PRESS RELEASE
Speech of Mr. Jan - Peter Olters, IMF Resident Representative in Albania in the press conference of July 30, 2005

Over the last three and a quarter years, you have carefully followed the negotiations on, and the implementation of, the IMF-supported program "PRGF". On my last day of my assignment as IMF ResRep, I would like to take the opportunity to thank you for having contributed in a very important and a very professional manner towards increasing the level of the economic debate in Albania. You have asked good, focused, and often difficult questions, and you have provided your readers and viewers with good economic analyses. You have made economic debates relevant to Albanians and, as a result, economic programs the center piece of the last election. I did not want to leave Albania without sharing my appreciation for your work with you. Thank you very much.

The program. Over the last 3 years, the IMF has been supporting this country's economic program with the 3-year "Poverty-Reduction and Growth Facility" (PRGF). Together with our counterparts in, particularly, the Ministry of Finance and the Bank of Albania, on whose close cooperation and commitment we could always count, a firm foundation has been built in terms of macroeconomic stability. The gradual, but consistent fiscal consolidation has reduced the government's demand for domestically available financial resources. Prudent monetary policies have kept inflation within the 2 - 4 percent target range. At the same time, the rapid deepening of financial intermediation, especially in the wake of the Savings Bank privatization, has permitted the private sector, including small and medium-sized companies, to borrow at significantly lower costs. As more credits are available to invest in productivity-enhancing technology, products "made in Albania" are starting to become more competitive in the local market as well as abroad. This, I am convinced, will be an important legacy of the current program which I hope will be concluded very shortly for years to come.

Macroeconomic stability. I understand that poverty in Albania, and particularly in the rural areas, remains widespread and that discussions on "macroeconomic stability" sometimes appear a little theoretic and academic. But I would like to take this opportunity to stress that macroeconomic stability is a necessary pre-condition for any successful socio-economic development strategy. Without private-sector driven growth, there cannot be poverty reduction. For private enterprises small or large, domestic or foreign to chose Albania over other countries as preferred investment site, and to chose investing here over simply buying T-Bills, there has to be a sufficient degree of confidence into future developments and the proper functioning of public institutions. Any healthy economy has as a backbone a vibrant private sector, typically driven by small and medium-sized enterprises that provide most of the employment and income as well as the government's tax revenues, from which sources social expenditures and investments in the priority sectors health and education are financed. During the negotiations with our counterparts in the ministries and at the central bank and through our technical assistance missions, we have tried to help the authorities to create these necessary pre-conditions for poverty reduction and social development.

Challenges. You will appreciate the fact that, in order to ensure dynamic and sustainable rates of growth in the future as well, key obstacles to productivity-enhancing investments by the private sector need to be overcome. Albania needs to break through this "vicious circle" of high tax evasion, difficult tax collection, low tax revenues (as a share of output), low quality public goods and improperly functioning public institutions. These, in turn, represent a key factor in explaining the high degree of fiscal evasion. A great deal of effort therefore needs to be placed on modernizing the tax system with a view to collecting taxes fairly and uniformly on the basis of a simple tax code with transparent regulations and penalties from all enterprises, and only as a function of their profits. Consistent with the advise given in previous years, we believe that any tax reform proposals need to be both consistent with the overall fiscal framework and protective of the inherent integrity of the tax system. The simpler the taxes, the easier it is to broaden the tax base and reduce fiscal evasion and the sooner can rates come down.

Following an election, any new government has the privilege of devising policies over a medium-term horizon. There seems to be a broad consensus that the improvement of the business and investment climate will represent a major building block of the next government's program. And, in order to lengthen a company's planning horizon and to give its managers the confidence into the future, it will remain crucial to maintain the good record of macroeconomic management and to strengthen the integrity and proper functioning of public institutions. At least in those areas, in which I believe I understand a little, Albania has basically good laws. Albania has a large number of qualified and highly committed people on all levels. Competence, commitment, and integrity, if these are the core criteria applied to civil servants and the appointment to public positions, the country will have every potential to develop rapidly. Albania has nationally shared objectives, not least those of joining the family of European countries. Albania has everything at its hand to make its ambitions come true.

Farewell. I leave Albania being relatively optimistic. I know the challenges are large, and there are many. I understand the temptations of tactics over strategy. I understand the limited revenue base. But spending available resources on projects that promise high benefits, postponing those that do not, will visible improve the overall environment, in which people and enterprises feel comfortable to invest their own money as well. Why should Albania not be able to do what the Baltic countries have done? There is no reason at all! It has been a pleasure working with all of you. I do want to thank my counterparts, and I want to thank you. I wish you all well, I wish the new government well, I wish the country well. And, as a very last word, allow me please to use a German one: Auf Wiedersehen, to see you again! All the best!

Jan-Peter Olters
Resident Representative