Area Handbook for Albania Part 20

Knitwear million units 1 2 2 3 3 n.a. n.a.

Leather thousand square yards 109 126 124 161 158 n.a. n.a.

Footwear (other than rubber) thousand pairs 1,365 1,835 2,103 2,259 2,103 n.a. n.a.

Shoes and sandals thousand pairs 831 955 n.a. n.a. n.a. n.a. n.a.

Rubber boots do. 155 201 191 211 248 n.a. n.a.

Flour thousand metric tons 125 145 152 161 157 n.a. n.a.

Cigarettes million units 3,436 3,990 4,390 3,310 3,620 n.a. n.a.

------------------------------------------------------------------------- n.a.--not available.

Electric power production is reported to have attained in 1968 the level planned for 1970. Output of power rose from 194 million kilowatt-hours in 1960 to 324 million kilowatt-hours in 1965 and almost 800,000 million kilowatt-hours in 1969. The distribution system has also been rapidly extended and in 1969 included about 800 miles of high-tension transmission lines of 35 and 110 kilovolts. Distribution and use of electric power were reported to be very wasteful, with losses as high as 115 million kilowatt-hours in 1969--almost 15 percent of total output.

Information on the pattern of electric power consumption has not been published.

FINANCE

Financial operations have been shrouded in secrecy, and little information can be gleaned from the limited published data. These data, nevertheless, reflect some of the leadership's basic economic policies, such as its emphasis on rapidly increasing production while restraining a rise in consumption, its preference for industrial development as against agricultural growth, and its drive to mobilize domestic resources for economic development.

The Budget

Information on budgetary practices is not available, and statistics relating to the budget are incomplete. The relation between three different budgets approved annually by the People's a.s.sembly on recommendation of the Council of Ministers is therefore unclear. There is a state and a national budget and a budget for local government. The budget for local government has been growing slowly in relation to the state-budget--from 16 percent in 1955 to 17 percent in 1960 and 20 percent in 1969 and 1970.

Only about one-fourth of local budgetary revenue is derived from local taxation, which implies a substantial subsidy from the central government budget. The amount of this subsidy is roughly double the usual 7- to 8-percent difference between the state and the smaller national budget. A surmise that the state budget represents an overall budget and that the national budget serves to finance central government activities only is therefore not warranted.

Except for a slight decline in revenues in 1961 and 1963, coincident with the country's political and economic break with the Soviet Union, the annual state budget has been rising steadily to a level of 5.21 billion leks (5 leks equal US$1--see Glossary) in revenues and 5.11 billion leks in expenditures for 1970. By comparison with the budget for 1960, revenues increased by 85 percent and expenditures by 102 percent, with a corresponding decline of 65 percent in the budgetary surplus. On a five-year basis, comparing the Fourth Five-Year Plan with the Third Five-Year Plan, both revenues and expenditures rose by about 40 percent, with a slightly higher increase in revenues.

A relatively greater stringency of funds for budgetary purposes after the break with the Soviet Union is reflected in the planned annual budgetary surplus, a permanent feature since 1946 and a matter of great pride for the leadership. From a level of almost 24 percent in 1950, 15 percent in 1955, and 10 percent in 1960, the surplus dropped to 1.1 percent in 1962 and 1.5 percent in 1963. Despite a slight recovery in subsequent years, except for 1968 when it declined to only 1 percent of revenues, the planned surplus did not again approach its earlier size.

Partial information on sources of revenue is available to 1967.

Published statistics listed a turnover tax on all goods produced, deductions from enterprise profits, direct taxes on the population (primarily income taxes), and social insurance premiums. These sources yielded, on an average, 60 percent of the total revenue in the 1960-65 period, and their share rose steeply to 74 percent in 1967. The balance of the revenue, omitted from official statistics, consisted primarily of income from agriculture in the form of compulsory deliveries, proceeds from state farm operations, payments to machine-tractor stations, and taxes.

