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

Arjeta VOKSHI-ABAZI and Sulo HADERI
demand of the banking system. The reaction of the market toward the change
of the administrative interest rate was also very weak. For these reasons the
BoA decided to use the market instruments that are affected from the fix rate
of REPO. The BoA has decided on the exchange rate regime. It chose the
flexible exchange rate regime since at the beginning of the transition period
it was quite impossible to implement fixed exchange rate regime because of
the low level of foreign currency reserves and a very big deficit of the
balance of payments.
Financial independence: When discussing about government’s
borrowing, the law on the Bank of Albania is not strict. During the ‘90s the
maximal level of government borrowing was 15percent and the maturity was
1, 3 and 6 months. 24 Actually, the credit ceiling is reduced (5percent of the
average revenues of the budget for the last 3 years). Dvorsky (2007) thinks
that this is a handicap of the Albanian law. The existing law includes the
limitation of the category of secondary market assets. Reading carefully the
law on the Bank of Albania we can notice that the way the profit of the bank
is allocated provides another possibility to monetize the budget deficit. The
law states that part of the profit will be used to cover (buy) government’s
bonds 25 . The law on the Bank of Albania should prohibit public sector direct
financing, prohibit the overdraft and all other ways of public institutions
crediting. It should also prohibit the direct purchase of every type of public
debt instrument from Bank of Albania. For this reason, in the article 30 of
the law on the Bank of Albania it is necessary not to include “except cases
foreseen in the law”. Even points 2, 3, 4, 5, 6 and 7 of this article, that allow
direct financing of budget deficit in special cases, must not be part of.
Real independence: What is the real situation of the independence of
Bank of Albania?
Real independence is not equal to legal independence. It relates to the
standardization of the behavior. Even in Albania it is difficult to approximate
these two indicators.
Cani and Baleta (2002) measured the real independence of BoA and one
of the indicators that they used is the governors’ turnover rate. When the
mandate of the governor is 8 or more years this indicator gets the maximum
value. In Albania, till 1996 the mandate of the governor was 6 year. Then, it
became 7 years. This fact shows a high level of real independence of BoA,
but till 1997 the real average mandate was 18 months instead of 84 months
24
25
62
Only in 1996 the maturity goes in 1 year.
Law on “Bank of Albania: article 10.1; in the past this part of the profit was used to cover the
bank’s loss.