Former Yugoslav Republic of Macedonia

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Development Challenge Other Donors FY 2002 Program Activity Data Sheets Summary Tables Program Summary Strategic Objective Summary USAID Search: Macedonia Previous Years' Activities 2001, 2000, 1999, 1998, 1997 Last updated: 01     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. The recent border conflicts demonstrate the critical need for keeping ethnic tensions in check to maintain political stability. 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 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. Development Challenge Tension between ethnic Albanians and ethnic Macedonians has been a defining characteristic of Macedonia as a new country (and well before). The war in Kosovo substantially increased tensions during much of 1999, as 360,000 Albanian refugees (or almost 20% above Macedonia's population of 1.9 million) flowed into the country. In contrast to experiences elsewhere in South-Eastern Europe (SEE), Macedonian political elites have generally acted with moderation, and prior to this year, conflict remained at low levels. The recent border crisis exhibited this moderation as the government coalition, including representation by an ethnic-Albanian political party, held together in seeking a solution and agreeing to address ethnic concerns. This has been a major factor in keeping tensions in check and preventing the conflict from expanding beyond the affected border areas. Still, a potentially volatile configuration remains in large part because the two ethnic groups live separate societies while continuing to view each other in zero-sum terms; a perception (if not misperception) that one group loses if the other group gains. Misperceptions are driven at least partly by the lack of knowledge and interaction between the two groups. Language, religion, and geography separate the ethnic Albanians and ethnic Macedonians. They have their own political parties and even their own economies in many respects. The ethnic Macedonians are tied much more closely to the pre-transition economy, including state-sector employment. In contrast, the ethnic Albanians had in large part remained outside the economic and political system in the former communist Yugoslavia, and today are disproportionately represented in the informal economy. The conduct of politics has deteriorated and the intrinsic weaknesses of a system of very weak democratic institutions have become more pronounced. Popular support for government and for reform has continued to erode. Moreover, the September 2000 local elections were flawed and widely viewed as a step back in Macedonia's democratization process. 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. Throughout these issues, a common thread is that reform processes are well underway, although they may be poorly understood. Reform processes confront the reality that established political and economic structures are too centralized, and the bureaucracy and citizenry lack a clear understanding of how to move effectively toward a modern, democratic, and developed state. 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 - tempers hardship implied by the official employment statistics. However, a shadow economy of this size suggests the diversion of substantial tax revenues for public expenditures. Further, endemic corruption darkens prospects for consolidation of democratic and economic reforms. Despite these challenges, there has been progress on economic and political reforms, in part with assistance provided by USAID under SEED auspices. 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. Macedonia's economy has been improving with a GDP growth of 5.1% in 2000, as compared to 2.7% in 1999. Foreign direct investment leapt to $125 million for the first nine months of CY 2000 as compared to $30 million for all of 1999. Sustainability of this progress is still uncertain, given the current political environment and substantial areas of institutional weakness. According to the December 2000 bulletin published by the National Bank of Macedonia, the external debt was $1.4 billion. Macedonia rescheduled the Paris Club debt in 1995, including $89 million of debt, interest, and arrears to the United States. 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 banking and commercial 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. A value-added tax, developed with USAID and U.S. Treasury assistance, has improved the transparency and effectiveness of tax collection, increasing total Government of Macedonia (GOM) tax receipts by 22% over 1999. A new banking law, passed in July 2000, brings supervisory standards closer to EU standards and will allow foreign banks to establish branches and subsidiaries in Macedonia. USAID agribusiness assistance has helped increase employment and profits in the agriculture sector. A Macedonian-run micro-finance organization supported by USAID became registered and licensed as a savings house. In 2000, USAID helped Macedonia start its negotiations 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, a draft law on decentralization has moved from the executive to the legislative branch of the government. In response to heightened ethnic concerns, the Prime Minister has pointed to the decentralization legislative package as a tangible example of the government's willingness to give minorities more influence and authority over their own interests and needs. USAID has helped in the area of ethnic conflict, providing training, and technical and financial support to establish a resolution and prevention ethos in Macedonian society. Most recently, the E&E bureau in collaboration with the Office of Transition Initiatives (OTI) in the Bureau for Humanitarian Relief conducted an assessment of further needs in conflict resolution and the extent of possible OTI involvement. Other Donors As a result of assistance provided during the Kosovo crisis and current border conflict, the United States 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 (EBRD), the International Monetary Fund (IMF), and the World Bank's International Development Association. From 1996 to 2000, the EU's PHARE program has committed Euros 130 million (US$ 117 million) in the areas of support to enterprises and financial sector, infrastructure, agriculture, social sector, continuation of reforms, and cross-border cooperation between Macedonia and Greece. FY 2002 Program The U.S. assistance program in Macedonia has three strategic objectives, and involves expansion of the private sector, increased civic participation, and local government strengthening. These three objectives address a number of important cross cutting themes, of which addressing ethnic tensions and unemployment are two of the most important. Keeping ethnic tensions in check and ultimately helping to better integrate the highly segregated ethnic groups is essential. It is important for USAID to focus as much as possible on nationwide programs that benefit all groups and/or local programs that help to constructively engage the groups. On the latter, it is important to get people and communities to recognize that they have common problems, and for them to see the effectiveness of local action. Ultimately, working towards "leveling the playing field" in economic opportunity and towards expanding the "economic pie" may be the most effective means to mitigate ethnic tensions. Under the economic reform objective, USAID is requesting FY 2002 funding for accelerated growth and development of the private sector. Efforts to create a proper regulatory environment, combat unemployment, and stimulate the development of small and medium-sized private businesses will be of prime importance. USAID will continue to support a labor redeployment activity that emphasizes community economic development and employment. Support will be provided for micro-finance and micro-enterprise development with particular focus on creating opportunities in rural communities (poverty alleviation) and crossing gender and ethnic boundaries at the grass-roots level. At the macro-level, the Mission will continue to support targeted activities to reform the legal, policy, and regulatory environment, assist in Macedonia's compliance with the WTO, and develop fiscal transparency and efficiency. Work at the enterprise level will continue, and be integrated with Mission efforts to develop professional associations and stimulate regional trade. USAID has two objectives under its democratic transition sector: one aimed at increasing people's participation in political and economic decision making; and the other aimed at strengthening the ability of local government to be more effective, responsive and accountable. Under Strategic Objective (S.O. 2.1), increased citizen participation, USAID supports the development of the democratic institutions through which citizens can effectively participate in decision making, such as the Parliament, political parties, and civil society organizations, while increasing citizens' understanding of their rights and responsibilities through civic education and legal rights awareness. Building representative institutions through which the interests of the different ethnic groups can be debated in an open and constructive manner and through which conflicts can be negotiated is critical to forging the basis for positive interethnic relations and cooperation among citizens. The second democracy objective, in support of local government (S.O. 2.3), will focus on new legislation for fiscal decentralization. It will replicate successful projects implemented in five pilot cities, to improve local service delivery and management in at least 12 additional municipalities. Citizen Information Centers that facilitate transparent, two-way communication between local authorities and citizens, will be duplicated in new target cities. Municipal associations will be trained to represent mayors in the reform process and better serve their members. Activity Data Sheets 165-013  Accelerated Growth and Development of the Private Sector 165-021  Increased, Better-Informed Citizens' Participation in Community, Political and Economic Decision-Making 165-023  More Effective, Responsive and Accountable Local Government 165-041  Special Initiatives 165-042  Cross-Cutting Programs Country Background Information Resources   CIA Factbook Library of Congress National Geographic Country Maps State Dept. Country Information

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