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 
 
¶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