Ardian Fullani: Monetary policy, from the past to the present
Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the 10th international
conference on "Monetary policy, from the past to the present", Tirana, 26 October 2012.
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H.E. Prime Minister,
Your Excellencies Ambassadors,
Honourable Minister of Finance,
Honourable Governors,
Distinguished Guests and Participants,
I am very honoured and privileged to open the proceedings of the Tenth Conference of the
Bank of Albania. This conference is particularly important this year as it is organised in the
framework of activities for the 100th anniversary of the Declaration of Albania's
Independence and the 20th anniversary of the Bank of Albania. While retaining the scientific
approach, the conference pays tribute to the endeavours made over the years in the
monetary and finance aspects.
In Bank of Albania's view, the past is an essential element for the analysis and
decisionmaking, and a requisite for theoretic or empirical research. At present, this is a necessity, a
challenge that the economics world is facing.
To scan, diagnose and cure the situation of the economy, a successful scholar would have to
be able to read the human thought. Unfortunately, such a doctor does not exist.
Therefore, in our days, the economic science is turning its attention to individual
characteristics such as: history, ethnography and other national traits, considering them as
substantial determinants for the stochastic process that leads the behaviour of economic
agents.
The history plays also a significant role in the formation and development of institutions. The
declaration of independence introduced a new era for Albanian state institutions, paving the
way for the establishment of a central bank, a unified Albanian monetary system, and the
administration of economic life through the monetary policy. Despite its short life, the
National Bank established in 1913 is a cornerstone in the history of the Albanian state. The
say the affair of the Bank is
then Prime Minister, Ismail Bej Vlora said about it: "I
praiseworthy; for Albania, it is a second victory, after freedom, from both the economic and
political perspective."
The events that followed the declaration of independence, in the national and international
aspect, have played a crucial role concerning the nature and character of these institutions
and, at the same time, determined the nature of the monetary policy.
Economic and political partnerships, and the charisma of the Albanian statesmen to build a
modern society, led to the establishment of the first functional national bank in 1925, with the
characteristic and distinctive profile embodied in the building that was constructed in the
centre of Tirana.
Historic developments in early 1990s became once again determinant factors for the
financial system and the central bank. Introduction of modern economics concepts led to the
creation of the Bank of Albania as a bank with all the attributes of a modern central bank.
Its institutional evolution led to the development and modernisation of monetary and financial
policies. The Bank of Albania became also an important institution for the development of the
financial and economic systems in Albania.
The challenges of the past 20 years have transformed the central Bank into a modern,
responsible and credible institution; a centre of professionalism; an institution that applies the
most modern methods of monetary management; the heart of the financial system.
Aware of the decisive role that modern theories on economic growth assign to institutions for
the prosperity of a nation, and taking advantage of the support from the political class and
the trust of the Albanian society during these 20 years, the Bank of Albania has undertaken
to transform itself into a modern institution and a dignified public entity across the
institutional, moral, professional, ethical and intellectual dimensions.
The Bank of Albania considers this as a highly significant task and contribution to state
formation and prosperity in the future.
Its efforts for the infrastructural and conceptual modernisation of the institution, including the
Bank's construction projects during the last three years, are a requisite to guarantee
contemporary standards for the management of the activities of the institution. In other
words, this literally implies rapid approximation with homologous institutions in Europe. Upon
the completion of these projects, the Bank of Albania will be more opened to the public that
will benefit from financial education policies, scientific research, library services, and
legislative, history, museum, and numismatic-related activities.
These novelties will be offered to the public as a modest contribution to the formation of a
modern and dignified state for the Albanian nation.
At present, fulfilling these obligations has become a more difficult task due to negative effects
arising from the global economic crisis. Most evidently, labour markets, capital markets and
economic activity remain under the effect of contraction of consumption and investments in
the private sector.
The anaemic reaction of the markets has placed central banks in a difficult position, a
solution without any choice, i.e. intervene in the economy with all the instruments to address
current emergencies while the other factors are forced to contract in favour of the long-term
stability of public and private balances. In this situation, central banks are obliged to
undertake a series of extreme and qualitatively-different measures, which have been never
tested before and exceed all imaginary boundaries of the monetary policy.
