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  • Bank Resolution

Interview for "Stopanska banka" newspaper



·          Mr. Trpeski, this is the period of the year when all results and problems are summarized, and the activities in the macroeconomic and monetary policy are projected. The central bank has been deeply involved in these activities, and at this moment the IMF mission is present in the country. What are your estimations regarding the realization of the projection of the monetary policy for 1997, and is it conducted within the planned framework, are there certain digressions an why is it the case?

The monetary policy conducted in the first nine months of 1997 has been in the projected framework, although the movements on the foreign exchange market in the first half of 1997 determined (more difficult realization of the projected monetary growth) more restrictive monetary policy. Namely, in the first half of 1997, one of the basic assumptions on basis of which the monetary policy was created, did not fulfill, and that was the expected growth of the export demand. Thus, instead of the projected USD 9 million excess foreign exchange, in the first six months of 1997 there was a continuously lower foreign exchange supply in comparison with the demand, so in order to maintain the stability of the exchange rate (the key nominal anchor) the National Bank of the Republic of Macedonia intervened with a net sale of USD 11,6 million. That caused a withdrawal of liquid assets from the economy, which resulted in negative monetary growth rates. Realizing that the turbulence in the balance of payments are of a fundamental character, and that it is necessary to undertake certain activities in order to increase the price competitiveness of the Macedonian economy, in July the value of the denar was corrected. Monetary and foreign exchange movements after the devaluation clearly show an improved situation: increased monetary growth - from a negative annual rate of 3,3% in June, in October, the money supply M1 accomplished a 4,1% growth on annual basis. Simultaneously, the situation with the foreign exchange reserves significantly improved - in the period after the devaluation, about USD 36 million were purchased on net basis on the foreign exchange market. Recovery of the liquidity gave room for an intensified credit activity. Thus, in the period June - October bank credits extended to private and social sector entities increased by denar 2.265 million. On annual level, it shows credit growth rate of 13,5%, in the same period when the inflation is 4,2%. Due to seasonal influences, until the end of the year we anticipate an additional intensification of the current dynamics of denar credits of banks extended to private and social sectors. The annual growth rate in December 1997 is expected to be 19,6% (December 1997 - December 1996) as it was projected for 1997. Also, monetary aggregates are expected to achieve the anticipated growth of 8,5% on annual level.

·          The second question derives from the first one, and maybe it is much more interesting for bankers, businessmen and the public in general. Can we expect a looser monetary policy in the course of next year? We know that in the first quarter of 1997 it was even more restrictive than projected. Can you specify the basic aims and targets of the monetary policy for 1998, as well as the basic measures and instruments which would be used in their realization?

In accordance with the institutional layout and the functions of the Central Bank, its priority target for 1998 shall be to maintain the internal and external stability of the denar value. Thus, the nominal denar exchange rate against the German mark will remain to be the basic intermediary target of the monetary policy for 1998. That, together with the strengthened credibility of the banking system, are basic preconditions for increased propensity to save and strengthened real money demand. In that way, the monetary policy should support the projected monetary growth with more intensive credit support of the economy without jeopardizing the achieved price stability. For the purpose of accomplishing the projected aims and targets of the monetary policy for 1998, the Central Bank shall use indirect market instruments of monetary regulation. In that context, efforts will be made to increase the capacity and efficiency of the "open market-type operations", the possibility for gradual abolishment of credit ceilings will be considered, the reforms in the manner of utilization of the foreign exchange reserves with converging the rates according to which foreign exchange reserves are calculated and allocated. However, in 1998 the projected annual growth rate of the money supply M1 will be maximum 11,0%, with an inflation rate not higher than 5,0% on annual level. Simultaneously, banks' denar credits extended to private and social sector entities are expected to increase by denar 2.965 million, or 14,8%.

·          Mr. Trpeski, six months ago when you were elected the Governor of the Central Bank, you promised that you will restore the Bank's worsened reputation caused by the several affairs of the Macedonian savings houses. What has been done in the previous period and what are the main postulates for the 1998?

When I was elected Governor of the Central Bank, one of my priorities was to strengthen its supervisory function, in order to improve the performances of the banking sector. Thus, in the period June - December 1997, a total amount of 19 on-site and off-site controls of banks and savings houses were performed, in which two operating licenses for savings houses and one approval of a manager of a savings house were revoked. Besides this, appropriate measures were undertaken in those financial institutions that had other irregularities in their work, as well as incompatibility with the existent legal regulation. Thus, some banks were restricted in their credit activity, some banks were given a time period to comply with the established supervisory standards in areas where incompatibility existed, etc. Simultaneously, large number of measures were undertaken concerning the operations of exchange offices, in order to decrease the numerous irregularities in their activity. In the period June - December, some actions were undertaken and 364 exchange offices were closed due to the incompatibility with the existent legal regulation. Also in future I will insist on Central Bank strengthening the capacity of the Supervision, in order to enable the Macedonian Banking System achieve all features of a sound, efficient, and qualitative intermediary in the financial operations.

