Macedonia's Augean Stables

Macedonia's post-electoral euphoria faded into arduous coalition-building negotiations replete with arm-twisting by the worried representatives of the "international community". Albanian and Macedonian youth clashed in a chilling reminder of the country's inter-ethnic fragility.

Macedonia seems bent on breaking its own record of surrealism. The prime minister designate, Branko Crvnkovski, vowed to learn from his and his party's past mistakes when they venally ruled the land until 1998. But while politicians in other countries in transition strive to be noticed for not stealing - their Macedonian counterparts aim to steal without being noticed.

The previous government plundered the country shamelessly. A local rag, "Start", recently accused the outgoing prime minister, Ljubco Georgievski - a virtual pauper when he attained power - of owning land and a residential building in the capital's most expensive neighborhood. In a sudden and politically-motivated resurrection, the high court scrutinizes the "Okta" deal - the opaque sale of the country's loss-making refinery to the Greeks in 1999. Heads will roll, promise both the election victors and their Western sponsors.

Corruption and terrorism both enhance social mobility in this tiny, landlocked, country of 2 million impoverished people. The former terrorists of the Albanian National Liberation army are now poised - courtesy of Western pressure and Albanian voters - to occupy crucial ministries with lucrative opportunities of patronage.

Comic relief was provided by the International Crisis Group. Its representative in Macedonia went to Prilep to conduct an impromptu investigation of the thriving cigarette smuggling trade. Posing to the cameras he declared that only the local leaf-rolling plant was not involved in this pernicious line of work.

Macedonia is the hub of expats and consultants in the Balkan. Ante Markovic, an Austria-based former Yugoslav prime minister, who served as a much-criticized economic advisor to the government until he was dumped, is now suing Macedonia for $1 million. The youthful former minister of finance, Nikola Gruevski, was asked by the Serbian government to serve as its consultant on matters of reform of the financial system.

The country's new minister of finance, Petar Goshev, a former socialist high-level functionary, is known for his integrity. His top priority would be to eradicate corruption by instituting structural and legal reforms. His newfound socialist partners - he heads a center-right outfit - may find this bizarre ardor unpalatable. Expect fireworks sooner rather than later.

The country is a shambles. In the wake of a civil war, the official unemployment rate is 31 percent. Close to 100,000 people are employed by the bloated central and local administrations. The trade deficit is an unparalleled 17 percent of GDP. Last year, the budget deficit climbed to 5 percent, though it was since halved.

"The Heritage Foundation" has ranked Macedonia 97 out of 155 countries in terms of economic freedom. The country is "mostly unfree", it correctly concluded in its report, though it cited mostly erroneous data. A moderate level of trade protectionism, low tax rates, moderate inflation, a moderate burden of the government, moderate barriers to capital flows and foreign investment, and moderate intervention in the economy - are offset by a dysfunctional banking system, intervention in wages and prices, low level of protection of property, a high level of regulation, and a very high level of activity of the black market.

Owing to the IMF's misguided emphasis on exchange rate stability, the currency is inanely overvalued. The manufacturing sector has all but evaporated. Industrial production declined by a vertiginous 20 percent in August compared to the average last year - or by 11 percent year on year.

Macedonian steel is exempt from the latest bout of American protectionism, but not so its textile industry. Europe is fending off the country's agricultural products. People make their meager and desultory living catering to the needs of an ever-expanding international presence or dabbling in illicit activities. Piracy of intellectual property, for instance, is thought to yield c. 1 percent of GDP.

Close to half the population is under the poverty line. The number of welfare cases increased by 70 percent between 1994 and the present. Generous and incessant multilateral and bilateral credits sustain the faltering economy, recently buffeted by floods.

In a much-ballyhooed donor conference, the pledges amounted to a whopping 15 percent of GDP. The governor of the central bank, Ljube Trpski, cheerfully predicted that these handouts will cover the gaping hole in the balance of payments. Macedonia also stands to receive 7.5 percent of the gold reserves of the former Yugoslavia of which it was a component. At c. $700 million net, foreign exchange reserves are at an all-time high.

Both the IMF and the World Bank - who did their best to obstruct the previous government in its last few months in power - promised a speedy return to business as usual. An hitherto elusive standby arrangement is likely to be concluded by the end of the year. World Bank funds, frozen in material breach of its written contracts with the state, will flow again. The EU promised development funds if the new government acts in a "European spirit" - i.e., obeys the diktats of Brussels.

The incoming administration is likely to enjoy a 100 days of grace with both the trade unions and international creditors. Strikes and demonstrations by dispossessed miners and underpaid railways workers have waned. But Macedonia joined the WTO last month and will be forced to open even more to devastating competition. Labor unrest is likely to re-erupt soon.

Foreign investment in the country has mysteriously increased - some of it laundered money reinvested in legitimate businesses.

On a few occasions, domestic firms, using international fronts, have bid for local factories, such as the textile plant "Astibo". The national payment card project has been guzzled by two banks incestuously close to the outgoing ruling party, VMRO-DPMNE.

But there are real investments, too. The capital's central heating utility was purchased by a unidentified French energy outfit, announced the general manager. The utility's shares are about to be listed in the Athens stock exchange. The Macedonian construction firm "Granit" will build a $59 million highway in Ukraine, with which Macedonia enjoys an unusually cordial relationship, to American chagrin.

Macedonia is now preparing for a contentious census in the first two weeks of November. It is part of the "Ohrid Framework Agreement" which ended the internecine fighting last year. If fairly conducted, the count is likely to show that Albanians make c. one third of the population rather than one quarter, as most Macedonians spuriously insist.

The restive Albanians are likely to coerce enfeebled Macedonia into translating this numerical reality into political and economic clout. The Macedonians are likely to resist. The West will intervene. Macedonia is facing a hot spring and a sizzling summer.

World in Conflict and Transition
The economics, politics, history, cultures, and societies of countries and regions in conflict and transition - such as Central and Eastern Europe and the Balkan.