A solution to property rights should be right for all Albanians - Op-ed by Kseniya Lvovsky, World Bank Country Manager to daily 'Shqip'

September 10, 2011

Op-ed by Kseniya Lvovsky, World Bank Country Manager Daily "Shqip"

The seaside of Ksamil, a small town south of Sarande, is one of the loveliest places on earth.  A golden sand beach merges with strikingly blue waters half-ringed by gorgeous tiny islands.  A place one would always long to come back to. Step a few blocks away - and the fairy-tale beauty is replaced by so depressing and chaotic an urban landscape that one’s desire to return has gone, as has the place’s potential of becoming a touristic gem.

This is just one heart-breaking example of missed opportunities. There are many more throughout Albania, connected by a common thread:  persistent issues with ownership, transfer, use, and management of land.  International financing lost due to the inability to get a building permit. Construction of critical public facilities delayed or made impossible. Families and businesses lacking security of titles and investment despite many years of living in and improving the property; continued thriving of informal economy and tax evasion; higher interest rates and other barriers to accessing credit.  Transformative private investment diverted over a  land ownership dispute. Large-scale modernization of agriculture remains a dream.  Development of contemporary urban centers with European-level amenities and services is compromised, affecting the quality of live and economic potential. The country’s hard-earned image of a successful aspirant for EU membership is clouded by a growing volume of property rights –related cases at the Strasbourg International court of human rights.

As the new World Bank report that will be launched next week acknowledges, the issues related to property rights in Albania are intertwined and complex,  reflecting a bitter history of communist repression,  a turbulent post-communism  transition, relentless political polarization, and challenging political economy.  Yet, the situation has become such a critical obstacle to future economic growth, competiveness, and European integration that the people of Albania, who have suffered and lost a lot more than once, deserve a real solution through concerted political effort and compromise.

I am encouraged by several important steps that the government has recently taken to accelerate progress, including by preparing a series of legal amendments to increase the security of property rights, strengthen institutional arrangements, improve the operations of the IPRO, and deliver better services.  A high-level Task Force that was set up by the Council of Ministers to facilitate implementation of actions related to security and registration of property rights under the Land Administration and Management Project, co-financed by the World Bank, is another positive sign of growing commitment and momentum.

How far the commitment and momentum for reform will go will depend on the willingness to address the difficult issues that are at the root of the problem, rather than its symptoms. The Strasbourg court cases, for example, while having prominence and attention, are a symptom.  At the root is the reality that the restitution and compensation policy, as currently interpreted, is incompatible with the expectations that is can be implemented within a reasonable time horizon. While it is not possible to predict the exact cost of compensation, estimates suggest that, with the current pace and approach, the compensation process might take about 200 years. Even pushing payments to the upper limit of what the country can afford – somewhere between 0.5% and 1% of annual GDP, which will not be without sacrificing some social priority expenditures and growth - still means that the process would drag on for several decades.

Experience from other European countries, which have had to deal with similar issues, offers a useful food for thought. Several countries have adopted the current market value approach, similar to Albania, but have fine-tuned its implementation as to balance several considerations, such as affordability for the state budget, and the impact on equity and poverty reduction. In Macedonia and Montenegro, the market value is applied to the state of the property at the time of confiscation. For example, if the property was vacant farmland in 1945, its value in 2011 is assessed as for vacant farmland even if it has eventually become a flourishing resort with multi-story buildings. Montenegro introduced further restrictions to avoid making the country bankrupt.  It set a limit on the amount that can be paid each year at 0.5% of GDP of the previous year, as well as capped the total amount of compensation at 10 % of GDP for the period of scheme implementation. Croatia introduced a sliding scale for compensation, paying 100 % for small apartments and progressively reducing the share of payment for higher-value properties, as well as limiting the maximum amount that can be given to one person. Most countries in the region used bonds to complement limited cash payments.   In the Czech Republic, only former owners can receive cash payment; even direct heirs receive bonds only.
While each country has developed its own package, one observation is universal: all other countries have approached the commendable commitment to compensate former owners, often using the current market value as a benchmark, with the pragmatism and flexibility that were necessary to complete the task.  All countries with successful experiences placed a major weight on financial responsibility, protecting the pro-poor distribution of public spending, and social justice in a broader sense that balances the rights of former owners with the needs of current and future generations. Albania, as any other country, has every right to move ahead in its own way, reflecting its unique history, commitments and circumstances.   A wide range of options and approaches that have worked should help develop a solution that is right for all Albanians.