First of all, we would like to get your general overview of the financial performance of Macedonia in 2000 and perhaps your expectations for 2001.
The most important macroeconomic performance in the Republic of Macedonia in 2000 was the maintenance of the price stability, which is the main goal of the monetary policy. Namely, in 2000 the inflation rate, according to the Consumer Price Index (CPI), equaled 6.1% (December 2000 / December 1999). Non-monetary factors, such as the increase of the oil prices on the world market (oil is one of the major imported goods in the country), increase of the electricity prices and the introduction of the Value Added Tax, had the greatest influence towards increase of the price level. However, by maintaining the one-digit inflation rate, Macedonia is still ranged between most succesful transition economies in this regard.
Macedonia marked a surplus in the budget for the first time in its history. How does the Government intend to use this money and what are your projections for 2001?
In accordance with the arrangements with the IMF and the World Bank, in the coming years we are not planning to have surplus in the budget, but a small deficit. Because of the rather high surplus in the budget in 2000 we are moving on cutting down some of the taxation rates, primarily with regard to the so-called personal tax. This will provide increase in the competitiveness of our companies, especially those branches or companies which have a lot of employees (textile industry, agriculture). It is very important that at the end of 2000 the premature repayment of the Government bonds, issued for the old foreign currency savings, took place by using the funds from the budget surplus.
Do you believe this stability of the Denar will remain the same until you finally manage to be officially fixed to the Euro?
For several years we have been imposing a policy where the basic nominal anchor in the economy is the exchange rate. Even though formally we have a flexible exchange rate (managed floating), in practice in the last several years we've been having fixed foreign exchange rate: 31 Denars for 1 DM. The strategy of exchange rate targeting was shown to be very successful for a small open economy like Macedonia. So, for the last 5-6 years we've been having high macroeconomic stability. Having in mind the close trade relationship with EU and the traditional orientation towards this integration on a long run, with introduction of Euro from 2002 we will target the exchange rate of the Denar against the Euro. Namely, in the period after gaining our independence, we have been constantly increasing the foreign trade with the European Union and in the structure of our exchange with abroad the percent of the EU countries is constantly growing. This shows that regardless of all the difficulties that we have been through in these last several years our economy is capable of conquering those markets. Recently, we have negotiated for the Agreement for Association and Stabilisation with the EU, which was initiated a few months ago and needs to be finally approved by the European Parliaments in April 2001. Therefore, we expect additional increase of the exchange with the EU because certain quotas for our export to the EU are being increased and great portion of exports is duty free.
Which products are concerned by those cross border agreements?
All products can be traded free, but there are some products, like agricultural products where there are quotas. Within that quota we can export without the duties, above those quotas with customs.
Following requirements from the World Bank and the EU, almost all major banks are being privatized, Tuntunska Banka is already done. How successful has the process been so far and when do you expect it to be completed?
Nearly all banks in Macedonia are private (80.4% of the banking capital was privatized as of June 30, 2000). Stopanska Banka - Skopje was a private bank before we sold it to National Bank of Greece. The sale of Stopanska Banka - Skopje and Tutunska Banka to foreign banks was a good deal because these are banks with high rating. For example, the National Bank of Greece is listed on the New York's Stock Exchange. Taking into account that Greece is a member of the EU and it's our neighbour, we treat Greece as our "window" to the EU.
When do you expect the banking industry to reach an acceptable level of competitiveness according to EU standards?
We are a developing country and since we don't have enough domestic accumulation, we need inflow of the foreign capital in the country. Thus, by privatising these banks we also provide their recapitalisation. The increase of the banks' capital should result with increase in the availability of loans. Namely, one of the problems that Macedonian economy is facing is higher demand for credits then the supply, which cause high interest rates. Recapitalisation of the banks will increase the credit supply and will lead towards interest rates decline. The other benefit that we expect from the entrance of the foreign investors in our banking system is the introduction of new financial products on the market.
How would you evaluate your degree of cooperation with foreign financial institutions, such as the IMF , the World Bank?