·          According to the economic experts, the presence of foreign banks in the country is insufficient. The share of Ljubljanska Banka in the equity capital of Makedonska Banka, the 8% share of EBRD in Komercijalna Banka and the presence of the branches of the Russian Stolychnaya Banka and the Bulgarian Balkan Banka, have not caused any concerns so far. But, after the announcements for entry of the IFC (the World Bank affiliation), EBRD and the Austrian ERSTE Bank in Stopanska Banka, the concern started to spread. What is your opinion about this reactions, having in mind the fact that banks from Greece, Turkey, etc. announce their entrance in Macedonian Banks?

The presence of distinguished foreign banks or their branches and representative offices in the Republic of Macedonia is not only welcomed, but also very useful. I think that this will increase the competition between the banks, that will enable, on one hand, to improve the quality and widen the size of the bank's services, and on the other, to decrease the price of services. From the standpoint of the Macedonian economy, the presence of foreign financial institutions with high image will enable to increase the economic cooperation with the home countries of these banks. Besides this, the foreign banks will be interested in acting as banks agents of the Republic of Macedonia on the European Money and Capital Market, i.e. to be intermediaries in the debt-equity swaps of the debt of the Republic of Macedonia on the Luxembourg Stock Exchange. In 1997, after I was elected Governor of the Central Bank, I had meetings with several well-known world banks (Zyraat Bankassi, Deutsche Bank, Ionian Bank, Ergobank, Standardbank, etc.). The Republic of Macedonia invested a lot in improving the banking system as a whole, with Stopanska Banka included. Therefore, I think that the entering of EBRD and IFC, as strategic partners in Stopanska Banka - Skopje, is a confirmation of the quality of the performed rehabilitation of this largest bank in the Republic of Macedonia. Simultaneously, I expect the entering of EBRD and IFC to be clear signal to other foreign financial institutions which are interested to invest in the Republic of Macedonia.

·          There is an opinion that the financial institutions interested in changing the Law on Banks and Savings Houses are afraid that they will not be in a position to fulfill the census for foundation until 2001. Can we expect a new enlargement of the banking sector and in your opinion, what is the optimal number of banks that will fulfill the determined census?

In the Republic of Macedonia, currently there are 20 banks of universal type and one branch of a foreign bank. Also, there is an opinion that after the monetary independence, large number of banks with relatively small financial potential were founded. In the attempts to optimize the number of the banks and to strengthen their capital power, the National Bank of the Republic of Macedonia increased the census in counter-value of DEM 7.0 million for domestic activities, and in counter-value of DEM 21.0 million for high authorization (activities with abroad). That is a clear, concrete determination of the Central Bank directed towards the soundness and capacity of the banking system and this is not negotiable. The banks are already activated in fulfilling the determined census, either through new issuance of shares, mergers with other banks, association with foreign financial institutions, etc.

·          Mr. Trpeski, an idea and initiative of yours which emerged six years ago regarding foundation of Macedonian Bank for International Economic Cooperation, these days is realized in a Decision of the Government of the Republic of Macedonia, but now we understand that as a matter of fact, it is a Development Bank that is actually going to be founded. Who are its founders, what's the difference from the previous idea and where is its place in the banking system?

A Bank for financing and support of the export activity exists in many countries in the world. The openness of the Republic of Macedonia towards the world markets inevitably imposes the need for supporting the export activity, which is the basic target of the foundation of this financial institution in the Republic of Macedonia. In the same time, the Republic of Macedonia needs this type of bank, because the total economic growth largely depends on the export performances. Having this in mind, I congratulate the Government on its decision to found this bank, despite the opposite opinions by the IMF. By the way, the founding of the EXIM bank will be the realization of the last of mine proposals given to the Experts Government in 1991as a professor of Banking. Besides the support of the export activity through issuance of guaranties, the bank will also have a development component, i.e. it will financially support the development of small and medium-scale enterprises, which are the main generator of the economic development in many countries. The Bank will be founded with state capital, provided from real sources, where the starting capital will be provided from EBRD capital aimed for pre-privatization requirements of the Telecom. Additional capital will be provided by a credit from the German Government aimed at development of small and medium enterprises. Once more, I would like to point out that this institution will not be a deliverer of favorable (subsidized) credits, but will only support the sound export projects.

·          The missions from the representatives of the World Bank and of its affiliations, the IMF, the EBRD became more and more frequent. They are always focused on us. What is their opinion of the reforms we are implementing?

