[asia-apec 1126] Destruction of Albania (Part I)

[Michel Chossudovsky]

THE ECONOMIC DESTRUCTION OF ALBANIA 

by
Michel Chossudovsky

Professor of Economics at the University of Ottawa and author of The
Globalization of Poverty, Impacts of IMF and World Bank Reforms, Third World
Network, Penang and Zed Books, London, 1997. 

C Copyright by Michel Chossudovsky, Ottawa, 1997. All rights reserved. 

(Internet version in two parts: part I: Historical background, Part II
Criminalisation of the State)

PART I HISTORICAL BACKGROUND OF THE CRISIS 

The following text was written in the wake of the 1997 protest movement which
culminated in Western military intervention under a Multinational Protection
Force (MPF). These events in Albania took place barely two years prior to the
onslaught of the NATO bombings of Yugoslavia. 

Crippled by "free market" reforms imposed by donors and creditors since 1992,
transformed into a de facto NATO military base, Albania has been stripped of
its political and economic sovereignty. Contrary to what is heralded by the
global media, the War in Yugoslavia is also a war against Albania and its
people. Moreover, in the wake of the War, Albania will be afflicted by
external
debts contracted with the World Bank and the IMF to deal with the plight of
the
refugees. 

The macro-economic reforms implemented in Albania under the auspices of the
Bretton Woods institutions have been conducive to the destruction of the
national economy and the impoverishment of the Albanian population while
transferring the control over Albania's extensive mineral deposits into
foreign
hands. 

Drug barons in Kosovo, Albania and Macedonia (with links to the Italian mafia)
have become the new economic elites,  often associated with Western business
interests. Albania is the hub of the multi-billion dollar Balkans drug trade.
In turn, the laundering of drug money has played an important role in
"financing the conflict" in Kosovo. 

The economic reforms have also created in Albania an environment which
favoured
the criminalisation of State institutions and the development of an expansive
illicit trade in arms and narcotics. And these structures in turn have played
an important role in setting the stage for the conflict in Kosovo and NATO's
criminal bombings.

The War in the Balkans is also implemented on the economic front through the
imposition of the IMF's deadly economic reforms. The latter are implemented in
coordination with NATO's strategic and miltary objectives. Following the
pattern set in Bosnia, NATO is in close liaison with the Bretton Woods
institutions and the European Development Bank (EBRD) which have been called
upon to play a crucial role in "post-war reconstruction". 

The "post-conflict" reforms envisaged for Kosovo are patterned on those
adopted
in Albania and Macedonia implying the setting up of a bogus democracy in an
occupied territory. Moreover, with the KLA poised to play a central role in
the
formation of a "post conflict government", the tendency is towards the
installation in Kosovo of a State system which maintains pervasive links to
organised crime. In this regard, the US State Department's position (contained
in the May 1999 G8 proposal) is that the KLA would "not be allowed to continue
as a military force but would have the chance to move forward in their quest
for self government" meaning the inauguration of a "narco-democracy" under
NATO
custody (according to US State Department spokesman James Foley quoted in the
New York Times, 2 February 1999). 

FORWARD

The Western media has distorted the Albanian protest movement which erupted in
February 1997 following the collapse of the "ponzi" pyramid funds. The
financial scam surrounding the "get-rich-quick schemes" was narrowly depicted
by the global media as the sole source of social upheaval. An image of
spontaneous street rioting was conveyed, spotlighting the misdeeds of armed
gangs and the looting of State property. While the citizens' groups opposed to
former President Berisha were branded as common criminals, the Western media
failed to mention the links of the Albanian State to Italy's crime syndicates.
Political dissent by civilians including the formation of the "salvation
committees" was depicted as sabotaging the "transition" to a "free market"
society... In the words of Italy's foreign minister, the revolt is being
led by
"delinquent bands incited by far left activists". 

In the southern city of Vlore, the headquarters of the Police and military
were
taken over in February by the salvation committees. From Vlore, the
insurrection spread to other cities in southern Albania. Students, workers and
farmers joined in. The Albanian Armed Forces and Police had become largely
inoperative; not only soldiers but officers spontaneously joined the citizens'
movement demanding the resignation of President Berisha: "in southern Albania,
the army has gone over to the side of the people" (La Vanguardia,
Barcelona, 10
march 1997). 

The commander of the military base of Pasha Limani in the Vlore region joined
the insurrection and integrated the Vlore Defence committee together with
members of his garrison. In the rebel strongholds of Delvine and Sarande, "the
situation [had grown] rapidly out of control as it became apparent that
President Berisha's men did not have the support of their police..." (The
Times, London, 10 March 1997).  

