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Foreign Economic Aid

Macedonia waiting for a miracle

AIM Skopje, July 2, 1999

As of late, at all their meetings with representatives of the international community the Macedonian officials point out the fact that this country was hit by the Kosovo crisis almost equally as Kosovo itself. Understandably, the losses are indirect, but at least according to the same sources they amount to several hundred million USD. According to the local media, the Kosovo conflicts are second in a row as a result of which Macedonia suffered damages through no fault of hers.

The country was first brought on the verge of economic collapse in 1992-1995 period, at the time when the international community imposed economic sanctions against the Federal Republic of Yugoslavia. At the same time, Athens introduced economic blockade of the Southern border in an attempt to resolve the dispute with Skoplje regarding its name - Macedonia. What is worse, the Greek Government did everything to prevent this Northern independent state, whose name it disputed, from joining European and North-Atlantic integrations. Consequently, Macedonia was the last state to start the negotiating process with the European Union only after assisted by diplomatic efforts of Richard Holbrooke, it signed the so called "Interim Agreement" with Athens in October 1995. The "Case Athens" was Holbrooke's first major diplomatic score which was later overshadowed by his role in the Dayton negotiations on Bosnia.

In the years that followed the-then authorities, headed by the Social-Democratic Alliance, made efforts to bring the country closer to Europe, but the lack of confidence of foreign investors in the Macedonian economy was of decisive importance. Reasons for this were many: unstable environment, undeveloped legal regulations, sluggish administration, insufficiently developed infrastructure. Foreign partners brought all this to the attention of Macedonian representatives.

At the beginning of the Kosovo crisis the Macedonian debt to foreign creditors amounted to USD 1.2 billion which placed Macedonia among the medium-developed countries with very good prospects of joining the group of most indebted countries on the planet. Then followed a hurricane of almost 300 thousand Kosovo exiles and refugees who found shelter in Macedonia, a country which was geographically closest to them and where they had numerous relatives. With the start of NATO air strikes its national economy highly dependent on the Yugoslav market found itself in a hopeless situation.

At that time experts of the Chamber of Commerce estimated that the losses country had suffered would amount to USD 1.6 billion by the end of the year. International emissaries who in large numbers visited Skoplje and refugee camps during the conflict announced generous assistance for the entire region once the crisis was over. The Prime Minister Georgievski and his Ministers welcomed with much optimism the Stability Pact which the German Foreign Minister Joska Fisher as Chairman of the European Union and his country promoted in Skoplje and other regional capitals. That was the first international project whose author, address and contents were known: the reconstruction of the entire region without which there could be no stability on the continent, as it was claimed.

And the losses grew from day to day. The return of refugees was organized, the war was over for all as well as for the Macedonian businessmen and Government. It was time to turn to future. The awakening from a nightmare called the "Kosovo crisis" was very painful as it turned out that the losses that the country had suffered were much greater than Macedonians had hoped. The NATO convoys thundered through Macedonia on their way to Kosovo, the country allocated USD 510 million from its budget for refugees, some 35 thousand workers were out of work for shorter or longer term...

According to the latest data as much as 80 percent of enterprises in the neighbouring Yugoslavia suffered direct damages in the amount of DM 130.8 million. It is now estimated that the losses will reach DM 1.9 billion by the end of the year. Exports have decreased by 80 percent. Analyses confirm that the value of Macedonian goods ready for or awaiting export in Yugoslavia amounts to DM 128.7 million while additional transportation costs will reach another DM 59 million as detours will have to be used. Enterprises in the field of metallurgy and electrical industry, textile and leather industry, as well as chemical, food and other industrial sectors are hit the hardest. Transportation losses in the course of the last three months are estimated at USD 30 million.

