SETimes.comFoggy economics in Macedonia come into focus
02/11/2009
Last year, the government said Macedonia would be immune to the world economic crisis -- wrong they were. Now the country is taking steps to tackle the dilemma.
By Zoran Nikolovski for Southeast European Times in Skopje -- 02/11/09
The economic situation in Macedonia seemed to be clarified by an IMF visit last week. While the government was pleased with the IMF's findings, opposition parties weren't so thrilled.
A gradual return to growth is expected, and GDP is only forecasted to slip between 1% and 1.5% this year -- a slight improvement from the previous outlook that called for a 2.5% decline, said IMF Mission Chief for Macedonia Wes McGrew.
"Although the crisis has obviously had an impact on Macedonia, it has faired significantly better than most other countries in the region," said the government at a joint press conference with the heads of the Macedonian financial institutions.
However, the Social Democratic Union for Macedonia (SDSM) warns that the IMF predicted a high risk of macroeconomic instability.
"The government remains alone in its unreal projections for 2009 opposite IMF, EBRD [European Bank for Reconstruction and Development] and SDSM projections", said SDSM Vice-President Zoran Jovanovski.
This past summer, the debate over the impact of the global financial crisis heated up.
Headlines last July read, "Macedonia faces bankruptcy". The media buzz was sparked when then Finance Minister Trajko Slaveski said the country was on the brink of liquidating its assets. He called for parliament to rebalance the budget and cut expenses by approximately 100m euros.
"Do not wait for September, make it by the end of the month," said Slaveski.
The alert shocked the country. Many speculated that civil jobs and pensions might be cut to help battle the country's debt -- those fears never came to fruition.
The country was however hit in the gut by the global financial crisis, and newly-designated Finance Minister Zoran Stavrevski, who is also the deputy prime minister, announced the country had dipped into a recession.
"Nobody should be surprised that during 2009 Macedonia has had negative growth rates as have other countries and that it would enter recession this year. If the whole world is in recession it is unlikely to expect that Macedonia was out of that," said Stavrevski to parliament.
Although Stavrevski was not surprised, some of the headlines on his government run website were ominous.
One headline read, "Direct foreign investment in the first four months of 2009 amounts to approximately 90m euros."
According to the article, during the same period last year, a total of 142.5m euros of direct foreign investment were pumped into the country.
Another title, and perhaps the most alarming, reads, "Gross Domestic Product (GDP) growth rates in first quarter of 2009 is -0.9%."
All articles use figures obtained from the State Statistical Office.
The crisis, much like in other nations, has taken its toll on the working class -- especially when it comes to applying for credit. Consumer credit has increased from 10% to 14.5% on average, and behind the National Bank's policies, banks have implemented credit restrictions that put credit almost out of reach for most people.
National Bank Governor Petar Goshev's policy has been firm since he assumed the leading position in the central bank -- zero tolerance for changing the denar's stable exchange rates. When the first signs of the economic crisis loomed, Goshev introduced radical anti-inflation measures.
In March, Goshev said the exchange rate of the denar was seriously jeopardised and he would defend the fixed foreign exchange rate at any cost. He also took measures to radically tighten the already tough monetary policy as interest on National Bank bills increased by two percent points, and the bank strives to preserve foreign currency supplies, maintain the exchange rate and avoid devaluation.
Businesses have complained for some time that the restrictive policies of the National Bank make credit and capital expensive and exporting difficult.
In August, some glimmers of hope, such as a healthy budget a month earlier, caused Stavrevski to call on the governor to lower interest rates.
In an interview with local daily Utrinski vesnik, Goshev said it was too early to loosen the monetary policy. He estimated that banks in the country wouldn't feel the force of the crisis until a bit down the road. Banks gains were lower by almost 86% compared to last year.
Consequences of the crisis are also seen in foreign currency supplies. According to the National Bank, foreign currency supplies have been lowered by 101.5m euros this year. Positive signals came in July when foreign currency supplies increased because the government issued so-called "euro bills", or arrears, and due to the inflow of emigrants to Macedonia.
In November 2008, although the government said the crisis would pass over the country, it announced a 330m euro package to alleviate the consequence of one. The package included a decrease in customs duties, and lowering taxes for farmers, among other measures.
According to Miroljub Sukarov, a professor at Tetovo-based South East European University, the products Macedonia exports are not irreplaceable. Sukarov told the Macedonian Business Portal that Macedonian imports are irreplaceable, such as oil and electricity. Thus, if the crisis endures, Macedonia will need much more than the usual half billion euros to cope with the consequences of it, according to Sukarov.
An everyday citizen might be able to sum up the situation. "I am unemployed, so I am unaffected by the world economic crisis. I am in a permanent crisis."
Currently, the unemployment rate in Macedonia is 33.8%.