Ljube Trpeski, Governor of the NBRM

Interview for "Denes", January 30, 2003

Ljube Trpeski, Governor of the NBRM

Ljube Trpeski, Governor in the focus THE CONTROL OF THE IMF IS (WAS) INDISPENSABLE FOR MACEDONIA

"Without the IMF to discipline us during the last ten years, I am speaking about the period when I was a member of the Government, we would have had high inflation, since we would have relented under the pressures coming from different sides. And the easiest way to resolve the problems is to resort to the issuance of money which will later lead to an inflation. Among the countries in transition only Slovenia was capable of conducting consistent macroeconomic policy without having an arrangement with the IMF".

"As the manners according to which Smilenski had privatized the companies were emerging on the surface, I started to change my opinion. Even if every other information broadcasted in the media was true, something is really wrong. I have negative opinion now, after all that happened in the bank, when practically, it ceased to service its liabilities to Export Import Banka, and transferred the accounts of his companies to other banks. This means that he left his bank in the lurch, while transferring his operations to other banks."

"Frankly speaking, I would be happy if Hari Kostov took over my position, even if that happens before the expiration of my term of office next year."

·          These days, your name was mentioned often in the context of Smilenski case. What is your relation with this businessman?

Mister Smilenski is one of the ten Macedonian businessmen who acquired their capital when they were representatives of trade companies from Macedonia, i.e. from the former Yugoslavia, in other countries. Until while ago, I respected him, or separate him from others because he invested his capital in Macedonia, while part of those Macedonian businessmen kept their money abroad, continually arguing that there are no favorable conditions to invest in Macedonia. However, as the information about the manners according to which Smilenski had privatized the companies started to emerge on the surface, I changed my opinion about him as well. Even if every other information broadcasted in the media was true, then something is really wrong. I have negative opinion now, after all what happened in the bank, when practically, it ceased to service its liabilities to Export Import Banka, and transferred the accounts of his companies to other banks. This means that he left his bank in the lurch, while transferred his operations to other banks.

·          In the meanwhile, NBRM undertook specific measures delegating a receiver of the bank, who blocked the accounts of the companies which in one way or another are related to the name of Metodija Smilenski. Why didn’t you undertake these measures when you found out that Export-Import Banka is illiquid?

The fact that the largest shareholder of the bank did not expect such a move is a surprising to me, but the receiver found a way to block all the accounts of his companies in Macedonia. These days the offer for rehabilitation programs, proposed by potential investors who want to save the bank, ended. We are talking about two investors, and within 30 days the receiver and the team from the NBRM will review the proposed offers and will suggest to the NBM whether a rehabilitation option is possible or not.

·          Why did the Central Bank wait this to happen and then to react? Didn’t the audit reports point to such a situation?

NBM has been undertaking measures against the Export - Import Banka for a longer period, moving, however, step by step, as it is prescribed with the Law and the procedures stipulated in the National Bank. Export - Import Banka was over exposed to the group of the largest founder. But, there are standards limiting the exposure, and that was the reason why we took a decision urging the bank to comply. They complied in such a manner that the largest shareholder was opening new companies by the largest shareholder, where the capital was transferred.  Our supervisors identified that and forbade it with a decision, as well. It was happening until few months ago, when we assigned a receiver, which means that the bank can not execute any order without his signature. But, it appeared to be useless, the bank could not pay the orders during three consecutive days, so we had to exclude it from the payment operations, to suspend the management bodies. We appointed a person from our bank, although we could delegate a representative from some other bank, because s/he does not have to be from the National Bank. However, we appointed a person from the NBRM, having in mind that the employees in the NBM are much more introduced in such problems than others. After we had sent our employee there, we found elements of intentional drive of the bank to a collapse. That is exactly what makes me angry and completely disappointed with the largest shareholder.

·          Are there any Government deposits in the Export - Import Banka?

Yes, there are, and the negotiations for resolving these problems are currently underway. The receiver sent a letter to the Commodity Reserves Bureau, and the largest shareholder is also willing to cooperate in resolving the problem with the Government.

·          What harm can its possible bankruptcy cause and is there any danger of the "domino effect", i.e. will the bankruptcy of the bank drive down the companies related to it?

Export - Import Banka is too small to cause larger tremors in the banking system. Let’s say, in case one of the four largest banks had bankrupted, then serious problems could have been expected. In such environment, each mentioning of another bank, well intentioned or not, can cause a "domino effect" and panic with depositors, who would start withdrawing their deposits. In that case even the soundest bank can bankrupt, since they function on the basis of confidence. If various speculations create mistrust, then we can expect serious consequences. If at worst, the bank bankrupts, a receiver shall be appointed, bankruptcy assets shall be formed, and the Government and the National Bank shall have priority in the collection of claims.

·          If Export - Import Banka announces its bankruptcy officially, will the Deposit Insurance Fund be in a position to repay the deposits of the citizens?

The insurance of this Fund covers only the citizens, since they do not have information about the situation in the bank. All countries have such or similar funds, which protect the citizens who have deposits in certain banks. The savings deposits equaled about Denar 100 million, and the Fund has assets of over billion Denars, which means that it is only ten percent of the assets the Fund possesses, and whether the citizens will get their money back or not, is not a question at all.

·          Two months ago, four million Denars were transferred from Makedonska Banka to Export - Import Banka upon the order of the NBRM. Why? Did you try maybe to cover the misdeeds and to save what can be saved by taking this step?

It was a court decision. The National Bank, i.e. the Payment Operations Department was obliged to transfer that amount from the account of Makedonska Banka to the account of Export - Import Banka. The possible plea lodged against this Decision does not postpone its execution, which is, in fact, a court decision. This is a court order and the National Bank must implement it. I do not go into that whether the court decision is just or not. Simply, we had to act in line with the court decision.

