Macedonia at critical crossroads


SUN, 02 JUL 2000

Skopje, June 21, 2000 - On two recent occasions, the World Bank taught Macedonia a good lesson aiming to bring it to its senses and make it take the right economic road and forsake the quasi-reforms seasoned with politics which have been practised in the last ten years. As people would say, Macedonia got "two hot slaps in the face". In plain Serbian language, WB gave Macedonia a "yellow card" with an ultimatum: "You will either speed up the process of transition and implement reforms as required by the market economy, or else you are on your own". Until 1997 (in the last two years the state did not conclude any arrangement with WB), this renown world financial institution has granted Macedonia something over 232 million dollars under different favourable credits.

What has actually happened? First, the World Bank experts prepared an extensive analysis of the transition process this country has covered and rather unusually harshly criticised all the Macedonian Governments from 1992 till March 2000, politically seasoning this overview, which according to experts is not its usual practice. It gave every single detail of each error and omission, all deviations of the system on account of which the reforms are stagnating, also assessing that the current Government does not have "technical reform capacities". Next, last week at negotiations conducted in Skoplje, it exerted a strong direct pressure on the Government team ordering it to carry out a number of specific tasks by the end of the year, if it wanted to get the "50 million dollars worth" FESAL 2 arrangement. The primary condition is the reduction of enormous losses, which now account for 2.9 percent of the gross domestic product in the economy, which Macedonia could accomplish by selling or winding up the loss-making enterprises within the prescribed time limit, as well as by preparing a three-year plan of reforms by which Macedonia would show that it was seriously determined to "put the stranded transition ship back in motion".

How much and in which way was everything the world bankers wrote in their report on Macedonia understood, is best attested by different public reactions. This has caused new confrontations between politicians and the media close to them, and divided the public opinion depending on its political affiliation. The opposition used this report for daily political aims emphasising that Macedonia was never in such dire straits as it is now. The authorities think similarly. For all negative assessments, parties in power blame their predecessors claiming that they couldn't rectify overnight what SDSM had "messed up". Both sides are forgetting to explain to the people what is in store for them in near future, the uncertainty the are going to be faced with, as well as what is the burden of reforms that they will have to bear on their weak backs. For, it is an exercise in futility to compete who was a better Prime Minister: Branko Crvenkovski or Ljubco Georgijevski.

The World Bank has prepared an X-ray report as a basis for its new negotiations with Macedonia, In other words, it scanned not only individual Governments, but the Government as an institution, and the state as a system. And these are the findings of that report.

The report, inter alia, states that the Macedonian Government is doing too much with too little, that its organisation is chaotic, which is why it is inefficient and non-transparent in its work. There are too many ministries, working bodies are too large and uncoordinated, there are no control mechanisms nor legal basis for determining accountability, from the lowest clerk to the highest official, spending is uncontrolled and beyond means, wages are out of control, expenses are too high in Ministries of Education, Defence and Police and the state is too generous towards unemployed and welfare cases. Washington experts think that the Macedonian Government has poor technical, human and personnel resources, that it is blocked by politicisation, that it pursues unstable policy, lacks adequate information on the basis of which it could adopt and defend its decisions.

In other words, the state is not run in a team manner and competently. That is why Macedonia is required to implement deep systemic reorganisation of the Government so that the cooperation with world financial institutions could continue. And all that by the end of this year. Reorganisation of the health sector is also demanded in order to reduce free-of-charge medical treatment and use of medical aids, unemployment benefits, welfare aid, expenses for pensions from contribution funds of active labour force of 220 thousand workers who support 90 thousand public servants and 250 thousand pensioners to the benefit of private funds which will be established. That is why contributions from wages and taxes are huge and should be cut down in order to stimulate employment. Furthermore, Macedonia is expected to reduce state administration apparatus, costs and salaries in the Ministries of Education, Defence and Police. And much more than that. The report states that this is why the achieved results are below Macedonia's abilities and needs.

The organisation of public services was especially criticised because each is doing its own thing and the way it thinks fit and not the way it suits the citizens so that specific measures are proposed to bring things in order. According to economic analysts, who have long ago sounded the alarm, but to whom no one listens, the fate of the state will depend on what is achieved by the end of the year from all the things that have been precisely and specifically listed in the given "homework".

