Re: Do jene te zotet politikanet tane te bejne te mundur anetaresim e Shqiperise ne BE ?
Stabilisation and Association Report
ALBANIA
Stabilisation and Association Report
TABLE OF CONTENTS
1. EXECUTIVE SUMMARY.................................................................... ...................4
2. POLITICAL SITUATION.................................................................. .....................5
2.1. Democracy and the Rule of Law .......................................................................5
2.2. Human Rights and Protection of Minorities......................................................9
2.3. Regional co-operation............................................................... .......................11
2.4. Priority Areas Needing Attention in the Next 12 Months ...............................14
3. ECONOMIC SITUATIONIC SITUATION.........................................................14
3.1. Current Economic Situation ........................................................................... .14
3.2. Existence of a Free Market Economy and Structural Reforms .......................16
3.3. Management of Public Finances................................................................... ...18
3.4. Priority Areas Needing Attention in the Next 12 Months ...............................19
4. IMPLEMENTATION OF THE STABILISATION AND
ASSOCIATION PROCESS.................................................................... ................19
4.1. General Evaluation ........................................................................... ...............19
4.2. Internal Market and Trade ........................................................................... ....21
4.3. Sectoral Policies ........................................................................... ...................25
4.4. Co-operation in Justice and Home Affairs ......................................................28
4.5. Priority Areas Needing Attention in the Next 12 Months ...............................30
5. EC FINANCIAL ASSISTANCE................................................................. ...........31
6. PERCEPTION OF THE EU ........................................................................... .......32
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1. EXECUTIVE SUMMARY
Albania started its reform seriously adrift from the level of development in Western
Europe. Early efforts to introduce democracy and build a market economy were severely
undermined by the socio-economic crisis and generalised unrest which followed the
financial collapse of 1997. The lack of a democratic culture, the absence of dialogue
between different political tendencies and a limited understanding of the concept of
national interest amongst political leaders have often prevented the development and
implementation of sound policies to address the many issues that Albania faces. The
tense situation in the region has also had an adverse effect on the country’s stability. All
this meant that the situation in early 1998 was little better than that prevailing in the early
years of the reform.
Since 1998 Albania’s reform efforts have been more productive : the adoption of a
modern Constitution and legislative framework, an overall improvement in macroeconomic
stability and fiscal sustainability, effective implementation of the privatisation
process, substantial strengthening of the customs and tax administrations, and
improvement in terms of security and public order. Moreover, Albania has been
constructive in response to the recent political crisis in the former Yugoslav Republic of
Macedonia and Presevo. All this relative progress has brought Albania to the threshold of
negotiating a Stabilisation and Association Agreement (SAA) with the EU.
However, the starting point against which all these achievements have been measured is
extremely low and much more remains to be done to ensure further progress of Albania
within the Stabilisation and Association process (SAp). The conclusion of an SAA itself
is conditional on a sustained reform effort by Albania and on the strengthening of its
administrative capacity in order to ensure the proper implementation of such an
agreement.
Albania is still beset by a confrontational political culture, where individual interests
prevail over general ones with the frequent result being political instability and poor
governance. Elections are not yet up to international standards. The judiciary remains a
major problem, as it is still ill-prepared to enforce legislation, legal reasoning is often
weak and corruption is pervasive. Overall implementation of the legal framework is poor
and legal security is insufficient to attract inward investments on a scale to contribute to
sound and sustainable economic development. Public administration is weak and still
subject to political and financial influence. In almost every area where Albania would
take on obligations under a future SAA, there is a considerable lack of implementing
capacity. Despite recent economic progress, the overall socio-economic conditions in
Albania remain poor with almost one fifth of the population living on less than 1.2 €/day.
The grey economy is still too large, prevents competition and discourages investment.
The current energy crisis threatens prospects of continued economic growth. Widespread
corruption and organised crime, particularly illegal trafficking of all types, remain very
serious problems and undermine respect for the rule of law and the foundations of the
state itself.
In order to make further progress in the Stabilisation and Association process, Albania
urgently needs to guarantee a stable political environment, with fully functioning
democratic institutions. The new Government should quickly re-focus on badly needed
reforms and accelerate their implementation.
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2. POLITICAL SITUATION
2.1. Democracy and the Rule of Law
Albania is a young and still rather unstable democracy. A more consensual democratic
culture needs to develop. Confrontation and conflict is the norm in political life
(including within political parties). This threatens stability and prevents constructive
political positions which are needed to ensure that political and economic reform
continues. Poor general socio-economic conditions further contribute to the
radicalisation of political life.
Democratic institutions are weak at central and local level. Parties in the opposition
have tended to resort to the boycott of democratic institutions as a means of political
and social coercion. This prevents the proper functioning of the institutions at central
(Parliament, parliamentary commissions, central regulatory bodies) and at local level
(municipalities). Governments have often adopted autocratic approaches, particularly
in the absence of a functioning opposition. Nepotism and corruption are frequent in the
Government and public administration.
Albanian elections have often been unnecessarily protracted and poorly managed.
Despite relative progress in the last Parliamentary elections, further efforts are still
necessary by Albania to ensure fully free and fair elections in accordance with
international standards. Albania’s electoral system needs to be improved and the
population better informed on electoral procedures. The participation of more women
in political life needs to be further encouraged.
Civil society remains underdeveloped and largely ineffective. Continued efforts will be
necessary to ensure that civil society develops so that it can usefully contribute to
political, social and economic development.
Overall, respect for and implementation of the rule of law in Albania is weak. The
Albanian law enforcement bodies will need time and hard work to be able to guarantee
consistent implementation and enforcement of the law in accordance with international
standards. Fraud, corruption and organised crime continue to be serious threats to the
stability and progress of the country. The judiciary, a central element in ensuring the
rule of law, suffers from serious deficiencies and is undermined by corruption.
