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The Pyramid Crisis in Albania Examined

The Pyramid Crisis in Albania Examined

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Updated: 9 February 2017
Over the course of the 20th century, the history of Albania has been blighted by many political conflicts and economic disaster, playing unwilling witnesses to the Balkan Wars, the Great Wars, and the 1997 ‘civil war’. In 2009 Albania attempted to re-join the EU but it has proven to be an uphill battle for its governments since during Hoxha’s communism rule the country has been made isolated and ‘self-sufficient’ despite the starving state it was left in. Culture Trip examines a country that has transitioned from severe civil unrest to the harmonious and economically prosperous state it is now.

Nearly two decades has passed since Albania witnessed a state of anarchy, judged by some foreign and local commentators as a civil war. For the majority of Albanian families, who invested not only money, but also hope, in what appeared to be a great capitalist dream that would transcend 45 years of harsh communist dictatorship. Their genuine eagerness to amass wealth and embrace through ‘capitalism’ led to over 2000 deaths and a political and social fragmentation that was highly costly for a country slowly embarking on a free market economy. Many people were blamed for the economic catastrophe, but no one was found guilty and despite a number of conspiracy theories, the reasons behind the 1997 crisis have not been established.


Hoxha’s Communist System

In order to understand the reasons behind the mushrooming of the pyramidal schemes during the 1990’s, one has to understand two main historical legacies inherited from Enver Hoxha’s regime. Initially, a crucial point worth considering is the communist one-party-system. When historians analyse communism, the Albanian model is always seen as unique. Hoxha not only led a hierarchical party with a Stalinist base, but nepotism also played a crucial role inside the politburo, where the majority of members where part of the family or friends of the dictator. Moreover, born in Gjirokastra, in the south of Albania, Hoxha was fond of developing this area, leaving the north in less favourable conditions. Unfortunately, this party-model and territorial prevalence appears to be totally mirrored in today’s politics, across the political spectrum.

Sali Berisha, the first democratically elected politician fully embraced the communist party model and thus did not facilitate transition in party-politics. Since the early 1990s Berisha’s authority as a leader of the Democratic Party had never been questioned. When he became president of Albania in 1992, Berisha, born in Tropoja (north of Albania) and personal doctor to the politburo, completely removed the former party-state administration (but not its structure), imprisoned the leader of the opposition party, Fatos Nano, and introduced his supporters and relatives to a political career, indirectly leading to the development of the north of Albania. The post-communist party-system did not witness any decentralisation or internal democratisation and thus resembled more a totalitarian model rather than a democratic one. Consequently, in general terms (including also some exceptions) the ‘political clans’ in Albania are divided between the Socialist Party’s south and the Democratic Party’s north, yet the democratisation of party-politics has not been addressed.


Secondly, for almost five decades the economic model in Albania was characterised by isolation and centralised planning, whereby all assets were publicly owned. Aiming to achieve the utopian model of communism, the country had declared economic independence and had become totally isolated from the rest of the world’s political economy. For 45 years Albanians had lived in absence of private property and of financial regulations. The abrupt fall of the regime in 1991 precipitated an immediate economic change, paving the way for the creation of a market-economy. In 1992, Sali Berisha, encouraged also by the IMF and World Bank, became a great supporter of liberal democracy. In contrast to other ex-communist countries, in Albania the change from centralised market economy to liberal democracy occurred not only over a few months, following the so called shock therapy, but also in the absence of the necessary independent monitoring institutions. This drastic change could not but clash with a people uninitiated in liberal market economies. Additionally, the lack of economic checks-and-balances led to an atypical market economy, built with communist rather than capitalist tools. In fact, opening the borders and embracing market economy whilst having a society unfamiliar with the ‘new’ economic rules led to the impoverishment of a country whose GDP was mainly based on agriculture. Capitalism cannot exist without capital and most importantly without a capitalistic class.

It is in the unusual context of a society that was still suffering from the scarcity of the previous economic model that the informal market or the pyramidal schemes prevailed. The National Bank itself did not possess much equity and consequently could not satisfy the upcoming demand for credit. Therefore, the informal market appeared to be the only way to meet the economic needs of a country that was facing extreme levels of poverty. Thus, in the first years of post-communism, the informal market was perceived as an important contribution to the capitalist economic model.

Pyramidal Schemes

These dual historical legacies of communism set the scene for a more detailed analysis of the 1997 civil war. As previously stated, the abrupt and radical economic change in 1992 favoured the development of informal market institutions. These institutions known as the ‘pyramidal schemes’, bore some superficial resemblance to banks, offered high interest rates and became very popular. Vefa, Gjallica and Kamberi quickly became successful. The economic conditions were so favourable that in 1997 three other companies entered this market, and in order to compete, offered interest rates starting from 30% and up to 100% per month. In a few years these companies were mushrooming everywhere and due to the attractive interest rates they offered, a significant proportion of the populace sold everything they owned to invest their money in what they believed to be a capitalist reality. A society oblivious to market theory would have benefited from a warning from the government, whose solemn responsibility should have been to act in the interest of its citizens but this did not happen.