Western powers were concerned that the insurrection may get out of hand. US
military advisers were rushed to Tirana; a high tech predator drone aerial
surveillance system was set up at the Gjader airfield close to Tirana with the
capability of monitoring the insurgency in Southern Albania. In February 1997,
the Commander of the Joint Chiefs of Staff General Shalikashvili visited US
Air
Force personnel stationed in Albania. Not a word was mentioned in the
international press concerning Shalikashvili's meetings with government
officials and Albania's military establishment... 

In March 1997 a "Government of National Reconciliation" under a Socialist
care-taker Prime Minister was installed under Western advice. With President
Berisha discredited in the eyes of the people, both Europe and America were
eager to develop new political alliances with the leadership of the Socialist
Party. The latter had committed itself to the adoption of "sound
macro-economic
policies" under the guidance of the Bretton Woods institutions. The interim
government's first task was to appease the rebellion in the South while laying
the groundwork for the disarmament of the salvation committees. 

Leaders of the Socialist Party (former Communists) held discussions in March
with Western governments and the United Nations concerning the dispatch of a
so-called Multinational Protection Force (MPF)... In April following a UN
Security council resolution, the MPF largely composed of Italian and Greek
troops landed on the beaches of the Adriatic coast. Its mandate  was "to
protect the shipments of humanitarian aid"... However, rather than ensuring
the
delivery of emergency supplies, the first concrete action of the MPF was to
provide support to the government's ailing Police and Military. 

The "hidden agenda" behind the Multinational Protection Force was to bolster
the Albanian Military and Police forces with a view to effectively disarming
the civilian population and quelling the rebellion. In the words of the
Italian
MPF General Girolamo Giglio:  "We will help in increasing the efficacy of the
police forces, by offering specialized means and professional assistance" (ATA
Dispatch, 21 April 1997). The Council of Europe Parliamentary Assembly
provided
its rubber stamp to the MPF's de facto mandate by formally condemning the
local
level "salvation committees" and demanding for their disarmament (April 26,
ATA
Dispatch). 

The West's objectives were clear: disarm civilians and ensure the installation
of a "democratically elected" successor regime which would continue to uphold
the "free market" reforms initiated under President Berisha in 1992...
Elections were held on the 29th of 1997 June leading to a landslide victory by
the Socialist Party. In August 1997 following the installation of a new
President, the last of 7,000 troops of the Multinational Protection Force were
withdrawn. Greek and Italian military advisors remained in the country to
assist the new authorities in "rebuilding the country's shattered armed
forces"
(Jane's Defence Weekly, Vol 28 No 7, 20 August 1997).

HISTORICAL BACKGROUND OF THE CRISIS 

Following the demise of the Communist State in 1991, Western capitalism had
come to symbolize for many Albanians, the end of an era as well as the
uncertain promise of a better life. In a cruel irony, production and earnings
had plummeted under the brunt of the free market reforms inflicted by donors
and creditors. Since 1991, the national economy had been thoroughly revamped
under the supervision of the Bretton Woods institutions. With most of the
State
owned enterprises spearheaded into liquidation, unemployment and poverty had
become rampant. 

President Ramiz Alia, Enver Hoxha's chosen successor had already initiated an
overture to Western capitalism. Diplomatic relations had been restored with
Bonn in 1987 leading to expanded trade with the European Community. In 1990 at
its Ninth Plenum, the Albanian Workers' Party (AWP) adopted an economic reform
programme which encouraged foreign investment and provided greater autonomy to
managers of State owned enterprises. These reforms also allowed for the
accumulation of private wealth by members of the Communist nomenklatura. In
April 1990, Prime Minister Adil Carcani announced confidently that Albania was
eager to participate in the Conference on European Cooperation and Security
opening the door to the establishment of close ties with Western Defence
institutions including NATO. 

President Ramiz Alia was reelected by a multi-party Parliament in May 1991.
The
defunct Albanian Workers Party was rebaptised and a coalition government
between the new "Socialists" and the opposition Democratic Party was formed.
Also in 1991, full diplomatic relations with Washington were restored,
Secretary of State James Baker visited Tirana and Albania requested full
membership in the Bretton Woods institutions. 

Meanwhile, amidst the chaos of hyperinflation and street riots which preceded
the 1992 elections, German, Italian and American business interests had
carefully positioned themselves forging political alliances as well as "joint
ventures" with the former Communist establishment. The opposition Democratic
Party (in principle committed to Western style democracy) was led by Sali
Berisha, a former Secretary of the Communist Party and a member of Enver
Hoxha's inner circle. Berisha's election campaign had been generously
funded by
the West. 

