Albanians’ introduction to capitalism

Developing Just Leadership

Our Own Correspondent

Shawwal 08, 1417 1997-02-16


by Our Own Correspondent (World, Crescent International Vol. 25, No. 22, Shawwal, 1417)

Renewed street protests against the Albanian government broke out in the capital Tirana and other major towns on February 5. These erupted after the Democratic Party (PD) government of president Salih Berisha failed to satisfy investors that it would repay the money they had invested in failed ‘pyramid’ investment schemes. The government had told investors it would start repayment on February 5, but was not able to meet the huge demand. More than 30,000 people were on the streets of Tirana on February 6.

The protests, which began in mid-January, have now developed into the most serious unrest in the country since the collapse of the communist regime in 1991. The latest round of protests were exacerbated by news of the collapse of yet another major scheme, the Gjallica Investment Fund, which had also promised to repay its investors on February 5. The government responded with harsh police and military suppression of the protests, increasing public unrest to a level where the government itself is threatened.

The failing financial schemes are high-interest investment funds which were set-up in Albania after the collapse of communism. They promised interest rates as high as 50 percent per month and persuaded large numbers of Albanians to invest their life-savings and more. The schemes paid interest to early investors with the capital of later investors, a system which could only last as long as increasing numbers of people continued to invest. About 500,000 of Albania’s 3.2 million population invested an estimated US$1 billion in the schemes, in a country where the average monthly income is only $80.

For the people of Europe’s poorest country, coming out of decades of communism and dazzled by the high standards of living promised by western capitalist propaganda, these pyramid schemes seemed the epitomy of western, free-market economics.

The schemes started wobbling in autumn 1996, when some began cutting their interest rates and placing restrictions on their investors, for example allowing withdrawal of interest but not capital. The continued operation of the schemes was dependent largely on confidence; once this was shaken, new investment dried up. By mid-December, two of the smaller schemes had collapsed and questions were being asked about the major schemes in which tens of millions had been invested.

The situation deteriorated quickly in January, not least because the opposition started using the schemes to attack Berisha’s government. The opposition, including trade unions, student groups and political parties, had already escalated pressure on the regime; students and sugar workers both declared strikes within the first week of January, for example. On January 7, the Democratic Alliance Party (DAP) accused Berisha’s Democratic Party of misusing investment funds to finance its 1996 election campaigns, and declared that ‘the collapse of the schemes has started.’ This may have proved, in part at least, a self-fulfilling prophecy. Two days later, the major Malvasia scheme in Kucova declared itself bankrupt.

The opposition accusation that the government was implicated in the running of the schemes may well be true. Certainly, the major schemes had been endorsed by senior government figures and permitted to advertise on State television, a rare privilege. But even if government figures did not directly benefit, Albanians are now blaming them for failing to highlight the dangers of the schemes and because much of the invested money was held in government-run banks.

The government’s initial response, on January 14, was to issue a decree limiting the amount any single investor could withdraw from the schemes to $300,000 per day. This was clearly intended to prevent a run on the schemes. But its effect was to hit confidence further and to focus anger onto the government.

This anger was expressed at a major demonstration in Tirana on January 19, organised by the Socialist Party and other opposition groups. The government tried to suppress it by police brutality, thus heightening tension. As the protests spread across the country, the government blamed the opposition and cracked down hard, arresting protesters and imposing severe jail sentences and fines on them.

But it was also clear that the government had to be seen to be acting against the schemes. On January 21, it announced a commission to investigate them and seized the assets of some. Two days later, it banned pyramid schemes altogether and arrested the leaders of some major ones. At the same time, it also arrested the leaders of various opposition groups whom it blamed for inciting the trouble.

The trouble worsened thereafter, with major demonstrations on the weekend of January 25-26. Fighting was reported between protesters and police in Tirana. Government buildings were attacked and in some cases burnt in Korca, Fier and Vlora. The military was deployed in order to guard public buildings and keep the peace, despite doubts as to whose side they might take. It was after these protests that the government was forced to promise investors that they would get their money back.

The problem is that the assets the government has seized from schemes is thought to total an estimated $300,000, while losses are around $1 billion. The scale of losses can be gauged from the fact that Albania’s foreign currency reserves amount to less than $270 million. The Albanian currency, the lek, has meanwhile lost some 35 percent of its value on the currency black market.

Like the schemes themselves, the government’s first tactic was to delay the problem by deferring payments until a later date, set for February 5. It quickly became clear that even then, most investors would receive only about 30-50 percent of the amount they invested, and most of that could be in government bonds rather than in cash. Even then the cash would be in the fast-fading lek rather than the US dollars that many of the schemes had demanded from investors.

It was this government failure which has led to renewed protests in Tirana this month. With popular protests having forced the government of neighbouring Bulgaria to call elections in April, and the on-going protests in Belgrade threatening the stability of the Serbian government of Slobodan Milosevic, the government of Salih Berisha, which survived widespread protests after its manipulation of Albania’s elections last May, may now be threatened by the peoples’ anger at the failure of the pyramid schemes.

Muslimedia - February 16-28, 1997

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