samchain/econo-pairs-v1 huggingface dataset:
Ardian Fullani: Economic and financial developments in Albania Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the presentation of the Bank of Albania’s Annual Report 2009 to the Albanian Parliament on 29 April 2010, published on 30 April 2010. *  *  *  Honourable Ms. Chairwoman, Dear deputies, It is a privilege to present to you today the Bank of Albania’s Annual Report for 2009. This Report, the key conclusions of which will be briefly reviewed in my speech today, makes a thorough and transparent analysis of economic and financial developments in Albania, and provides an overview of the Bank of Albania’s work to meet its legal obligations and institutional commitments. The year 2009 was a challenging year for the Albanian economy in all its dimensions. In response to the global economic and financial crisis, the following were put to the test during this year:   The country’s macroeconomic balances;    Our financial system’s stability;    The business models and the private sector’s financial sustainability; and    The analytical and responsive capacities of macroeconomic policies. In a broader setting, the shock that hit the Albanian economy in 2009 put the flexibility of Albania’s economic development model and its capacity to respond to a thoroughly transformed global environment to test. The global crisis provided a quick impact on the economic activity at home.

The growth of money supply mainly attributes to the growth of its ALL component, while foreign currency loans and deposits contracted in 2009. The creation of money in ALL has been based on the fiscal sector’s domestic borrowing and the preservation of the private sector’s ALL credit rates. In addition to the higher banks’ sensitivity to their liquidity indicators, private sector credit activity was carried out under the conditions of a more conservative behaviour of banks’ lending in 2009. This conservative behaviour owes also to an increased caution of banks to certain banking products, such as:   foreign currency loans to certain segments of the economy exposed to exchange rate fluctuations, and    consumer loans. In the second half of the year, demand for loans declined as a result of the tight lending standards and the slowdown of economic activity. Despite the easy monetary policy of the Bank of Albania, private sector credit maintained a uniform slowdown trend during 2009. As at year-end 2009, credit annual growth rate marked 12 percent versus 33 percent in 2008. The growth of credit has been triggered by the business demand to finance the liquidity needs, while the households’ loan portfolio contracted over the same year. 1.4  Balance of payments and the exchange rate  In the presence of slow domestic demand and reflecting the difficult situation of the global economy, current account deficit narrowed by about 3 percent in 2009, standing at 15.3 percent of GDP.
This occurred against the background of a significant interest rate differential, given the comparatively high inflation and increasingly abundant capital flows, as the removal of capital controls was proceeding rapidly due to the requirements of the forthcoming EU membership. Such an environment naturally produced nominal appreciation of the domestic currency, providing further incentive for foreign currency lending, booming domestic demand and an unsustainable decrease in inflation, as revealed by an ever widening current account imbalance (to the tune of two-digit numbers as a percentage of GDP). To further complicate matters, the newly found prosperity lured fiscal policy into relaxing pro-cyclically. Trying to cool down the economy through the standard recipe of policy rate hikes would have been pointless, if not outright detrimental, by prompting even more capital inflows and nominal appreciation, thus feeding the vicious circle described before. 2. How far has the NBR departed from the standard paradigm? Quite far, I would say, if we use as a benchmark the clearly defined IT framework. Constrained in the resort to the policy rate, the NBR had to depart, at times, from monetary policy orthodoxy. Such departures from conventional practices involved full use of direct FX interventions, allowing market interest rates to fall significantly below the policy rate through liquidity management or deploying administrative measures to control credit growth.

