, to Voice of America at the conclusion of the World Bank and the International Monetary Fund Annual Meetings

Publication date: 23.10.2007


Voice of America: Mr. Fullani! You hold the energy crisis, the consumer price rise, the budget deficit and the high credit responsible for the inflation. Which of these factors seems to have mostly contributed to this increase?

Ardian Fullani: The energy crisis has contributed considerably to the increase of inflationary pressures in Albania. The Bank of Albania has informed and further, it has taken the necessary measures to better anchor the inflationary expectations deriving from two factors. First the demand-side factor which implies the growth of lending. Let us not forget that two years ago it accounted for only 7 per cent of the GDP, while as of end the present year it is expected to account for about 29-30 per cent. This is considered a rapid growth of credit. Despite the developed market the demand is growing which implies that the Albanian economy is developing at stable rates. In the case of such a development the central bank should be very prudent in programming policies to support this growth. Apart from the growing demand which we are assessing carefully there is also the supply-side factor which begins with the energy crisis. The latter has brought about a total increase of Albania's economic cost. It is a result of the long drought which has damaged the agriculture, fundamental for the daily food, of the overall global pressure on the price rise of raw material, the total price rise of agricultural products (there have been long discussions in the IMF meetings with respect to this issue) and of the recent rapid rise of oil price. The combination of these two factors has made the Bank of Albania not only cautious of the present situation but also careful in better anchoring the inflationary expectations to the public a year from now. The Bank of Albania stands above the curve implying that we do not follow inflation but forecast it and with a good and proper communication with the public we make clear the risks and the measures to be taken in order to mitigate these risks.

Voice of America: Considering that the energy crisis is expected to aggravate you have anticipated the further raise of the key policy rate. The Minister of Finance considers these anticipations as unreal. The Government plans to increase the budget spending in 2008 and the draft-budget is quite ambitious. Inflation would undoubtedly make their realization more difficult. Are there any frictions with the Government related to this?

Ardian Fullani: I would say that there is a great cooperation between the two institutions which has brought about the perfection of the Bank of Albania's role as a fiscal agent with several agreements to be reached in the future and the close cooperation in developing the financial markets and making them efficient. With respect to inflation I would say that the state budget has not been inflationary. On the contrary the fiscal consolidation has assisted the Bank of Albania to better accomplish its tasks in containing inflation. Undoubtedly this year's program with the IMF has been quite intensive in terms of infrastructure and spending on infrastructure and it will be realized because we have the conviction that this is the only way to have a stable and long-term development. However there are certain issues which need perfection such as the domestic debt management, capital expenditure and their concentration at end-year. On the other hand, with respect to inflationary pressures in all discussions with the IMF we have been very transparent and agree that there are demand and supply-side pressures. However we should certainly be very vigilant to contain inflation. Let us not forget that keeping inflation under control and stable is a benefit to Albania.

Voice of America: Do you agree with the IMF concerns related to investments in road projects whose total costs and financial sources are unknown or do you feel as optimistic as the government about the 2008 draft-budget?

Ardian Fullani: We are currently discussing the draft-budget. The IMF will be in Tirana next week to discuss the budget in details. I believe it will be a realistic budget and with a better program it will assist infrastructure and energy. I am personally convinced that if we solve these main issues today, such as energy, the efficiency of the Albanian markets will enhance. The same opinion is also shared by the IMF and other central banks. Secondly infrastructure will enable a more efficient communication with the global world and a more natural access to the international market. It is crucial for Albania to have a well-accomplished program and well-based in cost and efficiency in terms of infrastructure.

Voice of America: Credit to economy has grown considerably during the last two years, mainly as a result of the growth of home loans. A high level of home loans in the US housing market caused an economic recession. How do you consider this issue in Albania and do you think there is a need for the Bank of Albania to intervene in order to prevent certain huge effects on the Albanian economy?

Ardian Fullani: Credit to economy is crucial not only for the present but also for the future of the stable economic growth of the country. Regardless of the demand-side pressures the Bank of Albania is convinced that Albania should proceed with a stable credit growth. The last two years have been a catching-up process; however, we should accommodate an efficient credit to economy. We have surely been monitoring. I personally have a successful career in the private sector. Therefore we are carefully monitoring the credit to economy, not only in terms of inflationary pressures but also of financial stability which is very important. Macro prudence is not only today's topic but also a necessity following the problems with the US financial turbulence. Although we were not affected I would say that prudence should be high. However the Bank of Albania cannot take the responsibility of all the roles. All the stakeholders should be involved for the land title, the execution of the collateral etc. Very soon the law will pass and the necessary amendments will be made in order to increase transparency in lending and in the bank-client relationship. The Bank of Albania remains committed in terms of improving the banks' internal governance, transparency and internal control. We should place more attention to prudence in lending and monitoring crediting. The Bank of Albania has never favoured a mechanical stopping of credit to economy, but a prudent monitoring and the enhancement of credit efficiency which will not hamper but instead will pave Albania's way to development and it will make our country more attractive to foreign investors.

Voice of America: Year 2008 will mark the conclusion of IMF-supported programmes, that is the IMF will cease to be the supervisor of Albania's fiscal policies. Do you think Albania is ready to detach itself from this institution and operate by itself? Is there a need for more consolidated control structures from the Bank of Albania?

Ardian Fullani: At the conclusion of the last agreement with the International Monetary Fund I publicly raised the issue for a larger attention and focus of the public structures and broader, for greater participation in the economic decision-making, for opening debates, consultation and for establishing a special infrastructure which will enable the programming and certification of these policies, but also pursue these policies which will indefinitely be European ones. In this context I would say that what we have been achieving the last two years may be referred to as successful. What the IMF approves today is that Albania is in its maturing stage. Albania has increased its ownership in the product between our bilateral relationships and it is being prepared for another round. Upon the conclusion of this agreement we will discuss with the IMF the level of future relations. I personally think that there will be another relationship that will accompany us along the way to the European Union; this time not with the present relationship but with agreements which will provide Albania trust and credibility. Albania really needs trust and credibility before the financial markets and important institutions. What we should do and what the Bank of Albania is presently doing is that in our decision-making policies we are able not only to discuss as professionals with the IMF but also take over the ownership of these policies. I believe that in the long discussions with the Ministry of Finance and the Government there is understanding. We feel this understanding in the concept of inflation targeting regime we are planning to implement in the medium-term. We have also had important discussions with the Ministry of Finance which increase the Bank of Albania independence, better consolidate the fiscal side and develop the financial markets. These three elements are crucial and they take us to what you previously mentioned: Will we be able to take over the responsibility of implementing these policies? I personally have the conviction that we are able to take over this responsibility if we accomplish these tasks.