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FORMER YUGOSLAV REPUBLIC OF MACEDONIA
>> Regional Overview >> Macedonia Overview 
Introduction
Maintenance of stability in the Former Yugoslav Republic of Macedonia (Macedonia) is a key element of U.S. Government efforts to reduce instability in the Balkans region. Macedonia identifies with western interests and values; e.g., supporting NATO, and hosting thousands of Kosovo refugees during the 1999 conflict with Yugoslavia at significant cost economically, and at cost to its generally friendly relationship with neighboring Yugoslavia. The country remains committed to reforming the economy and strengthening democratic institutions, and to joining such western institutions as the European Union (EU), the World Trade Organization (WTO), and North Atlantic Treaty Organization (NATO). USAID-implemented, Support for East European Democracy (SEED)-funded programs can play an important role in pursuing U.S. interests: promoting cooperation between Macedonia and its neighbors consistent with the tenets of the Stability Pact and other regional integration initiatives; and promoting economic prosperity, democracy, and peace. Thus, key objectives of the USAID program target economic restructuring and sustainable growth, with accompanying employment generation; the development of democratic practices, institutions, and viable civil society; and Euro-Atlantic integration as the basis for regional stability.
The Development Challenge
Macedonia’s policies and institutions are not yet sufficient to ensure consolidation of its transition to a fully democratic, market economy. Overall, Macedonia’s private sector remains relatively small – about 55% of total GDP, while the average in Central and Eastern Europe (CEE) is closer to 65%. Large, state-owned, loss-making enterprises have yet to be privatized, and continue their drag on the economy. Structural unemployment is high – with about one in three persons officially unemployed. A large informal economy – believed to be at least one-third the size of the official economy – temper hardship implied by the official employment statistics. However, a shadow economy of this size suggests the diversion of substantial tax revenues needed for the fiscal budget.
Per capita, foreign direct investment in the economy through 1999 has been the lowest in all of CEE, signaling low investor confidence in Macedonia’s relative fragile commercial and financial systems. The banking sector has an excess of banks and a high proportion of bad loans. There is virtually no capital market in Macedonia. Commercial law reform needs considerably more work. Corporate governance within enterprises is weak. Macedonia’s economy remains vulnerable to external shocks.
The Kosovo conflict, for instance, had direct and immediate impacts on Macedonia’s economy. As a result of Macedonia’s dependence on Serbia as a major market and transportation corridor, many businesses had to scale down operations, creating a situation of "temporary layoffs" and increased unemployment. Commerce disrupted constituted 30% of the country’s GDP – i.e., 70% percent of exports to or through the Federal Republic of Yugoslavia. Government expenditures to cover the impact of hosting more than 320,000 Kosovo refugees threatened the fiscal balance.
Macedonia’s democratic institutions and practices are fragile. Most major newspapers and electronic media in Macedonia are government controlled or subsidized. Slander and libel laws have led to media self-censorship. Political influence on the judiciary is significant. Civil society organizations (CSOs) are not yet effective mechanisms through which citizens identify their interests, negotiate conflicts, and influence government policy making. Public administration is inefficient, and potentially undermined by the rapidly changing composition of the country’s ethnic populations. Addressing ethnic tensions in Macedonia is key to sustaining its evolution as a
democracy. The Kosovo conflict increased tensions among ethnic Macedonians, Albanians, and Serbs. Endemic corruption darkens prospects for consolidation of democratic and economic reforms.
Despite these challenges, there has been some progress on economic and political reforms, in part with assistance provided by USAID. In 1998, indicators of macroeconomic stability were good. GDP expanded by three percent. Prior to the Kosovo conflict, Macedonia had lowered its inflation rate in successive years through tight fiscal control, and the rate of inflation in 1998 was the lowest of all transition economies. Despite the collapse of trade with Serbia and decline in domestic and foreign investment due to the Kosovo crisis, Macedonia maintained macroeconomic stability in 1999.
USAID has been a key bilateral donor assisting Macedonia with economic and democratic reforms and development. USAID has provided: support for drafting and adoption of important bankruptcy and collateral laws; technical support and financing assistance to help with small-scale privatization, particularly in the agricultural sector; and technical assistance and training to businesses to improve management, marketing, and sales; and facilitating trade deals. USAID agribusiness assistance has helped increase employment and profits in the agriculture sector. USAID accounting reform assistance helped Macedonia to adopt international accounting standards – moving it ahead of other countries in Southeast Europe in this regard. In 1999, USAID helped Macedonia to complete its application process for accession to the WTO, bringing it closer to integration into the global economy.
Based on recommendations from USAID on central-local government roles, relationships and responsibilities, Macedonia has started to work on key provisions for decentralization and devolution of authorities to local governments. USAID-funded training helped Macedonia to hold free and fair elections in 1998, and make an orderly transition to new government leadership in the 1999 presidential elections. USAID assistance has been instrumental in passing a progressive, new law on non-governmental organizations (NGOs). USAID has helped mitigate ethnic conflict, providing training, and technical and financial support to establish a resolution and prevention ethos in Macedonian society.
Macedonia’s commitment to democracy and to a market economy warrants continued support. Given the challenges facing Macedonia, including recovery from the impacts of Kosovo, termination of SEED assistance in 2004 as planned may be premature. Planning parameters for the Macedonia program, including the graduation date, are being reviewed in the context of post-Kosovo initiatives for regional stabilization.
External Debt
According to the November 1999 bulletin published by the National Bank of Macedonia, the external debt was $1.4 billion. Macedonia rescheduled the Paris Club debt in 1995, including $93 million of debt, interest and arrears to the United States.
FY 1999 Kosovo Supplemental
The influx of more than 320,000 refugees to Macedonia, the economic disruption caused by the bombing of Serbia and the related security problems called for a redirection of some USAID activities and caused delays in the implementation of others. Complementing longer-range objectives of economic and democratic development, USAID is implementing short-term activities designed to help alleviate negative impacts from the Kosovo crisis. Fourteen million dollars in FY 1999 SEED supplemental funds are supporting these activities which include programs in the areas of community self-help, environmental interventions in water and wastewater, local government services, assistance to and through NGOs, and micro lending. FY 1999 Economic Support Finds totaling $28 million were provided as budget support to help the Government of Macedonia deal with sharply increased financial burdens; and to offset unanticipated public costs, and some of the revenues lost, as a consequence of Kosovo conflict.
Other Donors
As a result of assistance provided during the Kosovo crisis, the United States now ranks first among bilateral donors to Macedonia. Macedonia receives substantial assistance from international financial institutions such as the World Bank, European Bank for Reconstruction and Development, the International Monetary Fund (IMF) and the World Bank's International Development Association. From 1996 to 1999, the European Union’s technical assistance program in Europe, PHARE, has committed euros 68 million in the following areas: support to enterprises and financial sector, public investments and infrastructure, agriculture and natural resources, social sector and human resources, and continuation of reforms. An additional euros 37 million were committed between 1996-1999 for cross-border cooperation between Macedonia and Greece,
Country Background Information Resources CIA Factbook
Library of CongressNational Geographic Country Maps
State Dept. Country Information
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Last Updated on: January 13, 2003 |