2.1.1. Assessment of democratic institutions and of attitudes to the state.
Constitution. The adoption of a new, modern Constitution in 1998 was a significant step
forward for the consolidation of democracy in Albania. It laid the basis for the proper
development and implementation of democratic principles. The Constitution guarantees
democratic freedoms, notably political pluralism, freedom of expression and religion. On
that basis, Albania has been undertaking a major overhaul of its institutions and legal
system with relative success.
Parliament. The Assembly of Albania (unicameral parliament) has 140 members : 100
are elected by majority and 40 by proportional representation.
The main political parties in Albania are the Socialist Party (left, currently in power), and
the Democratic Party (right). A third political force emerged in 2001, the New Democrat
Party (centre-right, in opposition) created by dissident members of the Democratic party.
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A number of smaller parties also exist. These tend to form alliances with the main parties
and are currently present in both the ruling coalition and the opposition.
The last parliamentary elections were held in June 2001. The Socialist Party and its allies
won 88 out of 140 parliamentary seats, or more than 62 %. The opposition coalition “the
Union for Victory” led by the Democratic Party won 46 seats. The New Democrat Party
(opposition, but not in the Union for Victory coalition), holds 6 seats.
Political life in Albania continues to be highly confrontational. During the 2001 election
period, the results of 37 out of 100 electoral zones were challenged by both the right and
the left in the Constitutional Court. The opposition coalition boycotted Parliament during
several months, until 31 January 2002. Moreover, an internal power struggle within the
ruling Socialist Party (SP) has further paralysed the Albanian legislature : SP factions
have boycotted some key parliamentary sessions to defend their own interests or to exert
pressure on the Government. This situation has had an adverse influence on the reform
process : political forces have been distracted from the important reforms that Albania
urgently needs, and the Parliament has been prevented from adopting the necessary
legislation. The inability to pass key pieces of legislation needed to complete the
constitutional framework, namely the Law on the High Council of Justice and laws on
property and restitution, are examples of this.
Although the 2001 parliamentary elections marked a relative progress over those in the
past in terms of the conduct of the campaign, media and election administration, Albania
still needs to make further efforts to meet international standards. These elections took
nearly two months and five rounds to complete. Isolated but serious irregularities were
noted by the International Election Observation Mission (cases of ballot box stuffing and
use of pre-marked ballots, irregular interventions by the police, inadequate handling by
the competent bodies of some key complaints about electoral practice and lack of
consistency by the courts when handling complaints). In addition, the SP in power
exploited the electoral law beyond acceptable limits and political pressure at times
appeared to compromise the independence of the Central Electoral Commission and the
Constitutional Court. The OSCE/ODHIR report on the elections concludes that these
“isolated but serious” irregularities were due more to insufficient political will than
technical deficiencies in the electoral code.
In line with the OSCE/ODIHR recommendations, the Albanian political forces and
relevant electoral bodies should now concentrate on finding fair solutions for past
problems, and to act rapidly to avoid similar situations in the future. In particular, they
should simplify the election system, improve the electoral code and electoral procedures,
strengthen electoral administrations at central, zone and local level, improve the appeal
system, and complete accurate voting lists. Action to increase public understanding of
electoral procedures and to encourage greater participation of women is also necessary.
The executive. Since 1998, the governing Socialist Party has been working hard to
stabilise Albania and to promote Euro-Atlantic integration. The actions carried out by the
Socialist-led governments have, overall, yielded relatively good results and have been
central to Albania’s progress in the Stabilisation and Association process.
The work of the Government issued from the June 2001 elections was severely affected
by the internal conflict within the SP between the party chairman and the Prime Minister.
This crisis led to serious accusations of corruption against that Government, and
provoked the resignation of several key ministers and ultimately of the Prime Minister
himself. After intense negotiations within the SP, a new Government was formed in
February 2002. As in the past, the new Government identifies the European integration
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process as a main priority for its mandate and the portfolio of Minister of State for
European Integration established in September 2001 has been maintained. However,
political manoeuvring within the ruling party is still frequent. This poses a threat for
stability and slows down the reform process.
Albanian public administration remains weak. The reform of the public administration
initiated in 2000 has not yielded concrete results and remains, in general, at its initial
phase, with the exception of some specific areas such as the customs and tax
administrations. The Civil Service Law, cornerstone of the system, is not yet fully
implemented, particularly at local level. In many places, the old system continues to
prevail with its strong tendency to nepotism and political nominations. The Civil Service
Commission, established to monitor the implementation of the Civil Service Law, is not
fully functional, and the implementation of its decisions has been poor. It has not yet
approved its internal regulations (due by mid-2000) and no chairman has been appointed.
The Training Institute for the Public Administration, a central instrument for the training
of civil servants, is not yet operational. Local government and implementation of
decentralisation is proceeding slowly and with difficulty due notably to shortages of
qualified staff at local level and the lack of financial resources to implement local
policies.
Human resources in the Albanian public administration are, in most cases, scarce and not
adequately trained. One of the central issues is the current salaries and career prospects
offered by the Albanian public administration which, despite recent improvements, are
not yet attractive enough to secure the recruitment, motivation and retention of competent
staff.
President of the Republic. The President of the Republic is the head of state and,
according to the Constitution, plays only a limited executive role. The President is elected
by the Parliament with a qualified majority (3/5 of 140 seats = 84 votes). The current
President was elected in 1997 by the socialist parliamentary majority.
The number of seats won by the SP and its allies in the last elections (88 out of 140)
allows them to determine the outcome of the Presidential elections scheduled for mid
2002 without needing to reach a compromise on a candidate with the opposition, as the
Constitution had intended. This has been one of the main reasons which led to the
boycott of the Parliament by the opposition (the extent of the victory of the SP and its
allies is considered illegitimate by the opposition). The selection of a candidate for the
Presidential elections is also a major element of the power struggle within the ruling
Socialist Party.
