Identifier
Created
Classification
Origin
09TIRANA342
2009-06-05 14:42:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Tirana
Cable title:
How to Finance an "Election Year" Budget
how-toVZCZCXRO1802 PP RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG DE RUEHTI #0342 1561442 ZNR UUUUU ZZH P 051442Z JUN 09 FM AMEMBASSY TIRANA TO RUEHC/SECSTATE WASHDC PRIORITY 8170 RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY RUEAIIA/CIA WASHDC PRIORITY RUEHVEN/USMISSION USOSCE PRIORITY 2497 RHEFDIA/DIA WASHINGTON DC PRIORITY RUCNDT/USMISSION USUN NEW YORK PRIORITY 0820 RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY RUEKJCS/SECDEF WASHINGTON DC PRIORITY
UNCLAS TIRANA 000342
SIPDIS
SENSITIVE
STATE FOR EUR/SCE
E.O. 12958: N/A
TAGS: ECON EFIN PGOV KDEM PREL AL
SUBJECT: How to Finance an "Election Year" Budget
UNCLAS TIRANA 000342
SIPDIS
SENSITIVE
STATE FOR EUR/SCE
E.O. 12958: N/A
TAGS: ECON EFIN PGOV KDEM PREL AL
SUBJECT: How to Finance an "Election Year" Budget
1. A recent IMF report underlines that Albania and Cyprus are
expected to be the only countries in Europe that will show positive
economic growth for the current year. Despite downgrading Albania's
2009 GDP growth rate to 0.4 percent from 3.5 percent in early
January, the IMF still considers the Albanian economy able to grow,
mainly due to stable domestic demand. This has been a major
indicator which will allow the GOA to borrow approximately USD 300
million via a syndicated loan from private banks while many other
East European counties and Balkan neighbors have sought emergency
financing from the IMF. The loan is expected to help the GOA safely
cruise through the year, even though a lot depends on the length and
depth of the global crisis. The GOA's main goal in getting the loan
is twofold; complete an upgrade of the main highway to Kosovo, and
to inject foreign denominated currency in the domestic market in
order to balance the negative effects of global financial crisis
resulting in lower remittances and volume of exports.
2. The reaction to the GOA's decision to move forward with the loan
- despite the very high interest rates it is paying (almost 11.5
percent annually) - has been quite dissimilar. The Minister of
Finance praised the loan as another indication of the maturity and
macroeconomic health of the Albanian economy, and contrasting
Albania with other countries in the region which are struggling to
find financing. The opposition blamed the government for
excessively increasing public debt through commercial loans instead
of accepting IMF low-interest loans. However the IMF rep in Tirana
said that getting the loan should be considered a success,
particularly in light of the very challenging financial situation.
3. The decision to turn to the commercial banking sector rather than
the IMF is obviously rooted in political rationale more than just
economic ones. The completion of the PRG/EFF agreement with the IMF
in February enabled the GOA to terminate the rigid monitoring status
under the IMF and allows the GOA, in the Prime Minister's own words,
"to pursue an election year budget." Sending the IMF packing just
before the general elections would help the GOA implement certain
budget-busting initiatives and policies which otherwise would have
been impossible, such the increase of salaries and pensions being
only the most striking examples. The leader of the opposition Edi
Rama has clearly stated that he will sign an agreement with the IMF
during the first week of any Rama government. However, it is very
likely that in the event of a Democratic Party victory, Berisha will
also seek a new arrangement with the IMF, which remains crucial in
order to maintain the confidence of foreign investors.
SIPDIS
SENSITIVE
STATE FOR EUR/SCE
E.O. 12958: N/A
TAGS: ECON EFIN PGOV KDEM PREL AL
SUBJECT: How to Finance an "Election Year" Budget
1. A recent IMF report underlines that Albania and Cyprus are
expected to be the only countries in Europe that will show positive
economic growth for the current year. Despite downgrading Albania's
2009 GDP growth rate to 0.4 percent from 3.5 percent in early
January, the IMF still considers the Albanian economy able to grow,
mainly due to stable domestic demand. This has been a major
indicator which will allow the GOA to borrow approximately USD 300
million via a syndicated loan from private banks while many other
East European counties and Balkan neighbors have sought emergency
financing from the IMF. The loan is expected to help the GOA safely
cruise through the year, even though a lot depends on the length and
depth of the global crisis. The GOA's main goal in getting the loan
is twofold; complete an upgrade of the main highway to Kosovo, and
to inject foreign denominated currency in the domestic market in
order to balance the negative effects of global financial crisis
resulting in lower remittances and volume of exports.
2. The reaction to the GOA's decision to move forward with the loan
- despite the very high interest rates it is paying (almost 11.5
percent annually) - has been quite dissimilar. The Minister of
Finance praised the loan as another indication of the maturity and
macroeconomic health of the Albanian economy, and contrasting
Albania with other countries in the region which are struggling to
find financing. The opposition blamed the government for
excessively increasing public debt through commercial loans instead
of accepting IMF low-interest loans. However the IMF rep in Tirana
said that getting the loan should be considered a success,
particularly in light of the very challenging financial situation.
3. The decision to turn to the commercial banking sector rather than
the IMF is obviously rooted in political rationale more than just
economic ones. The completion of the PRG/EFF agreement with the IMF
in February enabled the GOA to terminate the rigid monitoring status
under the IMF and allows the GOA, in the Prime Minister's own words,
"to pursue an election year budget." Sending the IMF packing just
before the general elections would help the GOA implement certain
budget-busting initiatives and policies which otherwise would have
been impossible, such the increase of salaries and pensions being
only the most striking examples. The leader of the opposition Edi
Rama has clearly stated that he will sign an agreement with the IMF
during the first week of any Rama government. However, it is very
likely that in the event of a Democratic Party victory, Berisha will
also seek a new arrangement with the IMF, which remains crucial in
order to maintain the confidence of foreign investors.