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Speeches & Transcripts

Interview of Philippe Le Houerou, World Bank Vice President for Europe and Central Asia to the Voice of America

January 15, 2010

Philippe Le Houerou, World Bank Vice President for Europe and Central Asia Voice of America Albania


VoA: Thank you for this interview with the Voice of America. I would like to start with the economic crisis that swept the globe and of course left many consequences in the countries of Southeastern Europe, countries which are not in the same par with other countries economically speaking. What are the consequences of this crisis you and how long would it take these countries to get out of this crisis?

Philippe Le Houerou: Well there are two parts of the question and the first part is why was the region affected by the crisis more than the rest of the regions of the world. For the first part of the questions I think the answer is that the convergence and this very strong growth that we have seen in Eastern Europe was in fact the product of a very strong integration into a very large market which is the European Union. This integration is through trade, foreign direct investment and commercial lending.  When the financial crisis hit, all these integrated mechanisms which were very powerful engines through this integrating that triggered, the growth reverted and in fact it became a transmission mechanism for the de-acceleration of growth, and certain countries in fact experienced very severe contractions of their GDP.

On the second part of the question which is looking forward and which is the forecast. It is difficult to make forecasts. But we in the World Bank and in the entire region join a general consensus which is that the exit from the crisis in Europe will be slow. It will not be a very strong bounce-back which happened in East Asia or India, which means that we believe that for some countries the next year may still be very difficult and may be we will see more differentiation across countries.  Some will continue to come out of the crisis earlier while some will continue to be affected by the crisis, and this will depend on their internal, domestic structure of the economy and the strengths of their macro situation and their location will be very important.

VoA: Since you are at this issue, what about Albania? There have been numerous debates if Albania has been affected, not affected, has gotten over or not the consequences, but how deep have they been felt: take the remittances, exports, imports, deterioration of credit from banks. According to you, which phase is Albania in? And you do you think that Albania will be prudent? What would your advice be to the Albanian government at this stage?

Philippe Le Houerou: Well, Albania has been affected by the crisis with other countries in the region through trade channels. Albania was lucky in some sense that it didn’t experience very severe financial crisis, because the financial sector and the banking sector has been so far quite resilient. But the transmission mechanisms can mutate, big drop in trades of textile as you know, but also in the remittances and also the fact that a lot of the exports and remittances come from two countries: Italy and Greece.  And these two countries experienced difficulties in 2009. We believe that in 2010 the economic growth in this country may also be very modest. So in this sense the transmission mechanism that we have seen picking up in the second half of 2009 -- it was a big delay compared to other countries -- may continue into 2010, contrary to other countries where in 2010 the economies start rebounding or going back up slowly. So our advice would be to be very, very prudent especially on the macro side. It has been a trademark of the Albanian authorities that the macro management overall in the last two decades has been quite sold and strong and we believe that has been one of he key components of the success that the Albanian economy has known over the last two decades. So going forward, in an environment that will be weak, I think a very prudent macro, and in particular, a prudent fiscal policy is very important. It’s also [critical] to have very accurate forecasts of the economy, because everything is linked as you know in economics. Based on very good guidelines about how you forecast your budget, how you do, there are a lot of decisions to be made.  The forecast of the economy as a whole is a driving force. So it’s very important how you decide, to a very large extent, what will be your revenues. Again I think the importance of having very good data on the economy and being able to use these data very timely to forecast as accurately as possible, and we believe is important to manage during this crisis, as prudently and as accurately as possible.

VoA: So with regard to 2010 should we be optimistic or pessimistic?

Philippe Le Houerou: Well I will repeat what Mr. Trichet said yesterday.  We have to be very prudent and reasonably optimistic for the region as a whole. But I do think that we are not yet out of the crisis, and in my view the growth for Albania in 2010 in this context will still be difficult. Optimistic, but very cautiously optimistic. Because I believe the region will get out of this crisis but eventually the problem is timing and it’s very difficult to forecast what will be exactly the exit strategy. There has been a fiscal stimulus, the problem with fiscal stimulus is you can maintain some activities through the public sector, through public investment but at some point you accumulate debts that may become a break for the growth of the private sector and that’s actually what you don’t want to do. So the management of how you start the fiscal stimulus we think it’s very important. There is need to watch very carefully the public debt, but at the same time making sure that the private sector starts investing. Again the time between now and the next [year] is very important and again for that you need almost real time data because there will have to be a management which is structural. Another thing that I would like to add is also linked to the fiscal: when you are in a situation where your revenues are not growing nor increasing and you don’t want to have your debts growing too fast, or if you can stabilize it, then put a lot of emphasis on how efficient you are on managing your public expenditures. And these are very difficult and it’s difficult to make these decisions. We as a Bank think, and this is shared by the Government too, we would favor a focus on the weakest members of society, with the focus on poverty, to alleviate it [the impact of the crisis] for the Albanian families.