The first signs of distress appeared as early as 1996, when the IMF and the World Bank issued a warning to the Albanian government regarding these institutions. Neither the government nor the opposition reacted to this warning. Berisha did not heed the warning of the international institutions and led a populist campaign that granted him 90% of the votes. Such a majority had never been seen before, and has not been seen since, in a pluralistic democracy.


The affirmation of the Democratic Party however, was ephemeral. In very little time the warning started to be heard all over the country and the fall of the informal institutions started in January 1997 when Sude and Gjallica went bankrupt. Within a week the investors were denied access to their savings, demonstrating that the government had completely failed to appreciate and effectively manage the conspicuous outcomes of a system that had for years presented itself as a ‘miracle of freedom’.

In January 1997, after awakening from the capitalist dream and having to face a reality that was not far from a nightmare, people of all ages, including children and elderly, started their peaceful protest in the city of Lushnja that quickly spread to Tirana. The government’s reaction was stiff and illogical, especially for a democracy: it did not grant the people the right to protest. Making a peaceful protest illegal is not only undemocratic but also resulted in a fundamental change in the attitude of the populace towards its government.

Whilst in public broadcasts, the government declared that force would not be used; violent methods were being used by the police to subdue the protesters. To further counter the protest, the Democratic Party gave munitions to many of its militants, further aggravating the already inflamed conditions. By forbidding the right to protest, together with the use of violence by the forces of law and order, the government was able to quickly disperse the protest in Tirana. This however was not the case in Vlora, in southern Albania, where every passing day the situation was becoming increasingly tense. The students of the Ismail Qemali University even started a hunger strike on the 27th of February. The protest in Vlora seemed more determined than in other cities. Again, not only the government declared the dissidence illegal, but as night fell nine students were killed and many injured in circumstances rumoured to have been initiated by the government to scare people out of striking. Although government involvement was impossible to prove due to lack of evidence, this episode led to unprecedented social unrest and political anarchy.

Indeed, feeling threatened and angry about what had occurred, the citizens of Vlora united with the rest of the students in a counter-attack against the police. The situation deteriorated, government buildings were set alight and some protesters headed towards the ammunition depots. Albania, that had never witnessed violent protests, even during the fall of communism, had now fallen into total chaos. Finding the depots unusually without any protection, most people effortlessly armed themselves. In only a few days almost everyone got carried away by a perceived need to carry arms. This situation was replicated also in other main cities and on the 2nd of March it became so unsustainable that the state of emergency was declared.

On a daily basis the unprotected depots were being vandalised while the number of mostly accidental, rather than intentional, victims was on the rise. Armed teenagers were experimenting with their new Kalashnikov-like toys, the bullets of which would unexpectedly penetrate the tranquillity of families dining or sleeping in their own homes. The Washington Post even published a picture of people playing pool on the terrace of the building with guns instead of the cue. It is not surprising that the offspring of these chaotic circumstances were armed guerrilla groups. Tormented by the economic, political and social situation, whilst at the same time feeling empowered by the possession of dangerous ammunitions, these groups started marching towards the capital demanding the resignation of Sali Berisha.


In the meantime, Sali Berisha managed to win the presidential elections by a great majority on the 3rd of March, despite the fact that the opposition boycotted the elections in sign of protest. The thirst for true justice and democracy only exacerbated the protests that were increasingly becoming more violent. The evenings lived in this cursed march will always be remembered as the ‘lead nights’, since the Kalashnikovs were being emptied unconsciously all over the country. The pacifist quest for justice had metamorphosed into an anarchic war. People had lost their property and money, but now they feared something else: the loss of life. Various armed groups of youth led by Zan Caushi, united to form the ‘Salvation Committee’ de facto ruled Albania until May 1997, when an Italian-led United Nations operation took control of the government.

In absence of state control, the prisons were opened and all prisoners freed. Inside one of these cells was Fatos Nano, the leader of the socialist party who, having been a political prisoner for the last four years, immediately began a solid opposition promising the Albanian people a guarantee for their lost savings worth two billion dollars. Fatos Nano remained in power for eight years but time proved that his promises were simply populist rhetoric employed for electoral benefit.


Nevertheless, Albania has much to celebrate on its 100th anniversary of independence. Since communism fell in 1991, Albania has a harmonious relationship between all religions (something quite unique when considering the rest of south-east Europe). Albanians can travel without restrictions in Europe (and vice-versa) and an opened-market economy with the lowest taxes in the region is proving attracting to investors from all over the world. Albania is now member of important international organisations such as the WTO and NATO. It has made considerable progress in adopting key conditions of the European Union. Moreover, Albania is home to much history, and its territory has been passed by numerous civilisations: Illyrians, Romans, Byzantine just to name a few. This makes Albania a highly attractive tourist destination.

During November 2012 Albania celebrated its centenary proved to be an unprecedented year of cultural development, but Albanians of all ages must maintain an awareness of their own past and start demanding more from the political elite in order to flourish.