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DE RUEHTI #0452 1890601
ZNR UUUUU ZZH
P 080601Z JUL 09 ZDK
FM AMEMBASSY TIRANA
TO RUEHC/SECSTATE WASHDC 8287
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RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RUEHVEN/USMISSION USOSCE PRIORITY 2517
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RUCNDT/USMISSION USUN NEW YORK PRIORITY 0834
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY
RUEKJCS/SECDEF WASHINGTON DC PRIORITY

UNCLAS TIRANA 000452 
 
SIPDIS 
SENSITIVE 
 
DEPT FOR EUR/SCE J.ISMAIL 
TREASURY FOR V.ATUKORALA 
 
E.O. 12958:N/A 
TAGS: EFIN ECON PGOV AL
SUBJECT: ALBANIA WALKS A FINANCIAL TIGHTROPE 
 
REF:  TIRANA 185 
 
¶1. (SBU) According to sources in the Ministry of Finance, little has 
changed since reftel report on Albania's difficulties in securing a 
commercial loan to finance its USD 420 million budget deficit.  The 
original plan was to finance about USD 100 million by selling 
domestic bonds and USD 320 million through commercial loans. 
Deutsche Bank and Alpha Bank (Greek) won a tender to syndicate the 
commercial loans, but have not been able to find underwriters.  Each 
bank committed to providing USD 50 million, but at this time they 
have been able to attract only an additional USD 75 - 100 million. 
International banks such as Raifeissen, JP Morgan and Credit Suisse 
are declining to participate despite the anticipated 12 - 13 percent 
interest the loan will likely cost.  At a minimum, the GOA might get 
by with a loan package of 200 million USD.  However, should Deutsche 
and Alpha banks only manage to raise closer to 150 million or less, 
the GOA will likely face a severe budget crunch come June 1, when 
much-promised increased salaries and pensions come due. 
 
¶2. (SBU) Under normal conditions, the GOA might consider cutting 
expenses to make ends meet.  However, the Prime Minister is pulling 
out all the stops to get re-elected, including major spending on 
huge, visible infrastructure projects, increased pensions and 
government salaries, and subsidized electricity.  The Durres-Kukes 
highway will take the largest bite.  The Bechtel consortium building 
the road has notified the GOA that it will bill 300 million euro 
this year to complete Albania's showcase highway connecting Kosovo 
to the Port of Durres. 
 
¶3. (SBU) The GOA finds itself in a very risky situation: 
-- banks continue to lose deposits, which may prevent them from 
buying new bonds and even force them to cash in their maturing bonds 
without rolling them over; 
-- some of the planned privatization receipts of over 175 million 
euro may be delayed; and 
-- revenues are declining at a faster rate than expenses. 
 
In addition, the Ministry of Defense has budgeted USD 120 million to 
purchase six multi-role helicopters with a decision on the tender 
scheduled for early June.  A postponement of the decision for any 
reason would make it look like the brand new NATO member doesn't 
have its act together. 
 
¶4. (SBU) COMMENT:  Berisha seems willing to risk it all to win the 
June elections.  The only way his balancing act could be riskier 
would be if he wore a blindfold, although some think he already has 
one on.  Nevertheless, the GOA has in the past shown an uncanny 
ability to avoid catastrophe, although usually just barely and at 
the last minute.  Privatization receipts could come in as planned, 
the banks could come up with USD 200 million in loans in the next 
two weeks, and bank deposits could level off.  If the GOA winds up 
short, the PM could turn to the IMF, postpone the helo purchase, or 
export more electricity (potentially increasing blackouts), all of 
which would have political downsides.  A partial default on the 
Bechtel payments or lek devaluation would have much more serious 
consequences, both economically and politically, as the June 
parliamentary elections approach. 
 
WITHERS