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It is known that after the fall of the Berlin Wall, the shift from socialism to capitalism was done in a very short time in many ex-socialist countries.
Albania started as one of the most (if not the most) underdeveloped and poor countries of Europe. For centuries, she had been isolated from the rest of the world and the isolation was further strengthened during Enver Hoxha’s dictatorship. Communism in Albania was severe and led to a complete cutting off of the country from outside information and international relationships.
These firms spread one after the other until there were in total 25 “firms and associations” with 1.2 billion US dollar deposits. The most popular firms were: “Gjallica”, “Xhafer”, “Populli”,“Kamberi”,“Sudja”,”Cenaj”,”Silva”,”Vefa” etc.
In only 9 pyramid schemes, the number of depositors reached 205,404 creditors. Most of these brave initiators didn't have the necessary knowledge in management and leadership. However, they began to hire experienced financiers, economists and specialists. As a result, their economic activity expanded successfully, often even illegally.
The State Bank lost its depositary and credit function and it almost stopped working.
People that were discouraged from state trusted these firms in hope of being paid, since neither the state nor the banks were able to provide income for them. They were lured due to high interest rates in a short period. People sold their houses and apartments to invest in the schemes; farmers sold their livestock. It brought the involvement of 75% Albanian families.
SOURCES:
1) “The Rise and Fall of Pyramid Schemes in Albania” by Chris Jarvis. 2000, p. 3
2) “Kriza e Skemave Piramidale të Fajdeve dhe Qeveria e Partisë Demokratike”"Çështja Shqiptare Riformësimi i Ballkanit", James Pettifer Jammes, Vickers Miranda faqe 3-29
3) “Politika Monetare : Një Vështrim Analitik Mbi Të Kaluarën Dhe Të Ardhmen”, Shkelqim Cani page 334
4) “Kriza e konfidences. Shkaqet prapa Hemoragjise se depozitave bankare”, Shkelqim Cani, Ilir Vika, 2002, page 4-6, taken from https://www.bankofalbania.org/ web/pub/fjala _cani_vika_konfidenca_898_1.pdf
Some citizens of Tirana (the capital city) still remember making money from interest rates that began from 30%. The refugees that came back from a summer filled with work in Greece ran to deposit their money as soon as possible and to spend those earning on long vacations on the beach.
People sold their houses and apartments to invest in the schemes; farmers sold their livestock.
January 1997 - "Sude" and "Gjallica" declare bankruptcy. Riots in Vlora (the city where "Gjallica" was based, exploded)
January 26th 1997 - The government froze the bank accounts of "Xhaferri" and "Populli"
February 1997 - The government passed a law banning the pyramid schemes. It also decided that the depositors would not be compesated for their losses.
March 8th 1997 - The Albanian government resigned.
By January 1997, Albanians had lost approximately $1.2 billion and then they began protesting on the streets versus the government, which they believed were profiting from the schemes. Half of the population stole guns from the Military Units and war bands were created. The war bands bloodied the streets with the innocents’ blood. 2,000 people were killed.
The police and military had deserted. More than half Albanians immigrated to Italy.
When even Tirana fell into chaos, the president decided to hold early parliamentary elections by the end of June.
As protests raged on, the country fell into a brief state of lawlessness before U.N. forces stepped in to restore order.
In the second half of 1996 mania took hold.
July 1996 - "Kamberi" raised its interest rate to 10% a month.
September 1996 - "Populli" began offering over 30% a month.
November 1996 - "Xhaferi" offered to treble depositors' money in three months, it roughly offered 44% a month.
November 1996 - "Sude" responded with an offer to double the principal in two months (a 41 % monthly rate).
1 . The government's political authority was fragile, and its will to take important decisions was limited
The Albanian pyramid schemes are very difficult to identify because there is very little data available and because their disintegration had a powerful social and political effect. The most visible effect was on asset distribution, as some people got extremely richer, some others got significantly poorer but the wealth loss in economy was very limited.
2. Problems in the financial sector:
a. the payments system was insufficient
b.Bad loaning problems