The most important among the listed revenue sources were the turnover tax and deductions from profits. Together their yields ranged from 50 percent of total revenue in 1960 to almost 69 percent in 1967, but their relative weights changed markedly during this period. In 1960 the turnover tax yielded 40 percent and profit deductions 10 percent of revenue; by 1967 their respective shares were 43 and 26 percent. Social insurance premiums contributed between 3.2 and 4.5 percent, while the yield from direct taxes on the population declined from 2.7 percent in 1960 to less than 1 percent in 1967. In 1969 income taxation was abolished for individuals and for some poor collective farms in hilly and mountainous areas.

The leadership has claimed that the abolition of direct taxes on the population with the concomitant improvement in public welfare was made possible by the country's economic advance based on the Party's correct revolutionary policy, and it contrasted the progressive nature of this measure with an alleged intensification of exploitation and misery of workers in what are officially called imperialist and modern-revisionist countries. This comparison ignores the existence of the turnover tax, which is particularly heavy on consumer goods, and of the enterprise profits deduction, both of which are reflected in the sales price of commodities and, consequently, represent a hidden form of sales taxes.

This method of taxation is known to be regressive, in that it takes no account of differences in income and places the heaviest burden on those least able to pay.

The published budget laws usually specify the amount of revenue to be derived from the socialized economy, including collective farms and cooperative enterprises. The proportion of this revenue was reported to have been 85.5 percent in 1960 and from 88 to 89 percent in the 1968-70 period. This information cannot be reconciled with the published revenue statistics, particularly with the data concerning the taxation of noncollectivized farm enterprises, the proceeds from which were reported to be less than 0.5 percent in 1964. The revenue from the nonsocialized sector consists mostly of taxes imposed on the output from personal farm plots of collective and state farm workers and, to a lesser extent, of taxes on some private artisan and other activities still tolerated by the government within narrowly prescribed limits.

Information on budgetary expenditures is also incomplete. Published statistics failed to specify the use of 17.5 percent of the total outlays in the 1960-65 period, and no explanation is readily at hand for the decline of the unallocated residue from that level to between 3 and 4 percent in 1968-70. The published data included outlays for the national economy, social and cultural needs, defense, and administration.

The proportion of total expenditures devoted to social and cultural needs and to defense remained remarkably stable between 1960 and 1970.

Annual outlays for these two categories fluctuated, respectively, only from 22.6 to 25.1 percent and from 7.6 to 9.9 percent of total expenditures. The share of administrative expenditures declined steadily during this period from 2.7 to 1.7 percent. Outlays for the national economy were also shown by the published statistics to have been quite stable in the 1960-65 period, with an annual variation of only 2.6 percent. Coincident with the decline and virtual disappearance of the unreported expenditure residue after 1965, however, the share of industry rose sharply from 46 percent in 1965 to more than 64 percent in 1968 and remained above 61 percent through 1970. The reasons for, and the implications of, this change in reporting practice are not known.

An average of 47 percent of the budgetary expenditures in the 1960-67 period was devoted to investment, with annual fluctuations of this category between 39 and 55 percent. The lowest rates of investment occurred in 1962 and 1963 as an aftermath of the abrupt cessation of Soviet aid deliveries. In absolute terms the volume of investment increased from 1.1 billion leks in 1960 to 1.8 billion leks in 1967.

Total investment for the years 1966-70 was planned at 6.5 billion leks, an increase of 34 percent over investments in the preceding five-year period. Actual investment in the years 1966-69 was reported to have exceeded the plan for those years by 12 percent. In line with the Party's policy of promoting a rapid growth of the country's productive capacity, from 80 to 82 percent of the investment has been devoted to the construction of facilities for material production.

Industry has received the largest share of investment--48 percent in the 1961-65 period and 50 percent under the plan for 1966-70. On an annual basis, industry's share ranged from a low of 36 percent in 1962 to a high of 61 percent in 1965. The proportion of agricultural investment was much lower--only 15 percent of the total in 1961-65 and less than 19 percent of the total planned for 1966-70. During the first two years of the 1966-70 period, actual investment in agriculture lagged substantially and amounted to only 11.7 and 16.2 percent, respectively.

The lack of adequate investments has been a contributing cause of poor agricultural performance. There has been no consistency in the pattern of industrial and agricultural investment. The respective shares of these two sectors in total investment fluctuated widely from year to year in the 1960-67 period. An adequate explanation of the reasons for this fluctuation has not been found.