THE IMF-WORLD BANK SPONSORED REFORMS

Western capital was anxious to secure a firm grip over the reigns of
macro-economic policy. The IMF-World Bank sponsored reforms were set in motion
immediately after the electoral victory of the Democrats and the inauguration
of President Sali Berisha in May 1992... Economic borders were torn down,
Albanian industry and agriculture were "opened up"... Adopted in several
stages, the ill-fated IMF sponsored reforms reached their inevitable climax in
late 1996 with the ruin of the industrial sector and the near
disintegration of
the banking system. The fraudulent "pyramid" investment funds which had
mushroomed under the Berisha regime had closed their doors. The faded promises
of the "free market" had evaporated, millions of dollars of life long savings
had been squandered; the money had been siphoned out of the country. One third
of the population was defrauded with many people selling their houses and
land.

Some 1.5 billion dollars had been deposited in the "ponzi" schemes with
remittances from Albanian workers in Greece and Italy representing a sizeable
portion of total deposits. Yet the amounts of money which had transited in and
out of the investment funds was significantly larger. The Puglian Sacra Corona
Unita and the Neapolitan Camorra mafias had used the pyramids to launder vast
amounts of dirty money, part of which was reinvested in the acquisition of
State property and land under Tirana's privatisation programme. The ponzi
schemes were allegedly also used by Italy's crime syndicates as a point of
transit, --ie. to reroute dirty money towards safe offshore banking havens in
Western Europe.
 
These shady investment funds were an integral part of the economic reforms
inflicted by Western creditors. The application of "strong economic medicine"
under the guidance of the Washington based Bretton Woods institutions had
contributed to wrecking the banking system and precipitating the collapse of
the Albanian economy. Since their inception in 1991-92, the free market
reforms
had also generated an environment which fostered the progress of illicit trade
(noticeably in narcotics and arms sales) as well as the criminalisation of
State institutions. 

Controlled by the ruling Democratic Party, Albania's largest financial
"pyramid" VEFA Holding had been set up by the Guegue "families" of Northern
Albania with the tacit support of Western banking interests. According to one
report, VEFA was [is] under investigation in Italy in 1997 for its ties to the
Mafia which allegedly used VEFA to launder large amounts of dirty money
(Andrew
Gumbel, The Gangster Regime We Fund, The Independent, February 14, 1997, p.
15). 

The pyramids not only financed the campaign of the Democratic Party ahead of
the June 1996 elections, they were also used by Party officials to swiftly
transfer money out of the country. (Geopolitical Drug Watch, Albania, More
than
a Bankruptcy, the Theft of a Century, The Geopolitical Drug Dispatch, No. 66,
April 1997, p. 1). 

"Several of the multi-million-dollar schemes lent their support to the ruling
Democratic Party in last year's [1996] parliamentary and local elections.
(...)
To date, no country has investigated the link between governments and the
schemes, and critics point to a dearth of fraud-related legislation".
(Christian Science Monitor, 13 February 1997).

"Foundation fever" was also used to bolster Berisha's euphoric 1996
re-election
bid. Widely accused of poll-rigging, the Democratic Party had branded the
logos
of the pyramids in its 1996 campaign posters. Echoing the get-rich-quick
frenzy
of the ponzi schemes, the Berisha regime had promised: "with us everybody
wins"... 

AN "ECONOMIC SUCCESS STORY" 

The alleged links of the Albanian state apparatus to organised crime were
known
to Western governments and intelligence agencies, yet President Sali Berisha
had been commended by Washington for his efforts toward establishing a
multiparty democracy "with legal guarantees of human rights". Echoing the US
State Department, the Bretton Woods institutions (which had overseen the
deregulation of the banking system), had touted Albania as a "economic success
story": "Albania's performance on macroeconomic policy and structural reforms
has been remarkably good since 1992" (World Bank Public Information
Department,
Washington, 5 December 1995). 

World Bank Director for Central Europe and Asia Mr. Jean Michel Severino on
visit to Tirana in the Fall of 1996, had praised Berisha for the country's
"fast growth and generally positive results"; The economy "has bounced back
quicker than in other [transition] countries"...  A few months later, the scam
surrounding the fraudulent "pyramids" and their alleged links to organised
crime were unveiled. 

"In all the euphoria about double-digit growth rates, few bothered to notice
that the revenue was almost all coming from criminal activity or artificial
sources, such as foreign aid and remittances sent home by Albanians working
abroad. (Andrew Gumbel, The Gangster Regime We Fund, The Independent, February
14, 1997, p. 15). 

In February 1997, Prime Minister Alekxander Meksi grimly admitted in a
statement to Parliament, that the country was on "the brink of macroeconomic
chaos, (...) a real economic catastrophe (...) even worse than in 1992,"
following the initial injection of IMF "shock treatment". (Albanian Daily
News,
Tirana, February 28, 1997). President Berisha had himself reappointed by
Parliament; a state of emergency was in force which "gave police power to
shoot
stone-throwers on sight. The main opposition newspaper was set afire,
apparently by the secret police, less than 12 hours after the introduction of
draconian press censorship laws" (Jane Perlez, Albanian Tightens Grip, Cracks
Down on Protests, New York Times, March 4, 1997). Prime Minister Meksi was
sacked in early March 1997, the Commander in chief of the Armed Forces General
Sheme Kosova was put under house arrest and replaced by General Adam Copani.
The latter --who over the years had established close personal ties to NATO
headquarters-- was responsible for coordinating with Western governments, the
activities of the military-humanitarian operation ordered by the UN Security
Council... 

