ALBANIA, SCENESETTER FOR HENRIETTA FORE, ADMINISTRATOR OF

UNCLAS TIRANA 000382

SENSITIVE

AIDAC

SIPDIS

DEPT FOR EUR/SCE
STATE FOR USAID AID/A/COO: ELIZABETH MCKEON
EE/AA: SARAH BERRY
EE/ECA: MICHAEL FOSTER

E.O. 12958:N/A
TAGS: PGOV PREL EAID AL
SUBJECT: ALBANIA, SCENESETTER FOR HENRIETTA FORE, ADMINISTRATOR OF
UNITED STATES AGENCY FOR INTERNATIONAL DEVELOPMENT AND U.S. DIRECTOR
OF FOREIGN ASSISTANCE

SUMMARY


1. (SBU) Henrietta Fore, Administrator, U.S. Agency for
International Development and Director of United States Foreign
Assistance will visit Albania from May 17-19, 2008. Administrator
Fore's purpose in visiting Albania is to convey to the Government of
Albania (GoA),judicial officials, business and civic leaders, in
scheduled public appearances and private meetings, the importance of
taking concerted action to reduce corruption in order to improve
Albania's business and investment climate and accelerate the
country's progress toward NATO membership. Ms. Fore's visit comes
two months after an arms depot on Tirana's outskirts exploded,
killing 26 people and touching off a spasm of political
recriminations and corruption accusations; some six weeks after
Albania received its NATO invitation; a few weeks after a major
survey showing corruption is still a serious problem in Albania.
Ms. Fore's visit also coincides with the review by the Millennium
Challenge Corporation (MCC) of the GoA's $18 Million anticorruption
Threshold Country Plan to follow its current, successful MCC
Threshold Program. END SUMMARY.


2. (SBU) DOMESTIC POLITICAL OVERVIEW: Albania is a multi-party
parliamentary democracy, with eleven parties represented in
Parliament. The majority coalition selects the Prime Minister (Head
of Government),currently Sali Berisha, who has held the post since
July, 2005. The President of the Republic (Head of State) is
selected by Parliament to a five-year term. President Topi was
elected in July 2007 in an orderly transition of power. National
elections will be held again in 2009. Albania's two largest parties,
the Democratic (DP) and Socialist (SP) Parties, descend from the
Communist Party, and many of Albania's senior leaders were trained
in the communist system. A younger generation has begun to emerge
on the political and economic scene some 17 years after the fall of
communism. The political system is highly polarized, but trust and
cooperation among majority and opposition have improved over the
last several months. Recently, the two major parties coalesced to
pass electoral and constitutional reforms in the context of NATO
integration. The Government has a solid majority in Parliament, and
this was the first time the two joined in a common legislative
effort. NATO allies extended an invitation to Albania in April 2008,
with accession targeted for 2009.


3. (SBU) ECONOMIC DATA: Since the fall of communism in 1990, Albania has

set itself on the path toward an open market economy. Beginning in
2001, Albania has experienced a rapid expansion of its economy and
has maintained a remarkable degree of macro-economic stability over
the past seven years characterized by an average economic growth
rate of almost 6 percent from 2001 through 2007, low inflation
averaging 2.5% and a budget deficit within an IMF target of 3.8% of
GDP in 2007. Albania's nominal GDP in 2007 totaled $10.6 billion
and is expected to reach $12 billion in 2008. The Albanian
currency, the lek, has appreciated against the dollar and remained
stable against the euro. The country has seen rapid economic
progress since the economic collapse of 1997. The GDP and export
growth rates were the fastest growing in Southeast Europe from 1997
to 2005. Per capita income more than doubled in the last five
years, to $3,353 in 2007. The number of Albanians living in poverty
was reduced in 2005 to 18.5% of the population, down from 25.4% in
2002 (World Bank 2005 Poverty Assessment),lifting 220,000 people in
a population of over 3.1 million out of poverty in just three years.
However, the country remains among the poorest in Europe and ranked
65 of 177 on the UNDP's 2004 Human Development Index.


