A MISSED OPPORTUNITY FOR SWIFT TRANSITION
Macedonia:MACEDONIA:
By: Branka Nanevska (Skopje)
The project for the dispersal of cold mist of three Skopje engineers, proclaimed the Invention of year 2000, inspired ironic consideration on the part of numerous citizens who, for the past ten years, have with no avail been waiting for the results of the undertaken reforms to present themselves. Perhaps the invention could help disperse the mist created by the meddling of the incompetent local political nomenclature into the economy ?! That mist, many citizens and analysts are convinced, is the main culprit that, after the downfall of former SFR Yugoslavia, Macedonia has missed its opportunity for a swift and quality transition. It is believed that Macedonia could have been the first country in southeastern Europe to introduce the market economy into its economic and social system.
The process of transition in Macedonia, a country covering an area of over 25. 713 square kilometers with a population of a little over 2 million inhabitants, has proved to be much more troublesome than expected and burdened with numerous obstacles: starting with the natural limitations of growth resources, through various socio-political and ideological upheavals, unfavorable influences of relations governing the international political and economic scene, up to unforeseen " side blows " the process has suffered in the meantime, particularly in the last two years.
A retrograde process
According to present methodological standards, in 1990. Macedonia had a gross national product ( GNP ) of 2.235 dollars per capita. According to the Skopje Economic Institute, the Macedonian GNP now equals 1.801 dollars compared to 1.695 dollars in 1999. In the period starting with 1981-1990, the GNP had an annual growth rate of 2,5 per cent; in the period preceding 1996, it suffered a constant decline of 9,6 - 0,3 per cent a year; the sum total of decline of the Macedonian GNP for the period 1991-1998. now equals 5 per cent.
Four years ago, first positive signs of an upward trend came to be noticed. In 1996. GNP rose for 0,8 per cent, in 1997. the growth rate was 1,5 per cent, in 1998. it amounted to 2,9 per cent and, according to the latest estimates of the National Bank of Macedonia ( NBM ) , the growth rate for year 2000. should reach 5 to 6 per cent. Independent economists estimate that, if the present trend is to continue, the GNP will be a half of what it was in the initial year of transition. At the same time, the analysis of the Vienna based Institute for International Economic Studies ( WIIW ) show that, at the moment, in undergoing the process of transition, Macedonia has managed to realize but 70 per cent of the GNP it had in 1998.
At the beginning of the decade, realized production capacity was 70 per cent, today hardly 20 per cent of the enterprises are employed in a profitable manner. In recent years, a number of factories have been shut down and new ones have not been opened. This resulted in an enormous rise in unemployment, making Macedonia an inglorious European record-holder in this respect. According to the Statistical Office, 270 000 people are presently out of work ( 32,1 per cent ), while the Employment Agency claims there are 371 000 unemployed persons ( 53,4 per cent ). Statisticians explain that data concerning the estimated 100 000 citizens who have found employment at the black-market sector have not been incorporated into their reports, while experts believe that it will take at least 50 years before this - the gravest of all Macedonian problems - is solved.
To the minds of independent economists, there isn't a shred of doubt that Macedonia is paying a much too high price for the transition from socialism to capitalism. They are certain this is the consequence of the fetish-like status the local authorities have ascribed to the policy of the stabile foreign-exchange rate of the denar and low inflation rates they have adhered to since the very first day of the monetary autonomy obtained in 1992, the two parameters - if all others were excluded - according to which Macedonia could be cited as an exemplary model of successful transition.
Experts from the NBM point out that in the past decade they have employed two monetary strategies in implementing the stabilization program aimed at suppressing the inflation which in 1993. equaled 229,6 per cent. Up to October 1995, the so called targeting ( monetary curbing ) was the strategy applied, in the following period the foreign-exchange rate of the denar in respect to the Deutch mark was kept in check. In July 1997, the denar was devaluated for 16 per cent and the exchange-rate fixed at a parity of 31 denars per one DM. In the subsequent period, up to the end of the first half-term of 2000, the inflation was brought down to a single-digit numeral; starting with July of the same year, the achieved balance was jeopardized by the growing price of crude oil on the international market and equivalent trends of the price of electricity on the domestic level. In relation to the growth of retail prices, the annual inflation in September 2000. amounted to 13,5 per cent, in relation to the costs of living, it totaled 8,1 per cent. Statistics show that, in comparison with the initial year of the past decade, the inflation rate has risen for 60 per cent.
In the meantime, most salaries have not undergone a correction worth mentioning and for the most part they average some 300 DM. Along with the negative or extremely low industrial production growth rates ( 17-minus 2,5 per cent ) , these facts present the crucial argument for the critically minded economic analysts who claim that Macedonia is experiencing an economic decline owing to the " economic sabotage " of the current authorities who have failed to promote a successful national strategy of development.
