I expect economic growth from 1,5% to 2% in 2010


According to government forecasts, Macedonia should exit the recession by the end of the year, and recovery will continue in 2010. The year will end with a negative rate of 0.6%, and if one takes into account the intensity of the global economic crisis and the fact that 23 out of the 27 EU Member States experienced decline of the economic activity larger than ours, it is clear that such results are not bad at all.


Petre Dimitrov


1. Last week State Statistics Office announced GDP rate of –1.4%, being negative two quarters in a row. Macedonia has officially entered into recession. What are the forecasts by the end of 2009?

– Rate of –1.4% in the second quarter this year was expected, being even lower that the projections of the Ministry of Finance, which projected 2% decline. According to our projections, the negative GDP rate will continue during the third quarter, and we expect to exit the recession at the end of this year. We expect to end 2009 with a negative rate of 0.6%, on which the last Supplementary Budget is based. If intensity of the economic crisis is taken into account, as well as the fact that 23 out of the 27 EU Member States experienced decline of the economic activity larger than ours, it is clear that such results are not bad at all. At the same time, they show that three-year efforts to improve the business climate, as well as the anti-crisis measures, were successful and contributed to overcoming the global economic crisis with less consequences.


2. How do you estimate the budget position after the last Supplementary Budget? Following the announcement made by the State Statistics Office, at the session of the Parliamentary Finances and Budget Committee, MP Makraduli asked for the debate on Supplementary Budget to be concluded and to start preparing a new one. Can we expect new Supplementary Budget?

– In the course of this year, some opposition parties literally compete which one to make more budget cuts. However, none of them came up with information on the basis of which they gave such proposals. It would have been more constructive if they offered more detailed analysis so as for the public to understand how they came up with the idea of reducing the Budget by EUR 100, 200 or 300 million. Still, if they did so, they should have explained how much the recession would deepen if such drastic cuts were made. Let them see GDP data for the first and the second quarter and they will assure themselves with facts that public spending contributed for the decline of the economic activity to be lower, more moderate. Our projections were prepared by the expert services in the Ministry of Finance, the PRO and the Customs Administration, on the basis of so-far performance of revenues and expenditures, as well as the projections by the end of the year. Thus, we concluded that the Budget should be reduced by EUR 80 million, as we have proposed. We have reduced all expenditures that could be reduced – several projects having pure import component are fully cancelled. This included the procurement of new buses and laboratories. Reduction of funds was made at other projects as well, such as the VMRO Museum, construction of the stadium, the cable car, Parliament Building superstructure. Some opposition parties commented that with this Supplementary Budget only capital expenditure were cut, that infrastructure projects were cancelled, as well as that pace of certain projects crucial for the economy would slow down, which is not true. With respect to the projects involving construction activities, we have made estimates of the exact stage they are in and the exact funds needed by the end of 2009 are provided. For instance, regarding roads, all projects are completed, and their realization will continue. Construction of regional and local roads financed by the World Bank will continue. Funds are fully provided for procurement of equipment in the health sector, pills and vaccines against swine flu, fire-fighting vehicles and planes, as well as free textbooks. We have prepared the projections the best we could and we believe there will be no need for third Supplementary Budget. However, having in mind the developments in the world economy, it is difficult to give you the final answer at the moment. In fact, IMF, which have the most competent macroeconomists in the world, have changed the projections 4-5 times already this year. Does it mean, according to SDSM, that they are incompetent and do not know how to make projections?


3. While the world is exiting the crisis, all are expecting the worse for the Macedonian economy is yet to come. What are your thoughts on this?

– There are four scenarios on what will happen to the world economy. The first one is that it will never fully recover from this crisis, which is less probable. The second is that the recovery will be fast and everything will restore to where it was before the crisis, which is even less probable that the first scenario. The third and the fourth scenarios are more realistic options – recovery of the world economy to be long and slow or an improvement to be experienced, followed by another severe economic downturn, after which the real exit from the crisis is expected. We are witnessing that forecasts constantly change. According to our forecasts, we should exit the recession by the end of the year, expecting the recovery to continue in 2010. We also expect for the Macedonian economy to experience moderate growth of 1-1.5% in 2010.


4. Will we need IMF assistance this year?

– By extending the general and the special IMF quota, Macedonia has US$ 88 million available, which can be withdrawn any time. They are additional support to our foreign currency reserves. As for concluding new arrangement, taking into account that we have secured the budget financing for 2009, there is no need for an arrangement. It does not mean that we do not remain open to discuss arrangements later on, if we believe it is necessary and justified. Funds IMF offers are one source of financing, but there are others as well. Countries having concluded arrangements with the IMF have no better economic performance compared to those not having an IMF arrangement. Serbia, Hungary, Ukraine, the Baltic countries, Romania, they all have budget deficit and GDP drop higher then ours. It all depends on Government accountability, its engagement in the anti-crisis measures, as well as the reform capacities.


