AIM: start

SUN, 16 DEC 2001 22:30:09 GMT

Sounding the Alarm

Regardless of how badly it needs it and how eagerly it has expected it, now it is clear that Macedonia will not see a donors' conference organized this year. Because the passage of a self-government bill was postponed it is even uncertain whether donors will be summoned for a gathering any time soon. The Macedonian cabinet and the international community are quarreling and blackmailing each other. Amid this there is growing criticism of politicians who are pushing the country over the brink and adding to social tensions.

AIM Skopje, December 12, 2001

Politics, unfortunately, has once more become a limiting factor of Macedonia's economy. The Parliament failed to pass a self-government bill by deadline, and the international community made good on its threat. It took the stick instead of the carrot, that is, plans to organize a donors' conference for assisting the process of stabilization in the country were ditched. According to independent economic experts, this happened at the worst possible moment, when all of Macedonia's accounts are deeply in the red, coupled with extreme exhaustion after 10 months of war. Recent data shows that there is a US$173 million foreign trade deficit, which was supposed to have been covered by international donations, plus a DM750 million budget deficit, amounting to 9.2 percent of GDP. Worst of all, now that it has been announced that there will not be a donors' conference, it is very likely that this is in fact an indefinite postponement, just like pessimists have been claiming all along. Some have mentioned the second half of January 2002 as another possible date for holding a conference, but this is very doubtful because international officials have, meanwhile, expanded the list of requirements Macedonia has to meet.

The newly-created situation is not confusing only businesspeople and economists, but ordinary people as well, and they have born the brunt of the war and transition. With one-quarter of the population so poor that it is unable even to buy basic staples and with an unemployment rate of almost 40 percent, Macedonia tops the list of the poorest countries in the world. Officially, 354,864 people are without a job, and unofficially, one-half of workforce is unemployed. Some 77,000 households are on welfare, which costs over US$100 million annually. About 100,000 workers receive salaries every third month or so, and the number of those loosing their jobs and their sole source of income because their companies had gone bankrupt is steadily increasing. Social tensions have reached the boiling point. A general strike of civil servants has been announced for Dec. 17. And similar figures could be quoted ad infinitum.

After the donors' conference was postponed, Macedonian cabinet and international community representatives began exchanging harsh words in public. This made analysts conclude that Macedonia is in store for bad times. The greatest threat is uncertainty.

The first to express his displeasure with the international community's attitude was Macedonian Finance Minister Nikola Gruevski. He accused European politicians of "playing with Macedonia," of being "insincere" and "unfair." He strongly criticized and refuted their sarcastic claims that local reforms had been deliberately hindered, on orders from the cabinet which wants the donors' conference cancelled. According to them, government officials have plenty of money, and don't care the least about the people and the state; they do not want international inspectors snooping around. This, Gruevski said, was insulting to the government and the people. He recalled that by signing the STAFF monitoring program with the International Monetary Fund, Macedonia had allowed this financial institution to scrutinize all sources of income and the manner in which state funds were spent, thereby meeting all economic requirements set by the organizers of the donors' conference, the European Union and the World Bank. All details of the 2002 macroeconimc policy have been arranged with the IMF, in which, in the event the crisis is settled and conditions normalized, GDP should grow by 4 percent, inflation not exceed 2,5 percent, and the budget deficit 3.3 percent. If because of political scams we are left without funding, warned the finance minister, next year we will have to tighten our belt even further. He mentioned no details, but very restrictive fiscal measures are unofficially being considered. The war tax will be extended, and instead of two VAT rates, a single, higher rate of 19 percent will be introduced for all products and services, which will mostly affect the poorest. Devaluation of the denar is not ruled out either, whose stable rate has been the greatest obstacle to further deterioration, and delays in servicing foreign debts and removing war damage are also being mentioned. Gruevski was stern and direct, warning Brussels and Washington that without a donors' conference, "Macedonia will not be capable of enforcing the Ohrid peace agreement imposed on it."

The next alarm came from the central bank governor, Ljube Trpeski, who said that if the donors' conference were postponed for more than one month, the agreed economic policy would have to be adjusted to new circumstances. He recalled that hard currency reserves went down due to the war by US$178 million, but that thanks to the sale of Telekom they were still at a rather high level of US$760 million, which is guarantee enough that the worst will be avoided in the short run. He expressed his conviction that by the end of the year Macedonia will receive a US$50 million World Bank loan arranged earlier, and "earned" by the passage of constitutional amendments. The first $15 million installment will be used to deal with war damages, and the remaining $35 million for realizing profitable business projects, if there are any.

Economic experts claim that by delaying the donors' conference the international community has sent alarming signals to Macedonia that should be analyzed coolly and objectively. They warn that reality needs to be faced with one's eyes wide open. They are convinced that the situation is extremely unfavorable, that the state has gone bankrupt already, and that its political stability, and not only economical, is at stake! They lay the blame on the current government, which, in the three years since it came to power, failed to precisely determine the cause of the economy's ills and, consequently, to prescribe the proper medication. Not only in the past three years, but for the whole decade, Macedonia has lacked a proper economic strategy, and because of bureaucratic red tape and high corruption, money received from the international community was used inadequately, to say the least.

Kapital magazine recently published exclusive data which stunned everybody who saw it. Since gaining independence, Macedonia has received in various forms US$800 million. This money was invested through various government institutions in projects of public interest, or in Macedonian companies, on the basis of loan contracts. This sum, ironically, also includes a deal with Taiwan, together with the commission, but there is no information on how much of it ended up in private pockets.

Most of it had arrived after 1994, which is the year when the World Bank, the IMF, and the European Bank for Reconstruction and Development, as the major donors, began focusing on transition in Macedonia with the aim of speeding it up through proper management. Despite this handsome sum, the Macedonian economy has not recovered. Instead it is headed in the opposite direction. According to domestic independent economic experts, the reason was the improper distribution of funds, the fact that the projects that were financed did not contribute to development, and crime and corruption reigning in all segments of society, from the very top to the lowliest clerk.

It is interesting to note that international community experts reached the same conclusions, and that via Eleonore Neghi, the U.S. charge d'affaires in Skopje, they have sent several important messages to Macedonian politicians. The first one is that peace in the country is the most important task, and that it has to hold regardless of the cost. The second is that the government has to take care of its fiscal responsibilities, and the third that the struggle against crime and corruption needs to begin at once. Simply put, this means that Macedonia will get money sooner or later, but that government officials are no longer trusted.

This, according to domestic analysts, has been verified by an analysis prepared by the British Financial Times, which contains findings of French and Italian experts on the alleged failure of a EU program to assist Macedonia during the decade of transition. The analysis lists the following reasons for its failure: "Lack of a clear development strategy, red tape, and procedural delays." It also stresses that EUR500 million invested since 1991 was inadequately channeled. In addition, it underlined inadequate efforts to combat widespread corruption in public administration, and failure to take notice of low salaries and political activism of public sector employees. The EU, said the analysis, has ignored the need "to establish institutions of civil society, which could merge various ethnic groups, increase social cohesion, and contribute to reducing ethnic tensions."

It is hard to forsee if such findings will sober up members of Premier Georgijevski's cabinet and those of other parties which over the past years have achieved financial security with money not belonging to them. What is certain, however, is that Macedonia is in for some hard times and could even cease existing as we know it today.

Branka Nanevska