The Global Credit Crunch

The worst crisis since the great depression
1929

During the last two years the world finance
markets where in constant trouble, which
ended up in a world wide collapse of the
finance sector. The crisis derived its origin
from the lowering of the US prime rate to 1.0
% in 2003. This lowering was intended to
stimulate the American economy, but it also
encouraged citizens with low incomes to take
out loans. Many of those credits where used
to buy houses. The economic cool down 2005
in the USA and the increase of the prime rate
to 5,25% in June 2006 caused a chain
reaction. Many households weren’t able to
pay their loans anymore and tried to sell their
houses. This ruined the prices in the housing
market. As a result many of those Subprimecredits
suffered from a serious depreciation.
In the end the housing market collapsed and
lead to a liquidity crisis among the finance
sector. In 2008 this crisis took effect all over
the world because the finance market was
extensively interlocked. The aftermath of this
crisis will expand successively to other
economic sectors. What does this mean for
national economies? Which challenges will
occur for governments to provide an
economic recession and do they have the
resources to do that? Analysing the effects
on a small country like Macedonia, we will
see in which ways the national economy
could suffer from the credit crunch and, if
possible, the alleviation of its impact.

Quick facts:
GDP growth (first half 2008):
about 6%
Inflation (first half 2008):
7,1%
(Source: Source: Ministry of
Economy of Republic of
Macedonia)

Macedonia’s Challenges

The main impact of this world wide crisis on Macedonia will not primarily occur in
the bank sector but in the export economy. More than half of Macedonia’s exports
are produced in metal plants and sold to Western Europe. With a decreasing demand
of metals, like in the western automobile industry, the metal manufacturing sector
will experience a serious decline in prices. Also the textile industry as the second
biggest in Macedonia will be afflicted with lower demand on the world market. This
contributes to the already very high trade deficit of more than 2 billion dollars this
year. Furthermore this development will entail a cutback in work force.
The global recession will also reduce the foreign
investments in Macedonia, which will have a
serious backlash on the stock exchange. Without
further foreign investment the structural
problems of the country’s economy will persist
and Macedonia will also slide in economic
recession.
Concerning the savings of Macedonian citizens in
bank accounts, there were no signs of a threat to
those savings like after the break up of
Yugoslavia.
A Possible Response
While facing a crisis of a world wide scale there are still some things that can be done
on a national level. On the part of the government many industrial leaders demand
official help, like tax cutbacks. In this way tax payers will keep their jobs, the
industry argues. During the SEE Summit in Ohrid at the 20th of November steps in
that direction were already be announced. With a high unemployment rate of about
30 % Macedonia can not afford to jeopardise employment among its export sector.
On part of the Macedonians there is little to do then try to keep the money in
circulation. Putting the money under a pillow to save it will be harmful on both
counts banking and
retailing.

Brief: Macedonia and the Western Balkans Awaiting the 2008 EU Progress Reports: Back to Basics

Resume:
"...Facing the 5th of November, when the European Commission is to publish the 2008 progress reports, Macedonia and the other countries in the region are considering the options for speeding up the process of accession to the European Union. However, the chances for receiving “positive reports” are slim for most of the countries from the Western Balkans. When it comes to Macedonia, the irregularities at the 2008 early parliamentary elections as well as the difficulties regarding political reforms, such as lack of political dialogue between the government and opposition, decrease the likeliness that Macedonia will start accession talks in the years to come unless there is a consolidated reform process that would be tested in the upcoming elections of March 2009."

You can find the whole text of the brief "Macedonia and the Western Balkans Awaiting the 2008 EU Progress Reports: Back to Basics" at the following link:
http://ww.analyticamk.org/files/BriefNo1.pdf

Macedonian’s GHG reduction potential – Chances for less polluted air

EUEnlarge Newsletter
October 2008 issue

Protecting the environment is fundamental for the quality of life of current and future generations. One of the greatest concerns of the European Union (EU) are combating climate change, protecting biodiversity, reducing the impact of pollution on health and better use of natural resources. Climate change has emerged as one of the most important issues facing not only the EU but the whole humanity in the 21st century. The main cause of climate change is increased concentrations of greenhouse gas (GHG) emissions, mostly due to human activities.
Macedonia’s economy is characterized by comparatively high level of energy consumption and GHG emissions per unit of GDP are one of the highest among Central and Eastern European (CEE) countries. (Source: World Resources Institute 2006). According to the baseline scenario, in comparison to the GHG emissions in 1990 (15.511, 80 kt CO2-eq), the projected emissions will rise by 17 % in 2012 (18.136, 00 kt CO2-eq), and by 28 % in 2020 (19.851, 00 kt CO2-eq). (Source: Answers to the European Commission’s Questionnaire; Chapter 22 Environment). The question arises, how can Macedonia achieve GHG reductions?