Actually, politicians are obliged to cope with debt crisis through an extreme fiscal policy
aiming at short-term balancing and long-term stability of the fiscal policy. The focus and
emphasis of the economic policy remains long-term rebalancing by cutting on expenses. An
important part of these measures is very focused on the short-term problematic, hence
risking to disregard the undesired effects in the long term. Under the pressure from social
costs, the philosophy of current policies is to overcome the situation and maintain social
peace and macroeconomic stability at the expense of sovereignty.
This emergency compromise has shifted the focus away from structural reforms, which
guarantee rebalancing through the increase of income. Often, the perspective of economic
policies does not extend beyond some quarters ahead, while a much longer time vision
should be considered. The anchoring of the future should start from the present.
The actual philosophy of stabilising policies is based on past experiences with the hope that
the current crisis is similar to previous ones. This reasoning has urged the authorities to insist
on recycling stabilising measures. The time, however, shows that the global economy has
undergone radical changes. The current crisis is happening as the global economic map is
being redesigned in terms of economic size, geographic distribution of savings, debt, and
trade and current balances. Advanced economies have traded positions with the emerging
ones across all these dimensions.
Consequently, old recipes do not provide an exit given that axioms on which they are based
have changed. The solution of current and future challenges requires a new philosophy of
thinking based on the new global reality.
This reality, globalisation, is no longer a choice, but a fact that should be taken into account
when formulating long-term development strategies.
Turning to a regional setting, I think that this philosophy should be embraced and supported
without hesitation. In order to make it more productive, we should be more opened to each
other and take regional cooperation to new and higher levels.
Individual prosperity of the economies of the region requires that we leave behind the
philosophy of competition encouraged and inherited by state-formation efforts and sclerotic
models that dominated the last century. We need to prepare the way for elevated economic
and financial cooperation and coordination.
We need to tear down Balkan barriers and raise, instead, a comprehensive functional
infrastructure, a regional payments system, a regional energy system, a regional market of
financial products and lastly but may be most importantly a regional market of production
factors. In Martin Luther King's words "we may have all come on different ships, but we're in
the same boat now".
Dwelling a little longer on the regional theme, I would like to briefly touch on another problem.
The experience of the past year shows that as a result of regulatory capital requirements
imposed by euro area supervisors, various bank groups reduced their participation not only
in the euro area markets but also in our region.
This process, known as deleverage, yielded negative consequences. To prevent such
phenomena, policymakers and supervisors of partner economies need to cooperate more
closely.
In this regard, the Vienna Initiative is a good but limited cooperation platform. It is
conceptualised as an instrument to address emergency crisis situations, whereas the current
situation requires platforms for dialogue to enable effective and persistent communication
among policymakers. This dialogue should aim at preventing undesired mutual effects; a
more ambitious programme, on the other hand, would aim at drafting and implementing
coordinated initiatives of mutual interest.
Nonetheless, potential emergencies arising from contamination from euro area partners
would create additional difficulties and huge effective costs for the economies of the region.
Therefore, we call for the establishment of appropriate mechanisms and instruments for
liquidity provision by the European Union to peripheral euro area countries.
I believe that the financial integration makes this common defence more urgent, through the
right understanding of the common fate of our trade partner economies. I take the
opportunity, given the presence of many central bank officials from the region, to call
for an en bloc coordinated position in this regard.
The experience of the latest crisis showed that the countries which had more space to react,
in the form of healthier fiscal balances or the financial system, and in the form of more
reliable public institutions, were able to cope better with the consequences of the crisis. This
lesson should not be neglected. Among other things, it implies timely measures and, through
counter-cyclical policies, establishment of the necessary space to buffer potential shocks.
Likewise, it implies ongoing efforts by macro and micro-prudential policies to minimise
financial misbalances across all the sectors of the economy and the financial market.
These policies, which are often known as "leaning against the wind", have been and will
continue to be part in the logics behind the actions of the Bank of Albania.
Concluding, I would like to assure you that the Bank of Albania will make maximum efforts to
continue its success story into the third decade of its life. I am confident that these issues I
shared with you provide a summarised vision of some of the main directions of our work
during this period.
Looking forward to a productive exchange during the proceedings of the conference,
I thank You for your attention!