Albania's transition to democracy began with anarchy and soon developed into near state collapse in 1997. Although unlike neighbouring Yugoslavia, the country was not drawn into military conflict, this chaotic transition was a deeply traumatic experience. As veteran journalist Remzi Lani put it, referring to the events of 1997: "There is only one thing worse than dictatorship, and that is anarchy."
The first years of the 1990s saw the disintegration of the communist state and the abandonment of the policies it had championed for over four decades. In April 1990, communist leader Ramiz Alia declared his willingness to establish relations with the United States and the Soviet Union. The government ended its monopoly on international trade. In August 1990 it opened the economy to foreign commerce. In December 1990, the Central Committee of the Albanian Party of Labour (APL) made the groundbreaking decision to authorise a multiparty system.
These changes were carried out against a background of violent protests and the flight of many thousands of refugees. In February 1991, hundreds of students and members of staff at Enver Hoxha University in Tirana went on hunger strike, demanding the dictator's name be removed from the university's official name. However, when Albania's first multiparty elections were held in spring 1991, the APL emerged victorious, winning two thirds of the seats. The new assembly re-elected Alia as President and entrusted a commission with the drafting of a new constitution. Protests continued and the government collapsed soon afterwards as trade unions called for a general strike. New elections in March 1992 led to a victory for the Democratic Party, whose leader Sali Berisha replaced Alia as President.
Under Berisha, Albania implemented sweeping reforms to its economic system. Rapid privatisation transferred most businesses to private ownership. Some 30,000 small firms were privatised by April 1997 (Albanian SAI). The process also extended to collective and state farms. 220,000 state-owned apartments were privatised (Seelegal). Albania was opened up to foreign trade. It was a rough transition; smuggling and corruption increased dramatically. An FTO report described the situation:
"Graft pervaded the customs service. Italian soldiers said customs officers who inspected containers of aid from Italy left the Durres dockyards with food jammed into their clothing. High-ranking government officials resigned after disclosures that they had smuggled to Greece 1,000 tons of Italian cooking oil sent as food aid."
Despite a lack of regulation, the economy grew rapidly in the early years of the transition, although with hindsight many of the official statistics appear suspect. At the end of 1992, unemployment was at 26%, but by 1996 it had supposedly halved to 12 percent (World Bank). Real GDP, which had fallen sharply in 1991, now grew at a rate of 9 percent between 1993 and 1996 (WDI 2003). The World Bank praised Albania's economic reforms and their apparent success in turning around the economy.
Then, in late 1996 and early 1997, the country was rocked by a severe economic and political crisis. Berisha's Democratic Party was re-elected in June 1996 with over 85 percent of parliamentary seats, in the face of an opposition boycott and accusations of electoral fraud. A protest rally was broken up by riot police. Thomas Carothers reported from Tirana for the Washington Post (6 June 1996) that the "parliamentary elections in Albania were the most flawed elections held in Eastern Europe since 1989".
Simultaneously, the country was gripped by a wave of investment scams. Naïve to the workings of a market economy, many Albanians fell for so called ‘pyramid schemes', investing their entire savings in the hope of easy returns. These schemes began to collapse in autumn 1996, plunging the country into turmoil.
"The pyramid scheme phenomenon in Albania is important because its scale relative to the size of the economy was unprecedented, and because the political and social consequences of the collapse of the pyramid schemes were profound. At their peak, the nominal value of the pyramid schemes' liabilities amounted to almost half of the country's GDP. Many Albanians—about two-thirds of the population—invested in them. When the schemes collapsed, there was uncontained rioting, the government fell, and the country descended into anarchy and a near civil war in which some 2,000 people were killed."
Most of the anger was directed at the government, whom many blamed for the loss of their savings. Millions of Kalashnikovs and other weapons were looted from police stations and military bases. Chaos reigned as militias took control of many cities. The south, particularly the coastal city of Vlora, was the centre of violent riots. Even in Tirana, state authority collapsed.
President Berisha's first response to the crisis was to extend his own power over the judiciary, secret services and media:
"The government declared a ‘General State of Emergency' on 3 March (1997), which was done within the framework of communist-period legislation designed to mobilise the country against foreign military attack. The Emergency Laws gave the government draconian powers to rule by decree, and to use the army against internal opposition. There was to be complete government control of the media…
On 4 March in Tirana, pro-Berisha thugs ransacked and burnt down the office of Koha Jone, in those days the main opposition newspaper, as Parliament, surrounded by scruffy troops with automatic weapons, re-elected President Berisha for another five-year term. SHIK operatives in black leather jackets toured the capital at night, ready to fire on anyone found breaking the curfew."
(Miranda Vickers & James Pettifer The Albanian Question: Reshaping the Balkans 2007)
As the violence continued, Berisha was forced into a power-sharing agreement. The government was dismissed on 1 March 1997, and replaced by a government of national unity with a Socialist Party prime minister.
On March 28 the UN authorised an Italian-led coalition of willing member states codenamed "Alba" (Italian for "dawn")of 7,000 troops to restore stability and support reconstruction. Very slowly, a sense of normality returned. Early elections were called for July 1997. The Democratic Party lost these elections and its leader, Sali Berisha, resigned the Presidency. The chaotic first phase of the Albanian transition had come to an end.