Ardian Fullani: Strengthening linkages in South East Europe. Policy
anchors and business perspectives
Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the joint conference of the
Bank of Albania and the University of Oxford "Strengthening linkages in South East Europe.
Policy anchors and business perspectives", Tirana, 19 September 2013.
* * *
Your Excellency Prime Minister of Albania,
Honourable guests from the University of Oxford,
Dear representatives of the diplomatic corps and academia, dear participants,
I have the pleasure and honour to open this joint conference of the Bank of Albania and the
University of Oxford, on strengthening the linkages between the economies in our region.
Three years ago, in September 2010, we invited the University of Oxford to support the
academic discussion of the Bank of Albania on the economic growth model and its regional
character. At that moment, this debate was misinterpreted as a discussion on the
advantages of the market economy and alternative philosophies of the economic
organisation of a society. Nonetheless, after three years, we all find that the economic growth
model has become the main topic of academic, economic and political debate.
For a number of years, our economy has been under the grip of the global crisis, reflected
mainly in a decelerated economic activity. Consequently, investments and lending to the
economy slowed down, deteriorating, at the same time, the private and public sector
balances.
In spite of these developments, the Albanian economy has managed to maintain price
stability and the overall macroeconomic and financial balances. The Albanian financial
system has proven highly immune. Despite the economic growth slowdown, overall, this
system remains liquid, well capitalised and profitable, reflecting the prudent work of the Bank
of Albania over the pre-crisis years.
Bank of Albania's prudent policies and the reaction of the banking sector enabled the system
to avoid extreme problems, which would require the use of public funds. We should bear in
mind that various banking groups from EU countries, heavily hit by the crisis, operate in
Albania.
The stability of the banking sector has been at the heart of work of the Bank of Albania,
focusing on both financial stability and banking supervision, and on monetary policy and
liquidity management.
The Bank of Albania has been proactive and has anticipated problems, aligning itself and the
role of its policies with global developments and the domestic market state of affairs.
The dim global financial and economic situation has dictated the need to redefine the role of
institutions, including the central bank. Presently, the central banks have turned to
macroprudential measures, because the traditional mechanisms of monetary policy
transmission are suffering from burdened balance sheets of the private and public economic
agents. To better coordinate this role and monitor the economy, central banks around the
world are supporting their monetary policy with the necessary macroprudential measures.
These global developments find the Bank of Albania well prepared and equipped with the
required experience. Its structure is similar to the one being adopted by the European
Central Bank and other central banks in developed countries. Moreover, the Bank of Albania
has now several years of successful experience in employing countercyclical measures to
manage the country's macroeconomic and financial equilibrium.
I would like to underscore the change of risk coefficients for controlling the expansion of
lending in foreign currency, and the introduction of limits of credit to collateral ratio for
controlling the size of debt in the economy.... to mention just a few.
One of the most important lessons from the global crisis is that addressing the monetary
stability (i.e. price stability) and financial stability issues independently does not provide an
optimal solution and is crisis-prone. The economy functions as a complex mechanism with
often fragile and interdependent equilibria, which do not respect boundaries of institutional
responsibilities. For each economy, there is only one interest rate, only one critical mass of
financial intermediation and a fragile equilibrium of financial sector balances that guarantee
sustainable and long-term development for the country. Harmonising these three objectives
is a prerequisite for maintaining the financial equilibrium of the economy. Therefore, their
identification and harmonisation under one roof is considered as the optimum solution to
guarantee the country's economic and financial stability. For that reason, one of the most
pursued practices for post crisis institutional regulation is not only unification of supervisors of
the financial system, but also their institutional integration with other functions of the central
bank.
***
Your Excellency Prime Minister of Albania,
Dear participants,
Unquestionably, in the long term, economic growth of a country is determined by the labour
force and its qualification, productivity, technology and innovation capacities; as well as the
capital accumulation scale, which in itself, reflects both social preferences and fiscal stimuli
and the development level of the financial system. These three sets of factors are
conditioned by the economic structure of a country and they are encouraged and stimulated
through structural reforms. Again, in the long term, economic growth is determined only by
the structural reforms and the degree of competitiveness of our economy vis-à-vis our trading
partners and the global market. On the other hand, the duty of the fiscal and monetary
policies is to avoid short-term deviations of the economy from this long-term trend and create
a sustainable environment for the country's economic and financial development.
