Striving to capitalise on change: Natasha Narayan looks at Albania's attempts to revive its battered economy

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POST-COMMUNIST Albanians love the baubles of capitalist success. In Europe's poorest country private cars were banned until last year. Now thousands of battered vehicles circulate wildly through the capital, Tirana.

Like Tirana's 'unofficial' market, a swelling collection of tatty roadside hawkers selling everything from bottles of counterfeit Coke to dollars and washing machines, the cars are at least a sign of economic activity. In the few months since western-looking Democrats took power, small-scale enterprises have proliferated, brightening the country's Stalinist austerity.

But the broader picture is bleak. The Democrats inherited the most devastated economy in Eastern Europe - the legacy of 47 years of fanatical 'self-sufficiency'. Albania's infrastructure is rotten, with crumbling roads, telecommunications and electricity networks. The country is burdened with American technology of the Thirties, Russian technology of the Fifties and Chinese technology of the Sixties. Existing industries, which tend to be inefficient and highly polluting, will have to close.

Albania's only economic partners were Stalinist Russia and Maoist China. Together with the following years of total isolation this means that even at ministerial level people have great difficulty understanding market concepts. Vladimir Polena, an economics professor, points out that under the old regime people exceeding productivity norms were penalised. 'If we needed 200 workers we had 600,' he said. 'We divided our poverty. Adjusting to the new system is very difficult and will take time.'

The collapse of Albanian communism last year was accompanied by economic paralysis. Collectively people gave up. 'When will the West help us?' was the common refrain. The only hope was emigration. Passports at the ready, people would approach foreigners to beg for visas. Three governments in 12 months, spiralling lawlessness and waves of rioting led journalists to dismiss Albania as 'the Balkans' Bronx'.

Industrial output in 1991 fell by 60 per cent, exports virtually ceased and the agricultural co-operative system in the countryside collapsed. Estimates for those not working, which includes 114,000 idle workers receiving a subsidy of 80 per cent of their salaries, varies between 50 and 70 per cent of the population. Famine was only staved off by a large-scale Italian food aid operation, which continues this year under the direction of the EC.

One official compared the impact of this deterioration to the effect of the Second World War. Changing the system will be tough. An International Monetary Fund team has been in Tirana to oversee reforms described by a Western adviser as 'probably the most dramatic adjustment in the IMF's history'.

In a country where peasants make up roughly two-thirds of the population, agriculture is the key. To stimulate production, previously subsidised prices will be freed. Prices of all goods, save a basket of five basic items - which will be allowed to rise in a controlled way - are expected to rocket.

Urban dwellers, who will not be able to insulate themselves against rising prices by selling produce, will be especially badly hit. The Finance Minister, Genc Ruli, estimates that living standards will fall by half. Average wages, now only dollars 8 a month, can be expected to sink further.

'We thought last year we had reached the bottom,' Mr Ruli said. 'Now we realise things can still get much worse'. The worry for the government is a repeat of last year's rioting, looting and attempted mass exodus. Mr Ruli has asked Western governments to take limited numbers of Albanian guest workers to relieve the pressure.

The 80 per cent subsidy for idle workers, a powerful disincentive, is being phased out. Its place is already partly taken by a safety net provided by redistribution of income through families and money sent home by Albanians working abroad.

Tough measures are also being taken to narrow the huge budget deficit - 60 per cent of GDP in 1991 - by cutting government expenditure.

But at present the government's only guaranteed source of income is the sale of foreign food aid. It faces an impossible dilemma; with most industries at a standstill tax revenues have collapsed. The only thriving forms of economic activity are in the murky parallel economy.

Cowboys of all sorts have prospered in the wreckage. No one knows what proportion of the economy is taken up by black market activities like smuggling and currency transactions. With the reform of the banking system the black market in foreign exchange will be legalised this year.

So far two-thirds of the old co-operative land has been privatised in a process marked by feuding over pre-collectivisation ownership. But lack of fertilisers, tractors and seed means this year's harvest will be small again.

The government hopes that an accelerated privatisation programme, together with aid from an EC 'critical imputs' programme supplying agricultural tools, should provide the most rapid turnaround. But it will be next year before the success of the projects can be assessed.

Privatisation of heavy industries is some years off. Albania is rich in natural resources, with deposits of chrome, copper and coal. But foreign interest is limited because of the huge investment needed and fears of instability. The only sector to have attracted considerable investment is offshore oil, where initial exploration has found reserves of 80 million tonnes - almost double existing onshore reserves.

But the privatisation of other enterprises is speeding up and state industries will be made to compete on equal terms. The government plans changes to the already liberal foreign investment laws to encourage joint ventures.

'Albania has the worst economic crisis in Eastern Europe but we also have the firmest mandate for change,' Mr Ruli said. A self-declared optimist, Mr Ruli estimates that it will take two years to stabilise the economy. He is not even willing to speculate on how long it will take to reach European standards. The Albanian government has recently pleaded for a dollars 70m bridging loan. 'Democracy is young and fragile - without a minimum of assistance from abroad it might self-destruct,' he said.

(Photograph omitted)