Among the countries in transition, Republic of Macedonia probably has the most intensified relations with the IMF and the World Bank. Namely, after the monetary independence we have signed and successfully realised several arrangements with both institutions. At the present, there are two arrangements with IMF and one arrangment with the World Bank, approved in November and December 2000. In addition, the International Financial Corporation (IFC) is one of the shareholders of Stopanska Banka - Skopje.
Foreign banks on the Macedonian market are only a few, do you intend to attract more foreign banks over the next years?
The banks usually follow the economic activity of their clients. The reason the Greek Bank is now present in Macedonian banking system is that Greece is our 3rd trading partner. Thus, the National Bank of Greece follows the trade of its clients in Macedonia. Slovenia is also between our ten most important trading partners. Nova Ljubljanska Banka was following the Slovenian companies and that was the reason for its entrance in one of our banks.
The largest foreign investor in Macedonia is Greece. It is very important to point out that we are completely open for foreign inverstors. Namely, according to our laws the foreign banks can establish here a bank with 100% ownership or they can buy 100% of the shares of an existing bank.
What are the main incentives implemented especially for foreign investors?
About this you should talk to the Minister of Finance, but I would like to mention that we have the lowest profit tax in Europe of 15%, which is one of the most important incentives for the foreign investors.
Those privatizations, not only in the banking sector but also in many other such as the Telecom, have obviously contributed to boost the Macedonian Stock Exchange, which was created in 1998. However, how would you evaluate the success of the stock market on a daily basis and what are your expectations once the privatization process is completed?
The biggest part of the turnover at the Macedonian
Stock Exchange is related to the privatization
process in the economy. Therefore, I am not
satisfied with the operation level of the
Stock Exchange because we still don't have
any listed company. As a result of the structural
reforms in the enterprise sector, we expect
in the near future to have listed companies
on our Stock Ecxhange and that it will operate
as every stock exchange in the world. |
Which companies do you expect to be first listed?
There will be the good and prosperous company, like Telecom, some companies from the Pharmaceutical industry - Alkaloid, the Cement Factory (which is now also in Greek ownership) or the Brewery.
Macedonia is still in Negotiation with other former Yugoslavian countries over the sharing of their Gold reserves and properties. How is it proceeding and what are your expectations?
When we gained our independence 10 years ago, we introduced a domestic currency with zero foreign exchange reserves. However, at the end of 2000 the gross foreign exchange reserves of the NBRM reached US Dollars 714 million, which covers more ten 3.5 months of import. This is considered as an optimal level, which is our great achievement considering the starting base. Meanwhile, during the first four years of our independence we regulated all the debts towards the foreign creditors - towards the international financial institutions, as well as the Paris Club and the London Club.
The international community was strongly interested to solve the debt of the former Yugoslavia , but it is almost as much interested in solving the problem with the assets of the former Yugoslavia. The previous authorities in FR Yugoslavia have blocked the negotiations in this field because they considered themselves as the sole successors to the assets of former Yugoslavia. However, the new authorities in FR Yugoslavia changed the opinion and now declare themselves as one of the five successors of former Yugoslavia. Therefore, the negotiations are continued and in February there will be a meeting in Ljubljana. The first step should be the definition of the federal assets and afterwards step-by-step to divide that federal asset in portions. The easiest ones to define are the assets abroad, for example the embassies. Namely, former Yugoslavia had embassies in almost all the countries in the world. Currently the Yugoslav ambassadors are accommodated in those embassies.
The second type of asset is the foreign exchange reserves of former Yugoslavia abroad. There will be problems related to how much Milosevic managed to spend regardless the fact that they had been blocked. For example, the USA were most firm in their intention not to allow him to spend that money, but we don't know about some other countries such as Cyprus. There will be a problem if Milosevic managed to spend a lot of it and whether the other four countries will accept this as an accomplished fact or they will request their part from FR Yugoslavia.
