SEEU Review vol. 5 Nr. 2 (pdf) - South East European University

SEEU Review Volume 5, No. 2, 2009
till then we can’t say that the BoA is independent. The constitution states
that: “The Bank of Albania has the exclusive right to independently
implement the monetary policy….” So it is clear that the BoA is independent
to choose the instruments of monetary policy, but the policy formulation
independence is not clearly stated. The constitution doesn’t allow (but it
doesn’t even prohibit) the exclusive right of the BoA to formulate the
monetary policy. Article 161 must be improved because, as we argued
above, it is very important to clearly specify the institutional independence
of the BoA.
IMF is another factor that influences the drawing up of monetary policy.
The presence of IMF has determined the BoA’s monetary policy to a large
degree, but not completely. IMF helped to set quantitative constrains. IMF
has always stressed the importance of real and legal independence of BoA.
Even the amendments of the law on the Bank of Albania are prepared based
on the models recommended by IMF.
Objective Independence: At the beginning of the transition period, the
main objective of the BoA stated in the law of 1992 was “to maintain
domestic and foreign value of national currency 21 ”. After the amendment of
1996, the main objective of BoA is “to achieve and maintain price stability”.
The intermediate objective is the growth rate of money base (M3). Luçi
(2005) concludes that during the transition period the correlation between
M3 and inflation was very weak. The BoA gradually redefined its main
objective. First of all, it announced the inflation objective in the form of an
interval from 2percent to 4percent. In 2006, the BoA announced a new
inflation target. It is 3percent with a deviance of ± 1percent. But, the BoA
has the right to follow even secondary objectives (incitement, based in the
market principles, of preservation of liquidity, payment capabilities and
normal functioning of banking system 22 ) that do not osculate the main
objective.
Instruments independence: De jure the BoA is independent in the choice
of the instruments of monetary policy. During the past decade, the BoA’s
decision on the instruments to be used was conditioned even from historical
factors, as the lack of financial markets. At the beginning of the decade BoA
used direct instruments 23 . After the first phase, these instruments lost their
effectiveness. This happened because the limits were not respected. Another
factor was the development of the informal sector that decreased the credit
21
22
23
National currency of Albania is called LEK
Law on “Bank of Albania” 2002
Direct instruments were: credit limit for commercial banks, minimal interest rate applied from state
owned banks.
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