I have no doubt that the outcome would have been a lot worse had we been complacent and relied entirely on the self-corrective behaviour of markets. I will give here just one example: forex interventions limited significantly exchange rate fluctuations, with the appreciation during the massive capital inflows and the depreciation after the crisis outbreak not exceeding 25 percent. In the absence of such interventions, the magnitude of fluctuations could have been as high as 40 to 60 percent. The foreign exchange purchases made before the crisis not only limited the unsustainable leu appreciation and the associated loss of export competitiveness, but supplied the ammunition for subsequent interventions to cushion the currency depreciation once the outbreak of the crisis changed the direction of the flows. And I believe this is the second benefit of the approach. Last, but not least, thinking outside the box allowed us to avoid incurring losses after 2006. While profitability should not be a concern for a central bank, this development proved very fortunate from the perspective of the political economy. On the one hand, it allowed the NBR to preserve its independence in relation to the government by not generating quasi-fiscal deficits in a period with an increasing fiscal imbalance. On the other hand, it helped preserve institutional credibility in relation to the banks subject to NBR supervision, which were closely monitored in terms of capital adequacy. Moreover, through our actions we wanted to avoid rewarding the speculative behaviour several commercial banks were engaged in (i.e.
The reasoning is that reforms implemented at the trough of the cycle or too early in the recovery may increase job insecurity among workers, which may in turn result in a rise in precautionary savings and thereby reduce consumption. Factors such as a  10  Bouis, R., and R. Duval (2011), “Raising the Potential Growth after the Crisis: A Quantitative Assessment of the Potential Gains from Various Structural Reforms in the OECD Area and Beyond.” OECD Economics Department Working Papers No. 835, January 2011. 11  Lopez-Garcia, P., F. di Mauro, and the CompNet Task Force (2015), “Assessing European Competitiveness: The new CompNet micro-based database.” ECB Working Paper No.1764. 12  Eggertsson, G., A. Ferrero, and A. Raffo (2014), “Can Structural Reforms Help Europe?” Journal of Monetary Economics, 61, January 2014. BIS central bankers’ speeches  5  depressed housing market would also exacerbate these effects by hindering geographical mobility and the reallocation of resources. 13 There is some empirical foundation to these concerns. For example, research suggests that reforms that increase employment flexibility, such as reducing employment protection, are more likely to depress demand during downturns. 14 I would however reject the conclusion that this means all structural reforms should be postponed. The reason is that the short-term impact of structural reforms does not just depend on when they are implemented, but how – namely, the credibility of reforms, the type of reforms and their interaction with other policy measures.

23 The difference this makes in terms of the short-term effects of reforms is clearly visible in our EAGLE simulations. With monetary policy able to respond to any negative inflation shocks consumer price inflation is barely affected (Chart 13). What has been constrained in the euro area in recent years is fiscal policy, as some countries faced a loss or near loss of market access. But we should remember that, in these circumstances, structural reforms are in fact crucial to support fiscal stabilisation. Insofar as they raise expectations of future government revenue, they make public debt more sustainable, lessen the constraint of market discipline, and thereby reopen fiscal space. In any event, demand is today being meaningfully buttressed in the short-term by monetary policy, and the stance of fiscal policy is broadly neutral. The arguments for postponing structural reform therefore become less convincing still. Any reforms undertaken now will in fact have an improved interaction with macroeconomic stabilisation policies. And I would go even further: I would argue that our current monetary stance in fact makes accelerating structural reforms desirable, because it brings forward their positive demand effects. For example, the literature suggests that a well-functioning banking sector is key to reap the short-term benefits of reforms, as it ensures that funds flow quickly to the new investment opportunities they create.
The exchange rate may  11 Since February 2015, the Riksbank has purchased nominal and real government bonds. At the end of 2017,  total purchases were calculated to amount to SEK 290 billion. 12 If tenant-owner associations’ debts are also included in household indebtedness, households’ debt-to-income ratio is today around 200 per cent. 13 This calculation can be found in Finocchiaro et al. (2016). 12 [23]  start to weaken due to decreased confidence among foreign investors, which, in turn, could push inflation up. In such a scenario, the Riksbank may be forced to raise the policy rate to restrain inflation. These rising interest rates would primarily impact households with large mortgages. They would face higher mortgage costs and would thus find it more difficult to manage their loans, which could lead to reduced consumption and demand. The calculation assumes that the policy rate is raised by one percentage point. At the current level of indebtedness, mortgage borrowers would have to reduce consumption by almost two per cent. If indebtedness had instead been the same as when inflation targeting was introduced 20 years ago, their consumption would only have decreased by a few tenths of one per cent. Mortgage borrowers’ consumption would thus decrease by a significantly greater degree today, compared with 20 years ago. The calculation probably also underestimates the effect on consumption, as variable interest rates are much more common today, something the example calculation does not consider.