5. When most of the experts were rooting for an IMF arrangement, the Government decided to secure its macroeconomic stability through issuance of Eurobond. What are the risks of borrowing and how will the funds be repaid if not invested in the production? – Borrowing on the basis of Eurobond issue is specific neither for Macedonia nor for this Government. Macedonia issued the first Eurobond in 2005, when the public debt was very high, reaching almost 40% of GDP, or EUR 1,860 million. Now, the public debt accounts for 27% of GDP, or EUR 1,430 million, so borrowing from the point of view of the level of country indebtedness is much more justified. As long as public debt is kept at moderate level and borrowed funds are used mainly for financing capital investments, borrowing is justified. And this is the case in our country, because even with the cuts with the Supplementary Budget, the level of capital investments in 2009 is twice higher compared to 2006, EUR 350 million compared to EUR 175 million. It means that most of the deficit, which is covered by borrowed funds, is created due to realization of higher level of capital investments. Expectations are that, on medium- and long-term, capital investments will contribute to better investment climate and increased GDP and export, providing for repayment of the borrowed funds. This is what many countries, having issued Eurobond this year, do.

6. Will the Government and its institutions continue the policy of defending the exchange rate stability at any price and what are the moves to be undertaken to prevent devaluation?

– Denar devaluation story is old and inappropriate. Denar devaluation will be of use to nobody, neither the economy nor the citizens nor the state. Denar exchange rate will remain stable, supported by both the monetary and the fiscal policy. It is also guaranteed by the high level of foreign currency reserves, approximating EUR 1.5 billion. Do you recall the cataclysmic statements on the devaluation several months ago, announced by some so called “experts”, part of which are SDSM members and others are hidden followers who, under the guise of “experts”, present themselves to the public though several media? Where are the experts announcing devaluation now? Do you how much these irresponsible speculations cost the Republic of Macedonia? I will give you the answer to this question: 100 million euros. That is how much we spent from the foreign exchange reserves to calm down the foreign currency market. In countries with higher general knowledge in economics, these people would have not been able to pursue their academic and political careers, but here it is all just mere words, without substance “anything goes”, and these very people continue to call themselves “experts”. On the other hand, true and best macroeconomic experts in this country, such as for instance Gligor Bisev or Mihail Petkovski, are never asked questions, because it is well known that they value their academic expertise and competence, unlike others who constantly criticize the Government for each activity.


7. Recent World Bank report ranks Macedonia as top reformers at 3rd place at global level. We were ranked high last year as well. However, the situation on the ground does not show any large benefit from such ranking. Doing business regulation is assessed as good. What is the problem for having neither domestic nor foreign investments, nor living standard improvement? Is the security an issue (because we are not a NATO member and there are still ethnic tensions), us being a small market or there is something else in question?

– Lets talk facts and numbers: in the first six months alone, in times of the greatest global economic crisis, foreign investments worth EUR 110 million entered Macedonia. For comparison purposes, in 2005, 2004 and 2003, when the world faced economic expansion, hardly EUR 100 million worth investments entered Macedonia throughout the whole year. Or if you wish we can compare data from 2008 and 2007, when the world did not suffer global economic crisis. Total foreign investments in these two years reached EUR 507 million, i.e. EUR 413 million, which was 4-5 times more compared to the period before. Domestic investments, both the private and the public, were also higher than ever, confirmed by the gross investment rate of 27.7% of GDP at the end of 2008. This is the highest level of investments in the last 10 years. Can we conclude now that we had no results from the business climate improvement? Unlike three years ago, when foreign resources entered the country only when certain state-owned company was sold, now we can also speak of Greenfield investments, i.e. foreign companies have started building in our country from a scratch. Last week, the largest Chinese and the largest South Korean companies for production of LCD monitors Havier and TriView started building new factory in Bunargik. Initial investment is worth EUR 9 million, which will instantly provide for 100 new employments, and it is planned to be extended further on. Two world leading companies, such as Johnston Controls and Johnson Metti, operate in the free zone, and effects of their operations are yet to be felt. There are investments in the banking, insurance, real estate sectors. Are they enough? Of course not. Still, one cannot deny the five-fold growth compared to the period before, as well as that the global economic crisis disrupted such excellent trend.


8. One of the biggest problems for the investors is the unsolved property and legal relations. How far is the denationalization process? Is this process stuck? When is it planned to be completed?

