Capital Transfer Outside Albania and the Absent Capital Market

Elvin Meka

doi:10.5901/ajis.2015.v4n3s1p605

Abstract

Capital outflows is beginning to attract the attention of policy makers, in the frame of stimulating investments within the country and furthermore, promoting lending to local business by commercial banks. The recent movement of the Albanian Parliament, by way of a special resolution of taking coercive actions by Bank of Albania, aiming at limiting capital outflows by commercial banks, is judged purely declarative and of good purpose only, without a real impact and value added, given the economic, political and strategic commitments, Albania has taken on international and European arena, the development of domestic economy and its model, and the stage of development and intermediation within the financial system and markets, as well as banking and non-banking sector. As per above, and in the context of an increasingly globalized world, and the Albanian’s integration aspirations in the EU, imposing constraints, either administrative or in the form of tariffs and taxes on the free movement of capital, will complicate foreign investment climate in the country, in a time when several segments of the financial market, such as: capital market and private securities, remain fairly underdeveloped, thus limiting the investing useful and profitable alternatives for banks and other entities, with temporary surplus capital and funds, within the Albanian domestic market. Therefore, it is deemed necessary that policy-makers and regulatory & oversight institutions for the Albanian financial system, must express and articulate a clear approach toward the TSE’ revitalization, along with further deepening of the financial system, as the only way these segments of the financial system could make a contribution to alleviate and mitigate such an issue for the national economy. DOI: 10.5901/ajis.2015.v4n3s1p605

Highlights

Several months ago, the Albanian Parliament adopted, unanimously, a resolution which among other things required the Bank of Albania to consider potential coercive measures, which should aimed at limiting the capital outflow by commercial banks, in the form of investments or capital repatriation to parent banks
By not going further about another request, addressed at Bank of Albania, to increase further its stimulus for the economy, it is deemed as necessary addressing and explaining the main drivers, which are thought to have caused such move of the Albanian Parliament, which as a matter of fact, has not been articulated ever before and which represents a new approach towards foreign capital and investments in Albania
The paper emphasizes the need for regulators and other groups of interest to consider measures and undertakings towards financial deepening, the development and functioning of Tirana Stock Exchange, as effective means to cushion the effects and consequences of capital outflows on real economy

Summary

Introduction

Several months ago (in June 2014), the Albanian Parliament adopted, unanimously, a resolution which among other things required the Bank of Albania to consider potential coercive measures, which should aimed at limiting the capital outflow (to be read here as temporarily idle funds) by commercial banks, in the form of investments or capital repatriation to parent banks. The objective of the paper is to analyze the potential effects, the special resolution of the Albanian Parliament on coercive actions by Bank of Albania to limit capital outflows by commercial banks, on Albania’s international obligations, as well as on the economic and financial development and foreign investments & business climate. Controls are set over both inflows and outflows, and within these two categories, as Nembhard (1996) explains, it is possible to have four additional subcategories: investment and credit regulation, trade restrictions, foreign exchange regulations and quantitative and tax policies They may be applied in two forms: (1) as administrative measures on transactions and (2) taxes or tax-like measures on flows. As Liard-Muriente (2007) argues, countries often adopt controls to shelter the domestic economy from volatile capital movements, to regain policy autonomy, to allow domestic full employment and maximize social welfare, to save foreign exchange and to keep finances (domestic and international) under national control. Controls provide a second-best substitute for inadequate solvency supervision of banks and other financial institutions, reducing the size of volatile short-term foreign credits in relation to the economy

Capital Transfer and their Respective Control – Reasons And Consequences

Albania and Its Respective Obligtions According to International Agreements

Findings

Conclusions