Not just lawyers, but economists too, very often prescribe and insist that countries seeking economic development should embrace rule of law, i.e. constitutionally limited government. Friedrich Hayek in his classic work “The Road to Serfdom” defined as a free country, that country that observes “the great principle known as the Rule of Law.” Stripped of all technicalities,” he says “this means that government in all its actions is bound by rules fixed and announced beforehand”. At its core the classical liberal principle of the rule of law means non-discretionary governance that stands in contrast to the arbitrary or discretionary rule of those people currently in authority. In shorthand, either we have the rule of law or we have the rule of authorities. Under the rule of law, government agencies do nothing but faithfully enforce statutes and legal principles already in the legal texts. Under the rule of authorities, those in positions of executive authority have the discretion to make up substantive new laws according to their will.
So it seems that crucial for the success of the reforms is not just economics, but ethics and justice, in other words harmonization with the reforms in the judicial sector and in the public administration, whereby sound markets, are freed not just of the shackles of bureaucracy, but of the economic and financial crime as well, as a precondition to operate effectively, and as the slogan goes- efficient public administration institutions must “steer but not row”. We have not yet achieved that phase, as the government itself has recognized the urgent need to combat organized crime, economic crime, and institutional corruption, with a a view to attain social justice and an acceptable quality of the rule of law.The government has promised a reform of deregulation, without clarifying what it actually means. Yet, it remains axiomatic that the government's judgement must be informed by the social context and by the ideal of the rule of law.
But looking at the facts, beyond oratorical skills of well-communicated representations in the public, the deregulation so far is confined to lessening the administrative bureaucracy burden in starting and doing business. Concomitantly, at the economic governance level, the Ministry of Economy and the Ministry of Finance have merged into a single one. The government has put forward as the rationale to justify its move of unification of the public competence in the field of economy and finance with the need to produce one single coordinated policy in the field of national economy. However, this single economic policy has not surfaced or at least is not tangibly perceived by households and businesses, prompting independent observers to cautious the public and the economy against this move, as it resembles the estatalist macroeconomic management during the time of communism.
The neo-liberal ideology of deregulation is premised on the belief that capital and fair market forces would generate an efficient and stable financial system, but allegations of economic and financial crime indicate that the preconditions for such an outcome are not in existence. Official regulation must be replaced by adequate market monitoring and discipline, and the strengthening of management systems and internal governance practices within organizations and financial institutions, promoting incentives and accountability mechanisms that are adequate to ensure that market forces operate effectively.
The ruling elite has shown flexibility, but not a proper sense of orientation to change in the right direction, i.e a vision to tackle the major problem of eliminating abusive internal institutional practices, rather than changing the formal legal rules. Hence, the regulatory and supervisory architecture of the financial system remains unchanged. It has been frequently recalled in the professional literature the analogy and the comparison between the central bank and the judiciary, both bodies performing delegated duties by unelected independent technocrats, but following the internal governance problems that have pervaded Bank of Albania, ever since the unfortunate events of 2014-2016, central banking and financial stability in Albania has been left at the mercy of political whim or fashion. Not yet recovered by those events, instructive as they are when it comes to the costly lecture they taught us in explaining the weak internal governance of the institution and the clamorous failure in executing the public duties by its senior staff, it is fair to say to the albanian public that politics and personal preferences of the central bank Governors seem to have intruded on the institution’s evolution and performance.
Article 161 of the albanian constitution, determines Bank of Albania to be the central state bank, with the Supervisory Council as its “ultimate authority”, having the exclusive right of issuing and putting into circulation the national currency, thus having control over the money supply in the economy. This constitutional provision further bestows upon the Bank of Albania operational independence in conducting the national monetary policy, and grants the legal authority to act as an agent institution in safeguarding, managing and investing the foreign reserves of state. The constitution is silent on establishing the institutional independence, and also stops short of granting to the central bank the authority to formulate the monetary policy, but these issues are further outlined and clarified in its organic law, which grants independece to the institution within the limits prescribed by the law. Nevertheless, as the course of reforms is focused on fighting fraud, corruption and any other illegal activity affecting the public financial interest, this institution would appear to be at a crossroads, as it lacks a leadership to handle the new role of ensuring that the institution is run on a philosophy founded both on the rule of law and monetary stability.