For the past few years, Thailand’s growth was filled with imbalances, creating the so-called “two-speed economy.” On the high-speed track, exports of goods and services had been expanding robustly in tandem with improved  2/5  external demand, consistently contributing over half of the GDP growth. The benefits from these growths, however, were felt mostly by those associated with the export sector— especially large exporters—leaving behind the low-speed domestic demand track. Private investment’s gradual growth was also concentrated only within the export sector, while private consumption growth registered well below historical average as strong export growth and pickup in manufacturing did not lead to higher employment and higher household income. Excess production capacity in certain manufacturing sectors and a movement towards automation in manufacturing processes were some of the reasons often cited for this disconnect. In addition, a high level of household debt constrained private consumption growth as households had to use additional income to service their debt obligations rather than spending on goods and services. More recently, even though the imbalances still exist, we started to observe a change in this trend. We begin to see a more broad-based growth in exports, reaching beyond large exporters. We also begin to see steady growth in private consumption and private investment, making the strong growth performance in the first half of 2018 even more meaningful. Along with the recovery in private consumption and private investment was the pick-up in loan growth, particularly consumer and SME loans.
In addition, we must improve the inequality in Labuan as measured by the Gini Index. It has to improve to at least the national level. High inequality in income affects growth, productivity and opportunities for social mobility; and 2. Second, the average unemployment rate at 5.1% in the recent years continues to be above national average in Malaysia. While this might be cyclical because of the downturn in the global oil and gas industry, we need a diversification strategy so that over reliance over certain sectors is avoided. Further, the workforce participation rate, especially among women, is markedly lower than the national averag2. Both reflect a worrying trend where the labour market is not tailored to meet the needs of the local community. This state of affairs is disappointing and cannot persist. It reveals that an improvement in the current economic operating model is warranted. A new model must be designed that can benefit the local community in a more meaningful manner. Without doubt, it is our collective duty, as an industry whether as regulators or industry players, to advance the welfare of society through a more inclusive economic development. The success or failure to achieve this will reflect on us all as a collective. In this respect, Bank Negara Malaysia is proud to offer undergraduate scholarships to two deserving local students. This initiative to provide educational opportunities for deserving talents is very much needed and it exemplifies how one can contribute in a tangible manner to the local community.

Is that a good outcome? Responding to this, the Riksbank has decided to analyse a “possible do”. Should we issue an electronic currency? An e-krona? We have given ourselves about two years to come up with an initial answer to this question. One possible outcome is that we as central bank in some sense will ourselves become an innovator. Moreover, what we eventually decide to do is likely to affect the possibilities and business cases for different financial innovations in more general terms and have possible repercussions on many other aspects of central banking, such as monetary policy and financial stability. To conclude, I believe that a central bank has an important role to play. What we do, and what we do not do, will affect the pace and the substance of innovation in the financial system. I believe this to also apply to the regulatory community in general. We can talk about the promise of innovation, but we also need to walk the talk – that is to make decisions that balance innovation, stability and growth. That will by necessity involve deciding upon a suitable degree of public and regulatory intervention. There will be winners and losers from these decisions. Making the decisions, and finding that balance, is a major challenge, but it is also an unavoidable challenge. 4 [4]
That said, the pickup in business start-ups is moving slowly, as it is in other European economies such as Germany and France.2 This environment of diminished business dynamism in net terms might be associated with an increase in the market power of certain big firms in some sectors. 2  See Chapter 4, “Business dynamics in Spain: characteristics, determinants and implications”, Annual Report 2015, Banco de España. 11/18  Additionally, business dynamics in Spain show two anomalies compared with other countries: 1) the productivity of business start-ups is lower; and 2) companies that increase their size are not necessarily the most productive. As occurs in other countries, new Spanish firms are small in size and show lower productivity levels than the average for their sector. This suggests the existence of a learning curve that new firms must follow if they are to converge towards average efficiency. In Spain’s case, however, the evidence available suggests that the productivity gap between new firms and existing ones is greater than that in other European countries. The relatively low level of new firms’ productivity adversely affects both their survival Spanish firms’ probability of survival after three years is low when compared with other countries – and their ability to grow. There is also evidence that, in Spain, the correlation between growth and productivity is not particularly high. In other words, the most productive firms do not always increase their market share.

Moreover, the 5/18  risks associated with a no-deal Brexit persist, and the emergence of fresh protectionist tensions hampering the recovery in global trade cannot be ruled out. Domestically, doubts prevail over the future course of economic policies, both in relation to budgetary policy and structural reforms. We must wait until a government emerges from the results of the latest general elections. The challenges and vulnerabilities of the economy Beyond its expected course in the short and medium term, the Spanish economy continues to face significant challenges and vulnerabilities. Headway in correcting these is needed in order to shore up the economy’s long-term growth capacity. Most notably, I would stress here high public and external debt, progressive population ageing, the high unemployment rate, the strengthening of the banking system and, as I said in my introduction, low productivity. Let us take first high public debt. This stood at end-2018 at around 97% of GDP, over 60 pp up on 2007, and is one of the main vulnerabilities that arose in the wake of the crisis. Also, the budget deficit is still high (2.5% of GDP in 2018) and, on available estimates, still has a significant structural component into which no inroads had practically been made in the past four years. Eliminating this vulnerability of the economy requires resuming the budgetary consolidation process. Cutting the deficit and public debt would, moreover, give fiscal policy greater leeway for countercyclical action in the face of any future negative shocks.
10 See for example, Grilli, Masciandaro, and Tabellini (See “Political and Monetary Institutions and Public Finance Policies in the Industrial Countries”, Economic Policy, 1991), Cukierman, Webb, and Neyapti (1992), Alesina and Summers (“Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence”, Journal of Money, Credit and Banking, 1993), Cukierman, Miller, and Neyapti (“Central Bank Reform, Liberalization and Inflation in Transition Economies - An International Perspective”, Journal of Monetary Economics 2002) and Dincer and Eichengreen (“Central Bank Transparency and Independence: Updates and New Measures”, International Journal of Central Banking, 2014). 11 IMF, “The Functions and Impact of Fiscal Councils,” Paper to the IMF Board, 16 July 2013. 12 Besley, T and Hennessy, P. (2009) The Global Financial Crisis – Why Didn’t Anybody Notice?, British Academy 13 In a recent speech, my colleague Andy Haldane also argues that economics needs to draw more heavily on approaches and models used in other disciplines. See Haldane, A The Dappled World Speech at the GLS Shackle Biennial Memorial Lecture 4  All speeches are available online at www.bankofengland.co.uk/speeches  4  Another catastrophic example is South African President Thabo Mbeki’s rejection of consensus expert opinion on the treatment of HIV/AIDS in favour of the views of a professor at the University of California who argued it was caused by malnutrition rather than a virus. Mbeki’s refusal to believe and fund mainstream treatments for HIV resulted in 300,000 lives lost and the birth of 35,000 HIV positive children whose infections could have been avoided.