The economy had come to a standstill, poverty was rampant, the Albanian State
was in total disarray leading to mass protest and civil unrest. Yet until the
formation of an interim government in March 1997, the West's endorsement of
the
Berisha regime remained impervious... 

THE BANKRUPTCY PROGRAMME

The pyramid scam was the consequence of economic and financial deregulation. 
Under the IMF-World Bank sponsored reforms initiated since the outset of the
Berisha regime in 1992, most of the large public enterprises had been
earmarked
for liquidation or forced bankruptcy leading to mass unemployment. Under the
World Bank programme, budgetary support for the State Owned Enterprises (SOEs)
would be slashed while "clearly identifying which enterprises are to be
allowed
access to public resources and under which conditions"( World Bank, Public
Information Department, Washington, 5 December 1995). This mechanism
contributed to rendering inoperative a large part of the nation's productive
assets.
Moreover, credit to State enterprises had been frozen with a view to speeding
up the bankruptcy process. 

A bankruptcy law was enacted (modelled on that imposed on Yugoslavia in 1989);
the World Bank had demanded that:  

"restructuring efforts include splitting of SOEs [state owned enterprises] to
make them more manageable (...) and prepare them for privatization. The
state-owned medium-sized and large enterprises including public utilities,
would be privatized through the mass privatization program (MPP), (...), for
which vouchers are being distributed to the citizens." (World Bank, Public
Information Department, Washington, 5 December 1995). 

The most profitable State enterprises were initially transferred to holding
companies controlled by members of the former nomenklatura.  State assets
within the portfolio of these holding companies were to be auctioned off to
foreign capital according to a calendar agreed upon with the Bretton Woods
institutions. 

The privatisation programme had led virtually overnight to the development
of a
property owning class firmly committed to the tenets of neoliberalism. In
Northern Albania, this class was associated with the Guegue "families" linked
to the Democratic Party. According to one report, the Northern tribal clans or
"fares" had also developed links with Italy's crime syndicates (Geopolitical
Drug Watch, Paris, No 66, p. 4.).

In turn, this rapid accumulation of private wealth had led to the spurt of
luxury housing and imports including large numbers of shiny Mercedes cars.
Tirana has one of the largest per capita concentrations of Mercedes Benz
automobiles in Europe (a large share are stolen vehicles smuggled into
Albania). Almost every second car in the capital city is a Mercedes... 

The import of cars has been boosted by the influx of dirty money... Moreover,
the gush of hard currency loans granted by multilateral creditors had also
contributed to fuelling the import of luxury goods. (Imports had almost
doubled
from 1989 to 1995. Exports on the other hand had dwindled exacerbating the
country's balance of payments crisis. United Nations Economic Commission for
Europe (UNECE), Economic Survey of Europe 1996, Geneva, 1996, p 188-189).  

FINANCIAL DEREGULATION 

The Albanian Parliament had passed a law in 1992 allowing for the creation
(with little or no restrictions) of "foundations" and "holding companies"
involved in commercial banking activities. The World Bank had insisted on "an
appropriate framework for creating new [small and medium-sized] private banks
and encouraging informal money lenders and non-bank financial
intermediaries to
enter the formal financial intermediation circuit"...(World Bank, Public
Information Department, Washington, 5 December 1995). 

The freeze on commercial bank credit imposed under IMF advice had encouraged
the development of the informal banking system: 

"We observed the development of informal financial schemes... the ceilings
imposed [by the central bank] on the [State commercial banks] obliged them to
freeze credit. Due to IMF restrictions, there was simply no credit available
through the formal banking system. The informal banks were allowed to develop;
remittances were channelled into "financial foundations" encouraging the
development of a parallel banking system... Everybody knew it was a dirty
game,
nobody was interested in intervening" (Interview with an Albanian banking
expert, Tirana, December, 1997).

The "pyramids" had thereby become an integral part of the untamed banking
environment proposed by the Bretton Woods institutions to the Berisha
government. The various funds and "foundations" were to operate freely
alongside the State banks composed of the National Commercial Bank, the Rural
Commercial Bank and the Savings Bank. The law while spurting the expansion of
private financial intermediaries, nonetheless, retained certain "supervisory
functions" for the Central Bank authorities. Art. 28 of the law provided for
the establishment of a Reserve Fund at the Central Bank with a view to
"safeguarding the interests of depositors". (See F. Münzel, IMF Experts
Partially Responsible for Albanian Unrest, Kosova Information Office,
Stockholm, 13 March 1997).