Civil society. Civil society in Albania remains underdeveloped and does not contribute
sufficiently to Albania’s political, economic and social development. Dialogue between
civil society representatives and the Government remains limited and needs to be
enhanced. A new law on NGOs was adopted in May 2001, but adequate implementing
measures need still to be developed. Despite some efforts by NGOs to organise activities
in rural areas, civil society initiatives continue to be particularly rare outside Tirana.
The Armed Forces. The Albanian armed forces are accountable to the democratic
institutions and under the ultimate responsibility of the President of the Republic.
Albania is a candidate for NATO membership, but its armed forces are currently poorly
equipped and trained. They comprise around 17 000 men, including 4 500 conscripts and
2 500 civilians. The number of officers is high (around 6 000) which is typical in a postcommunist
system which has not yet completed reform in this area. Restructuring plans
aim to reduce the armed forces’ size to around 14 000 men, notably through a strong
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reduction in the number of conscripts. A bigger challenge will be to restructure the
organisation and operation of the Albanian armed forces according to NATO standards,
including the modernisation of equipment and infrastructures within existing budgetary
constraints.
2.1.2. Assessment of judiciary, law enforcement and respect for the rule of law
Legal framework. Albania’s legal framework has been developing during the last
decade and can today be considered as broadly satisfactory, particularly if Albania’s
current level of development is taken into account. However, implementation and
enforcement capacity remains weak. This constitutes a serious challenge for further
progress of Albania in the Stabilisation and Association process.
The Judicial System. During the last four years, Albania has adopted a large number of
laws and regulations designed to improve the functioning of its judicial system. However,
implementation of the bulk of this legislation remains clearly insufficient due, amongst
other, to a lack of basic infrastructure and equipment (dilapidated buildings, deficient
postal and telephone services, power cuts, lack of filing and recording systems, …). This
situation has a serious adverse effect on the delivery of justice. The government is also
currently experiencing difficulties in adopting a key piece of legislation, the Law on the
High Council of Justice. Once adopted, it should lead to more efficient inspection and
disciplinary procedures for judges.
A School of Magistrates has been established, but the number of sufficiently trained
judges remains very limited. At an expected rate of around 25 graduates per year (judges
and prosecutors together) it will take a long time to build up a modern, well-trained
judiciary. The Albanian authorities should take further steps to accelerate this process.
Appropriate training and working conditions should also be provided for administrative
staff (auxiliaries, secretaries, archivists etc).
Corruption within the Albanian judiciary continues to constitute a serious problem,
despite some attempts by the Albanian authorities to address this issue such as the
revision of the Criminal and the Criminal and Civil Procedures Codes, and the adoption
of a Code of Ethics for the Judiciary. In 2000 and 2001, the High Council of Justice took
measures against 33 judges of whom 18 were dismissed. Disciplinary action was taken
against 15 (out of a total of 347) on grounds of corruption or improper professional
behaviour. However, much more needs to be done to eradicate corruption from the
judiciary and to ensure that, where appropriate, judges are duly prosecuted.
Despite efforts in recent months, further action is needed to ensure the enforcement of
court rulings, notably when the sentences are pronounced against State bodies. In 2001,
out of a total of 12,182 rulings, 5,835 were executed and 6,347 have been carried over
into 2002.
The Albanian prison population is 1,766, and is rising (1,583 in May 2001). Efforts have
been undertaken by the Albanian authorities to develop a generally acceptable legal
framework for the penitentiary system. However, Albania’s prisons remain, overall, in a
poor state and there is a problem of overcrowding (according the latest data, affecting
around 340 inmates). The situation of prisoners on remand held in police stations over
relatively long periods and in bad conditions has to be addressed quickly (the current
population of prisoners on remand amounts to around 1 200).
Police. Albania has made good progress in defining the overall legislative framework for
the police. However, implementation remains weak, notably because key implementing
regulations have not been adopted yet. A good example is the Judicial Police law which,
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although adopted in November 2000, still awaits secondary legislation and rules allowing
its proper implementation.
Albania has also developed a police reform strategy, but implementation is proceeding
slowly. More work is needed to reduce the size of the police both to make it more
efficient and to allow more resources for the improvement of working conditions and
salaries. The selection, qualifications and training of police, including in areas such as
respect for human rights, needs to be improved. The fight against corruption within the
police ranks and efforts to improve co-ordination between law enforcement bodies should
be pursued vigorously.
In 2001, a number of new structures to combat trafficking in human beings have been set
up. Recently, the Albanian police has been active in this field with political declarations,
the preparation of new strategies and a number spectacular police operations. As a result,
a number of boats and vehicles used for illegal traffic have been seized, and arrests have
significantly increased. However, there has not been a corresponding increase in the
number of prosecutions or sentences for these criminals. The issue of organised crime
continues to be one of the Albania’s basic problems and greater efforts will be necessary
to achieve a significant reduction in criminal activity.
Although Albania has been equipping itself to fight its strong systemic corruption,
actual progress in this area has been clearly insufficient. In April 2000, a revised Anti-
Corruption Plan (ACP) was launched and an Anti-Corruption Monitoring Group has been
established. The Criminal and Criminal Procedure Codes have been amended in order to
better address corruption-related issues. A law on the functioning of Parliamentary
Investigative Commissions, which could be used to fight against corrupt activities of high
level officials, including MPs, is currently pending in Parliament. However, to really curb
corruption, much more is needed, including the creation of efficient implementation
mechanisms and strengthening co-operation between law enforcement bodies. Limited
institutional capacity to investigate and prosecute corruption cases and lack of witness
protection are serious problems. The Albanian authorities have not yet introduced
legislative amendments to establish effective sanctions against companies to deter bribery
of public officials. There has also been a distinct lack of progress in establishing a new
law on the declaration of assets of public officials. Following the political row within the
ruling Socialist party which led to the resignation of three ministers (Finance,
Privatisation and Public Works) on charges of corruption, the Albanian authorities have
publicly stressed their intention to make the fight against corruption one of its top
priorities. Whatever is behind these declarations of intent, the government should ensure
they result in clear shift away from endemic corruption.