Still, the services component of inflation continues to be the largest contributor to its increase, so medium-term risks remain present, due to the closing of output gaps and the tight labor market (figure 2). Market inflation expectations have moderated for the short term and remain around 3 percent over the projection horizon. The baseline scenario foresees GDP growing this year between 4 and 5 percent, which is the same range forecast in March. Although the economy outgrew forecasts in the first quarter, the worsened external conditions will result in output slowing down more deeply than  BIS central bankers’ speeches  3  forecast in March. Still, GDP growth will not drift substantially away from the trend, which the Board estimates at 5 percent. This projection also considers that y-o-y growth in consumption will moderate further, in line with decelerating labor income and less expansionary lending conditions than some months ago. Interest rates on consumer loans have risen lately, coinciding with a decline in the y-o-y growth of these credits. In addition, the Survey on Lending Conditions of the first quarter revealed greater constraints in the supply of consumer loans by some financial institutions. Demand for consumer loans continued to rise, according to this survey. For investment, the more persistent construction and infrastructure component – largely associated to the execution of mining and energy projects – suggests that it will remain strong in the coming quarters.
The UAE-based energy company declared that its USD700 million sukuk was no longer Shariah-compliant – and thus unenforceable – because the scholarly consensus was said to have shifted since issuance in 2003. Now, let’s move on to the future – we need continued certainty. We have come a long way in setting in place the strong foundation of a legal framework. The law review and harmonisation committees have done good work in ensuring that Shariah principles can be imported into Malaysian law in a way that is effective and seamless. The progress of the past has positioned us with both opportunity and challenge at present. To navigate these well, we need to promote continued certainty as we move into the future. This will require excellence at both the institutional and individual levels. Institutional excellence At the institutional level, the judiciary plays a vital role in upholding legal certainty. Judges – along with arbitrators – ensure that disputes are settled by the application of the law, rather than unbounded discretion. The courts also ensure that these laws are intelligible, clear and also predictable. For Islamic finance, the Shariah Advisory Councils (SACs) of Bank Negara Malaysia and the Securities Commission play a complementary role to the courts – by providing Shariah certainty. It is important to note that this role does not [in any way] substitute the function of the judiciary in upholding legal certainty.

Rather, the SACs support the courts – by providing predictability and uniformity in the interpretation of Shariah rulings that are applicable to Islamic financial business. Unlike a scientific question, a Shariah question can be answered by reference to at least four different schools of thoughts, all of which provide valid answers from a Shariah perspective. Having the SACs as central authorities for providing finality of Shariah rulings – helps the court apply the rulings to the specific circumstances of a particular case with full certainty. This will then inform the final judgment by the courts. A clear process has been set out to facilitate judges, arbitrators and Islamic financial institutions to refer matters which require the ascertainment of Islamic law to the SACs for their ruling or advice. Matters beyond the ambit of the SACs’ authority will be left for the courts to adjudicate. The composition of the SACs, which includes former judges, ensures it functions well within the boundaries of its purview. To promote procedural legitimacy, efforts have been also directed towards ensuring that the reasoning of the SACs are well-documented and accessible to the public. Other than the courts and the SACs, another important institutional arrangement for our path forward will be the financial regulators. In particular, Bank Negara Malaysia and the Securities Commission will continue to play a proactive role in identifying pertinent Shariah issues that need to be clarified for the domestic market.