MACEDONIA
struggling with reforms,
and offering a new vision for Europe


V.I.P. INTERVIEWS
Mrs Marie-Helene Bricknell, Country Manager of the World Bank

WORLD BANK

Interview with

Mrs Marie-Helene Bricknell
Country Manager

1st March 2001

Contact:
Leninova 34,
1000 Skopje - MACEDONIA
Tel: +389 91/117 159
Fax: +389 91/117 627
E-mail: mbricknell@worldbank.org
Web site: www.worldbank.org
Macedonia has been a member of the World Bank Group since 1993. What were the conditions Macedonia had to meet to be a part of this organization?

On April 8, 1993, the former Yugoslav Republic of Macedonia became the 181' member of the United Nations (UN). It had also acquired special guest status in the Council of Europe and an observer status in the Organization for Security and Cooperation in Europe (OSCE). To complement its efforts at transforming and developing the economy, the former Yugoslav Republic of Macedonia sought bilateral collaboration with a number of European and non-European countries and, following its admission to the UN, enacted laws to become a successor state to the SFRY in international financial institutions. It was declared a successor to the SFRY in the International Monetary Fund (IMF) on April 21, 1993 (effective December 14, 1992), paving the way for succession to membership in the World Bank Group. The former Yugoslav Republic of Macedonia was declared a member of the IBRD, IDA and IFC on December 30, 1993 (effective February 25, 1993), and a member of MIGA on June 28, 1994 (effective March 19, 1993?). In succeeding to membership in the IBRD, the country assumed an agreed portion of the loans the Bank had disbursed to the former Yugoslavia and also undertook to eliminate arrears in the servicing of the loans it assumed. The loans it assumed totaled US$295 million for 21 operations: 12 in infrastructure, 7 for lines of credit in agriculture and industry, and 2 in agricultural development. Of those old loans, nearly US$270 million have been repaid, including US$109 million which had been in arrears and which the former Yugoslav Republic of Macedonia settled early in 1994 under a plan involving: (a) contributions by a Support Group of bilateral donors led by the - Netherlands,' (b) drawings from the IMF, (c) use of the country's own foreign exchange reserves, (d) a short-term private loan and (e) a bridge loan arranged by the Central Bank of the Netherlands.

We believe Macedonia has received 19 loans for $500 million USD. Is there one sector in particular that has received the majority of funds, and what projects in particular?

As of January 2001, the World Bank Group's portfolio in fYR Macedonia consists of ten active investment projects and one active adjustment operation. In terms of sectoral allocation, 35% of outstanding commitments are for adjustment/emergency operations, 30% for power and infrastructure, 15% for social sectors, 11% for private sector development (credit lines) and 9% for agriculture and rural development. In terms of the number of projects, however, the most important area are the social sectors. If the recently appraised water supply project comes on stream, the share of resources going to infrastructure and power will increase. Total World Bank commitments to fYR Macedonia as of March 31, 2001 stands at about $558 million for a total of 22 operations (IBRD/IDA).

Are you actively involved in helping Macedonia find foreign investors?

It depends on what you mean by being actively involved. We support the Macedonian government's efforts to shift assets from State to private hands, where relevant, and to put in place the legal framework required to facilitate private investment. The Bank as well as other major partners have also supported reforms in the banking and financial sectors, again with the view of facilitating private sector development and economic growth. IFC, our private sector arm, has made significant investments in fYR Macedonia and currently has a portfolio of $60 million. FIAS and MIGA have also been helping with proposals to improve the business climate in the country. Implementation of these measures would go a long way to make foreign direct investors as well as domestic investors more at ease in investing in fYR Macedonia.

If the Government shows their determination to introducing major changes, how does the population react to the reforms imposed by international institutions?