The provisions of Article 28 were later incorporated into a special article on
banks and financial institutions contained in the World Bank sponsored Draft
Law on Bankruptcy presented to Parliament in late 1994. This article provided
for the establishment of a "deposit insurance fund" under the supervision of
the Central Bank. 

While the law was being debated in the Legislature, the IMF advisory team at
the Central Bank intervened and demanded: 

"that this clause be scrapped because it was "at this time inconsistent with
Fund staff advice". (No other reason was given.) Also, the IMF experts
advised,
normal bankruptcy procedure should not be applied to banks because that would
have meant that the creditors of an insolvent bank could ask that bank to stop
operations. This was inadvisable, an IMF expert claimed, because "in Albania,
which has so few banks, this is perhaps a matter solely for the bank
regulatory
authorities" - and that meant the Central Bank".(ibid)

In turn, the foreign consultant who had drafted the Bankruptcy Law (on behalf
of the government with the endorsement of the Bretton Woods institutions) had
advised the authorities that the removal of the deposit insurance clause from
the draft law might result in:

"`small creditors' rallies in front of closed banks, waving red flags and
posters accusing National Bank officials of conspiracy with Western
capital, or
the Mafia, to exploit and destroy the people'. The IMF experts did not listen.
On their advice, the deposit insurance scheme and the full application of
insolvency law to banks were scrapped". (ibid)

Despite this forewarning, the IMF's decision (over-ruling the government) and
the World Bank] was to be formally embodied in the draft of a new banking law
presented to Parliament in February 1996 "at a time when the danger
represented
by fraudulent banking enterprises should have been evident to 
everybody..."(ibid). The new banking law also scrapped the three tier banking
system contained in the 1992 Law:

"It [the 1996 draft law] was written in an Albanian so awful that the poor
deputies can hardly have understood it; that may have been the reason why they
passed it, certainly very much impressed by its arcane technicality. It
evidently was a verbatim translation from an English original, so one may
safely assume that this, again, was the work of those IMF experts at the
Central Bank everybody believed in - just as, at that same time, nearly
everybody believed in those pyramids".(ibid)  

The IMF team at the Albanian Central Bank had: 

"thwarted pending legislation for the safety of depositors (...) The IMF team
at the Albanian Central Bank did not use its influence to make the Central
Bank
carry out its supervisory duties and stop the pyramids in time - perhaps
because the IMF experts believed that Albania needed all the banks it could
get, honest or fraudulent (Ibid). 

And it was only when the financial scam had reached its climax in late 1996,
that the IMF retreated from its initial position and "asked President
Berisha to act. At that time it was far too late, any sort of soft landing was
impossible" (ibid).

In parallel with these developments, the World Bank (which was busy overseeing
the enterprise restructuring and privatisation programme) had demanded in 1995
the adoption of legislation which would transform the state-owned banks into
holding companies. This transformation had been included in the
"conditionalities" of the World Bank Enterprise and Financial Sector
Adjustment
Credit  (EFSAC). 

The World Bank had carefully mapped out the process of industrial destruction
by demanding a freeze of budget support to hundreds of SOEs targeted for
liquidation. It had also required the authorities to set aside large
amounts of
money to prop up SOEs which had been earmarked for privatisation. Thus
prior to
putting the National Commercial Bank, the Rural Commercial Bank and the
Savings
Bank on the auction block, the government (following World Bank advice) was
required to "help restore the banks' balance sheets by assuming their
non-performing loan portfolio. `This will be done so that they can be really
sound banks and be turned into shareholding companies, which will then be
sold'". (Albanian Times) 

Making the SOEs (including State owned public utilities) "more attractive" to
potential foreign investors had predictably contributed to fuelling the
country's external debt. This "strengthening of SOEs in preparation for
privatization" was being financed from the gush of fresh money granted by
multilateral and bilateral creditors. Ironically, the Albanian State was
"funding its own indebtedness" --ie. by providing financial support to SOEs
earmarked for sale to Western investors... 

Moreover, part of the foreign exchange proceeds generated by the influx of
overseas remittances and dirty money into the "foundations" was also being
used
to prop up the State's debt stricken enterprises ultimately to the benefit of
foreign buyers who were acquiring State property at rock bottom prices.

In 1996, the Tirana stock exchange was set up with a view to "speeding up the
privatization programme". In the true spirit of anglo-saxon liberalism, only
ten players (carefully selected by the regime) would be licensed to operate
and
"compete" in the exchange. (Albanian Times, Vol. 2, No. 18, May 1996). 