The economic reforms implemented in the Republic of Macedonia since 1994 have been financially and logistically supported by the international financial institutions. Macedonian public already knows, that starting from 1993, when the Republic of Macedonia successfully reintegrated again in the international financial circles, it is user of more IMF arrangements (STF, Stand-by, ESAF), and the World bank allowed more projects for support of the structural reforms in the economy. Besides this, the active support of the Republic of Macedonia's position in the international economic community by the World Bank and the IMF, was significant for achieving agreements for re-scheduling the debts of the Republic of Macedonia towards the London and Paris club of creditors. Of course, both the Macedonian Government and the international financial institutions are aware of the existing problems (unemployment, deficit in the current account of the balance of payments, the necessity of further acceleration of the economic activity) which are inevitable consequence of the structural reforms in each country and they are working on finding solutions. I think that the international financial organizations wouldn't finance the reforms, unless they think in a positive way about the reforms that are implementing in the Republic of Macedonia. In the same time, it is well known that the Republic of Macedonia is a reform star country of the IMF and the World Bank.

·          You decisively denied that the latest speculations with the foreign exchange rate in the exchange offices and the presence of the IMF representatives in the country are bringing new devaluation. In what waters will the denar swim in 1998?

It seems that of the latest speculations for possible devaluation of the denar benefited only those who trade with foreign currencies. These speculations were warmed up especially with the coming of the regular IMF mission. Still, I want to point out that those are only speculations and there is no real economic basis for devaluating Macedonian national currency because: 1) the domestic demand is under control, as a result of the wage control, balanced fiscal position and complete control over the monetary supply: 2) output growth still doesn’t have the intensity to generate increase in the foreign currency demand and to make pressure on the value of the denar; 3) after the devaluation, the foreign exchange reserves are constantly growing and they are quite enough to neutralize short-term foreign exchange outflow; 4) the results of the export activity in the third quarter of 1997 in relation to the same period of the previous year are showing an export increment of 16.3% with the simultaneous import increment of 11%. The exchange rate is the key variable in the Macedonian economy. I would like to support this statement with the fact that the Republic of Macedonia is a small, open economy which trades more than 70% of its GDP with abroad. In that context, the exchange rate stability is of vital importance in the domestic as well as in the foreign stage. That was one of the factors that determined the usage of exchange rate policy, as a nominal anchor in the economy of the Republic of Macedonia, which was applied in the past few years and it will be applied in the next year. If you take a closer look into the Macedonian economy, which is export oriented, you can conclude that by large it is an import - export oriented one. In that context, the devaluation may affect the exporters positively, but only on the new value achieved by tolling manufacturing in the country. At the same time I’d like to point out that the policy of constant change of the exchange rate in any direction is not very transparent one, it can not be followed by the economic subjects and it gives unclear signals for creating their rational expectations. The Central Bank strives to pursue transparent exchange rate policy. Hence, in 1998, it is our firm determination to defend and maintain the newly established exchange rate level at 31 denar for 1 German mark with all available monetary instruments.

·          Was the IMF delegation visit (you said that they will visit us regularly every six months) used for summing up the results of the July devaluation, what are they, and can further wage freeze be expected after December 31, 1997?

As I already mentioned, four months after the July devaluation, the results can be seen. The monetary growth is within the projections, after the negative annual growth rates in the first half; the foreign exchange reserves level is increasing, although in this period some due liabilities upon foreign credits were settled; the banking system liquidity has been improved; on annual basis, third quarter export increased. Still, I expect the complete real effects of the devaluation to take place in 1998, which is incorporated in the export and import projections for the next year, with a growth of 10.5% and 5.0%, respectively. As regards to the wages, they are significant segment of the aggregate consumption and one of the factors that determine the competitiveness of Macedonian enterprises on the domestic, as well as on the foreign markets. Because of these two reasons, it will be necessary to continue the wage control in 1998, which according to my opinion, will enable more efficient development of the structural reforms in the enterprises. In addition, it should be taken into consideration that the relative cost category for the economic subjects are the gross wages, not the net wages which due to the high taxes and high social contributions in the Republic of Macedonia, are higher compared to the competitive countries. This leads to higher real unit labor costs, which is counterproductive and weakens the competitiveness of the Macedonian enterprises. It is a completely different matter that net wages are 80% lower than the gross wages, which makes them relatively low and insufficient for covering the costs of living.

·          About the subject "Macedonia - overindebted country" a lot has been discussed. Still, it seems that the credits for the small-scale enterprises are insufficient. What are the possibilities for such credit injections in the next year?