Investment in housing and for social and cultural purposes has been minimal--8.1 and 3.7 percent, respectively, in the 1961-65 period and 6.1 and 8.1 percent, respectively, under the plan for 1966-70. As in the case of agriculture, actual investment in 1966-67 was substantially below the planned levels and amounted to less than 5 percent for housing and 2 percent for social and cultural needs. This capital starvation has been largely responsible for the dismal housing situation and for the inadequacy of other essential amenities.

Money and Banking

The lek, divided into 100 quintars, is a nonconvertible paper currency with multiple official exchange rates. The basic official rate since August 10, 1965, has been 5 leks for 1 United States dollar, a rate that has no applicability in practice. Up to 1965 the exchange value had been 50 leks per US$1. The change in par value had no economic significance because prices, wages, and all other monetary values were reduced by the same ratio.

There are two types of so-called tourist or support leks. A rate of 12.50 leks per US$1 applies to the official exchange of Western currencies by nonresidents and to support payments received by residents from Western sources. A rate of 7.55 leks per US$1 applies to the exchange by Communist country residents of their national currencies and to support and other noncommercial payments transferred by them from Albania to Communist states. A third variety of official exchange rates consists of the rates used to balance clearing accounts under special trade and payments agreements with Communist countries. An illegal black market rate of about 60 leks per US$1 from early 1968 through early 1969 was reported by reliable sources.

All currency matters are administered by the National Bank jointly with the ministries of finance and trade. Albania is not a member of the International Bank for Reconstruction and Development or of the International Monetary Fund.

Adequate information is not available on the nature of the relationship between the State Bank and the Ministry of Finance or on the bank's financial operations beyond some outdated statistics on credits and savings deposits. As the princ.i.p.al financial inst.i.tution, the State Bank carries out the financial policies of the Party and government. It issues currency, provides credit to all economic sectors, accepts savings deposits, and serves as the country's treasury. In addition to these functions, the State Bank helps prepare the financial plans for the economy, is called upon to a.s.sist enterprises in completing their planned a.s.signments, and is responsible for controlling all economic activities through the use of its financial levers.

In mid-1969 the State Bank was severely criticized for poor performance, particularly its failure to exercise adequate control over unauthorized use of funds and waste of materials by the enterprises it helped to finance. The bank's failure was largely precipitated by uncertainties created through a decentralization of economic authority, decreed by the Party, and a dilution of the bank's control function.

A specialized system of state savings and securities banks was established within the Ministry of Finance in November 1968, for the purpose of mobilizing the population's savings for investment through loans to the state and the sale of its securities. The text of the law that created this inst.i.tution contained no provision concerning the relation of these new savings and securities banks to the State Bank.

Further information on the new banks was not available in mid-1970.

The only available information on the State Bank's financial operations consists of partial data on loans to agriculture and for housing and on the number and amount of savings deposits. The total volume of farm credits, exclusive of credits to state farms for which statistics have not been published, increased from 95 million leks in 1960 to 252 million leks in 1964, including long-term loans of 38 million and 44 million leks, respectively. By 1967 long-term loans had increased to 56 million leks. The statistics do not indicate whether the published data refer to the annual volume of loans granted or to the total amount of outstanding loans. A small fraction of the loans after 1960 was granted to individual peasants for the purchase of livestock.

Loans for housing construction and repair declined drastically from 17 million leks in 1960 to only 7 million leks in 1964. The distribution of the loans between urban and rural areas fluctuated widely, but urban loans predominated by a large margin and const.i.tuted from 69 to 93 percent of the total. The number of savings accounts increased from 235,400 in 1960 to 445,000 in 1968, and the volume of deposits rose from 119 million to 247 million leks. Interest paid on these amounts totaled 3.6 million and 4.8 million leks in the respective years, which implies a reduction of the interest rate from about 3.0 to 2.5 percent.