The transition has been difficult on the people of fYR Macedonia. Macedonians had enjoyed a relatively high standard of living in former Yugoslavia compared to their experience since independence. It is difficult for people to realize that the high health and education standards that they enjoyed, for example, under Former Yugoslavia were in large part supported with transfers from Belgrade. With the break up, these transfers disappeared and the newly emerging country had to face these costs in the face of significant challenges resulting from the shock of the break up, loss of markets, regional conflict, etc. The countries emerging from Former Yugoslavia also inherited debt once owned by Belgrade but which were later divided on a country per country basis. So, the transition has kicked a lot of people out of the middle class. People are rather disillusioned to find out that they no longer can go on holidays, their passports are no longer recognized at foreign borders as once they were and that they need visas to go anywhere. The future seems bleak in terms of growing opportunities, for instance their children having access to good career opportunities once they have graduated from university or simply finding work after leaving school. For example, there are many cases of professionals such as engineers working as programme assistants because there are no jobs available in their field. Of course, one could question the educational policies of graduating students for jobs that do not exist but that is not the whole picture. So, there is disappointment in the time that it is taking for the country to reach the levels of economic growth and job creation that would help improve the country's standard of living as well as meet the needs of all citizens. There is a growing sense that the rich are getting richer and the poor poorer. Delays in implementing a much needed structural reform program by successive governments has not provided an environment conducive to resuming economic growth and creating new jobs. Although fYR Macedonia emerged with a bright economic outlook after the Kosovo Crisis and has enjoyed a budget surplus for the past two years including an unprecedented level of foreign reserves, the recent crisis that has hit the country has had a negative impact on the economic situation and GDP growth is likely to drop compared to the anticipated 6 percent growth for 2001. The recent crisis is likely to discourage foreign direct investors from investing in the country, threatening further economic growth and much needed job creation.

Are those political issues also conditions for you to approve financial arrangements such as FESAL , PSMAL?

We know that much of the structural reform agenda facing the Government is a difficult one but we know if key remaining reforms in the financial and enterprise sectors are not quickly completed, private sector activity will be crowded out. The continued presence of large lossmakers in fYR Macedonia has constrained growth and has put the financial and banking systems under pressure. We also know from international experience that it is essential for the State to efficiently manage its budgetary expenditures, to have a competitive and efficient civil service based on meritocracy, to ensure the independence and autonomy of key government agencies, such as the Central Bank. Of course, these reforms have an impact on the population and most often, the pain of reform precludes most from projecting forward towards the undeniable benefits that these are likely bring. Consequently, structural reforms supported by the Bank under the FESAL II or the PSMAL are likely to create anxieties particularly among employees of public enterprises or in the civil service whose jobs are immediately threatened by the measures that the Government has to implement. These anxieties are also exacerbated by the fact that very little new job creation takes place to absorb excess labor for the reasons already mentioned. The country's economic development and job growth depends on the flow of foreign direct investments and on encouraging domestic entrepreneurship. These are in turn hampered by a challenging business climate, and of course, by lack of stability and security in the region.
Macedonia is looking to entering the European Union, but more harmonized relations between countries of the region may be the first prerequisite before thinking about the EU.

FYR Macedonia has recently signed the first Stabilization Association Agreement with the European Union, under which the country has committed to closer relations within the region. fYR Macedonia has been pursing bilateral free trade agreements with its neighbors, and more than a year ago signed a Trade and Transport Facilitation Agreement with neighboring countries under the umbrella of the Southeastern Europe Cooperation Initiative (SECI). The project supporting implementation of this Agreement is being financed by the Bank. This is already a good start toward greater regional cooperation and integration.

Do you think it is still risky to invest here right now or would you believe it is the right moment?

I think that it is likely that investors unfamiliar with the country and viewing from afar the events occurring in this region and most recently in fYR Macedonia itself may feel a bit wary about coming to invest here. It is normal. Where there is insecurity and instability, direct investments do not normally flow. The World Bank Group offers a number of risk instruments that the potential foreign private investor may find useful in mitigating his risks in investing in fYR Macedonia. In addition, the IFC has a significant portfolio of investments in the country, about $60m, and IFC's presence has helped leverage other foreign investments. FIAS and MIGA have been advising the Government on measures it can take to improve the investment climate. Beyond that, I think that the people of Macedonia must make their own choices in terms of how they go about negotiating a framework for greater internal stability.

