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Albania: Pyramid Schemes Common Across Eastern Europe

Prague, 16 January 1997 (RFE/RL) - The collapse of the latest get-rich-quick investment scheme in Albania, depriving thousands of people of their savings, reflects a pattern that has been repeated across Central and Eastern Europe since the fall of communism.

From Russia to Romania millions of people, lured by the promise of high monthly returns, have put their money into pyramid schemes which mushroomed as controls were loosened and private businesses were allowed to develop.

The schemes, so-called because of their structure, rely on a stream of new deposits to pay out interest on the old ones. This requires an ever increasing flow of cash.

Meager state pensions and salaries combined with rising costs made the offer of monthly returns of 50 percent or more hard to turn down. But when the crunch came governments have often shown themselves to be unwilling or unable to do anything.

One of the most notorious examples was the collapse of the MMM investment scheme in Russia. Known for its witty TV commercials the scheme, masterminded by Sergei Mavrodi, served as a harsh lesson for those who lost out. Elsewhere people's pockets are still being hit.

Albania has seen the demise of several schemes already, culminating in the latest which brought thousands of desperate people onto the streets of the capital Tirana yesterday.

The scheme was set up by a charismatic Romany woman, Maksude Kademi. A former shoe factory worker with a penchant for expensive designer wear, the woman, known as Sudja, suspended repayments to depositors in November.

As the crowds poured onto the streets yesterday demanding their money back, she told them through a megaphone that she had no money to give them. "The scheme has failed," she said, "ask the state to give you your money back."

As the mood turned sour riot police used batons to break up the demonstrations. Witnesses said many people, including pensioners, were hurt in the scuffles.

Matters came to a head this week after the central bank limited the withdrawal by any single client to $300,000. The ruling meant that Sudja or other people running such investment schemes were unable to withdraw funds to meet their payment obligations or provided them with an excuse to avoid payment.

The World Bank and the International Monetary Fund have called on the government to exert strict control over the pyramid schemes. In November parliament passed a law setting up a panel of experts to supervise their workings.

But it seems to have had little impact. Such schemes are not known for their transparency. Investors now ultimately blame President Sali Berisha and his government for their problems.

More than half a million people or about one sixth of Albania's population are thought to have deposited their money in such companies. Almost every family is estimated to have invested in one scheme or another.

With average wages low at $80 a month many have been persuaded to sell their homes, their land and their livestock with the promise of high returns. Thousands now depend on interest payments alone for their income.

Economic experts have warned that the schemes are undermining Albania's economy as more and more people give up business and put money into these risky ventures.