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Elections over, Macedonia must confront IMF question

  Macedonia, one of Europe’s poorest countries, must confront tough issues including the need for IMF help now the distraction of a presidential election is over, diplomats and experts say.

“Everything was put aside for the elections,” said one Western official in Skopje. “Now they must face reality.”

Only in recent days have Macedonian officials conceded publicly they may need to turn to the International Monetary Fund, following fellow ex-Yugoslavia republics Serbia and Bosnia.

The finance minister and a deputy central bank governor will attend Washington IMF meetings in April, and an IMF mission will likely come to Macedonia in May.

One top official estimated Macedonia, which applied to join the European Union in 2005 but has not opened membership talks, would need several hundreds of millions of euros from the IMF.

“Not less than €500 million,” the official said. “Maybe it is not enough. We have to cover this period of one, one-and-a-half years ... to preserve macro stability.” That would be around 8% of 2008 nominal GDP.

Macedonia had hoped to manage without IMF help after repaying a previous €32 million loan in 2007. “They are going to have to do some budget recalibrating, based on growth rates and inflation rates that are clearly now not going to happen,” said US Ambassador Philip Reeker.


Once the poorest Yugoslav republic, Macedonia declared independence in 1992 and was spared the bloodshed that engulfed Bosnians, Serbs and Croats. It narrowly averted a full-scale war between its Albanian minority and Macedonian majority in 2001.

Yet in recent years its economy has grown 4-5% annually, less than in some of its neighbors. “In the last 20 years as long as I remember we have always been in some kind of economic crisis,” said Zivko Mukaetov, CEO of leading pharmaceutical manufacturer Alkaloid, interviewed in the Macedonian capital Skopje.

He said it is now harder to get paid for exports in the Balkans, Russia and other markets. “The biggest problem now is liquidity, getting your money back,” Mukaetov said. One area where sales are booming are anti-depressives, he said.

The world’s economic crisis is badly hurting the eastern Macedonian manufacturing town of Stip where 1,200 work in the Bargala factory. They take Italian leather and, for three to six euros a pair, stamp, process and sew shoes and boots for export.

In recent months they have rotated workers one week on the job and one off due to lower demand from Britain and elsewhere. “If we don’t get more orders in April and May, we will have to fire workers,” said principal owner Konstadin Barzov. “If the situation continues to the end of the year, we’ll be on the edge of bankruptcy.”

He is cutting costs. The factory now only operates six buses rather than nine for workers, and he held up paper to show he now prints on both sides to trim every possible penny.

Stip clothing firms are also losing orders, while metal exports, which are 40% of total exports, are down 60 to 70% this year, according to Macedonia’s central bank Governor Petar Goshev.

A growing trade gap, less foreign investment and falling remittances have made it harder to keep the Macedonian denar pegged to the euro, and the central bank recently raised interest rates by 200 basis points to 9% to support the currency even though this is likely to hamper economic growth.

Official foreign reserves declined from €1.68 billion in September-October to €1.3 billion at the end of March.

“Dangers are ahead, we are aware,” Finance Minister Trajko Slaveski said on the eve of the vote. “Starting from Monday, when we get rid of this atmosphere and responsibility for the elections, we will turn to (an) adjustment package.”


In a country where some villagers still transport goods on horse carts, many feel they have little to lose. “We are really poor,” said Dimitar Kralev, who co-owns a small T-shirt business in Stip. “If you earn only €150 a month, how much worse can it get for us?”

Kralev said his company Picaso had done well in recent months making up to 70,000 T shirts for the political campaigns that have just ended. The future is uncertain.

In Struga at the other end of the country, Mayor Ramiz Merko insists that scenic Lake Ohrid will keep tourists coming and that 30-40% of residents working abroad will continue to send money home.

“There is no crisis in Struga,” he said on election day as about 30 supporters, all men, sat around him along large tables, occasionally coming over to whisper in his ear. “As for tourists, we have statistics showing enough will come.”

But Struga Macedonian Orthodox Church priest Stefan Sandzakovski said the government should face reality. “I can’t believe we can escape something that has universal dimensions, it’s just not possible,” he said. “The crisis is not so advanced now but we will all feel it by the end of the year.” (Reuters)