What would you actually advise to potential investors interested in this country? Where can they get the best information or advice… the Ministry of Finance, the World Bank, the IMF?

Since the functions for informing potential investors are dispersed among various ministries pending government decision on establishing an IPA, I would suggest that they visit the Ministry of Finance and the Ministry of Economy. MIGA and FIAS have been quite active in helping the Government identify the measures needed to make fYR Macedonia a more friendly place to invest but Government follow-up has not been systematic and the potential investor faces some administrative and other challenges to set up in the country.

How long has Macedonia been a member of MIGA?

FYR Macedonia joined MIGA in 1994.

So, MIGA's website offers today information about Macedonia?

Yes, you can find information about MIGA's products and activities in FYR Macedonia, on MIGA's website (www.miga.org). Also, on the new Privatization Link website sponsored by MIGA (www.privatizationlink.com), you can find a wealth of information on privatization investment opportunities in emerging markets, including FYR Macedonia.

Do you think there is a good cooperation between the Ministry of Finance and the National Bank, as the financial sector is the key sector?

Let me say that from my perspective on the implementation of the World Bank-financed FESAL II which requires cooperation on financial and banking sector issues between the Ministry of Finance and the Central Bank, relations between the two institutions are good and the two teams seem to work very well together. Key staff in the Ministry of Finance were redeployed from the Central Bank and that also helps in building a cohesive team between the two institutions.

As far as privatized companies are concerned, do you know how the Government intends to use the money they collected from the privatization process?

The only substantial money received has been from the recent sale of Macedonian Telecommunications. For these substantial receipts, the Government has agreed with the IMF to allocated the proceeds on a proportional basis to buyback external debt, finance further pension reform, ,and finance priority domestic investments that have been neglected due to budgetary constraints. The Government has requested the World Bank's assistance in providing technical comments on the list of projects submitted for financing by line ministries. However, the task of approving projects that will be financed out of the Telecoms sale proceeds falls to the Government. The Bank only plays the role of advisor in indicating to the Government which projects may be more justifiable than others. But even after projects are selected, we recommend that the Government focus greater attention on project appraisal/implementation.

We would like to hear your opinion about your stay here in Macedonia, and get your feeling about the people you have met or you are working with?

I very much enjoy the challenges and rewards of the job. I came here during the Kosovo crisis. It was an intense period and very challenging. There was a need for our assistance and in situations like that one feels very proud to be associated with an organization like the World Bank. Within a very short period of time we were able to mobilize a 60-million-dollar emergency package for this country. We were able to organize an emergency consultative group meeting for fYR Macedonia where the donor community pledged about 240 million dollars, most of which has actually been disbursed. The post-Kosovo period with renewed focus on the reform program has also offered its own challenges and it was rewarding to see the reform program regain momentum as Government renewed its commitment to reforms. The recent troubles in Macedonia will hopefully not dampen the Government's determination to pursue much needed reforms. My time here has been interesting, exciting, although stressful at times, but very challenging. The people here are wonderful in Macedonia, very warm, very open. The downside is the political environment that overshadows most everything here. Whatever happens, it is always driven by politics. It is important to understand the political environment, context and motivations if you are to be successful. The country is small and has been governed by coalitions since the beginning. Some of them are stronger, some weaker and the coalition is not very strong at the moment.. You do not get very far if you do not understand politicians and their respective agendas. It is something that you have to learn very quickly.

However, Macedonia is a very beautiful country, close to Greece. Given the new situation in Yugoslavia, the possibility of driving to Western Europe is again possible facilitating access to its markets.. It is a great place to raise children. It has become my home.

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© World INvestment NEws, 2001.
This is the electronic edition of the special country report on Macedonia published in Forbes Global Magazine.
August 20th, 2001 Issue
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