4. (SBU) Albania also has a low level of foreign direct investment and a

growing trade deficit which amounted to an estimated 27.1% of GDP in

2007. Unemployment is high, officially at 13.8% in 2007. However,
a high level of remittances (approximately 14% of GDP) from abroad
softens the unemployment impact on the general population. Labor
costs are among the lowest in the region and the country boasts a
young workforce by European standards, with a median age of 29
(compared to 40 in Italy). Services lead GDP composition with
approximately 47% of the total; agriculture comes second at 23%. The
remaining major economic sectors are industry (12%),construction
(10%) and transport (9%). The private sector accounts for more than
75% of GDP and over 62% of employment. In 2006, Albania signed the
Stabilization and Association Agreement with the European Union
which is seen as the first step to eventual EU membership. Albania
is also part of CEFTA (Central European Free Trade Agreement),a
regional free trade agreement which is expected to take effect this
summer. The EU remains, by far, Albania's main commercial partner,
providing 61% of Albania's imports and receiving 88% of total
exports. Trade with Italy and Greece represent the largest share of
EU trade with a combined 44% of imports and 82% of exports. On
December 1, 2006, the Interim Agreement between Albania and the
European Union entered into force. The Interim Agreement will


reduce the average nominal tariff on EU imports and is expected to
increase imports from EU countries. The U.S. accounts for a small
share of Albania's trade volume, just 2% of the total. Albania is a
member of the WTO and cooperates closely with the IMF and World
Bank.

THE CORRUPTION PICTURE: ALBANIA 2008


5. (SBU) For a Government elected in 2005 on a pledge to root out
corruption, the last year has brought a string of mixed, mostly bad
news, from a number of surveys and reports. Transparency
International (TI) released its "Corruption Barometer Survey" in
December 2007 showing Albania performing in the highest quintile
globally, alongside Cambodia, Cameroon and Nigeria, in terms of the
degree to which it is affected by bribery. TI also reported that 71%
of Albanians had "paid a bribe to obtain a [public] service,"
compared to 30% in 2005. The TI Corruption Perception Index
published last fall, meanwhile, showed that Albania is perceived as
the most corrupt country in southeastern Europe, though Albania's
low score showed a slight improvement in 2007 (2.9) over 2006 (2.6;
10 is highest score). Albania has improved its overall corruption
perception ranking, thus continuing slight improvements over several
years.


6. (SBU) A USAID-funded Annual Corruption in Albania Survey (2008) that

was released this May 2008, meanwhile, appeared to reinforce the
backsliding perception. The survey found that 92% of Albanians think
corruption is widespread, a decline of 8 points over 2006; that 47%
of Albanians believe corruption increased over last year (47.2%),
13% more than in 2006. Nearly 70% of people surveyed reported paying
a bribe for medical treatment, while 60% reported having little or
no trust in the judicial system. By a 3 to 1 margin, the
USAID-funded survey found, Albanians do not think the judges are
impartial when conducting trials.


7. (SBU) In November 2007, the Millennium Challenge Corporation presented

a mixed picture of Albania's performance. On the one hand, Albania
fell short in the "Ruling Justly" category of the country scorecards
used to determine MCC Compact eligibility, meaning that Albania
scored below its income group median in this area. On two key
measures in this category, the Control of Corruption and Rule of Law
Indicatorsators -- considered "hard hurdles" to qualify for an MCC
Compact -- Albania scored in the bottom quartile of its income
group, prompting the MCC to not consider Albania for compact status.



8. (SBU) Albania in fact improved according to most MCC indices
over the last two years. The MCC took note of the overall trend and
invited the GoA to apply for a "Stage II" Threshold Program to
follow the current, successful Threshold Program which expires in
September 2008. On April 18, 2008, The Government of Albania
submitted its Threshold Country Plan (TCP) to the MCC, where it is
now being reviewed. As with its previous TCP, the GoA pledged to
put in place preventive and enforcement measures aimed at reducing
corruption and improving judicial performance.

RECENT ANTICORRUPTION ACTIONS


9. (SBU) Reports and surveys aside, the GoA has in fact taken steps
to fight corruption over the last few years. Progress is slow and
concrete results elusive. So far, while the Prime Minister Berisha
pledges "zero tolerance" against corruption, the fact remains that
the first successful high-level prosecutions on corruption charges
just occurred. Few officials, high or low, have served any serious
jail time. In the last few years, though, independent audit
agencies, such as the High Inspectorate for the Declaration and
Audit of Assets (HIDAA),have been actively auditing asset and
conflict of interest declarations, with the result that scores of
petty officials have been dismissed for conflict of interests or for
filing fraudulent declarations. However, no official has yet to be
prosecuted for conflict of interest violations or for concealing
assets on declarations.


10. (SBU) Over the last year, the Government has mounted a law
enforcement counteroffensive against corruption, establishing a
special investigative unit, a serious crimes court and a witness
protection unit (all with US Department of Justice support). Under
the new Prosecutor General, Ina Rama, a special investigative unit
("Task Force") has aggressively pursued lawbreakers over the last
half-year, arresting some 70 officials on corruption charges, most
recently placing under house arrest the Director of the Tax
Department on charges of kidnapping and torture.


