Ardian Fullani: Albania - sustaining macroeconomic stability in a
challenging external environment
Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the Seminar "Albania -
sustaining macroeconomic stability in a challenging external environment", Tirana,
4 March 2010.
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Dear Mr Bell, Dear Minister,
Dear participants,
It is a great pleasure for me to welcome you to this seminar and to attend its proceeding.
This seminar and its topics are very coherent and dwell upon very important issues for the
economic development of Albania and of all emerging economies. They explicate the topics
that the economic authorities are faced with, as a consequence of macro and microeconomic
side effects of the global financial crisis of the financial markets and the real economy.
Generally, the policies undertaken by authorities in the light of the country-specific conditions
proved to be successful. Fiscal expansion and easing of monetary conditions according to
respective needs turned out to be successful in avoiding the turning of the crisis into
depression, like that of 1930. In Albania's case, these stimuli helped preventing the economic
events that characterize the financial crisis and mitigated the adverse effects that the global
economy gave on the Albanian economy.
Though the crisis effects continue to exert their influence on the world-wide economy, it's
time to reassess the situation and the economic policies. Generally, the current period in the
world economy coincides with the correction stage, which is reflected in a lower economic
growth and new balances in production, trade, services, financial intermediation, exchange
rate and household budgets. In itself, these new balances do not represent a new stage or
evolution of the crisis. They represent a sustainable equilibrium under new circumstances.
Distortions in financial markets and lack of rationality in consumer behaviour are assessed as
the main triggers of the crisis, because their level during the bubble blowing were not in line
with the long-term sustainable equilibrium of the economy.
Consequently, the idea to continue the economic stimuli, to speed up production,
consumption and financial intermediation at the same rates and with the same instruments
would be similar to the financial markets stimuli during the pre-crisis period. In other words,
pursuing the same policies under current conditions and the new equilibrium would cause
major economic and financial imbalances over the medium run, which would damage the
economy rather than helping it.
Precisely from this viewpoint, it is important that we now start to think about and cooperate
for finding and implementing policies that would guarantee macroeconomic and financial
stability at home.
From the above viewpoint, the nature of stimulus policies at present and in the future should
aim at minimizing the costs of side effects that the expansionary policies have caused in the
course of years. A very important place in this direction is occupied by reduction of debt
created during the fiscal expansion, and reduction of its cost. In this framework, all the fiscal
authorities should work not only for avoiding the creation of new debt, but also for settling the
debts in arrears with maximum efficiency. Debt exit strategies, including also the replacing of
the expensive debt in arrears with a new cheaper debt, are very important and welcomed.
In current conditions, when there is a high probability for further debt growth, the policies to
sustain the economy by expenditures is restricted from the incapability of the economy to
generate economic growth.
Shifting the focus of discussion to the reality of our economy, in order to maintain the debt
level and the macro-financial stability, it is necessary to restrict expenditures in accordance
with revenues. The latter depends directly on Albanian economy revenues. Therefore, it is
very important to encourage the economic development and to direct the financial resources
to those directions where the Albanian economy provides its competitive advantage. This
would enable the substitution of imported consumer goods with domestic products whenever
possible and efficient. The purpose is to encourage production not only for domestic
consumption but also for exports in traditional markets and products and in new ones. This
objective is a necessity, not only from the short-term and mid-term perspective, but also from
long-term one.
The strategies for debt management and reduction (debt restructuring) are not only part of
the macroeconomic policies. They should be extended to every cell of the economy,
whenever the microeconomic balance sheets have been burdened by debt. The restructuring
and the resumption of lending activity can not take place without leaving aside the sick and
bad part of the balance sheets. Currently we are confronted with exchange rate correction.
This automatic adjustment of consumer and producer behaviour in terms of consumption,
savings and investments, has been an indispensable process in line with the new
equilibrium. However, it is insufficient; therefore, it should be accompanied by correction of
fixed asset prices in accordance with the new wealth balances. I would like to emphasize that
the equilibriums of a balance-sheet, either fiscal, private or household one, are guaranteed
by simultaneous and equal changes in its both sides.