In view of the above, it can be concluded that general respect of the rule of law in
Albania remains deficient, notably due to weak law enforcement institutions, a generally
poor public administration, and widespread corruption and organised crime.
2.2. Human Rights and Protection of Minorities
Basic human rights are guaranteed by Albanian legislation and generally respected.
However, there is still room for improvement. In particular, law enforcement bodies
should be better acquainted with their human rights obligations, and the judiciary
should be able to address human rights cases properly. In the area of economic rights,
property rights continue to be particularly problematic, notably as regards land and
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property, and are the source of a considerable number of complaints by Albanian
citizens.
The general attitude of the Albanian government regarding the protection of minorities
is constructive. However, taking into account the sensitivity of this sector, Albania
should complete its legislative framework and structures to fully meet international
standards and to ensure their implementation. The Roma population faces social and
economic difficulties which require attention.
2.2.1. Civil, political, economic and social rights
Human rights, including civil, social, economic and political rights, are guaranteed by
the Albanian Constitution of 1998. The Albanian Government is taking steps to
strengthen further respect for human rights through new legislation and structures, and
has made efforts to comply with the international requirements in this area. In autumn
2001, Albania published its “Report on the compatibility of Albanian legislation with the
requirements of the European Convention on Human Rights”. However, implementation
of human rights-related legislation is not always adequate. Judges and prosecutors are not
properly briefed on the application of human rights legislation. The Albanian police
authorities need to be better informed of their obligations to uphold human rights and
how to implement them.
In September 2000, Albania abolished the death penalty in peacetime.
The right of assembly and demonstration is generally respected. Opposition rallies
normally take place without major incidents. The right to seek redress, a fair trial or
protection against arbitrary arrest or detention exist in law. However, they are often
not applied in practice.
There is freedom of expression in Albania but the media need, in general, to become
more professional. Media-related legislation needs to be improved. The independence of
radio and television should be reinforced and the transformation of the state TV and radio
into an independent public broadcasting institution should be completed. Generally,
public TV provides fair coverage of political views, including those of the opposition.
Foreign ownership of broadcasting media is not restricted in Albania and Tirana has
several TV stations owned by foreigners. As regards the Albanian printed media, none is
financially viable without outside assistance and regional newspapers are disappearing.
These financial difficulties represent a threat to media independence.
The right to property is legally guaranteed, but implementation is deficient and the
source of numerous complaints. The current situation continues to represent a serious
impediment to the creation of a functioning property market. Until action is taken, the
lack of clarity over property ownership will discourage investment and hold back the
development of agriculture. In accordance with the 1998 Constitution, the Government
was due to pass new legislation on property rights and restitution before the end of
November 2001, but this has not yet been done. This new legal framework is expected to
resolve a number of shortcomings in the present legislation and allow for a better
implementation of property rights in Albania.
The organisation and independence of trade unions remain very weak and they are
largely dependent on political parties.
The Ombudsman’s office began its work in August 2000 and is gradually becoming
fully operational. In a country with no tradition of such an institution, the progress made
over the past years has been significant. The most common complaints examined by the
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Ombudsman concern police behaviour and lack of enforcement of court decisions. One
of the main challenges ahead lies in further promoting the role of the Ombudsman as a
proactive defender of human rights.
2.2.2. Minority rights and refugees
Albania has three recognised national minorities (Greek, Slav-Macedonian and
Montenegrin) and two “cultural minorities” (Vlach and Roma). The most important
minority group in Albania is the Greek minority (officially around 50 000, according to
the 1989 census), represented through a civic association called Omonia. At political
level, minorities are mainly represented through the Human Rights Union Party, which
holds a Ministerial post (Minister of Justice). At the local level, representatives of the
Greek minority hold posts in local government administrations.
The rights of minorities in Albania are guaranteed by the 1998 Constitution. According to
the Constitution, minority groups enjoy the same civil, economic, social and political
rights as the Albanian majority. Albanian framework legislation on elections, political
parties, media, education, as well as the Civil and Penal codes spell out the rights of
minorities and contain provisions against discriminatory treatment. In September 1999,
Albania ratified the Convention on the Protection of National Minorities of the Council
of Europe, which entered into force on 1 January 2001, and in July 2001 presented its
first report under this Convention.
The Roma population is considered as a cultural minority and enjoys certain rights linked
to this status. However, the socio-economic situation of Roma remains clearly below
acceptable standards and concrete plans to support this community need to be
implemented. The Albanian Government is working on an Action Plan to support the
Roma community which should be finalised in 2002.
Albania should continue its efforts to ensure that minority rights are effectively respected
throughout the country and that no limitation to the exercise of minority rights based on
geographic criteria is applied in Albania. It also needs to develop a comprehensive
legislative framework on minorities capable to adequately protect minority rights and to
respond to international requirements, and to strengthen the administrative structures
relevant for the protection and integration of minorities. Moreover, Albania should
rapidly gather accurate statistics on the number of national and cultural minority
members actually living in Albania, and adopt and implement the Action Plan regarding
the Roma population.
At present, the number of refugees in Albania is small and does not constitute an issue.
Albania is currently developing an asylum system in accordance with international
standards.
2.3. Regional co-operation
Albania has been a WTO member since September 2000. Albania is also an active
member of the Council of Europe (CoE) and OSCE, and is contributing to the main
initiatives for regional co-operation in South-east Europe. However, international
requirements in the framework of the CoE and OSCE have not always been met due to
the general Albanian difficulty in implementing and enforcing legislation, as well as in
properly addressing specific issues such as the organisation and conduct of elections.
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Albania has had a constructive attitude as regards conflicts in the region (the former
Yugoslav Republic of Macedonia, Kosovo, Presevo Valley) and has aligned itself with
EU positions. However, Albanian efforts to efficiently control its borders to prevent
arms and other help going to armed ethnic Albanian groups in the former Yugoslav
Republic of Macedonia and Southern Serbia need to be strengthened. Relations with
neighbouring countries have improved, including with the Federal Republic of
Yugoslavia. In the commercial area, Albania is attempting to conclude FTAs with the
countries of the region. Negotiations with the former Yugoslav Republic of Macedonia
have been completed and an FTA was initialled at the beginning of 2002.