The third type of the assets are the assets within the territory of Former Yugoslavia, mostly being military assets. How much of it was destroyed by NATO? How much of it was destroyed during the wars in Bosnia and Herzegovina and Croatia? Probably this is going to be the most difficult portion. But now all the countries-successors are prepared to solve this problem quickly. It is logical that the current authorities in FR Yugoslavia are in a hurry because they are in the worst financial situation.
In brief, there are certain priorities regarding division of the assets. Probably the easiest part will be the division of Yugoslav archives. Then the embassies abroad would follow and maybe the gold in the Bank of Basel (Switzerland), because it has been defined (46 tones of gold). Now, the only remaining thing is to agree on the key we are going to use in dividing it.
Waiting for this issue to be sorted out, what would personal goals in the short run?
According to the monetary policy projection for 2001, that we have submitted to the parliament, we will continue to use the exchange rate of the Denar against the Deutsche mark as a nominal anchor in the economy. The maintainance of the stability of the Denar exchange rate should contribute to keeping the inflation rate at a low predictable level. Namely, in 2001 the CPI is projected at 1.2% on December basis and we expect similar GDP growth rate like in the previous year of 6%.
One of the biggest challenges of the NBRM in the near future is the transfer of the payment operation to the commercial banks and the central bank. Namely, all former Yugoslav republics inherited from former Yugoslavia a unique payment system in the world with a specialised payment institution, called Payment Operation Bureau (ZPP). Therefore, in all former Yugoslav republics there are projects to transfer the payment operations into banks and the central bank. In the Republic of Macedonia that is a big project that we take very seriosly, considering its effects on the banking system and the economy.
You have been Governor of the National Bank for the past 3 years and have contributed to major changes in your sector. Can you enlighten us on your professional background ?
I'm also a University professor. That is my permanent job. I do this as a temporary job. To be a University professor not only in Macedonia but also everywhere in the world is the most gratifying profession. So that is how I see the future. … I teach Money and Banking. I was a visiting professor during one year at the California State University in Chico. Chico is about 400 km north of San Francisco - a University City, a small city. And I spent as a graduate student 9 months in Tallahassee, Florida.
Is there any subject you would like to emphasize on or that we may have not touched upon?
One of the main objectives of NBRM is the strengthening the efficiency of the banking system. We have established the Supervision Department within the Central Bank and there is a Special Unit for problematic banks which works according to the arrangement with the IMF. Next spring, we will introduce more severe measures against problematic banks that will enhance the mergers in the banking sector. At the present, we have 21 banks but 4 of them are covering about 70% of the total banking industry. Due to the high concentration in the banking system, there is no real competition between the banks.
To your opinion, what would be the ideal number of banks on the Macedonian market?
It is very hard to say what is the optimal number of banks. It depends on the competition and the process of world globalisation. However, I expect some of the banks to merge between themselves (that is the willingness of the EBRD, too) and this year to finish with 4 or 5 banks less then we have now.
I would like to mention also our efforts towards the settlement of our foreign debt. Namely, the external debt of the Republic of Macedonia as of December 31, 2000 equaled US Dollars 1.4 billon and we are servicing our liabilities to abroad regularly on time. According to all parameters, we are a moderately indebted country. All these years we were eligible to use IDA (International Development Agency) credits, which are without interest rate and with a long maturity (up to 35 years). We were using these credits to repay old debts which were taken under commercial conditions. In this way, we have decreased the burden of the debt because we have a good portion of our debt which is without interest rates. However, we are not anymore eligible to use these credits because our GDP per capita is already above the criteria for using IDA credits. In addition, we have inherited from former Yugoslavia the debt to the citizens. Namely, the guarantor of the foreign currency savings in the former Yugoslavia was the Yugoslav Federation. After the its broke-down, the Macedonian government undertook their repayment. In 2000 we adopted a law for issuance of the Government bonds for these deposits. The maturity of these bonds is 10 years with semi-annaul repayment. At the same time, they are traded on the Stock exchange at 70-75 percent of its value. |
V.I.P. INTERVIEWS 
