Exchanging Mattress Money

The exchange of various foreign currencies for euros in Macedonia is going better than anybody could have imagined: people are exchancing more than one million German marks daily. This confirms the widespread belief that the traditionally thrifty Macedonians had hoarded more than DM1 billion for a rainy day. If this money had been deposited in savings accounts, it could have helped the ruined economy more than any donors' conference, experts say.

AIM Skopje, November 29, 2001

Despite the complex situation, Macedonians have begun to discuss the exchange of their foreign currency savings for euros in the fastest, best, and the safest possible way. For years the German mark has been the only way most people could protect themselves from wrong moves by the government and inflation; this reserve currency practically gained legal tender status after Macedonia became independent. There are many indicators proving this, starting with various transactions carried out in German marks, stating prices in this currency, to using it as benchmark for the domestic currency, the denar.

The realization that the traditional and beloved German mark will become history, and that on Jan, 1, 2002, the euro will become the sole currency of 12 EU countries, making the denar also dependent on it, came together with mistrust, protest, and fear. Many want to know how the domestic currency and living standards will stand up to the test of this financial novelty. The people are having a difficult time ajdusting to uncertanties, experts say. Luckily for them, however, practice has proven otherwise.

In a rather short period, especially in the light of past failures, exceptional results have been achieved, surprising even the staunchest sceptics. In October alone, for instance, people invested about DM50 million in commercial banks and savings institutions. Bankers claim that in November deposits made for the exchange purposes amounted to DM1 million per day!

Individual savings, which at the end of June 2001 were hardly DM218 million (US$100.9 million), at the end of September totalled DM490 million. For this the credit belongs to not only a lack of any other choice, but to state and commercial financial institutions, as well as the media. Their experts did a great job. Authorities distributed brochures with information, papers published analyses and editorials, and commercials were aired on state-run and private TV stations. When the campaign gained intensity, negative feelings began to disappear.

The options were clearly presented: you could either exchange your German marks for cash -- denars, U.S. dollars, Swiss francs or British pounds -- or deposit them on savings accounts with commercial banks by Dec. 31, 2001, in order for the conversion to be automatic and free of charge. If you exchange by Feb. 25, 2002, you have to pay a still unspecified commission, but which will probably not exceed 0.5 percent. After this date the commission is expected to be three times higher.

Commercial banks, which had been reorganized to adhere to international standards and are operating under the auspices of certain foreign banks, have offered many concessions in order to restore the trust they lost during the years of transition. They are trying to convince people that it pays off to save, much like in the rest of the world. They keep explaining that savings invested in Macedonia's ruined economy could be better financial injection than any donation, and that it would considerably reduce the need for foreign loans.

For three and six-month time deposits, Stopanska Banka, for instance, offers 4.5 percent and 4.35 percent monthly interest, respectively, paid in advance. If a client wants to withdraw the interest at the end of the period, he/she will get 4.7 percent and 4.55 percent, respectively. The interest increases proportionally to the length of the time account. For one-year time deposits it is 4.75 percent per month, and for two-year time deposits, 5 percent.

The second largest bank, Komercijalna Banka, which was declared the best Macedonian bank this year by Europe's leading The Banker magazine, the interest ranges from 2.8 to 5 percent, depending on the type of account. The deposits are stated in euros, and all currency exchanges, regardless of the transaction, are free of charge. Bank sources say that their old clients are back, and that the number of new ones is steadily going up.

The major novelty in Makedonska Banka, controlled by the ruling VMRO-DPMNE party, is the payment of interest in hard currency at the end of the deposit's term. For sight deposits in euros, 3.1 percent is paid in interest. For time deposits, depending on their term, the interest rates range from 3.5 to 4.5 percent for short-term deposits, and from 5.5 to 7 percent for one to three-year time deposits. For long-term time deposits where interest is withdrawn every month, as well as for deposits by young people, the interest is 5, 6, and 7 percent.

Tutunska Banka, whose major shareholders are Nova Ljubljanska Bank and the German LHB, offers savings booklets in two languages, transferring money abroad for better protection, and growth through proper investment. This is a plan that has yet to be approved by the Central Authority. Tutunska Banka managers are pleased with the growing number of savings accounts, but fear that immediately after the New Year, due to deteriorating security and political conditions, people will again start withdrawing their money and hoarding it at home. The interest paid by this bank, as well as a number of others that were not mentioned, ranges from 3.1 to 5 percent per month.

Had it not been for the introduction of the common European currency, the banks would have certainly failed in attracting as many clients. Namely, during the past decade Macedonian account holders have suffered several enormous blows starting with the dissolution of the former Socialist Federal Republic of Yugoslavia, in which they had accounted for 14 percent of all savings, albeit being the poorest republic, to failed pyramid investment schemes in which about DM1 billion disappeared into thin air. For years the state, which took upon itself to return this stolen money, has tried to eliminate fears of banking. But as they say, once bitten twice shy.

Many were dissatisfied with their savings being returned through bonds that lost much of their value over the years. Hopes were raised by the Savings Compensation Fund, formed five years ago, which the state began supporting a year ago. Today, the fund has at its disposal a sum that would suffice to justly compensate the clients of all 15 banks and eight smaller banks in Macedonia. If the need arose to compensate the clients of the three largest banks operating with foreign capital, which, it is believed, would not have any trouble, money would be borrowed, said fund director Ljiljana Bozinovska at a recent celebration of World Savings Day. The 32-member fund on two occasions justified its founding. The rules of this protective financial institution guarantee full compensation in denars to all people who have up to EUR1,500 (DM3,000) on their accounts. If they have between EUR1,500 and EUR7,500 (DM15,000), the amount of compensation is 90 percent in denars. DM15,000 is the most an account holder could get in compensation, in the event a bank or a savings institution that is a member of the fund goes bankrupt. This is why people are advised not to deposit amounts higher than that in a single bank, but to open accounts with different banks. They have until March 1 next year to open accounts without having to explain the source of their money. On that date, namely, the Money Laundering Act will go into effect after it was recently passed by the Macedonian Parliament.

Experts differ in their forecasts of how much of Macedonian citizens' hard currency will remain in the banks after the exchange operation is finished. The biggest optimists, the directors of the larger banks, are convinced that the sum could amount to DM1.5-2 billion if the October/November depositing rate continues. The pessimists, mostly those in charge of finances in state institutions, are convinced that the sum will not exceed DM700 million. In this, they include deposits existing before the October-November savings boom. Independent analysts from the Skopje School of Economics, however, believe that the thrifty Macedonians will save about DM1 billion.

Branka Nanevska

(AIM)