11. (SBU) Other initiatives pushed or brokered by President Bamir
Topi - a former Democratic Party stalwart and Member of Parliament

who seeks to preserve his presidential role of remaining above the
partisan fray -- were aimed at paving the way for a long overdue
reform of the Albanian judiciary, seen by most Albanians as corrupt.
In February 2008, the Albanian Parliament passed a law by
multiparty consensus that addresses a multitude of problems plaguing
the judiciary, from poor quality judges, to slow resolution of
cases, to unethical conduct and unprofessional court decisions, to
weak enforcement of judgments. The law has yet to be implemented.
(Ref A)


12. (SBU) GoA reform efforts under the Millennium Challenge Account
(MCA) Threshold Program (begun in September 2006) to reduce petty
corruption in three areas of public administration: taxation,
procurement and business registration have begun to take hold. The
business registration reform has been an unequivocal success in
sealing off opportunities for bribery in business registration while
simultaneously streamlining registration procedures. As of May
2008, it now takes an average of one day to register a business (as
opposed to several weeks in 2006, prior to the MCC program) and some
9,000 new businesses have been registered under the new system. In
the tax administration, the MCC project introduced measures like
e-filing, which reduced the contact with tax official and the
resultant "negotiations" between taxpayers and officials that were
fertile terrain for corruption. In procurement, the MCC project
with cooperation from the Public Procurement Agency, launched in
march 2008 an electronic procurement system, which is now being used
by all GoA ministries, a measure that will likely, in the longer
term, increase competition for government procurements while
reducing the cost of the average procurement, in addition to
reducing the opportunities for corruption in the procurement
process.

GERDEC TRAGEDY


13. (SBU) But it is the tragedy on March 15, 2008 that may well
define the Berisha Government's corruption-fighting record. On that
day, a munitions depot located in a populated area only a few
kilometers outside Tirana (the town of Gerdec) exploded, killing 26
people and injuring more than 300. In the days following the blast,
political recriminations and accusations by opposition forces that
abuse of power led to the tragedy forced the Minister of Defense,
Fatmir Mediu, to resign his post. Prosecutor General Rama
subsequently asked Parliament to lift the immunity of the former
Minister, also a Member of Parliament, in order to permit an
investigation for Mediu's alleged role in the tragedy. (Refs B and
C.) The U.S. Southern Ammunition Company, Inc. was the primary
contractor and subcontracted to an Albanian firm to do munitions
dismantling at the site. While representatives of the company denied
responsibility for the blast, saying their contract involved
small-caliber ammunition and not the larger ordnance that exploded
at the Gerdec depot, the tragedy nonetheless tarnished the high
esteem in which the U.S. was held by the Albanians.


14. (SBU) A few encouraging signs have emerged from the ashes of Gerdec.

The Albanian media (which, while highly politicized, ranks high in
public perceptions as a corruption-fighting agent) did a creditable
job of shedding light on the circumstances surrounding the Gerdec
tragedy in the immediate aftermath of the explosion. The
Prosecutor's Office, for its part, has begun an intensive
investigative process that had heretofore been absent in Albania.
(The U.S. sent an experienced forensics team from the Bureau of
Alcohol, Tobacco and Firearms in response to her request for
assistance).

CORRUPTION OUTLOOK


15. (SBU) Albania must implement a rigorous program of broad-based
reforms to strengthen government institutions, improve adherence to
the rule of law, and reduce corruption while respecting democratic
norms if it is to make steady progress toward NATO membership, which
looms larger than ever following the invitation at the NATO summit
in March. The lack of strong, effective institutions and respect
for the rule of law impedes progress in all areas, including
attracting the investment needed for economic development.
Institutions crucial to Albania's democratic development, including
NGOs, the media, and business coalitions, are still relatively
immature, and it will take years of work to build them up to create
a strong, sustainable democracy.


16. (SBU) You may choose to emphasize the importance of these issues, and

in particular the need for aggressive near-term actions, such as the
lifting of immunity for public officials, stepped-up law enforcement
that respects the independence of institutions, rapid progress on
judicial reforms, and the completion of the reforms to which the GoA
committed itself under the MCA Threshold Program. It is worth


reminding the GoA that the U.S. Government's decision on Albania's
Stage II MCA Threshold Country Plan has not yet been made; that the
US will be watching the GoA's actions over the next few months to
satisfy itself that the its commitment to anticorruption reforms
remains strong.

WITHERS