Analysis: Macedonia's Augean stables

By SAM VAKNIN, UPI Senior Business Correspondent

SKOPJE, Macedonia, Oct. 29 (UPI) -- Macedonia's post-electoral euphoria faded into arduous coalition-building negotiations replete with arm-twisting by the worried representatives of the "international community." Albanian and Macedonian youths clashed in a chilling reminder of the country's inter-ethnic fragility.

Macedonia seems bent on breaking its own record of surrealism. The prime minister designate, Branko Crvnkovski, vowed to learn from his and his party's past mistakes when they ruled the land until 1998. Critics said that term was marked by corruption.


But while politicians in other countries in transition strive to be noticed for not stealing -- their Macedonian counterparts aim to steal without being noticed.

The previous government plundered the country shamelessly. Start, a local publication, recently accused outgoing Prime Minister Ljubco Georgievski, a virtual pauper when he attained power, of owning land and a residential building in the capital's most expensive neighborhood. In a sudden and politically motivated resurrection, the high court scrutinizes the Okta deal -- the opaque sale of the country's loss-making refinery to the Greeks in 1999. Heads will roll, promise both the election victors and their Western sponsors.


Corruption and terrorism both enhance social mobility in this tiny, landlocked country of 2 million impoverished people. The former members of the militant Albanian National Liberation Army are now poised -- courtesy of Western pressure and Albanian voters -- to occupy crucial ministries with lucrative opportunities of patronage.

Comic relief was provided by the International Crisis Group. Its representative in Macedonia went to Prilep to conduct an impromptu investigation of the thriving cigarette smuggling trade. Posing for the cameras, he declared that only the local leaf-rolling plant was not involved in this line of work.

Macedonia is the hub of expatriates and consultants in the Balkans. Ante Markovic, an Austria-based former Yugoslav prime minister, who served as a much-criticized economic adviser to the government until he was dumped, is now suing Macedonia for $1 million. Former Finance Minister Nikola Gruevski was asked by the Serbian government to serve as its consultant on matters of reform of the financial system.

The country's Finance Minister Petar Goshev, a former socialist high-level functionary, is known for his integrity. His top priority would be to eradicate corruption by instituting structural and legal reforms. His newfound socialist partners -- he heads a center-right outfit -- may find this bizarre ardor unpalatable. Expect fireworks sooner rather than later.


The country is in shambles. In the wake of a civil war, the official unemployment rate is 31 percent. Close to 100,000 people are employed by the bloated central and local administrations. The trade deficit is 17 percent of gross domestic product. Last year, the budget deficit climbed to 5 percent, though it was since halved.

The Heritage Foundation has ranked Macedonia 97 out of 155 countries in terms of economic freedom. The country is "mostly unfree," it correctly concluded in its report. A moderate level of trade protectionism, low tax rates, moderate inflation, a moderate burden of the government, moderate barriers to capital flows and foreign investment, and moderate intervention in the economy are offset by a dysfunctional banking system, intervention in wages and prices, low level of protection of property, a high level of regulation, and a very high level of activity of the black market.

Owing to the International Monetary Fund's misguided emphasis on exchange rate stability, the currency is overvalued. The manufacturing sector has all but evaporated. Industrial production declined by 20 percent in August compared to the average last year -- or by 11 percent year on year.

Macedonian steel is exempt from the latest bout of American protectionism, but not so its textile industry. Europe is fending off the country's agricultural products. People make their meager living catering to the needs of an ever-expanding international presence or dabbling in illicit activities. Piracy of intellectual property, for instance, is thought to yield about 1 percent of GDP.


Close to half the population is under the poverty line. The number of welfare cases increased by 70 percent between 1994 and the present. Generous and incessant multilateral and bilateral credits sustain the economy.

In a much-ballyhooed donor conference, the pledges amounted to 15 percent of GDP. Central Bank Gov. Ljube Trpski cheerfully predicted that these handouts will cover the hole in the balance of payments. Macedonia also stands to receive 7.5 percent of the gold reserves of the former Yugoslavia of which it was a component. At about $700 million net, foreign exchange reserves are at an all-time high.

Both the IMF and the World Bank promised a speedy return to business as usual. A hitherto elusive standby arrangement is likely to be concluded by the end of the year. World Bank funds, frozen in material breach of its written contracts with the state, will flow again. The European Union promised development funds if the new government acts in a "European spirit" -- i.e., obeys Brussels.

The incoming administration is likely to enjoy a 100 days of grace with both the trade unions and international creditors. Strikes and demonstrations by dispossessed miners and underpaid railways workers have waned. But Macedonia joined the World Trade Organization last month and will be forced to open even more to devastating competition. Labor unrest is likely to re-erupt soon.


Foreign investment in the country has mysteriously increased -- some of it laundered money reinvested in legitimate businesses.

On a few occasions, domestic firms, using international fronts, have bid for local factories, such as the Astibo textile plant. The national payment card project has been guzzled by two banks close to the outgoing ruling party, VMRO-DPMNE.

But there are real investments, too. The capital's central heating utility was purchased by an unidentified French energy outfit. The utility's shares are about to be listed on the Athens stock exchange. The Granit construction firm will build a $59 million highway in Ukraine, which enjoys a cordial relationship with Skopje, to American chagrin.

Macedonia is now preparing for a contentious census in the first two weeks of November. It is part of the Ohrid Framework Agreement, which ended the internecine fighting last year. If fairly conducted, the count is likely to show that Albanians make up about one-third of the population rather than one-quarter, as most Macedonians spuriously insist.

The restive Albanians are likely to coerce enfeebled Macedonia into translating this numerical reality into political and economic clout. The Macedonians are likely to resist. The West will intervene. Macedonia is facing a hot spring and a sizzling summer.


Sam Vaknin served as economic adviser to the government of Macedonia 1996-97, 1999-2001 and 2002. Send your comments to: [email protected].

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