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Albania
Currency and Monetary Policy
For decades Albania's government artificially maintained the
exchange rate of the country's currency, the lek, at between L5
and L7 to US$1 without regard to production, prices, the external
market, or other factors. Among the casualties of the economic
collapse of the early 1990s was the government's control over
public finances and monetary aggregates; another victim was the
lek's facade of stability. An enormous budget deficit, brought
on in part by huge government subsidies to money-losing enterprises
during a period of almost complete breakdown in production, led
to triple-digit inflation. The regime took steps to impose monetary
discipline by suspending payment of wage increases. To slow inflation,
the government promised to cut its budget and eliminate price
supports and subsidies to loss-generating state enterprises.
The government's first tentative step toward currency convertibility
came when the August 1991 law on economic activity legalized the
exchange of foreign currency for leks at rates set by the State
Bank of Albania or by the private foreign currency market. A month
later, the government devalued the lek by 150 percent and pegged
it to the European Currency Unit (see Glossary). The inflationary
spiral quickly drove the lek's value downward. Foreign businesses
had no choice but to reinvest lek profits, despite the government's
announced intention of introducing a fully convertible lek, because
the acute shortage of foreign-currency reserves made convertibility
impossible.
Data as of April 1992
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