Money From Abroad Helps Albania Return From Edge of Anarchy

LESS than four years ago, Albania was in a state of near-anarchy. The Communist dictatorship that had kept this tiny Balkan country isolated from the outside world was collapsing. Food was in short supply. Rioters were looting schools, offices, and factories. Tens of thousands of people were escaping to Italy or Greece.

In 1991, Albania held its first democratic elections - the beginning of the turnaround in the country. Today, though progress is slow, the government of President Sali Berisha, who was elected in March 1992, has achieved a measure of economic stabilization through a combination of trade-and-exchange liberalization, tight monetary policy, and a reduction of state subsidies to loss-making enterprises.

Inflation is now less than 20 percent. Investor interest is growing, and the Albanian lek continues to appreciate against the dollar and other currencies.

While the recovery is to some degree the result of the government's strict economic policy and successful privatization of agricultural land, officials acknowledge that it is being driven in large part by about $300 million in annual remittances from the more than 300,000 Albanians - about 10 percent of the nation's labor force - who found refuge in the West, the majority in Italy and Greece.

``Remittances are extremely important to the economy ... probably more important than government policy,'' says Fatos Cocoli, the government's chief economic adviser.

Most Albanians who have left the country work illegally as unskilled laborers and send their earnings home to relatives, fueling a boom here in retail sales of everything from satellite dishes to second-hand cars. Others have accumulated enough capital to set up one of the small trading companies, retail kiosks, or sidewalk cafes that dot the parks and other open spaces in Tirana, the country's capital.

Last year, the value of remittances was estimated at three times that of the country's annual exports and accounted for an estimated 16 percent of gross domestic product.

``Our culture is very family-oriented,'' Mr. Cocoli says. ``Most [workers abroad] intend to stay two to five years to accumulate a stock of money and return to start a business here in Albania.''

Remittances are believed to have contributed to the success of a recent privatization campaign in which domestic investors bought the vast majority of 1,800 small state-owned enterprises. These enterprises - with fewer than 300 employees or less than $500,000 in long-term assets - included everything from retail stores to manufacturing plants.

``The program was clearly successful,'' says Antonio Fanelli, representative for the European Bank for Reconstruction and Development (EBRD). ``The challenge now is to implement the financial-sector reforms necessary to consolidate these successes.''

As elsewhere in Eastern Europe, banking reform lags behind changes in private-sector business activity. Though the country's commercial banks now operate separately from the Central Bank of Albania, the three state-owned banks suffer from a stock of bad loans, poor financial infrastructure, a shortage of trained staff, and inadequate payment transfer and loan practices. These inhibit the banks' ability to offer loans to finance entrepreneurs.

Banking isn't the only barrier to development. The industrial sector is still in a state of near collapse, with about an 80 percent drop in production since 1990. Albania has a $480 million trade deficit, $736 million in external debt, run-down infrastructure, and an economy that is heavily dependent on foreign aid.

Many foreign investors worry about regional instability in this part of the Balkans. Relations with Greece are strained, and Belgrade continues to oppress the nearly 2 million Albanians living in the Serbian province of Kosovo, just to the northeast.

``The regional situation is making it hard for us,'' says Selami Xhepa, head of the government's Center for Foreign Investment Promotion. ``But investors are starting to take notice of the opportunities here.''

Much of the $80 million invested to date has been in the hotel and tourism industry. Austria's Rogner Hotel Group is building a $20 million business hotel near Tirana University, while the EBRD is helping to finance an extensive renovation the high-rise Hotel Tirana, owned by Albturist, the state monopoly on tourism.

``We're a small country and the real challenge for us will be to open the way to foreign markets,'' Mr. Cocoli says. ``We've come a long way, but we need to stimulate exports if we are to succeed in making Albania a developed country.''