Identifier
Created
Classification
Origin
09TIRANA153
2009-03-06 14:10:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Tirana
Cable title:
ALBANIA: FINANCIAL CRISIS REACHES ALBANIA
how-toVZCZCXRO2227 PP RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG DE RUEHTI #0153/01 0651410 ZNR UUUUU ZZH P 061410Z MAR 09 FM AMEMBASSY TIRANA TO RUEHC/SECSTATE WASHDC 7946 INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY RUEATRS/DEPT OF TREASURY WASHDC PRIORITY RUEAIIA/CIA WASHDC PRIORITY RUEHVEN/USMISSION USOSCE PRIORITY 2456 RHEFDIA/DIA WASHINGTON DC PRIORITY RUCNDT/USMISSION USUN NEW YORK PRIORITY 0795 RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY RUEKJCS/SECDEF WASHINGTON DC PRIORITY
UNCLAS SECTION 01 OF 02 TIRANA 000153
SIPDIS
SENSITIVE
DEPT FOR EUR/SCE J.ISMAIL
TREASURY FOR V.ATUKORALA
E.O. 12958:N/A
TAGS: EFIN ECON PGOV AL
SUBJECT: ALBANIA: FINANCIAL CRISIS REACHES ALBANIA
REF: 08 TIRANA 884
UNCLAS SECTION 01 OF 02 TIRANA 000153
SIPDIS
SENSITIVE
DEPT FOR EUR/SCE J.ISMAIL
TREASURY FOR V.ATUKORALA
E.O. 12958:N/A
TAGS: EFIN ECON PGOV AL
SUBJECT: ALBANIA: FINANCIAL CRISIS REACHES ALBANIA
REF: 08 TIRANA 884
1. (SBU) SUMMARY: The global financial crisis is finally starting
to affect Albania. Albanians have been withdrawing their deposits
from banks, affecting banks' ability to buy domestic treasury bonds
to help finance the deficit. The Ministry of Finance has gone to
commercial banks seeking 300 million euro in loans but so far has
been unable to secure a loan. Commercial banks are reluctant to
loan the government as much money as it needs and are demanding high
interest rates. Foreign trade volume fell by 10 percent in January.
Overall the construction and apparel industries have been hardest
hit. The lek has depreciated against the euro by 6 percent since
the beginning of the year and by over 30 percent against the dollar.
End Summary.
Economic Scenario Not So Rosy Anymore
--------------
2. (U) When Albania's 2009 budget was approved in November 2008, the
planned deficit of USD 549 million (4.2 percent of GDP) was within
IMF guidelines. The GOA's plan was to finance 83 percent of the
deficit through domestic borrowing and use 300 million euro of
privatization revenues to finance additional public projects and to
further reduce the deficit. The GOA was trumpeting Albania's
apparent insulation from the global meltdown and saw easy sailing
ahead.
3. (U) That optimism is beginning to fade. Remittances, Albania's
lifesaver from its diaspora, are declining, and with them, the
construction industry is beginning to stall. The apparel industry,
which employs many Albanians in poor rural areas, has asked the
Ministry of Finance for financial help. Bank deposits have fallen
over the last four months by almost USD 500 million, which might be
leaving already cash-strapped banks with insufficient reserves to
purchase government bonds. Bank loans in euro to businesses and
individuals fell from 115 million euro in December to 45 million in
January. Lek loans also declined, but by a much smaller percentage.
GOA Struggling To Close Loan Deal to Finance Deficit
-------------- --------------
4. (U) In early January the Ministry of Finance issued a tender for
300 million euro in loans from commercial banks. (A 300 million
euro Eurobond offering scheduled for early 2009 was canceled due to
lack of liquidity in the global financial markets.) According to
Minister of Finance Bode, the loans would help the Albanian economy
in two ways: Albanian banks would not feel under pressure to buy
Bank of Albania bonds and could focus on loans to businesses and
individuals, and the GOA would ensure financing for its planned
infrastructure projects, thus injecting needed capital into the
economy. (Note: With parliamentary elections scheduled for June
28, the GOA is already using many of these projects to showcase what
the government is doing for voters.) Near the beginning of
February, Raiffeisen, Deutsche Bank, Alpha Bank, J.P. Morgan,
Citigroup, Credit Suisse and BNP Paribas had presented offers.
5. (U) According to recent media reports, the MOF is having
difficulty with the negotiations. A consortium composed of Deutsche
Bank and Alpha Bank was selected to come up with a syndicated loan
since no one bank was willing to finance the entire amount. With
the global liquidity crisis the government has not been able to find
financing at a sufficiently low interest rate. According to recent
news reports interest rate quotes have been as high as 7 percent, up
from 5.5 percent last fall.
