ALBANIA: CAUTIOUSLY REFORMING A BACKWARD ECONOMY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90T00114R000403930001-9
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 5
• Document Creation Date: December 22, 2016
• Document Release Date: March 7, 2012
• Sequence Number: 1
• Publication Date: November 5, 1987
• Content Type: MEMO

Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP90TO0114R000403930001-9
~1 FIDENTIAL
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DIRECTORATE OF INTELLIGENCE
5 November 1987
Albania: Cautiously Reforming a Backward Economy
Summary
Albania--the poorest, most backward, and most
ideologically rigid country in Europe--has instituted modest reforms to
improve its faltering economy. The Ramiz Alia regime, in place since 1985,
has allowed limited private ownership, raised agricultural prices, introduced
greater wage incentives, and encouraged more production of consumer goods.
Tirane is also trying to improve diplomatic ties to the West to gain increased
trade. We believe that Albania's economy is unlikely to improve significantly
during the next several years, although Alia will continue to experiment with
limited reforms and seek to expand foreign ties.
This memorandum was prepared byl Southeast Europe Branch, East European 25X1
Division, Office of European Analysis. It was requested by Edward A. Casey Jr., Director, Office
of Regional Political-Economic Affairs, State Department. Comments and questions are welcome
and should be addressed to East European Division I 25X1
25X1
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP90TO0114R000403930001-9
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP90TO0114R000403930001-9
CONFIDENTIAL
A Faltering Economy
Albania maintains that its economic performance has improved substantially in recent
years, and its official statistics show that last year the gross social product rose 5.1 percent,
agricultural production 4.0 percent, and industrial production 6.4 percent. In reality, however,
Tirane's economy remains hampered by subsistance-level agriculture, antiquated industries,
limited investment capital, few trained specialists, decreasing world prices for its raw material
exports, and a fast-growing population. Production of chrome and oil--traditionally the two
major hard currency earners--has faltered in the 1980's because of aging equipment and
increasingly difficult extraction. Oil production has suffered the most, decreasing about 12.4
percent between 1981 and 1986. The resulting fall in hard currency earnings has seriously
hampered development efforts.
Ramiz Alia, party and state leader since 1985, has largely continued the rigid ideological
rhetoric of his predecessor Enver Hoxha. Nonetheless, he has cautiously departed from some of
Hoxha's economic and foreign policies, including the initiation of a limited program of economic
reform to revitalize the economy. Alia has criticized economic performance, blaming poor
organization and management, and called for some decentralization in economic
decision-making. We believe he will institute further changes if, as we expect, the economy fails
to improve significantly. The following have been the main areas of reform:
Allowing Some Private Ownership. Albania is attempting to supplement collective production
through the use of private ownership. While Hoxha sought to abolish private plots, Alia is
encouraging their use to increase market supply. In livestock production, individual brigades are
permitted to raise small herds of livestock and sell the surplus.
Increasing Agricultural Prices. Tirane raised the purchasing prices of crop and livestock
products by an unspecified amount last December to encourage production and narrow the
income differential between rural and urban areas.
Introducing Wage Reform. Albania has introduced incentives, beginning as early as 1985, to
stimulate production in a number of key industries. Workers are now rewarded with bonuses for
difficult work and high productivity. The regime has instituted bonuses for such important
sectors as mining, petroleum, geology, and textiles.
More Consumer Goods. Alia has pledged to produce more consumer goods to overcome
chronic shortages. However, budgetary constraints may limit the policy's effectiveness because
consumer production is increasingly forced to compete with heavy industry for scarce resources.
Expanding Trade Relations
25X1
Albania's improved diplomatic ties to the West over the last several years, in our view, are
due to its conclusion that increased trade is necessary for improved economic performance.
The main obstacles to increased trade are the poor quality of Albanian goods, declining hard
currency earnings to pay for imports, and a constitutional provision prohibiting foreign
borrowing. We believe these impediments will prevent significant trade expansion with the West
in the next few years. Trade with Eastern Europe has increased because the Soviet Bloc
Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP90TO0114R000403930001-9
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countries are more willing to accept poor quality goods and Moscow may be encouraging them
to increase contacts to upgrade diplomatic relations. F_~ 25X1
Albania's economic performance will almost certainly continue to falter for the next several
years. This, and Alia's preoccupation with economic diff iculties--about 80 percent of his
speeches focus on the economy--probably will lead him to test further domestic economic
reform. Tirane also will continue to seek expanded trade ties to bolster economic development
and will probably be more conciliatory with both East and West European countries when
negotiating for the establishment or upgrading of diplomatic relations. We do not foresee any
significant near-term improvements in Albanian relations with either the USSR or the US despite
the tentative gesture Tirane made to Washington--in the form of diplomatic note--following its
recent help to US boaters. F__1 25X1
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP90T00114R000403930001-9
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP90TO0114R000403930001-9
Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP90TO0114R000403930001-9
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP90T00114R000403930001-9
CONFIDENTIAL
1 - Mr. Edward A. Casey, D/Office of Regional Political-Economic
Affairs, State Department--
1 - Mr. Marc Grossman, Assistant to Deputy Secretary Whitehead, State
Department
1 - Mr. Christopher Toss, Office of Under Secretary Armacost, State
Department
1 - Mr. Martin Wenick, D/EUR/EEY, State Department
1 - Mr. Rudy Perina, DD/European and Soviet Affairs, NSC
1 - Mr. John Purnell, STC, State Department, State Department
1-
1 - NIO/EUROPE
1 - ANIO/EUROPE
1 - O/DCI-DDCI EXEC STAFF
1 - D/EURA
1 - DC/EURA
1 - C/EURA/EE
1 - DC/EURA/EE
1 - C/EURA/EE/SE
2 - EURA/PS
5 - CPAS/IMC/CB
1 - DDI/PES
1 - DDI
1-
1 - EURA/EE/SE CHRONO
1 - EURA/EE/SE PRODUCTION
1 - EURA CHRONO
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP90T00114R000403930001-9