Quick facts

GHG emissions by gas in the Republic of Macedonia in 2007 (Source: Yearly Report about the Quality the Environment, 2007; Ministry of Environment and Physical Planning of the Republic of Macedonia)
CO 180 kt
SO2 140, 8 kt
NOx 46, 03 kt
TSP 30,823 kt

Current situation

The values for 2012 emissions are based on the emission decrease study prepared as part of the First National Communication of the Republic of Macedonia under the United Nations Framework Convention on Climate Change. According to the study (which was made on the following sectors: electricity production, heat production, transport, industry, waste, agriculture and forest), the energy sector of Macedonia contributes with approximately 70% of the total country’s GHG emissions, thus being the sector with largest share in GHG emissions.

Challenging conditions

The recommendations by experts are as follows:
• Rehabilitation of large power plants;
• Fuel Switching to Natural Gas;
• Industrial Efficiency Improvements;
• Hydro Power
• Geothermal Energy.

Relatively higher abatement potential in Macedonia compared to other CEE countries also steams from the fact that Macedonia’s energy sector is heavily reliant on coal and lignite-based thermal power. Thus, any project measures replacing grid-based electricity in Macedonia are likely to lead to high emission reductions and therefore would be more attractive from Clean Development Mechanisms (CDM).
One of the primary goal of CDM is to assist Annex I countries in reaching their emissions reduction targets. This goal allows developed countries to achieve part of their GHG reduction obligations through projects in developing countries or countries in transition that reduce GHG emissions through promotion of renewable energy, energy efficiency, improvement of waste management, reforestation/a forestation and other GHG mitigation/sequestration activities. (Source: National Strategy for Clean Development Mechanism for the first commitment period of the Kyoto Protocol 2008-2012).
The Department of Energy and Mineral Resources from the Ministry of Economy, is in charge of national energy sector policies, including energy efficiency, power sector reform, renewable energy development and is therefore well-positioned to facilitate identification of CDM projects in Macedonia’s energy sector.
Non-governmental organizations influence government actions by providing information and advice, making policy recommendation and sometimes by direct lobbying. Only with a synchronized action of all governmental, civil and economical subjects in reducing the emissions of GHG will lead to reduced global warming and a cleaner environment.

The One Stop Shop System in Macedonia

Enlarge EU Newsletter
September 2008 Edition


The process of introducing the One-Stop-Shop system in Macedonia was an initiative derived from the recommendations of the European Commission, regarding the obstacles in trade economy and fulfillment of the criteria and achievement of the standards set for the business environment.
The program has been supported by international donors such as: IMF, EAR, USAID, World Bank, FIAS, UNDP

Why One-Stop-Shop?

Macedonia is facing a low economic growth; it remains on the last place compared to the other countries in the region regarding the foreign direct investments. As a result of this fact, all governments that Macedonia had until now, have set the attraction of foreign investments as their priority goal, as an important stimulation for the economic progress of the country.
In order to attract foreign investments, Macedonia has introduced the One-Stop-Shop system. This system has also been introduced by many European public administrations. It has a service-offering character and serves as an interface between the citizens and the public administration.

Business reforms in Macedonia

Areas of Reform: Starting a Business, Registering Property, Getting Credit (Information), Paying Taxes, Trading Across Borders, Enforcing Contracts.

Doing Business 2009, rank: 71 (Source: Doing Business 2009, annual report comparing business regulations)

Facilities provided by the One-Stop-Shop system

Macedonia implemented the One-Stop-Shop system on January 1st, 2006. The One-Stop-Shop offers a certain number of facilities for the investors mainly resulting in reducing administrative barriers and start-up costs.
Its main objective is to reduce the number of days for setting a new business (used to be 48 days and after introducing the system, it was reduced to 5 days) and to improve the overall business climate in Macedonia. The system is designed to be simple, fast and most important - less expensive. It operates within the Central Register via 32 electronically integrated offices located throughout the country. The system offers business registration in four hours, in a single office and getting all information in one place.
Recently World Bank published the latest Doing Business report. The report mentions that Macedonia has updated the One-Stop-Shop system in order to carry out the full range of business start-up processes, to reduce both the number of procedures and the time required. The report also states that the time required to export has been reduced from 19 to 17 days and the time to import from 17 to 15 days, as a result of the rationalization of the customs fee schedule and permit structure, improved risk-based inspections, simplification of a customs procedure, and elimination of a document requirement.
Although, the One-Stop-Shop system in a certain level has influenced the business climate, having in mind the current index of the foreign direct investments its implementation advantages are yet to come!