No Constitutional Amendments - No Money!

Fears that the international community will withhold assistance crucial to Macedonia's economic recovery if the Ohrid agreement is not implemented turned out to be true. A planned donors' conference has been postponed indefinitely, and three-week long negotiations with the International Monetary Fund ended in a fiasco. Thanks to politicians, Macedonia has failed to make financial arrangements and will be under international financial scrutiny for the next six months.

AIM Skopje, October 12, 2001

A donors' conference for Macedonia scheduled to be held in Brussels on Oct. 15 has been postponed. The message is: no constitutional amendments -- no money! This is how international community representatives are trying to discipline local politicians through a policy of rewards and punishment, forcing them to implement the Ohrid agreement that Macedonia has signed. Since the implementation process is progressing with difficulty, constantly encountering obstacles and standing good chances of failure, what many have feared is coming to pass. Innocent people will suffer. The ruined Macedonian economy badly needs a financial injection to recover from the shock of war, but it is already clear that it will not be administered anytime soon. Even if officials begin to comply with international demands and the donors decide to get together in mid November, as was announced with much optimism by Finance Minister Nikola Gruevski, Macedonia will not get the money it needs so badly because of the tedious paperwork that goes with such arrangements, economic experts warn, citing past experience.

Of four donors' conferences held in the past ten years in response to Macedonia's appeals for international assistance, only one was considered successful. The first two, let us recall, were organized in Paris shortly after the country gained independence and yielded only about US$30 million. The third was held in Brussels and it produced what Macedonia had asked for -- US$120 million. The fourth and most illustrative of the current situation was organized immediately after the Kosovo crisis. Macedonia asked for US$432 million to cover costs of sheltering 360,000 Kosovo refugees. It was supposed to receive US$252 million, but it got only US$20 million, or less than 5 percent of what it expected to receive.

The fifth conference is yet to be held and was supposed to secure US$65 million to cover the budget deficit. The sum was later doubled, but it is growing by the day. The government coordinating body in charge of resolving the crisis has put together a plan of action specifying the extent of the damage caused by the war (totaling S$500-600 million) and calling for urgent international financial aid. In addition to US$150 million needed to cover the budget deficit, about EUR145.2 million will be required to repair damaged infrastructure in the crisis area and compensate individuals. If a speedy restoration of inter-ethnic trust is desired, it will cost at least EUR54 million more, says crisis committee chairman and Macedonian Deputy Prime Minister Ilija Filipovski. These are estimates that will be presented to the donors in Brussels. But needs are one thing, and reality is something entirely different.

Ahead of the new donors' conference for Macedonia, which the World Bank's South Eastern Europe Section has been helping to prepare since the beginning of the crisis and which was postponed several times, there is much disappointment and mistrust on both sides. Those who are supposed to sign the check -- the EU, the U.S. and other Western governments -- are making new demands all the time. In addition to changes to the Constitution, they demand the urgent passage of a self-government bill because they are not certain that Macedonia actually deserves their assistance! Those who need the money, Macedonian entrepreneurs, feel let down, tricked, disappointed. They say they are all aware that Macedonia has its debtors, that it will not be able, by itself, to pull itself out of the mud it has become bogged down in thanks to others, but that political interests come first. In short, they are convinced that once again Macedonia got the stick instead of the promised carrot! And this is why they do not have a single good word for either the "hypocritical international community and international financial officials" or for top Macedonian officials.

True, IMF representatives in charge of Macedonia, South Eastern Europe Regional Center director Christian Portman, and the head of the negotiating team, Bisvargit Bannergee, warned Prime Minister Georgijevski several times, and at the end of failed negotiations clearly said they had "no intention of tolerating the economic chaos created by the government" and of having "no money to waste." They particularly criticized Macedonian officials over the high budget deficit, which, instead of DM150 million planned in June, has reached an astounding DM700 million, because of the war. The sum is 9.2 percent of the GDP. Minister Gruevski claims that not all of it went to purchase weapons, as claimed, but for bringing in military reservists and police.

Partly owing to this, and much more to political pressure as state officials believe, Macedonia will lose the ongoing PRGF and EFF arrangement with the IMF, worth US$46 million, of which it received only the first installment. And this is not the only thing it stands to lose. Many donations and soft loans amounting to almost one billion dollars, promised by the European Commission, the U.S., Holland, Germany, France, Sweden and other friendly countries, are now endangered. A closing of the doors of other international financial institutions is expected to follow, and, according to independent economic experts, will have devastating consequences. The authorities are told to urgently tighten the national belt if they want to restore the trust of international financiers. They have been asked to take rigorous steps to prevent uncontrolled public spending that is depleting the hard currency reserves and removing the inflation safety net, as well as possibilities for lower interest rates. Rumor has it that international financial institutions have threatened to introduce a currency board in the event of non-compliance.

Meanwhile, and, of course, on condition that the Constitution is amended to give greater rights to ethnic Albanians, Macedonia was placed under the STAF Monitoring Program. This is to say that in the next six months it will be under special scrutiny. Normalization of economic trends will be closely observed, not one cent in foreign capital will enter the country, and it will be eligible to negotiate a new financial arrangement in April 2002 at the earliest!

All terms of Macedonia's macroeconomic policies in this and next year have been agreed in principle -- GDP is expected to drop 4 percent, inflation should be up to 6 percent, and the budget deficit DM700 million. During difficult and nauseating negotiations, international financiers conditionally agreed that instead of raising VAT from 5 to 19 percent on all staples, the 0.5-percent war tax on all financial transactions should be extended until the end of 2002. The tax was introduced to collect money to pay for the damage done by the war, estimated at DM1 billion, and was planned to be cancelled by the end of

1. This, however, will have to be approved at an upcoming session of the IMF Office in Washington. Bannergee forced Finance Minister Gruevski to promise that in the event the war tax fails in producing DM160 million, new taxes will be introduced or existing ones increased. According to Prime Minister Ljubco Georgijevski this was "unprincipled and insolent blackmail," because Macedonian citizens are already paying the costs of a war they neither provoked nor wanted.

Therefore, the donors' conference, could still be held. Moreso, international officials have said they would intensify preparations for it as soon as possible. Experts from Great Britain who are already in Skopje will be joined soon by their colleagues from Holland. A date has not been set, but it hinges on the constitutional changes. They are convinced that November is the last opportunity this year, because any further delay will slow the arrival of the money, some of which cannot come in before 2003, which will reduce the expected effects.

Some local financial experts, mostly those close to the ruling VMRO-DPMNE, believe that Macedonia should no longer "humiliate itself and beg from the rich," but should instead, via U.N. mechanisms, demand that war damages be paid to it. Particularly because after the terrorist attacks at Washington and New York, international officials have admitted that the security crisis in Macedonia was imported form Kosovo, which is a U.N. protectorate. As opposed to them, independent analysts claim that "the greedy, corrupt and criminal oligarchy" is to blame for everything, being focused only on its partisan and personal interests. According to them, state officials care little about rampant poverty, and should be replaced with assistance from the international community. The add that those who created the crisis cannot take the country out of it. Time will show who is right.

Branka Nanevska

(AIM)