·          What is the current situation in the banking system in Macedonia?

Globally, I can say that the banking system is good. Sometimes there is too high liquidity but unfortunately, the credit placements are rare. Sometimes the liquidity is lower, especially in the middle of the month when the taxes are paid. However, I will stress again that the speculations can be very harmful. Trust me, we are one of the rare countries in transition that succeeded in avoiding a systemic banking crisis, i.e. a large number of domestic banks going into bankruptcy. That is exactly what happened in Serbia last year when the largest four banks which consist 80 percent of the banking system in this country, bankrupted as a result of the crisis I already mentioned. All countries which go through transition felt the burden of the banking crisis, excluding Slovenia and Macedonia. We also succeeded in avoiding the crisis two years ago when we experienced war in the country, and that is why I think that this will happen only as a result of speculation announced in the public. However, certain bad or problematic loans represent about 20 percent of the total placements in almost all countries in transition. Although we were once on the top of the list of countries which were facing with this kind of problems, I can say without restraint that the situation in that area is improving, which has a favorable influence on the whole banking system.

If we have peace in the country, and the economy functions normally, the banks will improve their performance as well.

·          Is the Denar stable now, at why insisting on the fluctuating exchange rate?

I am glad that the journalists react instantly even to the smallest change. You already know that there are changes in the Denar exchange rate against the Euro, and the changes that were recorded on a daily basis seven or eight years ago, are now recorded on annual basis. The people just got used to having a stable exchange rate and low inflation and that is the largest achievement reached in the last several years. Although according to the Law we have a fluctuating exchange rate, we are trying to keep it fixed or almost fixed. I see no reason why this trend will not continue this year as well. We have a methodology for determining the reality of the exchange rate and according to it, the exchange rate is real and encouraging enough for the importers. On the other hand, the International Monetary Fund analyzed the Denar exchange rate, and came up with identical results. The IMF considers that this exchange rate is good, suggesting that it should be maintained in the future. I shall repeat that the policy envisaged for 2003 remains the same as it has been so far. It is empirically confirmed that the best way to maintain the price stability is through maintaining the stability of the exchange rate. In fact, Macedonia represents a school example for that. It is a fact that it is very difficult for us to sustain this situation, but even with managed float, however in narrow margins, the price stability can be preserved.

·          What is the current situation with the state foreign exchange reserves?

The state foreign exchange reserves cover four months of import, which is considered as optimal. In the current negotiations with the IMF for concluding a stand-by arrangement, we shall see whether we can expect increased inflow of foreign exchange reserves in 2003.

·          How do you assess the negotiations with the IMF so far?

When they came here for the first time, it was practically a mission to get acquainted with the new Government, and an agreement was reached regarding the basic elements, the inflation, the growth, and the exchange rate. It means three percent of the gross domestic product, up to three percent of inflation and exchange rate of Denar 61.5 per one Euro as a main nominal anchor of the economic policy. It would be difficult since the situation is complex, but we are aware that we have to conclude the arrangement for our benefit.

·          The negotiations of the former Government with the IMF failed. Although the current situation is quite different, i.e. it seems to be more prospective for negotiations, what can happen if the arrangement is not signed for various reasons?

The IMF has its own principles and I believe that those principles are the same, or similar in regard to the economic policy conducted by the Government. I am an optimist, and I do not even want to think that the stand-by arrangement with the IMF would not be concluded. It would be simply a black scenario. That would mean that we have to rely on ourselves. In that case we would not obtain the funds from the Donors’ Conference, since these funds are closely related to the arrangement and we have to service our external liabilities. For example, we shall have to service a debt in the amount of Dollar 190 million this year. Last year we did not conclude an arrangement and we serviced the external liabilities in the amount of Dollar 200 million using the funds from the foreign exchange reserves.

·          Many external grants awarded to Macedonia can not be used. What do you think is the problem?

To be honest, I call these grants "presents". It is true that several credit lines with relatively favorable terms of repayment were approved, but have are not been used yet. The banks are justifying that by having no good projects, because the offered projects should meet the criteria of the part which extends the credits and of the bank which guarantees for that. The world banking trends are the following - the bank should not wait somebody else to offer it a good project, but to offer and to prepare programs, to find clients and to place them in packages. It is very sad to have unused open credit lines, because their realization would accelerate the economic development if they are placed appropriately. On the other hand, I understand the caution of the banks contrary to the previous practices when the credits were extended according to different criteria.

·          Is there any possibility, in distant future of course, Macedonia to leave the IMF embrace and to continue to create its economic strategy independently?

Without the IMF to discipline us during the last ten years, I am speaking about the period when I was a member of the Government, we would have had high inflation, since we would have relented under the pressures coming from different sides. And the easiest way to resolve the problems is to resort to the issuance of money which will later lead to an inflation.

Among the countries in transition only Slovenia was capable of conducting a consistent macroeconomic policy without having an arrangement with the IMF. They had consultations and the Fund was making remarks on certain issues, but there were it had enough assets in the Ministries and in the Slovenian Government at all levels to enable them to conduct the macroeconomic policy on their own and not to succumb to external pressures. Macedonia is still at the level of development, which needs to be supported.

·          After the change of the Government in 1998, there were rumors that you will be dismissed from the position Governor of the NBRM. The situation is the same now, and even there are speculations that you will be replaced with the current Minister of Internal Affairs, Hari Kostov. How do you comment this?

Even when I was first appointed to this position, I was a target of many speculations, and the situation is the same now. Actually, it is part of my profession. Frankly speaking, I would be happy if Hari Kostov took over my position, even it that happens before the expiration of my term of office next year.