VoA: Mr. Vice-President, you were here for several days negotiating with the Albanian government and other actors of economic and political life about the strategy of cooperation between the World Bank and Albania. World Bank has had a long presence in Albania and it has been present in almost all sectors of the country. Will the World Banker be present in a big way or is it going to focus on 2-3 main areas?

Philippe Le Houerou: Well, one of the main reasons I am here is to see what we have been doing in the last decades and I am very happy to see that we have been a very strong partner with the government. We are in transition together with Albania. Albania was a poor country, but now Albanian has graduated which is very good, and this is a sign of success because the income has tripled over the last two decades and this is quite an achievement. Poverty has been halved in these years which is also quite an achievement. So we are now at another stage.  What created the success in the first two decades after a long period of dictatorship and isolation of the country -- there was a very strong bounce-back. The question then was how to go from a low-income country to a middle-income country. Now the question again is how to go from a middle income country to a upper middle income country or even a rich country. So here we have to assess very carefully what are the key things. There was a first phase which is price liberalization, then you have got to do the privatization, which is not easy. But some reforms are easier.  And some others are more complex when you really want to go again from a middle income to a rich country with the restructuring especially on the institutional side. So I believe what we have to do now is to have the government to develop its own institutions.

And as regards the sectors, as you mentioned, we have discussed with the government, members of the civil societies, I visited a few projects. There is a lot of interest in water management; there is a lot of interest in the agricultural sector, water irrigation for agriculture. And also the concept of rural development organizing the sector. For that it’s important to enable the government for the private sector to continue to grow in a competitive manner. So we are, in our view, in a process of assessing what would be the next stage.

I am here in fact to just listen, and we have started in fact the process of thinking about what are first of all the key challenges.  I think the challenge is to implement a lot of the laws that have been passed . And that means institutional development. That is a general statement. And we will see where we can be most helpful. So as I said this is the beginning of a process. I don’t have as yet the strategy. We have to start the process internally with all our partners here in Tirana and in Albania to continue this process of thinking where it is we want to go.  Because I believe it’s very important, for this is a cross-road for the country and for us as we are accompanying the country along this way. Again with projects and programs in many, many sectors. We have to see where we have been most useful and most relevant. Again I don’t want to put too much on the table, for we have to do a lot of homework.

VoA: One of the sectors that the WB has been providing support for has been the energy sector. But we know that has been an increase in tariffs and Albanians will be forced to pay more for the energy they get and that will have an impact on the pockets on Albanians because this is also combined with the current situation.

Philippe Le Houerou: Of course that is sure to have an impact on the pockets of Albanians. The key here is to price energy at its right price. We don’t want to waste energy, it’s a very scarce resource. It costs a lot to generate. We are all aware of the climate change debate. So wasting energy is not a good thing to happen economically. And the best way for people to be very careful is to pay the right price. It’s true that some people can pay, and that is a good thing, to pay the right price of energy. The problem is what happens to those who are situated at the margin of poverty or into poverty. And there we are working with the Government to find a way to help those people through programs of targeted subsidies to help them pay the bills. Yes, of course, the price increase is good, for it has to cover the service and the costs, for it’s a good, but we are also to help the poor members of society to foot the bill.

VoA: The role of the World Bank in the past has actually been poverty reduction but now Albania is progressing and is actually aspiring to join the EU. Do you think the role of the World bank has changed or do you think that the World Bank will continue to help Albania in this process.

Philippe Le Houerou: It’s very important to know that the whole process of joining the EU is a very important process. Well a lot of new members have joined the EU and we as a Bank have been very much involved in helping them to get through this process and we are also working a lot with countries that are in the EU. I am thinking about Poland, Hungary, I am talking about Bulgaria and Romania. And today we are still working there. Why?  Because this is a continuum. Poverty alleviation has many facets. So we will continue on water irrigation and we will continue on institutional building. I mentioned that before. It is very important because we have seen that in other countries. Passing the laws and the right law is the best thing. This is the best practice because you also benefit from the experience of other countries, so you sit down, and write the law and it’s again the best practice. The challenge is how you implement these laws in a systematic and consistent way. This is what we are seeing over and [over] -- that is in many sectors and on things which are conceptual.  So this is where we have been very helpful even in those countries which are today in the EU. We have been their companions for the last two decades with them since the fall of the Berlin Wall. So we have this experience that we can bring to Albania. It’s not like poverty alleviation. It’s getting accession to the EU and what it means.  What is just important as getting to EU is the process of institutional building. That is the most important and the most rewarding. But that is not an easy path. And so I believe we can bring our experience that we have accumulated in the past with countries in the region.