2.3.1. Multilateral Relations
Albania is a WTO member since September 2000 and is proceeding with the trade
liberalisation commitments undertaken upon accession. Albania is also a member of the
Council of Europe (CoE) and the OSCE, and participates in all relevant regional
initiatives such as the Stability Pact for South Eastern Europe, the South-East European
Co-operation Process, the South East European Co-operation Initiative, the Adriatic
Ionian Initiative and the Black Sea Economic Co-operation forum. Albanian positions
within all these fora have been constructive and contributed to regional dialogue and cooperation.
Albania has subscribed to a considerable number of international conventions sponsored
by the CoE. Legal commitments undertaken by Albania upon accession to the CoE as
well as the reporting obligations resulting from the various CoE conventions are, in
general, being properly fulfilled. However, as other international organisations, the CoE
has expressed some concern regarding the gap between Albania’s legal framework and its
capacity to implement and enforce laws.
Albania’s obligations in the framework of the OSCE are contained primarily in the
Helsinki Final Act, the Charter of Paris, and the Charter for European Security, and
mainly concern democratisation (electoral process development), human rights, and
security-related or politico-military issues. The OSCE established a Presence in Albania
in 1997, which has a mandate to give advice and assistance to Albania on
democratisation, media, human rights, election preparation and monitoring, and to be
active on other issues such as the monitoring of weapons collection. Following the
release of the OSCE/ODIHR report on the 2001 parliamentary elections, the Government
of Albania, Parliament, and the political parties have stated their commitment to
implement the recommendations contained in the report, but the process is being delayed
due to the unstable political climate in Albania. As regards other obligations, Albania has
not yet completed OSCE reporting requirements in the field of small arms and light
weapons collection and destruction.
2.3.2. Bilateral Relations
The way in which bilateral relations between Albania and neighbouring countries are
currently developing reflects Albania’s commitment to promote peace, stability and
economic development in the region.
Albania has established a number of bilateral Economic Co-operation and Trade
Agreements with Croatia, Bulgaria, Greece, the former Yugoslav Republic of Macedonia,
Romania, Italy, Slovenia and Turkey. These Agreements have been complemented by
Agreements for the Reciprocal Promotion and Protection of Investments, as well as by
Agreements on Avoidance of Double Taxation. Albania is also a signatory of the
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Memorandum of Understanding for Trade Liberalisation and Facilitation signed in June
2001 with the objective of creating, by the end of 2002, FTAs between the countries
participating in the Stability Pact.
Traditionally, the grievances voiced by the important Albanian minority in the former
Yugoslav Republic of Macedonia have not contributed to promote good relations
between both countries. These relations have been occasionally tense during the recent
violent conflict in the former Yugoslav Republic of Macedonia between the Albanian
minority and the majority. However, dialogue between Skopje and Tirana has been
maintained, as demonstrated by the Free Trade Agreement negotiated between both
countries and initialled at the beginning of 2002. Albania has maintained a moderate and
constructive policy throughout the conflict, but more needs to be done to improve the
control of Albania’s borders in order to prevent trafficking activities, notably in weapons.
Relations with the FRY have improved, with the re-establishment of diplomatic
relations, increased dialogue at political level, and preparations to initiate FTA
negotiations. Albania has stepped up its relations with Montenegro with a view to
improving cultural and economic relations, as well as enhancing co-operation in the field
of Justice and Home Affairs. Contacts with Kosovo have also been developing in the
context of the 1244 resolution. As regards Montenegro and Kosovo internal affairs,
Albania has been maintaining a prudent and moderate official position. It has notably
hailed the adequate conduct of elections in those entities and supported the settlement of
institutional issues through constructive dialogue.
Relations with Croatia have never raised particular problems and negotiations for a FTA
have started recently.
There are no particular issues in the relations between Bosnia and Herzegovina and
Albania, but there is little dialogue, either at political or at economic level. Some
preliminary steps have however been undertaken to prepare the ground for the
negotiation of a FTA.
Relations with candidate countries continue to be positive, but visa restrictions
introduced by Romania and Bulgaria (due to “Schengen” requirements) have apparently
had a negative impact on the free flow of persons and trade. Trade relations with these
two countries (as well as with other non-EU countries of the region) continue to be, in
any event, at traditionally low levels. Little progress has been made regarding the
negotiation of a FTA with Bulgaria and Romania as required by the June 2001
Memorandum of Understanding.
The EU is the source of most Albanian imports and the destination for almost all
Albanian exports. Italy is the first Albanian partner in terms of trade and FDI. Relations
between Albania and Italy continue to be good and there have been several contacts at
political and technical level aiming at increasing co-operation within the framework of
the Three-year Co-operation Protocol (2001-2003) signed by both countries.
Relations with Greece have intensified recently. Greece is Albania’s second economic
partner in trade terms and is the second largest investor in Albania. Similarly to Italy, cooperation
with Greece is wide-ranging, covering numerous fields such as energy,
agriculture, tourism, transports, finance, telecommunications and culture. The two
countries signed a Co-operation Protocol for Euro-Atlantic Integration and a Programme
for Cultural Co-operation for the period 2001-3.