THE SCRAMBLE FOR STATE PROPERTY 

As the banking system crumbled and the country edged towards disaster, foreign
investors (including Italy's crime syndicates) scrambled to take over the most
profitable State assets. In February 1997, Anglo-Adriatic, Albania's first
voucher privatisation fund, was busy negotiating deals with foreign investors
in areas ranging from breweries to cement and pharmaceuticals. The
Privatisation Ministry hastily set up in response to Western demands after the
rigged June 1996 elections, reaffirmed the government's determination "to
conclude this undertaking to privatise the economy and to do it soundly,
steadily and legally. We are determined to go on."(Ibid): 

 "At midday on March 10, on the third floor of the Albanian Finance Ministry,
an auction is due to take place for the sale of a 70 per cent stake in the
Elbasan cement plant for cash. A day later, a 70 per cent stake is due to be
sold in the associated limestone quarry...." (Kevin Done, Financial Times,
London February 19, 1997).

The World Bank had also recommended that all public utilities including water
distribution, electricity  and infrastructure be placed in private hands... In
turn, civil unrest had served to further depress the book-value of State
assets
to the benefit of foreign buyers: 

 "`This is the Wild East',  says one Western investor in Tirana. 
`There is going to be trouble for some time, but that also offers
opportunities.  We are pressing on regardless.'"  (Ibid). 

SELLING OFF STRATEGIC INDUSTRIES

Despite mounting protest from the trade-unions, the government had established
(in agreement with Western financial institutions) a precise calendar for the
sale of its strategic holdings in key industries including oil, copper and
chrome. These sales had been scheduled for early 1997... With a modest
investment of 3.5 million dollars, Preussag AG, the German mining group was to
acquire an 80 percent stake in the chrome industry, giving it control over the
largest reserves of chrome ore in Europe. 

The stakes in the 1996 elections were high for both America and Germany. The
Adenauer Foundation had been lobbying in the background on behalf of German
economic interests. Berisha's former Minister of Defence Safet Zoulali
(alleged
to have been involved in the illegal oil and narcotics trade) had been  the
architect of the agreement with Preussag against the competing bid of the US
led consortium of Macalloy Inc. in association with Rio Tinto Zimbabwe (RTZ). 
 
Several Western oil companies including Occidental, Shell and British
Petroleum
had their eyes rivetted on Albania's abundant and unexplored oil-deposits in
the regions of Durres, Patos, and Tirana. Occidental was also drilling
off-shore on Albania's coastline on the Adriatic. 

A "favourable mining law" set up under Western advice in 1994 had enticed
several Western mining companies into Mirdita, Albania's main copper producing
area. But Western investors were also gawking Albania's gold, zinc, nickel and
platinum reserves in the Kukes, Kacinari and Radomira areas. A spokesman for a
major Western mining company had been inspired by the fact that "Albania [was]
stable politically, unlike some of its Balkan neighbours". (Albanian Times,
Tirana, Vol. 2, No. 19, 1996). In 1996, the government established regulations
for the privatisation of the entire mining industry. 

FOREIGN CONTROL OVER INFRASTRUCTURE

Under the agreements signed with the Bretton Woods institutions, the Albanian
government was in a straightjacket. It was not permitted to mobilise its own
productive resources through fiscal and monetary policy. Precise ceilings were
imposed on all categories of expenditure. In other words, the State was no
longer permitted to build public infrastructure, roads or hospitals without
the
assent of its creditors, ie. the latter had not only become the "brokers" of
all major public investment projects, they also decided in the context of the
"Public Investment Programme" (PIP) (established under the guidance of the
World Bank) on what type of public infrastructure is best suited to Albania. 

THE GREY ECONOMY

Alongside the demise of the State-owned corporations, more than 60,000 small
scale "informal" enterprises had mushroomed overnight. According to the World
Bank, this was clear evidence of a buoyant free enterprise economy: "the
decline  of the state sector was compensated by the rapid growth of private,
small-scale, often informal, activities in retail trade, handicrafts,
small-scale construction, and services" (World Bank, Public Information
Department, 5 December 1995). Yet upon closer scrutiny of official data, it
appears that some 73 percent of total employment (237,000 workers) in this
incipient private sector was composed of "newly created enterprises [which]
have only one employee" (Albanian Times, Vol. I, No. 8, Tirana, December
1995).


An expansive "grey economy" had unfolded: most of these so-called
"enterprises"
were "survival activities" (rather than bona fide productive units) for those
who had lost their jobs in the public sector. (WB Public Information
Department, 5 December 1995). In turn, this "embryonic" market capitalism was
supported by the Albanian Development Fund (ADF), a "social safety net" set up
in 1992 by the World Bank, the European Union and a number of bilateral donors
with a view to "helping the development of rural and urban areas by
creating new jobs". ADF was also to provide support "with small credits and
advice to the unemployed and economically disadvantaged people helping them
start their own
business". (Albanian Times, Vol 2, No. 19, Tirana, 1995). As in the case of
VEFA  Holdings, the ADF was managed by appointees of the Democratic Party... 