Numerous data show that the process of transition in Macedonia has taken a retrograde course and that, in many segments of the society, the chosen method has provoked chaos and a drastic decline of the standard of living on one hand and a trend of unprecedented enrichment on the other. Poverty and misery are the lowest common denominator for a quarter of people living in this country today. With the average salary equaling 3 188 denars in 1990, many believe, life was much easier than at the end of 1999. when the average salary amounted to 9 394 denars or, for that matter, compared to the average salary for September 2000. which totals 10 397 denars. At the moment, the average income in Macedonia is 10 per cent lower then the estimated value of the basic provisions included into the consumer's basket for November 2000. As many as 70 per cent of those lucky enough to work earn less than the national average and 35 per cent are paid out with a delay of 2 to 3 months. Two thirds of the 328 000 pensioners have pensions that barely amount to 60 per cent of the average income. Ten per cent of the population, i.e. 71 000 households, depend on welfare ranging from 100 to 150 DM.
Individual privatization: cause of numerous problems
The negative balance of payment inherited from the past decade is still burdening the economy. In 1990, the trade deficit amounted to 418 065 dollars and the rate of export-covered import was 72,7 per cent. The incessant growth of the trade deficit is a grave structural problem of the Macedonian economy to this very day. Economists claim that according to all parameters, Macedonia has an unusually open economy since 70-80 per cent of its GNP are exchanged with the world. Out of 2,8 billion dollars worth of exchanged goods in ten months in 2000, for example, export partook with 39,1 per cent, import with 60,9 per cent. The rate of export-covered import is 64,2 per cent which means that the negative balance has risen for about 40 million dollars compared to the same period in 1999. and now totals 609,5 million dollars. The explanation offered by the Statistical Office is that the trade deficit was caused by the psychological effect of the introduction of the value added tax ( VAT ) ..
The disparity in the current payment balance is endangering the exterior solvency of the country, i.e. its capability of paying off its debts which have, according to NBM, reached a sum of a billion and 490 million dollars at the end of 1999. Citing the World Bank and data they have at their disposal, independent economists claim that with the indebtedness totaling a billion and 836 million dollars and partaking in the GNP with 48,7 per cent, Macedonia may be classed among over indebted countries.
Government experts deny this, admitting the country to be medium indebted.. They say loans had to be raised if the direct damage ( roughly estimated at a couple billion of dollars ) the country suffered owing to Greek economic sanctions, wars in former Yugoslavia, Serbia and Kosovo, was to be compensated. Indirect damage cannot be given a precise enumeration, but its effects are most obvious in the low level of foreign investments. Barely 24 million dollars were invested in 1999, compared to the record 118 dollars a year earlier.
The government takes pride in the fact that it has managed to achieve a budget surplus in 2000, thus becoming the only European country to do so at the time. The surplus, officially appraised at 230 million DM for the seven-month period from April to the end of October 2000. has, through rebalancing, been partially restituted to the economy it had been pumped out of in the first place by means of the value added tax. Unofficially, the deficit now totals 430 million DM and is likely to rise up to 600 million DM and, according to some critically-minded businessmen and economists, perhaps even more.
According to the experts from the European Bank of Reconstruction and Development, Macedonia has stepped up the rate of its reform process by having virtually completed the privatization. At the end of August 2000, there were 125 798 registered firms in the country: 89 per cent in private ownership, 8 per cent in the public sector, 1,4 per cent in co-operative ownership, 1,4 in heterogeneous possession and merely 0,2 per cent in government ownership. Furthermore, it has sold the biggest state-owned Bank, Stopanska, improved the management and the structural adjustment of businesses by strengthening the bankruptcy policy and the protection of shareholder and creditor rights. The Parliament has adopted laws on the reform of the pension fund, banks, stocks, the implementation of the VAT was initiated, inflation and the foreign-exchange rate of the national currency kept in check. Due to all this, new financial arrangements worth 80 million dollars were struck with IMF and the World Bank after a two-year standstill in mutual relations.
Negotiations with the International Trade Organization, most likely to be resumed in February and terminated in the course of 2001, are regarded as one of the major accomplishments of Macedonian transition. Macedonia is also a member of the Pact for Stability for Southeast Europe, the Central European Initiative ( CEI ) and other international integration. The beginning of the denationalization of property worth a billion dollars is also viewed as a major achievement.
There were 21 registered banks, one foreign branch-office and 19 savings-banks in Macedonia in 2000. At the start of the transition process, they all underwent sanation. A number of broker societies is also in existence, as well as the fund for deposit security, the inter bank market of short-term stocks and the stock-exchange. With the assistance of the European Bank of Reconstruction and Development, the European Investment Bank and an American overseas fund engaged in high-risk investments, arrangements for the establishment of the first Macedonian investment fund are in progress.
The privatization process in Macedonia was carried out in accordance with the so called " individual model" , i.e. in keeping with the priorities of each individual case, a matrix established at the time of the Yugoslav ex-Prime Minister Ante Markovic ( the policy of selling stocks to employees and managerial teams ). The said practice, analysts believe, has provoked numerous problems. Stock shares were sold off practically for free or, at best, at amazingly cheap rates and, correspondingly, the government strong-box at the time remained practically empty, while capital found a way to stuff the wallets of the few privileged well-to -do. As many as 95 per cent of the industrial and mining industry capacities were privatized up to the end of 1998. and are presently undergoing a swift termination of the process. During the first six months of 2000, the payment in cash totaled 34 million DM, compared to the same six-year period (1993-1998) when it amounted to 54 million DM.
If all of the above said is not clear enough, an analysis of the non-governmental organization Transparency International cites Macedonia as occupying the sixty-third post on the top list of most corrupted countries in the world.