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2.4. Priority Areas Needing Attention in the Next 12 Months
· Better functioning of the democratic institutions, notably through the active and
constructive participation of the opposition in the Parliament, parliamentary
commissions, municipal councils and relevant public bodies (National Council on
Radio and Television, etc.);
· Implementation of OSCE/ODIHR recommendations regarding the electoral process;
· Increased capacity and improved functioning of the Judiciary and other law
enforcement bodies. The Law on the High Council of Justice should be adopted, and
further progress should be made regarding the enforcement of Court rulings;
· Adoption of the implementing regulations necessary to implement the Judicial Police
Law. Adequate implementation of this law;
· Ensuring full implementation of the Civil Service Law. In this context, it is
particularly important: 1) Civil Service Commission and Training Institute for the
Public Administration to become fully operational, 2) implement fair and professional
selection procedures, 3) find imaginative solutions to improve salaries and career
prospects of civil servants;
· New legislation on property rights and restitution should be adopted to address the
existing legislative shortcomings in this area and to ensure a better implementation of
property rights in Albania;
· Continued efforts to improve minority rights, notably through the development of a
comprehensive legislative framework and the strengthening of the relevant institutions
to ensure the implementation of minority rights in accordance with international
standards, as well as through the adoption and initial implementation of the Action
Plan for the Roma minority;
· Continuing the efforts to enhance regional co-operation and implementation of the
requirements of the Stability Pact Initiative for Trade Liberalisation and Facilitation in
order to create a FTA Regional Framework by the end of 2002.
3. ECONOMIC SITUATIONIC SITUATION
3.1. Current Economic Situation
Over the last four years, Albania has made significant progress in economic
stabilisation. Macro-economic indicators have improved: economic growth, although
starting from a very low basis, has been significant, inflation has reached a level
comparable to EU figures, and both fiscal and current accounts deficits have been kept
within targets.
Despite these achievements, growth sustainability is not ensured. The grey economy
represents an important share of real GDP and legal security for business is weak.
Remittances from Albanians abroad still largely contribute to the financing of the
current account, which nevertheless shows an important deficit. The budget depends to
a large extent on foreign financing. The ongoing energy crisis puts an additional,
serious strain on economic prospects. A further consolidation of the country’s economic
base is therefore essential.
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Despite disruptions in production caused by energy shortages, real GDP growth in 2001
is estimated to have reached the target of 7.3%. This level is broadly in line with the
growth registered in the previous three years (average of 7-8% GDP growth). However,
GDP per capita remains one of the lowest in Europe (around 1,400 €) and the overall
impact of economic growth remains limited on the poorest layers of the population. As in
2000, construction and services mainly contributed to this increase, with expected growth
rates of respectively 17% and 12%. Industrial production is estimated to have grown at a
satisfactory rate, around 6%. Agriculture, which still accounts for slightly more than 50%
of Albania’s GDP, has grown by around 3.5%. More generally, it is admitted that growth
estimates are not fully reliable, since official accounts do not exist yet, and the official
figures provide inadequate coverage of private sector activity. Future growth may be
seriously undermined by the ongoing , severe energy crisis.
Albania’s strong growth performance in recent years has also had a positive impact on
the unemployment rate. Registered unemployment declined from about 17% in
December 2000 to around 15% in September 2001, possibly also because of increased
controls on enterprises and the grey economy. The number of unemployed receiving
benefits decreased even faster. Although the official data underestimate the extent of
unemployment due to incomplete registration, they provide a good indication of
underlying trends.
A relatively restrictive monetary policy, coupled with significant increases in
productivity, contributed to keeping inflation under control. In spite of inflationary
pressures caused by the crisis in neighbouring former Yugoslav Republic of Macedonia,
as well as by election-related public expenditure, inflation was limited to 3.5% in
December 2001 (year-on-year basis).
Taking into account the amendments to the 2001 budget resulting from the energy crisis
and involving additional subsidies of about € 19 million for electricity imports, fiscal
performance in 2001 is broadly on track, however, with lower than projected revenue
and expenditure. The overall deficit is projected to reach around 9% of GDP, in line with
the 2000 figure. Foreign financing of the deficit, which predominantly took the form of
grants or concessional borrowing, accounted for about 4% of GDP, domestic financing
for about 3%, privatisation receipts accounting for the remaining 2%.
The reduction in the deficit in recent years, more particularly the primary deficit1 which
declined from 8% of GDP in 1996 to only 1% in 2001, was made possible primarily by a
significant revenue effort, mainly due to continuing improvement in tax and customs
administration, as well as by the decision by the government to end support to stateowned
enterprises in the form of subsidies and soft loans. Further substantial revenue
consolidation will however be necessary in order to reduce the still large overall deficit,
more particularly in light of badly needed improvements in basic public services and
infrastructure.
On the external side, imports expanded strongly as a result of increased investment
activity and shortages in domestically-produced electricity. On the other hand, export
performance was poor, especially in the second half of 2001, as Albania appeared to be
suffering from a general downturn in import demand in the EU, which is by far its main
commercial partner. This led to a widening of the trade deficit, which is expected to
have reached around € 1 billion in 2001 (€ 890 million in 2000). As it has been
customary since the beginning of the transition, strong inflows of remittances from
1 Defined as revenue minus expenditure, excluding foreign-financed capital and interest payments.
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Albanians living abroad – estimated at about € 520 million in 2001 - partly compensated
for the trade deficit. Overall, the current account deficit is expected to have slightly
increased (7.4% of GDP in 2001, compared to 7% in 2000). Foreign direct investment
accelerated in 2001, which contributed to a new increase in foreign exchange reserves (€
820 million or 4.7 months of imports as of end-2001, compared to € 676 million or 4.3
months of imports as of end-2000).
The combination of low inflation and a fairly comfortable level of foreign exchange
reserves contributed to the stability of the exchange rate of the national currency: in
recent years, the Lek has slightly depreciated against the dollar, while remaining roughly
stable vis-à-vis the Euro. At the end of 2001, foreign debt, including arrears, reached a
level of € 1.34 billion, corresponding to about 29% of GDP, which is quite low by
international standards, and is expected to stabilise at this level in the years to come.