Albania had also become a new cheap labour frontier, competing with numerous
low wage locations in the Third World: some 500 enterprises and joint ventures
(some of them with suspected mafia connections) were involved in cheap labour
assembly in the garment and footwear industries, largely for export back to
Italy and Greece.  Legislation had also been approved in 1996 to create "free
economic areas" offering foreign investors among other advantages, a
seven-year
tax holiday. (Albania Times, Vol 2, No 7, Tirana February 1996). 

RURAL COLLAPSE

The crisis had brutally impoverished Albania's rural population; food
self-sufficiency had been destroyed; wheat production for sale in the domestic
market had tumbled from 650,000 tons in 1988 (a level sufficient to feed
Albania's entire population) to 271,000 tons in 1996. Local wheat
production had declined by 33 percent in 1996. (Ministry of Agriculture and
Food, Statistical
Yearbook, Tirana, 1996, p. 25, see also FAO Release, 8 October 1996). 
 
In turn, the austerity measures imposed by the Bretton Woods institutions at
the outset of the Berisha government, had led to the destruction of the
country's agricultural infrastructure as well as the concurrent collapse of
most public works programmes. Cooperative structures in production and
marketing were disbanded. 

During the Berisha regime, the World Bank had largely supported a programme
which favoured private construction companies including the outsourcing
(through international tender) of most infrastructural programmes to Greek,
Italian, German and Austrian construction companies. (Interview with senior
official of the Ministry of Agriculture, Tirana, December 1997). 

The World Bank had also financed the purchase of some 4000 tractors which were
purchased by rich farmers with links to foreign capital. 

With the demise of rural credit and the hikes of input prices and the fuel
prices ordered by the World Bank, the use of farm machinery by the majority of
farmers had been abandoned:

"Farm equipment is now rented out by private farmers. But people cannot afford
the use of farm machinery, so there is a return to manual farming" (Interview
with senior official of the Ministry of Agriculture, Tirana, December 1997)

The dumping of surplus agricultural commodities alongside the
disintegration of
rural credit, had contributed to steering Albania's agriculture into
bankruptcy. The United States was supplying the local market with grain
surpluses imported under the 1991 Food for Progress Act. The European Union
initiated its food aid programme in 1991-92. It was interrupted in 1996. Its
destabilising effects had already led to the demise of local production.
Minimum tariffs on imported food had been implemented. Commercial imports of
grain on a significantly larger scale were gradually replacing the influx of
food aid. Government trading companies had also entered into shady deals
through Swiss and Greek commodity brokers involving large shipments of
imported
wheat. 

Moreover, a large chunk of Western financial support was granted in the
form of
food aid. Dumped on the domestic market, "US Food for Progress" not only
contributed to demobilising domestic agriculture, it also contributed to the
enrichment of a new merchant class in control of the sale of commodity
surpluses on the domestic market. 

Locally produced food staples had been replaced by imports. In turn retail
food
prices had skyrocketed. In the 1980s, Albania was importing less than 50,000
tons of grain (World Bank, World Development Report 1992); in 1996 wheat
imports were (according to FAO estimates) of the order of 472,000 tons (a more
than ten-fold increase in relation to the 1980s). According to official data,
the import of wheat and flour (in value terms) increased almost four times:
from 32.2 million dollars in 1994 to 123.7 million in 1996. 
 
By 1996, more than 60 percent of the food industry was in the hands of foreign
capital (Albanian Times, Vol 2. No. 15). Agro-processing for export to the
European Union had developed largely to the detriment of the local market.
The
World Bank was providing low interest loans, seeds and fertilizers solely in
support of non-traditional export crops. 

According to one observer, neither credit nor seeds were available to produce
grain staples obliging farmers to "shift away from wheat and corn into higher
value added products like fruits, vegetables, and pork".(Albanian Times,
Vol 1,
No. 2, Tirana, 1995). What goes unmentioned, however, is that one of the "high
value crops" for the export market was the illicit production of marijuana
which is produced all over the country...  Moreover, Italian intelligence
sources have confirmed the establishment of coca plantations in mountainous
areas on the border with Greece. "The Sicilian Mafia, with the support of
Colombians, is believed to have set up the plantations"... (Helena Smith,
Italy
fears Influx will set back War on Mafia, The Guardian, London, March 25,
1997).

