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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 
 
¶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