Regarding relations with International Financial Institutions, in July 2001 the IMF
Executive Board completed its final review of the three-year programme covering the
period May 1998 - July 2001 and supported by a Poverty Reduction and Growth Facility
(PRGF) for a total amount of € 62 million. In late 2001, the IMF examined the
Government’s request for a new three year PRGF arrangement to support its 2002
economic programme, which was prepared within the Medium Term Expenditure
Framework (MTEF) 2002-2004 and the World Bank sponsored Growth and Poverty
Reduction Strategy (GPRS) framework2. The central lending objectives of the World
Bank have been to alleviate poverty, and to promote economic growth and private sector
development in the country. These objectives are supported by ongoing sectoral projects
amounting to € 313 million.
3.2. Existence of a Free Market Economy and Structural Reforms
Albania has made some progress in recent years with structural reforms. Privatisation
of SME’s can be considered as complete, whereas privatisation of some large
companies has been delayed. Financial sector restructuring has also progressed, but
needs to be finalised, and the supervisory functions improved. Although important
elements for the promotion of investments such as the repatriation of investments and
profits and a rather open system for establishment are in place, the poor functioning of
the judiciary and the public administration prevent the development of an adequate
business environment and limit FDI. Another important factor discouraging investment
initiatives is the imperfect functioning of the property market, notably as regards land
and real estate.
Some of the conditions for a working market economy are in place. The private sector
represents a large part of the Albanian economy, prices have been liberalised with a
few exceptions, and the necessary legislative framework is generally in place. However,
the latter is not yet supported by a well trained and efficient public administration and
judiciary. Albania will only become a functioning market economy once it is able to
ensure proper implementation and enforcement of its legislative framework through a
performing administration and judiciary, able and willing to fight corruption.
2 The first Medium Term Expenditure Framework (MTEF), covering the period 2001-2003 was adopted in
December 2000. The updated MTEF, covering the 2002-2004 period, was published in June 2001.
Following approval by the Economic Policy Committee of the updated MTEF, the Growth and Poverty
Reduction Strategy –now renamed the National Strategy for Socio-economic Development- was publicly
launched through a National Workshop, which was held at the beginning of November.
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Concerning enterprise privatisation and restructuring, further progress was achieved
in 2001. Following the sale in July 2000 of the mobile phone company AMC, a second
GSM licence was attributed in August 2001 to a British-Greek consortium (thus
contributing to FDI), and has already become operational. Further progress was registered
in some important sectors. Following the adoption by Parliament in December 2000 of
the necessary law, and after restructuring measures had been taken, the privatisation of
the oil company Servcom started. In May 2001, the Albanian Parliament approved a law
for the privatisation of the fixed-line telecom operator, Albtelekom, which is expected to
be completed in late 2002. As of December 2001, progress with the implementation of
the restructuring of the power sector, including the electricity company KESH, was
broadly in line with the action plan agreed in December 2000. A new two-year action
plan covering the 2002-2003 period was adopted by the Albanian Government in January
2002. The privatisation or liquidation of all small and medium-size enterprises was
completed in 2000, and some of them have been sold to foreign investors.
Regarding financial sector reform, the privatisation of the National Commercial Bank
in October 2000 created the preconditions for the privatisation of the remaining stateowned
– and largest - bank in the country, the Savings Bank. Following the adoption by
Parliament of the necessary privatisation law, the auditing of the accounts by an
international audit company, and the re-capitalisation by the State to cover the negative
capital of the bank, the opening of an international tender for its privatisation was
announced in June 2001. However, the privatisation process has been delayed. The
revised timetable includes a short list selection of interested banks by the end of March
2002 and the selection of the buyer by May/June.
Meanwhile, efforts have been made to reduce the Saving Bank’s dominant position in the
market. However, although the remaining state–owned enterprises have been encouraged
to open accounts in private banks, the Saving Bank still accounts for 60% of total
banking assets and 70% of household deposits.
In spite of a rapid expansion of the banking sector in recent years, the financial system
remains underdeveloped. The credit activity of the Savings Bank remains limited for
prudential reasons, owing to the size of its portfolio of bad loans, and lending from
private banks is constrained because of their small size. Moreover, lending suffers from
structural constraints, such as borrowers’ inexperience in obtaining and using credit. On
the other hand, prospects for a greater access of the population to the banking and
financial sector in Albania – including the opening of the T-bills market to households
and the development of a stock market - are improving. Increased competition between
private commercial banks and improvements in the legal and institutional framework for
lending have already contributed to a substantial expansion of credit in 2001.
Some steps have been carried out in order to improve the Albanian business
environment and investment climate. A Bankruptcy Law, consistent with the Law on
Securing Charges, was adopted in 2001, as well as a Law on Deposit Insurance. The
registry for movable property is now operational. Steps are being taken to further improve
the legal framework and to stimulate domestic and foreign investments : an agency
expected to provide “one-stop” facilities for investors and a credit information point are
planned for 2002. The law for the execution of court decisions was approved in January
2001. However, despite these initiatives, the current deficiencies of the Albanian
judiciary and business-related administrations, as well as repeated corruption cases,
prevent a serious boost of investments. Key legislation such as the commercial law
remains to be improved in order to facilitate its adequate implementation and
enforcement.
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3.3. Management of Public Finances
Progress has been made by Albania as regards the management of public finances.
Revenue collection has continuously increased during the last four years, mainly due to
improved tax and customs management, but remains weak. There is still considerable
room for improvement.
The development of the Medium Term Expenditure Framework, together with the
preparation of the Growth and Poverty Reduction Strategy, have also been important
steps in the control and use of public finances.
However, the establishment in Albania of a public internal financial control system has
been slow. The law on internal audit still needs to be enacted and internal audit
structures are not yet operational. External audits are performed by the Supreme Audit
Institution, but this body has still room for improvement as regards its internal
functioning and lacks legitimacy. Most of its findings and recommendations are not
followed up by the relevant state bodies, or by the judiciary when appropriate.
Revenue generation is one of the major elements of Albania’s fiscal consolidation.
Between 1996 and 2001, revenue collection increased by 5 percentage points of GDP.