The FAO describes the situation with regard to grain production as follows: 
[wheat] plantings are estimated to have dropped [in 1996] to only some 127 000
hectares, well below the average 150 000 hectares sown from 1991 to 1995. This
reduction was mainly as a result of farmers opting for other crops offering
better returns relative to wheat. Yields are also estimated to have dropped
further below the previous year's already reduced level. As in the past few
years, yield potential was already limited by farmers' limited access to
inputs
such as fertilizer, crop protection chemicals, and new seeds (farmers have
simply been keeping part of the previous season's crop to plant in the next
year which has led to a degeneration of the quality of the seed)..."(FAO
Release, October 8, 1996)

Moreover, the production of traditional seeds (reproduced in local nurseries)
had been destroyed. Initially, imported seeds were given (free of charge) to
the farmers. At present, farmers now depend largely on seed varieties
distributed by international agri-business, yet the prices of commercial seeds
has skyrocketed. In a cruel irony, the market for imported seeds and farm
inputs had been totally paralysed. According to a spokesman of the Ministry of
Agriculture: 

"Some 35,000 tonnes of wheat are needed this year [1996] as seed, which is a
great amount and may be ensured through import only. `But not a kilogram of
seed has been imported until now from private businessmen and the state
enterprises' (Albanian Observer, Vol 2, No 1)

This manipulation of the market for seeds and farm inputs had heightened
Albania's dependence on imported grain to the benefit of Western
agro-business.

The dumping of EU and US grain surpluses on domestic markets had led to the
impoverishment of local producers. Fifty percent of the labour force in
farming
now earns a mere $165 per annum. According to the United Nations Development
Programme (Albania Human Development Report) average income per peasant
household in 1995 was a meagre $20.40 a month with farms in mountainous areas
earning $13.30 dollars per month. Several hundred thousand people have flocked
out of the rural areas; Tirana's population has almost doubled since 1990. A
sprawling slum area has developed at Kanza, on the north-western edge of
Tirana... 

MACRO-ECONOMIC CHAOS

 From 1989 to 1992, Albania's industrial output had declined by 64.8 percent
and its by GDP by 41.2 percent (United Nations Economic Commission for Europe
(UNECE), Economic Survey of Europe 1996, Geneva, 1996, p. 184). Recorded GDP
later shot up by 7.4 percent in 1994, 13.4 percent in 1995 and 10 percent in
1996 (Ibid, 1996 figure is an estimate). Yet, these "positive results" hailed
by the Bretton Woods institutions had occurred against a background of
industrial decline spurted by the World Bank sponsored bankruptcy
programme. In
1995, industrial output stood at 27.2 percent of its 1989 level, --ie. a
decline of more than 70 percent (Ibid, p. 185).  

Despite the impressive turn-around in recorded GDP, living standards, output
and employment continued to tumble. While domestic prices had skyrocketed,
monthly earnings had fallen to abysmally low levels. Real wages stood at an
average of $1.50 a day (less than 50 dollars a month) in 1990 declining by
57.1
percent from 1990 to 1992 (Statistical Yearbook of Albania, Tirana 1991, p.
131).  This collapse in real earnings continued unabated after 1992. According
to recent data, conscripts in the Armed forces are paid 2 dollars a month, old
age pensions receive between 10 and 34 dollars a month. The highest salaries
for professional labour were of the order of $100 a month (1996). With the
devaluation of the lek in late 1996, real earnings collapsed further (almost
overnight) by 33 percent... 

THE OUTBREAK OF ENDEMIC DISEASES

Widespread poverty had led to the resurgence of infectious diseases. There was
an outbreak of cholera in 1995. A polio epidemic spread in 1996 from the
Northwestern region to Tirana and the rest of the country. (WHO, Press Release
WHO/59, 18 September 1996; Albanian Times, Vol 2, No. 40). According to the
United Nations, average life expectancy was 72.2 years in the period prior to
the adoption of the market reforms; adult literacy was of the order of 85
percent (See UNDP, Report on Human Development 1992). 

The economic reforms had also precipitated the disintegration of health and
educational services. The World Bank was assisting the government in slashing
social sector budgets through a system of cost recovery. Teachers and health
workers were laid off, health spending was squeezed through the adoption of
"new  pricing policies and payment mechanisms for outpatient services,
hospital
services and drugs" devised by the World Bank. (World Bank Public Information
Department, Albania-Health Financing and Restructuring Project, Washington,
January 1994). In collaboration with the World Bank, the Phare program of the
European Union had granted support to the privatisation of health care. 

(CONTINUED, PART II THE CRIMINALISATION OF THE STATE)

*   *   *

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Michel Chossudovsky 
Professor of Economics,  University  of Ottawa
Member of the Ad Hoc Committee to Stop Canada's  
Participation  in the War in Yugoslavia 

Voice 613-5625800, Ext. 1415 
email chossudovsky at sprint.ca

On Kosovo:  http://www.transnational.org/features/crimefinansed.html
On the break-up of Yugoslavia:
http://www.hartford-hwp.com/archives/62/022.html