There are a lot of speculations about Macedonian debt and the ability for debt repayment. Economic parameters which are relevant for comparative assessment of the debt (foreign debt compared to GDP, servicing the debt compared to export inflows, etc.) show that the Republic of Macedonia is in the group of medium - indebted countries. The public should know that after the monetary independence, the Republic of Macedonia disbursed higher amount of liabilities to abroad than it received new amounts of foreign credits. The capital inflow in the Republic of Macedonia is on two basis: credits for supporting the balance of payments (mainly credits from the IMF) and credits for supporting the structural reforms and developing the private sector (from the World Bank). Last year, for this purpose the World Bank approved DEM 18 million to the Republic of Macedonia which were aimed at development of the private sector, out of which DEM 4 million were for the agricultural sector. At the end of October 1997, the World Bank approved the second tranche of the credit for private sector development in total amount of DEM 45 million, which is already approved by the Macedonian Parliament and the World Bank Board. In this context, I would like to stress out the role of IFC, affiliation of the World Bank, which last year approved 4 projects in the Republic of Macedonia, and such intention was announced by their high official representatives for the next year as well. Here we can add the already used credits from EBRD for the private sector. I agree that these funds are below the demand, but we should be careful and extend credits only for profitable projects. We must not repeat the mistakes from the past, when a huge amount of money were invested in one project which turned out to be unprofitable.

·          Payment operations in the banks! This effort of the Central Bank has not become operational yet. Why?

The statement is not true. The reforms in the payment operations are being carried out in several stages, and an experimental transfer of the large amounts payments in the banks was planned for 1997, which in fact happened. These procedure is functioning without any serious troubles by now, which means that we are ready to start with actual payment operations in large amounts through the banks from mid January next year. Simultaneously, a dynamic reduction of the large amounts payments is planned, which will increase the number of payment transactions through the banks.

·          The Central Bank announced that in the next year there will be no limits on the denar placements of banks and savings houses. What effects do you expect from this liberalization?

The instrument limiting the growth of denar placements was necessary in the transition period from direct to indirect instruments of monetary regulation. On a short term it gave the expected effected, but its long term application in any country results in dominance of the negative characteristics of this instrument (causing financial disintermediation, declining banks interest for attracting new deposits, narrowing the competitiveness among banks etc.). Because of these reasons, and in order to strengthen the credit support of the economic activity, the Central Bank considers the possibility for progressive abolishment of this indirect control instrument. Still, in order not to lose the control over the monetary supply, this process must be very carefully and gradually conducted. In 1997, the National Bank of the Republic of Macedonia already undertook some measures in this direction, such as allowing the possibility for selling the unused part of the limits among banks, which resulted in a more comprehensive usage of the allowed frames of growth. Anyway, the banking business is established on a new, market criteria of conduct, which means extremely careful and responsible selection of projects that will be funded. This means that the possible abolishment of the credit ceilings will not cause excessive credit expansion, i.e. credit supply will only support healthy and profitable projects.

·          What is the position of the foreign exchange reserves in the country and at what level will they be in 1998?

The foreign exchange reserves on 27.11.1997 amounted USD 272,59 million, which equals two and a half months of import. According to the balance of payment projection for 1998, it is estimated that the foreign exchange reserves will increase by approximately USD 60 million, out of which USD 30 million through foreign exchange withdrawal from the foreign exchange market and USD 24 million as a capital inflow from the IMF.

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INFLATION

  

EXCHANGE RATES

Counrty

Currency

MiddleRate MKD

EUR

More

EXCHANGE RATES

for the period: -

Counrty Code Currency Unit BuyingRate MiddleRate MKD SellingRate

NATIONAL BANK POLICY RATES

Monetary instrument
Interest rate
Central Bank bills 

5,35%

Overnight loan 
5,85%
Overnight deposit
3,95%

7 days deposit facility

4,00%

  

Changes to the National Bank policy rate 

Bank's reserve requirements ratios

Liabilities with contractual maturity of up to 2 years:  


in domestic currency
8.0%
in domestic currency with FX clause
100%
in foreign currency
21%
Liabilities with contractual maturity of over 2 years:

in domestic currency
0%
in domestic currency with FX clause
100%
in foreign currency
5%
 


Financial market operations

Auctions of Central Bank bills
Auctions of government securities
Auctions of repo transactions


Reference rate for calculating the penalty interest rate 

5,55%    

SKIBOR
The official language of the documents translated herein is Macedonian. In case of any doubt or misunderstanding, the Macedonian version should therefore be considered final.

All rights reserved © 2017

Dear Sir/Madam, if you have any problem regarding access to the already published data, please contact the technical support telephone: ++ 389 2 3108 206. For other needs: ++ 389 2 3108 108 switch board | (contact).

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