FOREIGN ECONOMIC RELATIONS

Foreign Aid

The country's foreign economic relations have been conditioned by its leadership's economic goals and political persuasion. As a poor, undeveloped country intent on modernizing and expanding its economy at a rapid pace, Albania has had to rely heavily on foreign economic and technical a.s.sistance during the post-World War II period. The leadership's extreme Marxist orientation and hostility toward the Western nations have precluded a recourse to non-Communist sources of aid and have made the country entirely dependent upon contributions by other Communist states. But even within the Communist sphere political disagreements have had a disruptive effect on aid arrangements (see ch.

6, Government Structure and Political System).

From 1945 to 1948 economic and technical a.s.sistance was received from Yugoslavia. After the political break between that country and Albania, the Soviet Union a.s.sumed the role of major aid donor, and smaller contributions were made by some of the East European Communist states.

Since 1961, when the substantial support of the Soviet Union was lost in the wake of the political schism within the Communist world engendered by the Sino-Soviet dispute, Albania has been able to obtain a.s.sistance only from the People's Republic of China (Communist China). The readjustment necessitated by the abrupt withdrawal of all Soviet aid and technical advisers was said by Albanian leaders to have r.e.t.a.r.ded economic development by three years.

The extent of aid received in the form of long-term loans, some of which became grants through debt cancellations, is only partially known. The amount of total loan commitments by the Soviet Union in United States dollar equivalents for the period of 1945 through 1961 was estimated by one Western source at US$246 million. Another Western source reported the amount of loans promised by the Soviet Union and the East European Communist states for the 1961-65 period to have been in excess of US$132.5 million. These loans were cancelled in their entirety in the spring of 1961. A partial list of Soviet loan commitments, compiled by a Western student from Soviet economic literature, totaled US$172 million for 1957-61. The actual amount disbursed, however, was much smaller.

Aid deliveries, as reflected in official Soviet statistics, totaled only US$39.4 million for the years 1955-61. Similar information on aid deliveries from 1949 to 1954 was not readily available. Western observers believe that the economic crisis created by the Soviet withdrawal of aid forced Albania to default on the outstanding loans.

Loans granted by East European Communist states and outstanding in 1965 (in terms of United States dollar equivalents) were given by a Soviet source as follows: Bulgaria, US$11 million; Czechoslovakia, US$25 million; East Germany, US$15 million; and Romania, US$7.5 million.

Information about repayments of these loans was not available. Only a fraction of the outstanding amounts could have been liquidated through Albania's trade surplus with these countries. Some Western estimates placed the debt to the Soviet Union and East European Communist states at the end of 1968 at a minimum of the equivalent of US$500 to US$600 million.

Economic aid by Communist China dates back at least to late 1954. Stated in United States dollar equivalents, Albania received in that year a grant-in-aid of US$2.5 million and a loan of US$12.5 million. An additional credit of US$13.75 million was made available in early 1959, and a loan of US$123 million for the purchase of industrial equipment during the Third Five-Year Plan (1960-65) was extended in early 1961, after Albania's break with the Soviet Union. Two more loans, for undisclosed amounts, were negotiated in June 1965 and November 1968 to finance the fourth and fifth five-year plans, respectively. In public references to the 1968 loan, Party and government officials gave the impression that it was substantially higher than the loan of US$123-million obtained in 1961. Aid has been provided by Communist China free of interest.

A Western scholar reported unidentified sources to have suggested that the 1965 loan amounted to about US$214 million, a sum substantially in excess of the credits granted up to that time. Another Western source estimated total direct credits for the 1960-68 period to have been more than US$450 million, exclusive of substantial grants. Yet, other Western sources thought at the time, and also in 1970, they had discerned evidence of disappointment on the part of the leadership with the extent of the financial a.s.sistance, delays in the supply of machinery, and an unwillingness or inability to supply much-needed consumer goods. The leadership's awareness of the inadequacy of foreign aid in relation to the planned development program has been evidenced, in its appeals for greater productivity, by the high frequency of references to the Party's principle of reliance on the country's own efforts and in its continuing campaign for the utmost economy of resources.

The country's c.u.mulative clearing debt to Communist China on the commodity trading account at the end of 1968 was estimated at roughly US$300 million. This amount did not include the substantial additional costs of a.s.sistance in the form of technical advisers who have guided the construction and operation of major industrial projects. Estimates of these costs or of the number of aid technicians in the country were not available.