Identifier
Created
Classification
Origin
08TIRANA110
2008-02-12 15:55:00
UNCLASSIFIED
Embassy Tirana
Cable title:  

ALBANIA: PARLIAMENT PASSES LOCAL GOVERNMENT BORROWING LAW

Tags:  EAID ECON PGOV AL 
pdf how-to read a cable
VZCZCXRO6021
PP RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHTI #0110 0431555
ZNR UUUUU ZZH
P 121555Z FEB 08
FM AMEMBASSY TIRANA
TO RUEHC/SECSTATE WASHDC PRIORITY 6687
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
UNCLAS TIRANA 000110 

SIPDIS

SIPDIS

DEPARTMENT FOR EUR/SCE (ERIN KOTHEIMER AND YOULIANA IVANOVA)

DEPARTMENT PASS TO USAID/EGAT (Eleanor Keppelman and Kathleen Wu)
and USAID/EE/PO (Gary Imhoff)

PASS TO TREASURY FOR VIMAL ATUKORALA

E.O. 12958:N/A
TAGS: EAID ECON PGOV AL
SUBJECT: ALBANIA: PARLIAMENT PASSES LOCAL GOVERNMENT BORROWING LAW

UNCLAS TIRANA 000110

SIPDIS

SIPDIS

DEPARTMENT FOR EUR/SCE (ERIN KOTHEIMER AND YOULIANA IVANOVA)

DEPARTMENT PASS TO USAID/EGAT (Eleanor Keppelman and Kathleen Wu)
and USAID/EE/PO (Gary Imhoff)

PASS TO TREASURY FOR VIMAL ATUKORALA

E.O. 12958:N/A
TAGS: EAID ECON PGOV AL
SUBJECT: ALBANIA: PARLIAMENT PASSES LOCAL GOVERNMENT BORROWING LAW


1. SUMMARY: On February 4, Albania's Parliament unanimously passed
the Local Government Borrowing Law which gives cities the authority
to borrow money from commercial banks to finance local development.
The borrowing law is the latest milestone in the country's
decentralization process and culminates almost two years of
consensus building and law drafting, as well as a six-month period
of municipal lobbying, supported by the USG through USAID. END
SUMMARY.


2. The borrowing law's enactment stems from painstaking groundwork
carried out by a USAID-sponsored working group comprising local and
central government officials, private banks, and other stakeholders,
to develop a policy for market-based borrowing in the context of
public debt management. GOA officials were originally skeptical of
granting local governments access to debt and credit instruments.
Local governments were given fiscal autonomy less than ten years ago
and central government officials were fearful of potential debt
exposure and default risk. (Note: Albania received its first
sovereign credit rating less then a year ago, a "B1" for debt
obligations from Moody's Investor Service.)


3. The unalloyed enthusiasm of some mayors, who initially pushed
for the fewest borrowing restrictions without regard to fiscal
consequences, served only to feed GOA concerns. However, the
USG-backed policy process, which drew on experiences of other
Central European countries, helped officials overcome doubts while
injecting a dose of fiscal realism among participating
municipalities. The result was a pragmatic bill, drafted with the
help of USG experts, which enjoyed broad political support and won
the endorsement of large commercial lenders.


4. The borrowing law's debut was poorly timed; its submission to
the GOA for approval coincided with the political standoff leading
up to the February 2007 Albanian local elections. The draft law
subsequently lingered for more than eight months. However, in
September 2007 the Albanian Mayors' Association forced the bill to
the attention of the Council of Ministers, where it was approved and
sent forward to Parliament. The Association was represented in the
parliamentary hearings on the bill by several mayors and the heads
of the associations of municipalities and communes. Such lobbying
efforts and open legislative committee hearings are unusual in
Albania; new key laws originate more often from international
requirements than from domestic interests and are typically drafted
and passed without input from affected stakeholders.


5. The deliberations led to minor changes to the draft law and the
debate then moved to Parliament which passed the law by unanimous
vote last week, a show of bipartisan consensus from a body where
bickering between the two major parties is the norm. Political
control of cities in Albania is split between the ruling Democratic
Party and opposition Socialist Party. Neither the majority nor the
opposition appeared willing to oppose a law that would benefit their
bases in roughly equal measure.


6. Albania's new Local Borrowing Law marks a milestone for
Albania's ten-year-old decentralization process. The two largest
banks in Albania, Rafeissen Bank and Intesa Sao Paulo (the latter
acquired the American Bank of Albania last year),have indicated
that they are prepared to finance specific local government projects
once the law goes into effect this March. The borrowing law is also
a precondition for a new USAID project that is aimed at stimulating
local economic development. With borrowing authority and fiscal
regulations in place, the new project will assist ten municipalities
to develop, in tandem with local business communities, credit-worthy
plans for infrastructure and capital investment projects. Such
projects have traditionally been out of reach for municipal budgets.
The new law fits well within the broader framework of increasing
municipal autonomy and establishes borrowing limitations approved by
international donors.
WITHERS