The Albanian economy has already started its journey towards integration with the European
Union. The ultimate goal of this process is to improve the economic welfare. It also implies to
fully integrate with the trading, industrial and financial chains; adopt a unique economic
management philosophy, a unique regulatory and institutional practice; and acknowledge the
harmonised rules of the game applied throughout the European area.
In this context, I would like to highlight two key moments:

First, the European integration process should be our strongest anchor for
legal, regulatory, institutional, infrastructural, or political ones.
structural reforms:
Albania has still a long way to go and the peculiarities of our economy provide the
necessary space to calibrate these models in accordance with the comparative
advantages and primary needs of the country. However, I believe it would be useful
to have all the reforms integrated in a unique vision of integration.

Second, the Albanian businesses should do a lot more to hasten the
integration process. It should be more active to adopt advanced technologies, and
production and management processes.
Likewise, the Albanian financial sector should be more visionary in its policies and
priorities about the distribution of financial resources, and work harder to attract
more foreign investments and build bridges of cooperation with local businesses.
We have rightly underlined that regional cooperation is a necessary move that should
precede the European integration process. The economies of the region are small compared
to our trading partners, but the establishment of unified zones in terms of customs duties,
legal systems and practices, integration of financial practices and development policies
provides the right incentives to attract foreign investments and empower our negotiation
capacities with international partners.
***
Concluding, I would like to reiterate that the Bank of Albania considers the economic and
financial stability of the country as a prerequisite for sustainable and long-term development.
Now, this is no longer a theoretical matter of disciplining the behaviour of politics towards the
economy, nor is it a discussion on respecting the equality of generations. It is a bitter lesson
learned from the latest crisis and a tangible reality for many countries of the euro area. We
have persistently invited policymakers and economic agents in the country to partake in this
vision.
As the country's monetary authority mandated to guarantee price stability, we have worked
and will continue to do so to ensure a low-inflation environment. This environment boosts the
guarantees for savers and investors for their long-term plans and provides for financial
system development. The Bank of Albania implements a modern monetary policy based on
the most advanced principles of central banking, and employs instruments and
communication approach in line with ECB practices. The commitment of the Bank of Albania
to maintain price stability is the polar star of our work. Drafting and implementing the
monetary policy independently, exclusively in the function of price stability, is one of
the domestic anchors of the Albanian economy, which should be preserved and
strengthened.
In parallel, the Bank of Albania deems that the Albanian economy needs two additional
anchors: financial stability and fiscal stability.
Our regulatory and supervisory function over the banking system, which accounts for 95% of
the financial system in Albania, has proven successful in guaranteeing the country's financial
stability. This function has been carried out and is discharged in line with the international
best practices, in constant cooperation with homologous institutions and other international
partners.
The possibility to have an integrated vision of economic and financial developments, and to
combine but not mix the monetary policy with macroprudential measures, has enhanced the
effectiveness of Bank of Albania's actions, and has contributed to better achieving the two
individual objectives: financial stability and price stability. The institutional regulation,
which has proven effective and is in line with the latest global trends, should continue
to function as a second anchor of domestic economic anchors.
Finally, the Bank of Albania deems that Albania should immediately establish not only a clear
and transparent fiscal rule, but also an effective one to discipline the fiscal policy and
maintain the trust of financial markets in public finance soundness.
This third anchor would complete the framework of domestic anchors of economic
policy. Together with the close cooperation with international financial institutions, it would
provide a consistent and transparent framework for the country's development. Provision of
liquidity and solvency of the Albanian economy through bilateral and multilateral partnerships
is a priority for central bank policies. This vision and partnership should become the axis of
cooperation between national institutions.