– If we take into account the number of resolved requests by the first-instance denationalization commissions in relation to the submitted requests, we can say that the percentage of resolved requests is above 95% by 31st August 2009. Around one third of the adopted decisions are effective, while the others are in appeal procedure. From June 2000 by the end of December 2007 (legal deadline for submission of denationalization requests), total of 30,744 requests were submitted. From September 2000 to 31st August 2009, 29,676 requests were resolved, so we have less than 1,000 requests to be resolved for the first time. The process is advancing well, however, it is a complex one, requiring more time. Still, I do agree with you that the sooner it is completed the better, both from the point of view of the investment climate and straightening one of the several large historical injustices to certain categories of citizens.

9. One of the biggest remarks from Brussels, as well as of the domestic experts, is the overemployment in the administration. Since your Ministry has the last word in new employments, can you tell us whether there will be new employments or, as media speculate, there will be large-scale, real layoffs? What are the projections on this issue?

– This year the Government reduced the total wage bill by Denar 684 million with the second Supplementary Budget. Stricter policy is put in place – positions in the public sector that are vacant due to retirement or termination of employment due to leaving to the private sector, are not filled in. Savings were created on other basis in the administration as well, per diem allowances for official trips were reduced, as well as costs for phones bills, etc. The cuts made in this Supplementary Budget contribute for the level of these expenditures to be below the level last year. This is a good trend, but it is not sufficient, we should continue in the same direction. Brussels recommendations refer to the improvement in terms of administration professionalism and performance. I fully agree that administration quality, especially the attitude towards work, is insufficient. Its mentality is the one of the 1990s, that they are irreplaceable, above the citizens and the companies, rather then being at their service. According to my opinion, this is one of the things where we show less success. Due to the poor operations at the lower administration level, part of the good reform projects of the Government have not been felt to their full intensity by the citizens. More radical steps are needed, sweeping change is necessary. There are civil servants spending most of their working hours idle in their offices, slacking at work. They would be much useful if deployed on the field, in the interior of the country, closer to the citizens, or to be released from their duties if not interested in completing them properly.


10. SDSM come up with their program “Solutions for Macedonia”, claiming to focus the most on the economy. Expert opinions are divided, what is your opinion about this program?

– Let me begin with the good thing: after 18 years during which SDSM was either in power or the main opposition party, it is good they finally wrote a program. Probably they have realized that the time has passed when it was enough for the leader to come before the citizens and animate them with empty words and promises from elections to elections. However, the bad thing is that the program is with poor quality. Visually, it is a copy of VMRO program “Rebirth in 100 Steps”. However, from its contents point of view, SDSM program is really pallid and idealess. What kind of a program is it with no specific projects, no cost calculations, no deadlines and no responsible institutions? It is not a program, but rather a vision. It is “I have a dream” program. Fine, everybody has wishes, but what good from them? Serious parties have not only wishes, but also a will translated in specific realization plan. How will SDSM come before the citizens, what are they going to tell them? That in a certain time period, certain institution will make certain things for a certain category of citizens to get certain amount of funds so they can live better? Where does the program say the amount of the agriculture subsidies? How much will the investments in education be, how much in the hospitals, whether and how much will salaries and pensions increase, how many kilometers of roads and how many social flats are going to be built and when, how will the funds be provided . . . , these are specific things one program has to include. On the contrary, as it is now, the program is just a wish list, with no credibility. We were not at all surprised, knowing that its main authors are people with no practical experience. Only clear thing in the economic section in the program is that taxes will be increased with the so called progressive tax, as well as the profit tax. Still, it is unclear by how much and from when, how much revenues will be collected or lost due to this. So, it is clear that SDSM want to leave the concept of low flat tax, and it is a very bad idea. It is an idea that no economic expert would support. Then why do SDSM want to change the concept which, during the three-year implementation, proved as good for the economy, the citizens, the Budget, in our, as well as in many European countries? Why do they propose new tax concept that is anachronic, we had it for 15 years and shows as unsuccessful? There is no logical answer, except for the fact that they propose it because in such complex and anachronic system there were a lot of loopholes, many tax exemptions that were abused as tax evasion by companies close to the government. That is why less funds in the Budget were collected, and there were no funds for subsidies, pension, investments. Now they propose the same again. It is not easy for them: they owe to many lobby groups, an old debt from the 1990s, which is not settled and they are to collect funds to repay it. But, they should know that leaving the flat tax concept would cause economic decline and will hold the Macedonian economy several years back. Flat tax has grown into an institution and it has to be respected.


11. A question to you as member of VMRO-DPMNE Executive Committee. Speculations about early elections are becoming louder and louder. Any comment?

– Do not feel fear all of you who fear, who due to such fear make the speculations. There is no early elections. We have full three years of work ahead of us. And many new ideas.

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