Macedonia is at critical crossroads, they claim. As an argument they cite what is clear to a naked eye: wide-spread chaos in many branches of the economy, retrograde processes in the production and foreign trade. In the first quarter of 2000, it beat all records till now, realising a 270 thousand dollars worth deficit which is in itself a sufficient argument for the introduction of the state of emergency in the economy. Next comes the unemployment, in which the state still holds the European record, as well as growing poverty and hopelessness of two thirds of the population which barely "make the ends meet". "Market economy" is based on secret agreements which are made between members of the new nomenclature close to the centres of political power, non-transparent privatisation is based on discretionary Government decisions, politics has enormous influence on the economic flows, corruption has been institutionalised from the grassroots to the highest levels, there is legal insecurity, etc. Both the local economic analysts and the citizens demand that establishment of order because, as they say, they can otherwise only expect an "economic disaster".

Under the powerful pressure of the public and world financial policemen, in the course of long and tough negotiations held in Skoplje last week, the Macedonian Government promised to do everything required of it for the soonest possible visible improvement of the situation and return of the country to a much accelerated reform course. The Finance Minister Nikola Gruevski assessed the negotiations as extremely hard, but successful, expressing his hope that the promised Washington's help to the implementation of the planned tasks, would be timely and efficient.

In order to get a new FESAL arrangement from the World Bank which, as agreed, would be drawn in instalments, Macedonia will have to drastically reduce losses in the economy, which now amount to DM 420 million and close down at least 15 out of 40 black-listed enterprises. By the end of July or beginning of August, the Bank Board has to approve 50 million dollars credit, which would be drawn in three instalments. It was agreed that the first 10 million dollars worth instalment would be available to the Macedonian Government in September, and the remaining two of 20 million dollars each, in December 2000 and June 2001, respectively.

The arrangement must be closed by March 2002, at the latest. The withdrawal of each instalment is conditioned by the sale or liquidation of specific firms which have been unprofitable for years. First on the list is the FENI Combine from Kavadarci whose destiny will be sealed by September. After that comes the metallurgical combine "Jugohrom" which will need a strategic partner to save it or will be wound-up, as well as another four firms from the list of 8 following enterprises, which have been marked: lead and zinc smeltery and china factory from Veles, battery factory "Zletovo" and Zletovo mines, the Skoplje car factory "11 Oktomvri", mines "Sasa" from Kriva Palanka, the Gostivar combine "Goteks" and the Kumanovo combine "Godel". The problem of others, as well as additional five enterprises, will have to be resolved by the time the third instalment becomes due.

The biggest surprise is that there is a news and publishing agency among them: "Nova Makedonija", the largest and, until recently, the most powerful publishing house with the oldest daily, of the same name, which is now in agony. In this company are also: "Toranica" mines, shoe factory "Gazela", agricultural combine "Kocansko polje" and Stip fashion clothing industry "Astibo". When deciding on the fate of these enterprises, the Government will have to have in mind the destiny of some 23,210 employees and that the sale can be done only by tender or public bidding. The Macedonian Government has been allowed flexibility in ecision-making under the condition that it will reduce the share of losses in gross domestic product from 2.9 percent to 0.9 percent with the sale or winding-up of these enterprises.

The negotiating teams have agreed to urgently, and with the assistance of the World Bank experts, prepare and, by the end of the year, pass new laws which will enable the reform of payment transactions. In the first place, this means the adoption of the banking law, the law on executive procedure, law on mortgage and law on the fund for the security of deposits.

A new round of talks will be held soon in order to clarify some details about FESAL and if this time it turns out that the Government is really keeping its promise, the negotiations for the new 40 million dollars worth PSAL arrangement will be scheduled. The World Bank Managing Board has recently updated its three-year strategy for cooperation with Macedonia which should be completed by next July. According to well-placed sources, this document envisages two scenarios: an optimistic and pessimistic one. According to the former, Macedonia would get additional 70 million dollars under FESAL 2, and according to the latter only 40 million of green notes. Now it is all up to Macedonia.

Original article