6. (SBU) COMMENT: The rose-colored glasses through which the GOA
has been viewing the global economic and financial crisis are
getting foggy. The GOA is finally beginning to realize that Albania
is not an island insulated from the rest of the world, as
international experts including the IMF have been warning for
several months now. We have heard of companies particularly in the
construction sector complaining that their business is down and that
many apartments are either remaining unsold are being sold for
prices below last summer's. In addition, the lek's fall against the
euro will make imports more expensive. Since most Albanian food
products in the winter months are imported, this hurts all sectors
of the economy but particularly the poor. Finally, the Bank of
Albania needs to monitor closely any cash transfers by Albanian
banks to their parent companies abroad in order to ensure the
TIRANA 00000153 002 OF 002
required liquidity for the financial sector in the coming months.
WITHERS
SIPDIS
SENSITIVE
DEPT FOR EUR/SCE J.ISMAIL
TREASURY FOR V.ATUKORALA
E.O. 12958:N/A
TAGS: EFIN ECON PGOV AL
SUBJECT: ALBANIA: FINANCIAL CRISIS REACHES ALBANIA
REF: 08 TIRANA 884
1. (SBU) SUMMARY: The global financial crisis is finally starting
to affect Albania. Albanians have been withdrawing their deposits
from banks, affecting banks' ability to buy domestic treasury bonds
to help finance the deficit. The Ministry of Finance has gone to
commercial banks seeking 300 million euro in loans but so far has
been unable to secure a loan. Commercial banks are reluctant to
loan the government as much money as it needs and are demanding high
interest rates. Foreign trade volume fell by 10 percent in January.
Overall the construction and apparel industries have been hardest
hit. The lek has depreciated against the euro by 6 percent since
the beginning of the year and by over 30 percent against the dollar.
End Summary.
Economic Scenario Not So Rosy Anymore
--------------
2. (U) When Albania's 2009 budget was approved in November 2008, the
planned deficit of USD 549 million (4.2 percent of GDP) was within
IMF guidelines. The GOA's plan was to finance 83 percent of the
deficit through domestic borrowing and use 300 million euro of
privatization revenues to finance additional public projects and to
further reduce the deficit. The GOA was trumpeting Albania's
apparent insulation from the global meltdown and saw easy sailing
ahead.
3. (U) That optimism is beginning to fade. Remittances, Albania's
lifesaver from its diaspora, are declining, and with them, the
construction industry is beginning to stall. The apparel industry,
which employs many Albanians in poor rural areas, has asked the
Ministry of Finance for financial help. Bank deposits have fallen
over the last four months by almost USD 500 million, which might be
leaving already cash-strapped banks with insufficient reserves to
purchase government bonds. Bank loans in euro to businesses and
individuals fell from 115 million euro in December to 45 million in
January. Lek loans also declined, but by a much smaller percentage.
GOA Struggling To Close Loan Deal to Finance Deficit
-------------- --------------
4. (U) In early January the Ministry of Finance issued a tender for
300 million euro in loans from commercial banks. (A 300 million
euro Eurobond offering scheduled for early 2009 was canceled due to
lack of liquidity in the global financial markets.) According to
Minister of Finance Bode, the loans would help the Albanian economy
in two ways: Albanian banks would not feel under pressure to buy
Bank of Albania bonds and could focus on loans to businesses and
individuals, and the GOA would ensure financing for its planned
infrastructure projects, thus injecting needed capital into the
economy. (Note: With parliamentary elections scheduled for June
28, the GOA is already using many of these projects to showcase what
the government is doing for voters.) Near the beginning of
February, Raiffeisen, Deutsche Bank, Alpha Bank, J.P. Morgan,
Citigroup, Credit Suisse and BNP Paribas had presented offers.
5. (U) According to recent media reports, the MOF is having
difficulty with the negotiations. A consortium composed of Deutsche
Bank and Alpha Bank was selected to come up with a syndicated loan
since no one bank was willing to finance the entire amount. With
the global liquidity crisis the government has not been able to find
financing at a sufficiently low interest rate. According to recent
news reports interest rate quotes have been as high as 7 percent, up
from 5.5 percent last fall.
6. (SBU) COMMENT: The rose-colored glasses through which the GOA
has been viewing the global economic and financial crisis are
getting foggy. The GOA is finally beginning to realize that Albania
is not an island insulated from the rest of the world, as
international experts including the IMF have been warning for
several months now. We have heard of companies particularly in the
construction sector complaining that their business is down and that
many apartments are either remaining unsold are being sold for
prices below last summer's. In addition, the lek's fall against the
euro will make imports more expensive. Since most Albanian food
products in the winter months are imported, this hurts all sectors
of the economy but particularly the poor. Finally, the Bank of
Albania needs to monitor closely any cash transfers by Albanian
banks to their parent companies abroad in order to ensure the
TIRANA 00000153 002 OF 002
required liquidity for the financial sector in the coming months.
WITHERS