PRES RELEASE
Statement of the Governor of the Bank of Albania in the common press conference with the Minister of Finance and the Head of IMF Resident Mission in Tirana

The Bank of Albania extends its thanks to the Executive Board of the IMF on the Forth Review under the PRGF arrangement for Albania and assesses the close collaboration with the Missions of the International Monetary Fund and the Resident Representative in Tirana, Mr. Olters.

The main macroeconomic developments
I would briefly emphasize regarding the macroeconomic indicators, that the economic growth during the last three years was 6.1 per cent, the inflation within the target of the Bank of Albania and the fiscal policy has been harmonized with the monetary policy. Economy crediting has recorded positive progresses of an annual growth 30-40 per cent. The banking system in general appears to be sound and profitable. Savings bank privatization incomes and the expected of the Raiffesen bank in the crediting process are previewed to inject positive impulses to the economic development.

Regarding the forecasts, up to the yearend 2004, Bank of Albania estimates that the macroeconomic indicators will be improving and in accordance with the previewed targets.

Following I would like to principally point out some of the ultimate developments that have drawn the attention of the public opinion:

The maintenance of the Bank of Albania target
Inflation during the first semester of 2004 has resulted low and the expectations are that by the end of the year the inflation will not excess the above target. There were mainly the developments of inflation target and those of the exchange rate that led the Bank of Albania to take three decisions for the decrease of respectively by 25 points percentage of the core interest rate. The monetary policy of the Bank of Albania is also followed from the commercial banks.

Exchange rate developments
The domestic currency, Lek is strengthened against Dollar and Euro as well during 2004. Lek is appreciated at 6.4 per cent against Euro and 5.4 per cent against dollar for the period December 2004-June 2004.
The main grounds of domestic currency appreciation are mainly related with some factors:

• If we refer to a longer - term, Albanians have increased the confidence to the domestic currency as a result of the stable macroeconomic stability.
• In the short term, surely the most important impact was a result of seasonal factors that showed the highest effect in June.
• The presentation of the domestic product sooner and at higher volumes than the other years, has impacted also the falling of exports for these goods, causing the foreign currency offer be decreased.
• Meanwhile, the starting of seasonal impacts has further growth the foreign currency supply in the domestic market as a result of tourists and emigrants receipts.
• The policies, at the same time, followed from Fed and the Central European Bank with the interest rates, provided a relatively considerable difference with the Lek interest rates, thereby the pressures on Lek appreciation were strong. For Albanians have exchanged a part of foreign currency remittances in Lek, thus increasing the domestic currency supply and indispensably leading to its appreciation. This is made clear if particularly referring to Lek deposits which are increased 24 per cent during this year as well as the considerable growth of individuals' participation in the T-Bills auctions.
• A more careful fiscal policy has also impacts on the exchange rate, thanks to the added incomes from the privatization of the Savings Bank which has not set up pressures for liquidity in the money market.

Under these circumstances, considering Lek appreciation as not rather favorable phenomena, of a potential to reflect mutual shifts at a second time, after the decisions for the decrease of the core interest rate, we succeeded also the intervention in the foreign exchange market. Thus, during the last week Euro is lightly strengthened at 1.5 per cent against Lek while US dollar strengthening was at the degree 0.75 per cent.
During the two next weeks there will take place many consultations with the IMF Mission on the monetary developments as well as on the developments of the exchange rate.

Exchange rates impacts
Regarding the impacts of the falling exchange rate of exports it is difficult to fully be certified the theory in case of Albania, as an appreciation of the domestic currency leads to considerable impacts in the exports tightening and on the increase of imports. Pursuant to the data of the balance of payments during the last years but also pursuant to the developments in the first quarter of the year 2004, results a growth of both exports and imports. The imports of this period (USD 451 million) increased about 14 per cent, while exports (USD 136 million) increased about 26 per cent, notwithstanding the Lek appreciation against both Euro and dollar. The Albanian exports at a high degree are re-exports and in this case the impacts of the exchange rate influence both exports and imports (payments, rents etc.)

Thank you!