As Louis Rasminsky, a former governor of the Bank of Canada, has put it best in his "Per Jacobsson Lecture (1966):
“The formal status of the central bank varies a great deal from country to country. In any case this is a field in which the real situation is not likely to be revealed by the terms of the statute. Much depends on history and tradition, and a fair amount even on the personalities involved.”
The latest illustration that lends support to the above quoted passage in the albanian context is provided by the recent parliamentary debates, sometimes taking irresponsible tones, between the political majority and the opposition, whereby the opposition unleashed severe “ verbal attacks” on the state budget as being tainted with illicit money deriving from the illegal canabbis trafficking, which according to the opposition “rumours” is going to be cleaned-up in the "laundromat" of Public Private Partnership (PPP) programmes, foreseen to be used as an instrument for raising private finance in public projects, and in the process of implementation of the state budget. Asssuming it was all “political rhetorics”, and that the opposition was trying to manufacture populist discontent with the encumbent government, the meek reaction of the encumbent Governor, trying to navigate a dire strait before the MP-s in the Financial and Economic parliamentary Commission, treading carefully on this issue, between his personal public responsibility and loyalty to the Government, has been widely interpreted by the observers and common citizens that the central bank behavior is still being significantly affected by political forces. The central bank has a clear mandate to supervise the banking system and a legal duty to monitor the effectiveness of the AML internal policies, procedures and controls of the commercial banks, to ensure that according to the FATF guidance for the banking sector they are conducive to a risk-based approach, but the Governor failed to deliver any assessment on any identified or perceived risks. Instead he delivered a speech that bore no signs of responsibility, accountability and openness on the part of this public institution, which owes to the nation a democratic duty to shape its institutional behavior on the basis of what is required in the public interest.
Thus discussions as to how to ensure the democratic legitimacy and improve the culture of the internal governance of the institution seem of paramount importance, as the central bank senior steering and governing structures are usually a creature of the Governement, and nepotism in the employment policy of the central bank remains rampant, so “political allegiance” and submission to the dominant political interest is crucial for the personal tenure in office. It is also for historical reasons that the question of appointment of members of the Supervisory Council (checking and vetting) and the manner in which Bank of Albania governs itself, are most important questions, which so far, until recently, have attracted little interest, and have been downplayed by the current legislature. On the other hand, the news on the governance and vetting of the magistrates make the headlines of the daily press.
Reconceiving the intutional accountability and providing a robust governance structure of the central bank seems a sensible way to reshape the incentives ,and subsequently to constrain behavior that is inconsistent with the public interest, as the events of 2014-2016 were a triumph of incentives over ethics in running the institution by the top mamagement. In order to shift away from ostensible and cynical models of the subservient central bank that have characterized the government- central bank relationships in the past, and move towards democratic requirements of accountability, it is important to understand that legislation alone does not make an independent central bank.Legalistic compliance can not be taken seriously in a small country like Albania, in which the use of socialised power, the individual’s ability to build and use alliance, networks, and coalitions of interests, thwarts the idea that the legal rules will govern and change the social behaviour.
Instead, actual performance of the central bank independence, and perceptual objectivity by the public, is critical for a proper assessment of the degree of effective autonomy enjoyed by the central bank vis-à-vis the government.Advocating “central bank independence” is fashionable and with every justification, but it is also important to realise that the central bank in a small country like Albania, with a stalinist historical legacy and a weak legal system, is very much an instrument of the state, whether in law or in practical terms, even if its independence has been formally recognized by statute, and declared desirable by the domestic legislature, in view of the requirements by the IMF and the pressure put forward by the EU conditionality. Moreover there is use and abuse of its independence, as Article 1 of its organic law makes it clear that the institution shall operate within the limits of its authority established by this law, which means that the institution in ita operations and use of discretionary powers is bound by the rule of law.
As far se political independence is concerned, which always envolves personal independence, the procedures for the appointment and removal of the top management have always been subject to political influence, thus transforming the Bank of Albania into a partisan political institution. This lends credence to Friedman’s largely anecdotal notion of the “extraordinary importance of accidents of personality”, as the performance of the albanian central bankers under these political conditions seem to depend on the primacy, the personality and the Governor’s ability to digest, analyze, and look ahead to the consequences of the actions of the central bank, and in a skillful and opportunistic way to handle them. Defiance of Government, which the concept of an independent bank would not preclude but necessarily imply, seems to be an unrealistic option at the helm of the Bank of Albania.