Cuba and Albania both emerged as independent states in the early twentieth century, and spent much of the second half of the century under Communist Party rule. In the case of Albania, communists took control after playing a leading role in liberating the country from fascism in 1944 and were finally ousted, amidst crisis, in 1992. In Cuba, the communist government that has been in power since the 1959 revolution proved more durable and flexible, and remains in place.
Before the winds of change began to blow outside Albania’s borders with the “European Spring” of 1989, the Albanian government had isolated itself politically and economically and had embraced self-sufficiency as a central goal of national policy, at great economic cost. After the USSR dissolved in 1991, Albania followed its Eastern European neighbors and newly independent former Soviet republics in joining the IMF, with broad popular support amid widespread expectations that economic reform and linkages with the rest of the world would significantly improve the quality of life.
When Albania joined the IMF in October 1991, it was not only looking for financial support but also for assistance in designing economic reforms. To meet IMF accession requirements, Albania had to overcome three hurdles: weaknesses in its institutions and statistical base; the lack of familiarity of its government and people with the global financial system; and the need for support from other IMF members for its application.
Tirana’s Skanderbeg Square has transformed since 1988 as Albania began to enter the global economy.
IFI Support Critical for Albania’s Transition
Protracted efforts were needed to deal with Albania’s institutional deficiencies, knowledge gaps, and weak statistical base. The IMF, the World Bank, the European Union (EU), and the US government all became strong partners in providing training and advice, with the IMF alone sending over seventy-five technical assistance missions to Tirana during 1991-2000. Technical assistance and training by Western institutions covered a number of areas: fiscal, monetary, and exchange rate policies; public financial reform; bank supervision; legal foundations of a market economy; external debt and foreign exchange reserve management; economic statistics; public enterprise reform; and a range of sector development strategies.
The miracle of a fresh coat of paint. Soviet-era buildings got a fresh look in Albania’s capital in the early 2000s to show a country being transformed.
The intensity and modalities of technical assistance and training varied with the topic. For instance, in the areas of monetary and fiscal policies, exchange rate management, and statistical systems, the IMF and donors collaborated to provide assistance in drafting new laws and regulations consistent with international best practices and the country’s situation. Experts provided recommendations on implementation of the new provisions, advice on the reorganization or replacement of central institutions, and resident advisers to give hands-on assistance to build staff capacities. Technical assistance and training related to public enterprise reform typically began with seminars on international experiences, followed by cooperation to devise more targeted strategies for individual sectors and firms.
Albania was a rapid, early reformer. For many countries in transition, crucial economic reforms— such as the adoption of market-oriented prices, establishment of budgetary discipline, and a unified and marketdetermined exchange rate—have been difficult to implement because of resistance from entrenched interest groups fearful of losing their privileges. But in Albania, many of these measures were begun during the first year of IMF membership. In part this resulted from the previous regime failing so comprehensively. The people were ready for a new direction. Moreover, public support was helped by IMF and World Bank assistance in the design of social transfer programs to mitigate the impact of price increases on vulnerable groups.5
The IMF played a catalytic role, enabling the country to obtain sizable grants and loans from other international donors from the beginning of its transition, along with debt relief from commercial banks and bilateral lenders. Without the IMF’s tutelage and seal of approval, such access to external resources would have been unattainable for a country only beginning to emerge from the most severe type of Communist system, with a dismal track record in its previous dealings with foreign creditors and donors.
The IMF played a catalytic role, enabling Albania to obtain sizable grants and loans from other international donors from the beginning of its transition.
Most importantly, building on Albania’s IMF programs, the World Bank quickly became a major concessional lender while the EU, Italy, and other donors increased their grant assistance. Commercial banks and the Paris Club agreed to debt restructurings and debt reduction. During 1992-96 disbursements of grants and concessional loans totaled $1.5 billon (about $500 per capita for Albania’s three million people), and $600 million of external debt was cut by 60 percent, with the remainder restructured over a longer term.6
A “Win” for Albania’s People
Reengagement with the global financial system and Albania’s own policy reforms have produced significant improvements in the standard of living. A tripling of real national income per capita7 has been accompanied by improvements in health outcomes, educational attainment, and life expectancy. Transportation infrastructure and public utilities have been modernized.
Nevertheless, popular expectations have sometimes exceeded what was realistically achievable. Economic liberalization yielded immediate, highly visible and broadly shared benefits, but the disruption of the public enterprise sector also led to a surge in unemployment that took years to reverse. Transition in Albania was not seamless. A failure to address financial sector and public enterprise reform in a timely manner contributed to social and political turmoil in 1997-98 and again in 2009-13.
In addition to the gains for Albania itself, the country’s membership in the IMF has been advantageous for other European countries and the United States. It was, of course, important for Italy and other European countries to contain the risk of a continued largescale flow of refugees. But benefits of Albanian integration into the global community reach beyond that, including cooperation in fighting cross-border crime, maintaining regional stability in the Balkans, and providing new opportunities for productive investment.
Is Albania a Lesson for Cuba?
A number of major differences exist between the situation of Cuba today and Albania in the early 1990s. Cuba has a larger population (over eleven million, compared with about three million in Albania) and a higher per capita income (around five times Albania’s in 1992).8 Unlike Albania, Cuba is not isolated (either politically or linguistically) from its surrounding region. The island has undergone major structural changes since the Soviet era and is in the midst of a process of liberalizing reforms. It also has an extensive system of data collection and reporting. But transparency is lacking and comprehensive distortions in the price system create major problems in terms of aggregation of values. Finally, Cuba was (unlike Albania) previously a member of the IMF (until its withdrawal in 1964).
Entrepreneurs are popping up on Cuban sidewalks and street corners since President Raúl Castro began to expand the small-business sector in the late 2000s.
But significant similarities offer important lessons. Both countries threw off the yoke of an imperial power in the early twentieth century, and have experienced a long period of disconnection from the international financial system.
Like Albania before the collapse of the Soviet bloc, Cuba has a heavily distorted and inefficient economy, a communist government, and untapped potential for light manufacturing, service industries, and tourism development.
To what extent might Albania’s experience presage what might be expected if Cuba were to pursue economic reform and membership in the international financial institutions? The following appear to be key lessons:
- Reengagement is likely to yield benefits for Cuba and for the rest of the world (including the United States), stemming from new opportunities for trade and investment, greater regional stability, and reduced risk of a migrant crisis.
- The gains from IFI membership will depend both on success in catalyzing other external support, and (even more) on the progress of economic reforms that improve its economic performance and investment climate.
- An increase in international economic integration can accelerate the process of economic and political liberalization.
- The replacement of a centrally-planned economy with one based on free markets typically needs a long period of training, education, and restructuring of public institutions. The IMF and other external sources (including the US government) can play an important role in facilitating the learning process.
- Popular expectations may outrun the benefits of reform and reintegration, especially if citizens have limited familiarity with market mechanisms. New opportunities and improvements in the availability of consumer goods and essential inputs will emerge. But establishing a modern and stable financial sector, restructuring and rationalizing public enterprises, and becoming a strong international competitor will likely take time. Improving the availability and quality of public information can help to dispel uncertainty and encourage public participation in domestic policy debates.