Capital Account Liberalization: The Case of Albania

Abstract

Free movement of capital is seen as an attempt towards economic growth, attraction of foreign investments, diversification of portfolio allocation, development of financial markets and also integrating the country with the rest of the world such as European Union (EU), World Trade Organization (WTO), etc. In the late 80’s, most of developing countries started liberalizing the restrictions imposed on capital flows. This strategy brought significant prospect in these countries and at the same time became the trigger of a financial and currency crisis in most of these countries. As such, the construction of a proper policy regarding Capital Account Liberalization (CAL) is a necessity to protect liberalized countries from possible crises. This study makes an assessment on the CAL process of Albania with regard to the possible benefits and risks that the country may face. It also aims to construct a specific policy framework for Albania in order to prevent risks associated with capital liberalization. The assessment and the development of the policy framework are done by benefiting from the other countries’ experiences. The countries considered in this study are: Chile, Czech Republic, Hungary, Korea and Singapore. This research suggests that in order to be benefiting from liberalization, in addition to the legal arrangements, countries need to consider some key policies which may be defined as prerequisites. These policies deal with: Economic Stability; Financial Sector; Accounting and Auditing, Practices and Information System; Exchange Rate Regime; Fiscal Policy; Competition Policy; Corruption and Illegal Businesses; Informal Economy. Moreover, the study also finds that the success in CAL is very much depended on the application sequence of these determined policies.