Press Release: IMF Approves Stand-By Credit and STF Drawing for the Former Yugoslav Republic of Macedonia

May 5, 1995

The International Monetary Fund (IMF) today approved a 13-month stand-by credit of SDR 22.3 million (about $35 million) for the former Yugoslav Republic of Macedonia, together with a second drawing of SDR 12.4 million (about $20 million) under the Systemic Transformation Facility (STF),1 to support the Government's economic stabilization and reform policies. The first drawing under the STF, also for SDR 12.4 million, was approved on February 14, 1994 (see Press Release No. 94/4).


The economic program launched in early 1994 with the support of a first drawing under the STF achieved a notable financial stabilization, entailing a marked break with the near-hyperinflationary conditions prevailing in 1991-93. Monetary policy was refocused to control inflation; a major fiscal effort lowered the general government deficit from 11.1 percent of gross social product (GSP) in 1993 to 2.6 percent of GSP in 1994; and a law to control wages has been relatively successful in containing wage increases in self-managed social enterprises. Progress in structural reforms has been slower, however, especially as far as bank rehabilitation, restructuring of loss-making enterprises, and privatization are concerned.

The 1995 Program

The primary objective of the program for 1995 will be to secure a further reduction in inflation, which is expected to fall to a monthly rate of 1 percent by the end of the year, resulting in an annual rate of about 18 percent. In addition, the program aims to increase foreign reserves to the equivalent of ten weeks of imports and to normalize relations with official bilateral and multilateral creditors. The prolonged drop in output that started with the onset of the regional crisis in 1990 appears to have bottomed out, and GSP is expected to increase by 1 percent in 1995.

The inflation goal will be supported by appropriately restrained monetary, fiscal, and incomes policies. Efforts to increase central government revenues have, in view of the existing high tax burden, focused on broadening the tax base, while, on the expenditure side, the process of gradually reducing wages, subsidies, and untargeted social transfers is continuing. The still weak financial discipline in the social enterprise sector has prompted the authorities to extend the Wage Control Law through 1995.

Structural Reforms

The authorities are aware that a preservation of the stabilization gains achieved to date will require an acceleration of the structural reform effort. They are also aware that recovery in output depends in part on easing uncertainties about ownership and about the financial viability of enterprises. To promote the development of the financial sector, the authorities are carrying out a bank rehabilitation program that will among other things involve recapitalization and privatization of troubled banks. This program will also seek to increase competitiveness by ending the largest bank's dominance of the banking system. A select group of large loss-making enterprises will be restructured to restore their financial viability in advance of privatization.

More generally, the privatization of socially owned enterprises is expected to quicken. The authorities believe that, by the end of 1995, more than 1,000 enterprises will have been privatized, leaving about 600-700 small socially-owned enterprises in existence.

Addressing Social Costs

The authorities have developed a strategy, supported by adequate resources, to alleviate the social costs of reforming socially-owned enterprises. It includes helping workers who are laid off find other jobs as well as reforming and expanding parts of the Government's social assistance program.

The Challenge Ahead

The regional crisis presents a considerable risk to the economic program. A further loss of regional markets and transshipment routes could entail adverse shocks to the economy that would seriously test the country's social and political cohesiveness. Barring a worsening of the crisis, the medium-term outlook is, however, in many respects encouraging, given the authorities' emphasis on accelerated economic reforms and the country's relatively open economy and decentralized economic decision-making.

The former Yugoslav Republic of Macedonia succeeded to the membership in the IMF of the former Socialist Federal Republic of Yugoslavia, effective December 14, 1992. Its quota1 is SDR 49.6 million (about $78 million), and its outstanding financial obligations to the IMF total SDR 14 million (about $22 million).

Former Yugoslav Republic of Macedonia: Selected Economic Indicators

  1992 1993 1994* 1995**

(percent change)
Real economic growth –13.1 –15.7 –7.2 0.8
Retail prices
    (end of period)
1,935.3 229.5 55.0 17.8
(percent of GDP)
General government balance
    (deficit –)
–7.2 –11.1 –2.6 –1.8
External current account balance
    (deficit –)
–0.6 –2.9 –9.6 –9.9
Reserves in months of imports 0.6 1.2 1.4 2.0

Sources: Authorities of the former Yugoslav Republic of Macedonia; and IMF estimates and projections.

1. The STF is a temporary financing facility to provide assistance to member countries facing balance of payments difficulties arising from severe disruptions of their traditional trade and payments arrangements owing to a shift from significant reliance on trading at nonmarket prices to a multilateral, market-based trading system.

2. A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of SDRs.


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