It's bad in Albania and it's about to get worse Failed pyramid deals spread fear, unrest


TIRANA, Albania -- This is Parashqevi Lato's disaster. And Albania's.

The 70-year-old widow stands with thousands of other people in a muddy field, her hands gripped to the locked front gates at Vefa Holding, the country's largest investment firm. She weeps and prays for her $2,000 nest egg that was supposed to yield 10 percent a month in interest, but which has disappeared. Her daughter and nephew also weep. They sold their homes to join the investment bandwagon.

"We are an ignorant people," Lato says. "No one told us this would happen. I am afraid. I am so afraid."

The winter-long collapse of Albania's pyramid schemes continues to spread fear, misery and unrest in Europe's poorest country, still emerging from nearly 50 years of oppressive Communist rule.

In the past two months, five of the popular pyramids went bust, assets of four of the surviving schemes were frozen, demonstrators rioted in several major cities, and virtually every family has been touched by a scam that may reach $1.5 billion. In a pyramid, each new investor's principal is used to make high interest payments to others. When the new investment dries up, so does the pyramid.

Yet as bad as things are now, with demonstrations flaring around the country, the economic terrain is about to get worse.

Vefa bosses, who claim to have a string of supermarkets, a chicken farm and a television station that rarely broadcasts anymore, insist that they oversee a legitimate firm.

They promise to pay off people like Lato, even though only a handful of investors have actually been allowed to pass through the gates and retrieve their principal.

But analysts say Vefa is the biggest pyramid of them all, doomed to topple within weeks, providing the final body blow to 100,000 frightened investors and Albania's battered economy.

"If this company goes under, we will be sunk," Lato says.

Rough transition

During the rough transition to capitalism, pyramid schemes bedeviled other former Communist countries of Eastern Europe. Romania, Bulgaria, Russia and Serbia all endured such schemes, as swindlers took advantage of virtually unregulated markets and bilked unsophisticated investors.

But no former Communist country has suffered like Albania, a Balkan backwater nearly the size of Maryland, with a population of 3.2 million and an average monthly wage of $80.

The pyramids snared farmers, pensioners, government workers and intellectuals, as Albanians flocked to get rich quick. Tales abound of homes, life savings, even livestock being lost to the pyramid schemes' lure of interest rates that often soared from 30 percent to 100 percent monthly.

Hard currency poured in from Albanians working abroad. Cash from drug dealing and smuggling also allegedly made its way through the pyramids. The money provided a coating of prosperity, funding everything from the construction of bars to the signing of soccer stars for the national league and the purchase of luxury items.

With the schemes now collapsing, Albanian President Sali Berisha is trying to deal with an enraged population, offering tax relief for those hardest hit while sending in riot police to beat rock-throwing demonstrators. Authorities gave up policing several southern towns. Fourteen politicians from the ruling Democratic Party recently joined the clamor for the government to resign.

"The confidence of the people is destroyed. This is now only a show. It's better -- we have fair elections and a coalition government," says Kastriot Islami, a leader with the opposition Socialist Party who was beaten by riot police during a demonstration two weeks ago.

Berisha, the micro-managing, cigarette-smoking cardiologist who was elected president in 1992, recently told a crowd of his supporters: "I come to you to admit errors and mistakes by the ruling government, the party and by me. But I am open and can tell you the people are also to blame."

Government backing?

Yet Berisha's Democratic Party faces claims that it backed or condoned the scam for years and used pyramid cash to fund its victory in last May's disputed parliamentary elections, already tainted by charges of ballot-rigging, intimidation and violence. The government denies the claims.

Adding further pressure on the government are donor nations and agencies such as the International Monetary Fund, which demand strict financial discipline in return for financial aid.

"The problem in Albania is not money," says Carlos Elbirt, the World Bank's representative in Tirana. "There are three problems: infrastructure, institutional building and economic management. You have a private sector here. You see construction going on. And you need savings to have savings. Well, there was savings here. But there was a misallocation of savings."

Thus, another tale spins out in the incredible history of Albania.

In the old days, Albania suffered under the paranoid whims of its Communist leader, Enver Hoxha, ruler from 1944 until his death in 1985. Hoxha sealed the borders, outlawed religion and built a secret police force that included one in 10 Albanians. Dissidents and their families were sent into internal exile. The country was effectively a gulag with an ever-changing cast of allies, including the Soviet Union, China and Yugoslavia.

The most visible remnants of Hoxha's bizarre rule are the hundreds of thousands of mushroom-shaped concrete bunkers built all over the country in the 1970s to repel invasion from the Soviets and the West. The invaders never came, but Albania imploded.

In 1991, Albania became the last Communist domino to fall in Europe when the people literally tore the country apart. They shattered the windows of the Communal greenhouses, cut power lines and smashed schools, factories and government buildings. People barely had enough food to eat, let alone cash to spend.

Almost overnight, Albania embraced capitalism.

While Western bankers applauded the people's yearning to work and the political leaders' ability to manage a remarkable growth rate, a new, unpleasant Albania emerged from the Communist rubble. The false prosperity was built on oil smuggling to war-ravaged former Yugoslavia, which was under a United Nations-imposed embargo.

Capitalism ran amok, transforming Tirana into a 20th-century version of Dodge City, filled with gun-toting lawmen, abrasive money-changers and tough guys dressed in leather.

The new Tirana is an ugly, eerie place.

Along the Lana River, which carries untreated sewage through the city's heart, are gambling parlors and cheap bars with names such as John Belushi and Muhammad Ali.

The would-be card sharks pour their coins into video poker machines. There's even a poker parlor in the old Ministry of Culture building. Other desperate gamblers cram the tables at the bingo halls.

Somehow, in a country that had only 500 private vehicles in the 1980s, the pothole-filled streets are now clogged with Mercedes Benzes, even though there's no Mercedes dealership in Albania.

But the looting didn't stop with cars from wealthy Western countries.

Taken for a ride

Eventually, Albania's citizens were taken for a ride with the rise of the pyramids.

Money now dominates conversations day and night. People wait for hours in front of the offices of folded-up pyramids, hoping against hope that they will retrieve their cash. Many simply cannot believe they have lost everything.

Everyone has a pyramid story.

In a ramshackle apartment building caked with dirt and graffiti, the tenants recall Maksude Kademi, otherwise known as Sudja the Gypsy Woman.

Sudja, tiny and unattractive, a one-time worker in a shoe factory, apparently had a gift with raffle tickets.

Sometime in 1991, she switched to pyramids, working out of two apartments, accepting the cash deposits of common folks who came calling with the local currency, Albanian leks.

She pulled in $50 million.

Servet Gogoshi and her daughter Lushi watched Sudja charm the investors for years. Eight months ago, they added their stakes in the pyramid. The mother put in $3,000 and the daughter added $15,000, the proceeds from selling her house.

Last month, Sudja appeared on an apartment balcony and shouted through a megaphone to a wailing crowd below, "My game is over. It was a pyramid game. My company is bankrupt. And you shouldn't ask for the money."

The Gogoshi women are still in shock. "She cheated us," Lushi Gogoshi says.

During the height of the Communist reign, Lushi Gogoshi's husband was jailed for nine years as a dissident. Two years after his release, he died. Lushi Gogoshi raised two boys on the salary of a seamstress. Now, she has lost her home.

What will she do?

"I feel crazy," she says. "I think I will commit suicide."

Pub Date: 2/23/97

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