisive steps in reforming agriculture, enterprises, the financial sector and the fiscal administration. While the main part of the program has been implemented, the years ahead still lie before us. Albania’s output is growing. The ever-rising spiral of inflation has been broken and reversed, and budgetary and monetary targets have been set within acceptable limits. More specifically: Fiscal policy aimed to reduce the budget deficit from around 45–50 percent of GDP during 1991 and the first six months of 1992 to less than 20 percent at the end of 1992 and around 12 percent in 1993. This target was achieved for 1992, while the deficit was around 6 percent in the first six months of 1993. This was achieved through restrictions on budget expenditure during the second half of the year, while in 1993 the aim is to achieve it by implementing a more active and effective fiscal policy while maintaining the pace of revenue collection. During 1992 and 1993, priority was given to reducing taxes as a share of GDP, compared with 45.4 percent in 1992, while revenues were projected at 33–32.9 percent of GDP, compared with 25.2 percent. Budget expenditures will be used for investment, support for enterprises and expansion of the social protection network. The main sources of increased revenue are improvements in the work of the tax administration and expansion of the tax base. Monetary and credit policy is being pursued in line with the overall program for inflation, the balance of payments and development. At present, the value of the currency, as reflected in the inflation indicators, is within the programmed limits. Management of the public sector. Reforms in the state-owned industrial enterprise sector were delayed, and budget constraints were reflected in the accumulation of debts between enterprises. The Government’s task is to maintain an economic state sector and set priorities for determining the medium-term development path that lies ahead. Today, under the new law, enterprises determine their production, goods and prices, operate in the sales market, decide for themselves how to use resources more effectively, and set the individual nominal wages of their employees. To provide more qualified assistance to enterprises, an Enterprise Support Unit has been operating for about 10 months. In this context, the Government has established the Enterprise Restructuring Agency, which has prepared plans for around 30 key enterprises, most of which are currently making losses. The aim of restructuring these enterprises is to determine their prospects within a period of one to two years, with a view to making them viable, if possible, rather than closing or liquidating them completely. Agriculture has been at the center of reform because of its decisive role in the Albanian economy and its rapid response to structural changes. Following land privatization and the liberalization of most food prices, the Government focused on privatizing and restructuring the agricultural state farms (NB) and on speeding up the privatization of distribution and processing enterprises. Agriculture accounts for half of domestic output, but much remains to be done to turn this initial growth into sustainable development. In 1993, agricultural production is expected to grow by as much as 20 percent compared with 1992 (following 11 percent growth in 1992), thereby making it possible to reduce food imports accordingly. Infrastructure has been supported by the Government, based on the general assessment that Albania’s public infrastructure is inadequate for developing a modern economy. While rural infrastructure is being supported under the agricultural program, one of the most pressing problems elsewhere is the overload on the electricity distribution system in urban areas. Alongside emergency measures to repair distribution and transmission equipment, import fuel, and so on, the Government has planned and implemented measures to address these problems in the long term, such as the fuel-pricing network, to achieve a better balance in the use of different energy sources and secure financing for these sectors. In transport, which is far from the necessary standards for economic circulation, the Government’s priorities include repairing main roads and extending roads in mountainous areas, as well as reconstructing the Port of Durrës, Rinas Airport, the Tirana–Durrës road, the Vorë–Shkodër road, and others. We should also add the good results in privatizing depots and networks of bus and truck enterprises, which increased respectively from 21,000 to 25,000 and from 2,200 to 4,200. Given how limited the country’s telecommunications infrastructure is, a development strategy is being pursued, and an initial program worth around 30 million dollars, financed by the EBRD, Italy, Switzerland and Austria, has begun under the master plan. It is also hoped that funds will soon be found to introduce the “cellular” system quickly, which is necessary for foreign businesspeople and tourists. To address the housing shortage, the Government has increased funding and sought to expand the role of the private sector. The approved law is being implemented, leading to the rapid privatization of a considerable portion of the housing stock. At the same time, work is underway to complete housing projects already in progress (1,451 have been completed, and work will continue on another 6,500 by the end of the year), in addition to numerous private construction projects in urban areas. Privatization. The privatization program has sought to expand private activity in two ways: a) creating new private activities throughout every sector of the economy without restriction, and b) privatizing state property. In the second area, the plan is that by the end of 1993, in addition to prioritizing privatization in trade, handicrafts, road transport, construction, and light and food industries, enterprises and facilities in the industrial sector will also be privatized (mainly repair lines or small enterprises). Under this program, 2,512 private units are currently operating, of which around 10,000 are in trade, 5,000 in services, 3,500 in transport and 32 in industry and construction, employing more than 120,000 workers. To speed up the privatization process, the strategic framework has been established, the privatization law has been revised, the state administration departments directly responsible for privatization have been reorganized, and an incentive-based fiscal policy has been implemented. In this respect, the bankruptcy law for enterprises and the restitution and compensation of property are expected to have a positive effect, despite the objective difficulties emerging, by giving holders of property bonds the opportunity to acquire ownership of property. The situation in the external sector remains extremely difficult. Import needs, including those for humanitarian purposes, continue to greatly exceed foreign-currency earnings. The Government is therefore implementing a series of measures to encourage export growth and expansion, which will also need to increase in the future to cover other imports in 1993. Among the important objectives are: • to increase emergency reserves to around 2.3 months of imports, from less than one month at the end of 1992; • to ensure stability in the foreign-exchange rate and advance the liberalization of foreign trade. Medium-term macroeconomic policy, 1993–96 Medium-term strategy The medium-term program aims to achieve a sustainable recovery of the economy. Rapid institutional change and the continuous reduction of macroeconomic imbalances are two basic objectives of the Government’s strategy. The third direction is to protect the poorest and most vulnerable groups of the population during the transition. Albania’s short-term development prospects depend on (i) agricultural production, (ii) efforts to revive industry, especially branches with development potential, such as the key mining, oil and electricity sectors, and (iii) the pace at which newly established private exporters can open up new employment opportunities, as well as tourism. Given the uncertainty of current conditions, it is very difficult to make forecasts; the program presented here projects GDP growth of at least 4 percent a year during 1994–96. To achieve this objective, investment is projected to rise to around 23 percent of GDP in 1996. External financing for construction is also expected to amount to 1 billion. Private investment is likewise expected to reach around 9 percent. The current-account deficit (excluding transfers) is targeted at around 8 percent of GDP in 1996, compared with 11 percent in 1992. This objective is linked to inflation of 20 percent and economic growth. Institutional transition. The creation of a new structure is intended to support the new economy, based entirely on private markets. This requires the establishment of a set of rules for private enterprise and support for initiatives and investment; further price liberalization and institutional adjustments; and integration of the economy into international trade and investment. At the same time, the laws and institutions governing private activity, particularly those relating to ownership, contracting and the free market, must be put into effect as quickly as possible. Establishing an effective social assistance network is perhaps the most difficult aspect and a highly complex problem of economic policy during the transition. Given the limited resources available, beneficiary groups must be strictly defined, and programs must be designed to employ people who become unemployed as a result of reform. We should note that benefits from assistance and reform have increased considerably. More stringent checks must be carried out on those receiving benefits illegally, and the time has now come to consider the available options as well.

On Saturday, 18.09.1993, at 10:00, at the Palace of Congresses, Tirana, the chairman of the Albanian Democratic Party, Mr. Eduard Selami, will hold a press conference. SPOKESPERSON OF THE ADP