Air-traffic has recorded losses in the amount of DM 2.5 million due to cancelled flights for which two Macedonian airports demanded compensation. A particular obstacle was the closing of air space as a result of which the flight control services lost USD 600 thousand a month. For the use of Skoplje airport runways alone the state has billed NATO and international organisations for over DM 1 million. Two air companies have suffered considerable losses as each commercial flight was by 1,5 hours longer and the rates remained unchanged except for the costs of war insurance. Refugee-related health costs reached the average amount of DM 4 million a month in the previous quarter so that the final balance now totals DM 11 million. This widened even further the gap which has characterized the low health budget for years.

The European Union and international financial organisations asked the Government to draw up a list of all the damages the country has suffered in the last quarter. Eager officials have already prepared such an "inventory" together with extensive supporting documentation. All this was forwarded to the EU. Now the only thing to do is to get as much as possible primarily by diplomatic means.

Recommendations of European officials that countries of the region will be compensated for their damages through the Stability Pact or at Donors Conferences sound discouraging. Both solutions are acceptable for Macedonia as a long-term solution. But, the money is needed right now!

At the Donor Conference held in Paris on May 5, Macedonia managed to squeeze out USD 252 million. The World Bank, the European Commission and a high-level Macedonian delegation assessed that the Paris Conference was a success. Funds will be allocated for covering the negative effects the Kosovo crisis had on Macedonia. Originally the Macedonian delegation had requested USD 450 million from 24 representatives of the most developed countries of the world. This means that only 56 percent of the required amount was approved. Only some 10 percent of the donated sum has reached Skoplje till now, and there are indications that donors are in no hurry. This is why such donor conferences should not be counted on. On the other hand, the implementation of the Stability Pact will probably not start until autumn.

The Government placed high hopes on the possibility that the capital of Macedonia could become the host of the International Agency for the Reconstruction of Kosovo or the Regional Centre for the Reconstruction of South-Eastern Europe. However, in both instances the international community decided differently: the Centre for Kosovo Reconstruction was located in Pristina (which even the Macedonian officials found logical); and Thessaloniki was chosen as the Center for the Reconstruction of the Region. Now Macedonia's last chance is to hope that the Secretariat of the Stability Pact might be located in Skoplje. In all three instances the Macedonian capital had its advantages: geographical proximity and communication links with all parts of the region to be reconstructed, skilled professional personnel for administrative and technical tasks, logistics, etc. Still, its trump card was the conviction that of all European Union and NATO partners Macedonia gave the most - showed greatest cooperativeness in the implementation of operations in FR Yugoslavia. In other words, that it should be rewarded for such a contribution.

Representatives of the European Union as the main architects of the reconstruction of Kosovo in the first place, are now calculating the costs of the overall reconstruction. Macedonia and other countries affected by the crisis are postponed for some future date, probably in a year or so, which is still rather questionable. Government Ministers are trying to save what can be saved reminding various international institutions that hospitality has to be paid for; the first victim of Government's belated zeal is NATO whom the Government is threatening to charge for the use of barracks, road-toll for the transport of numerous convoys with manpower and materiel for the Kosovo operation. However, experts have calculated that this will be of little use and that it could easily disgrace Macedonia as NATO only observed the Agreement it had signed with Macedonia; it's quite another matter why didn't the hosts think what they were signing!

What is Macedonia actually expecting from the renewal of the region? In the first place, the reconstruction of infrastructure - road network. Government planners are particularly interested in the development of the so called "Corridor 8" which should link the Adriatic Sea and Black Sea in a foreseeable future, naturally over the Macedonian territory. Namely, international sanctions in the first half of the decade and the Kosovo crisis this spring have shown that apart from the traditional North-South transversal the country should secure an alternative East-West route. Government officials have been trying for years to convince international financial institutions in the justifiability of such an investment, but all they got was initial enthusiasm. It is clear that the reconstruction should also bring modernization of routes which lead from the Yugoslav border towards Greece and only if there is enough money, which is highly unlikely. These are mostly visions. And specifically, the country would like to employ its army of unemployed manpower, find a market for its produce, engage building industry, sell its food surpluses. In case it fails, trade unions and numerous economists warn of a possible social explosion which will be impossible to avoid. Either this or the next autumn.

AIM Skopje


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