Banks and businesses should work together to identify and separate the sound parts from
the problematic ones. If the current restructuring strategies lack the potential for improving
the sick part, then perhaps it is the due time to pass to a new strategy that treats both parts
of the business as separate from each other. This would enable an optimal solution in each
specific case versus a unified refinancing strategy that was implemented so far. Clearing the
lending activity would bring about shifting of the new credit from inefficient refinancing to new
development possibilities and economic growth, where the savings-investment balance is in
equilibrium. This issue relates not only to the performance of the banking system and the
financial stability of the country, but also to the ability of the economy to grow in the future.
As I have also mentioned in other events, both the macro and micro factors that encouraged
rapid economic growth in the recent years, are no longer present in the global and national
economy. The new equilibriums we are living with show that the rapid consumption-driven
growth models and credit-based growth models will no longer be present in out economy.
This is true owing to supply and demand factors, since the rapid consumption- and
creditdriven growth has aggravated the savings - investments balance sheets of agents in the
economy.
Consequently, there should be found a new long-term economic growth model, capable of
absorbing the financial resources, particularly the foreign ones, and generating an economic
growth. The first step in this regard is the identification of the competitive advantages that the
Albanian economy generates and the acceleration of structural reforms in the Albanian
economy in the light of these priorities.
It is a pleasure that our timely discussion topics and activities are in line with the agenda of
this activity. Thus the IMF provides a valuable contribution to our economy through
discussion of these topics. Furthermore, through this activity, the IMF enhances the
transparency throughout the Albanian economy regarding the economic development
vulnerabilities from the IMF viewpoint, thus participating in the country's economic debate.
I would like to emphasize the latter, because I find it particularly important with regard to the
difference between scientific contribution and that of political economy. The IMF comes to
Albania as a participant in this debate with four scientific papers, whose results are based on
available and reliable statistics, identified economic models and conclusions based on
wellgrounded assumptions and analyses. Each of these elements is clearly explained in the
working papers that will be discussed today. These elements altogether make the work
replicable (controllable), open for discussion, and assign credibility to the results and
inferences. These materials represent good grounds for discussing issues of great
importance to the Albanian economy. In contrast, today the bulk of economic discussions
and analyses in Albania are based on a different criterion: that of listening and discussing.
Analysts and economists focus mainly on the transmission of conclusions of their economic
thought. They neglect the important discussion of data sources, the identification of theory
references (by author or by year), or the assumptions made while applying the models on
whose bases the results are obtained.
This working model of "speak and listen" has dominated the economic analysis outside
institutions. This model lacks two essential elements, the "read and write" ones. Economic
comeback focuses only on television media, while all the economic policies of the Bank of
Albania are based on the analysis and research papers with theoretical and empirical
character and on economic indicators database.
All these elements of decision-making are transparent to the public because they are
published in electronic formats on the Bank of Albania's website, and are simultaneously
available in printed forms as separate working papers or summarized in volume forms. All
this information is free of charge and is made available to the public as a public good.
Consequently, analysis and comments on the nature, direction and speed of economic
policies should start from, and address to these studies in order to discuss them.
It is true that any analysis and critique starts from an economic hypothesis, but before the
discussion becomes public, it is necessary that the validity of the null hypothesis is tested.
This process should be documented in a working paper or article, because if the hypothesis
or the model or data used are not appropriate in the analysis in question, then the
conclusions are partial in the best case or make no sense in the worst case. Honestly, I hope
that today's activity would help in establishing a model or a culture of debate or analysis from
the perspective of a third party. Everyone can benefit from the discussion, which is a
necessary good for any institution that designs and implements policies of economic,
environmental, social or any other nature. And this happens only when the content and the
form of discussion is not determined by individual definition of the phenomenon, but by its
detailed theoretical and empirical explication as required by the economic science standards.