Friday, September 01, 2006

Macedonia, A Balkan Tiger? 

I flew twice in 2003 to Macedonia, where I still have friends and advise a think tank run by locals. My job there was to get government officials together to talk about monetary issues like high interest rates and exchange rate policies. While there a fellow advisor who lived in country for a few years started taking to calling Macedonia a Balkan Tiger. Now Meelis Kitsing does the same.
The late 1990s saw some economic reforms under the center-right government, but the onslaught of violence between ethnic Albanians and Macedonians forced any type of economic reforms to the backseat, where they remained until just last month. The outcome of elections held on July 5 gives reason to believe in the rebirth. The Western media have emphasized the peaceful nature of these elections in comparison with the violence that accompanied the last elections, in 2002. Yet this primary emphasis understates the implications and significance of the elections results. Some leading papers have even predicted the potential rise of violence stemming from the victory of the center-right and supposedly nationalist Macedonian Internal Revolutionary Organization (VMRO- DPMNE).

The VMRO-DPMNE has learned the right lessons. The party, headed by the youthful Nikola Gruevski, a former trade minister and finance minister in the government headed by the VMRO-DPMNE in 1998-2002, emphasized economic reform in its campaign, not Macedonian nationalism. "We believe that Macedonians want to do more than just survive -- they want to succeed. And to succeed we need a stronger, healthier economy -- one that delivers jobs and growth, that frees individuals to pursue their God-given potential with a minimum of government interference and that opens up the creative spirit in people," wrote Gruevski in the Washington Times on July 4. VMRO-DPMNE's election platform was based on a comprehensive and detailed study of reforms by other countries in the Central and Eastern Europe. Radical reformers of Central and Eastern Europe are seen as examples to be followed.

The VMRO-DPMNE promises to cut public expenditure by 2 percent of the GDP by 2010. It plans to cut red-tape by 2007, thereby enabling registration of new companies to be completed within three days. The party plans to implement a flat personal tax rate of 10 percent by 2008 - a turnaround from the current progressive income tax rates of 15, 18 and 24 percent. The tax rate on corporate profits will be reduced from 15 percent to 10 percent and, following the example of Estonia, the tax on reinvested profits will be scrapped altogether.
The difficulties I had in 2003 were twofold and political in nature: You had no idea what events elsewhere in the former Yugoslavia would do to Macedonia, and you had the question of ethnic Albanians in conflict with the Macedonian Serbs. The latter had the effect of delaying my trip from the previous year; the tension in-country was still present. But it was the hangover of not knowing the situation with Serbia that I think was the more oppressive. Thus success in resolving that area of the country may in fact lead to another Balkan tiger in the country.