Both the reform of VAT in July 1996 and the reform of the tax and customs
administrations have contributed to this substantial increase. According to the IMF,
corruption and smuggling in the customs area have significantly declined, contributing to
increased import tax revenues (VAT, customs, excise duties). An increase in the number
of registered taxpayers and the adoption of a modern tax legislation contributed to this
consolidation. However, fiscal evasion remains pervasive, which also means that the
potential for higher revenue collection remains considerable. In 2001, tax revenues
increased by half a percentage point to slightly less than 16% of GDP, a ratio still among
the lowest in Eastern European countries with comparable tax rates.
The adoption in December 2000 of the Medium Term Expenditure Framework (MTEF)
covering the period 2001-2003 was an important step towards improving public
expenditure management. The MTEF was updated and improved in June 2001 for the
2002-2004 period within the framework of the World Bank-sponsored Growth Poverty
Reduction Strategy (GPRS). The MTEF and the GPRS provide a strong framework for
the preparation of the annual national budget with a clear prioritisation of expenditure.
Further improvements are being put in place to strengthen public expenditure
management and the quality of policy making. They include: improved reporting of
disbursement and expenditures for foreign financed capital expenditure, in collaboration
with donor agencies; a regulation requiring improved reporting by Project
Implementation Units in line Ministries with penalties for non compliance; accelerated
computerisation of regional treasury offices to improve reporting.
As regards financial control and audit, in 2000 the government adopted a decree
creating a central Public Internal Financial Control Department (PIFC) in the Ministry of
Finance and decentralised units in other ministries and public institutions. The
development and functioning of this department is now contingent upon the adoption of
the Financial Control and Internal Audit law, which will provide the necessary legislative
framework for its activities. This new legislation is expected to be adopted in the first
half of 2002. The Supreme Audit Institution (SAI, named High State Control in the
Constitution), in charge of external audit, should improve its internal functioning and still
needs to gain legitimacy. There is currently no judiciary process ensuring the
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implementation of SAI decisions and recommendations, and the relevant state bodies
tend to ignore them.
3.4. Priority Areas Needing Attention in the Next 12 Months
· Continued increase in revenue collection, notably by fighting fraud and fiscal evasion
more efficiently;
· Completion of the financial sector restructuring, including the privatisation of the
Savings Bank;
· Substantial progress in the privatisation of Albtelecom and Servcom;
· Completion of the Albanian public internal financial control system, notably through
the adoption of the Financial Control and Internal Audit Law, and the strengthening of
internal financial control structures;
· Ensuring that due account is taken of the decisions and recommendations of the
Albanian Supreme Audit Institution (external audit institution). Establishment of the
necessary judicial procedures to prosecute the institutions incriminated as necessary.
4. IMPLEMENTATION OF THE STABILISATION AND ASSOCIATION
PROCESS
4.1. General Evaluation
Albania has made progress in the framework of the Stabilisation and Association
process. Steps have been taken to address the shortcomings identified in the
Commission’s 1999 Feasibility Report and to bring reforms forward. In 2001, the
Commission recommended the opening of the negotiations for a EU/Albania
Stabilisation and Association Agreement. However, Albania is just in the first stages of
a long process. Considerable additional efforts are necessary to ensure the
implementation of challenging reforms which are fundamental for further progress in
the Stabilisation and Association process. Albania needs, in particular, to strengthen
the foundations it has started to build and to 1) consolidate a strong and functioning
democracy, where fully free and fair elections are held, where all political forces are
represented in the democratic institutions, where integrity prevails in the political
arena, and where opposing parties present their programmes constructively and
properly play their democratic roles ; 2) ensure implementation of the rule of law
through a strong judiciary, well trained law enforcement bodies, fully integrated into
Albanian society, and a public administration that can cope with the challenges of
reform ; 3) combat fraud, corruption and organised crime which threaten the stability
of the Albanian state and ultimately of Albanian society; 4) ensure economic stability
and socio-economic progress.
4.1.1. Status
Current relations between the Community and Albania are based on a non-preferential
Agreement on Trade and Economic Co-operation which entered into force on 1
December 1992. Since September 2000, Albania is benefiting from very generous EC
autonomous trade measures (ATMs) under which it is granted free access to the EU
market for all industrial products and improved access for agricultural products including
agricultural and fishery products.
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Albanian attempts to enhance its contractual relationship with the EU in 1995 and 1999
failed due to the insufficient preparedness of the country. Following the Zagreb Summit
of November 2000, an EU/Albania High Level Steering Group (HLSG) was set up, with
the objective of stepping up co-operation between the EU and Albania, and identifying
and supporting the reforms to be carried out by the latter in preparation for the
negotiation of a Stabilisation and Association Agreement (SAA).
On the basis of the works of the HLSG, the Commission concluded in June 2001 that,
taking political, regional, economic and SAA-related technical factors into account, it
was appropriate to proceed with a Stabilisation and Association Agreement with Albania.
Draft negotiating directives have therefore been submitted to the Council of the EU for
adoption, and an EU/Albania Consultative Task Force has been set up with the objective
to assist Albania to prepare for the negotiation of a SAA. In the perspective of SAA
negotiations, it is crucial for Albania to urgently re-focus on the reform process and to
seriously accelerate the implementation of reforms. Taking into account the considerable
reform effort that Albania will need to carry out in the short/medium term to be in the
position to properly implement the obligations resulting from a SAA, the abovementioned
draft negotiating directives stress that negotiations will only be concluded
once Albania has developed the necessary administrative capacity and structures to
ensure compliance with its SAA commitments.
Albania has been participating in the Stabilisation and Association process since its very
beginning and has benefited from its overall co-operation framework, including
preferential trade concessions, financial assistance and the prospect of an enhanced, farreaching
contractual relationship with the EU. Albania has been making steady progress,
although the starting point was very low. Main achievements include the improvement of
macro-economic stability and fiscal sustainability, the development of a relatively
modern legislative framework, implementation of the privatisation process, strengthening
of the customs and tax administrations, improvement in terms of security and public
order, constructive position regarding the conflicts in the region and progress
