Introduction

Albania is a parliamentary democracy that is transforming its economy into a market-oriented system. Albania's per capita income is among the lowest in Europe, but economic conditions in the country are steadily improving. Tourist facilities are not highly developed in much of the country, and though Albania's economic integration into European Union markets is slowly underway, many of the goods and services taken for granted in other European countries are not yet available.

Albania has played a positive, moderating role in the Balkans and is making strides toward Euro-Atlantic integration with its 2008 signing of a Stabilization and Association Agreement with the European Union (EU) and joining NATO in April 2009. However, significant challenges exist for Albania to become a socially- and economically-viable democracy.

Since 2001, Albania has maintained an impressive GDP growth rate, aver-aging roughly five percent each year, and poverty levels continue to de-cline. Despite progress, Albania faces high unemployment, low foreign direct investment, poor infrastructure, and rising trade deficits. USAID's program strengthens the competitive capacity of the private sector, facilitates access to commercial credit for small and medium-sized enterprises (SME); and improves the enabling environment to enhance business development, trade, and investment. Major efforts are focused on improving SME productivity and competitiveness by promoting technological innovations, adoption of international quality standards, and the application of good management practices and marketing techniques.

Following the establishment of the People's Republic of Albania in January 1946, Albania became a rigid police state, dominated completely by the communist party and by Marxism/Leninism. Although Albania operated under the facade of constitutional rule, the communist party, led by Enver Hoxha, who was also president of Albania, actually controlled all aspects of the political, social, and economic systems. Hoxha pursued a repressive internal policy, while at the same time implementing a highly isolationist foreign policy. His reliance first on the financial aid and political protection of a sequence of patron states, then insistence on Albania's economic self-reliance, and a highly centralized economic system caused Albania to lag far behind its neighbors in terms of economic development.

After Hoxha died in 1985, his hand-picked successor, Ramiz Alia, who became party leader while retaining his post as titular head of state (chairman of the Presidium of the People's Assembly), at first appeared to be carrying on Hoxha's tradition of hard-line policies. But it soon became clear that he was more flexible than his predecessor and was willing to institute badly needed political and economic reforms that attempted to prevent the country from collapsing into anarchy. These reforms, however, were largely cosmetic and insufficient to meet the demands of the growing radical elements in the population.

By 1991, popular dissatisfaction with Alia's regime had mounted, causing considerable political instability and social unrest. The civil war in neighboring Yugoslavia served only to exacerbate the growing political and social tension within Albania. Alia resigned following his party's resounding defeat in the spring 1992 multi-party election, and a new government undertook the task of building democracy in a country that for close to five decades had been isolated from the outside world, dominated by a highly repressive political system, and devoid of free-market, private enterprise. Albania was the last country in Eastern Europe during the early 1990s to undergo a transition from a totalitarian communist regime to an incipient system of democracy. Because Albania was isolated from the outside world and ruled by a highly repressive, Stalinist-type dictatorship for more than four decades, this transition was especially tumultuous and painful, making a gradual approach to reform difficult.