Ten Years from the Monetary Independence of the Republic of Macedonia
(Speech)
Honorable Ladies and Gentlemen,
The tenth anniversary of our currency - Denar and of the National Bank of the Republic of Macedonia, as an independent central bank, is a nice occasion to cast a glance backwards and to recall the ordeals we have passed over the past ten years.
I will take 1991 as a starting point in my speech.
1991 is not so distant year to blot out our memories of everything that has happened in the county where we have been living for almost half a century. It was decaying in the bloodiest possible way. It took our political leadership, and I would say, the entire Macedonian nation a great wisdom and tactics not to involve the Republic of Macedonia in that blood-spattered war. And we succeeded in it. Over the previous years we have been proudly underlining that the Republic of Macedonia is the only one of the former Yugoslav republics which acquired its independence in the most peaceful manner.
By the plebiscite declaration of the Macedonian nation and the citizens of the Republic of Macedonia through the referendum on September 8, 1991 for independent and sovereign Republic of Macedonia, the centuries-old aspiration to independent and internationally recognized Republic of Macedonia was achieved.
The people with faces lit up with joy, who spontaneously gathered together at the square in our capital, immediately after the announcement of the results from the referendum, and the leadership on the stage, together with the people, sang the national anthem in one accord, thus showing the whole world the determination for independent and sovereign Republic of Macedonia.
However, it was just the beginning of the path that was to be trodden to entire constitutional and legal and institutional establishment of all functions and prerogatives typical for an independent and sovereign country.
The politics and the economy in the period after the political independence required constant work.
The hyperinflation caused by the high monetary expansion of the National Bank of Yugoslavia and the incursions of some of the republics into the monetary system disabled the smooth, calm and systematic manner of achieving monetary independence.
I believe that you still remember the times when the inflation rate was increasing on a daily basis as much as it is increasing on an annual basis, now; when the Dinar exchange rate depreciated by several percentage points, on a daily basis; the enormous difference between the official and the “black” or the “street” exchange rate. As an example, I would like to mention that immediately prior to the monetary independence, the monthly rate of inflation equaled 86%, while the unofficial, or the “black” exchange rate of the Dinar was by 300% higher. I believe that you remember the street dealers, as being very important persons at that time.
Such situation required introduction of stable currency, as soon as possible, in order to get the country out of the zone of hyperinflation.
On the other hand, there were factors that required extreme prudence in the implementation of this project. We were aware that each harebrained solution, without serious considerations, might return as a boomerang and hold the people back from accepting the new currency/
Secondly, all analyses indicated that the Republic of Macedonia would face serious difficulties in the balance of payments immediately after the monetary independence and might find itself in a situation to run out of foreign currency funds for purchasing the basic, vital products such as food, medicines, oil etc. There was opinion that as long as we can purchase foreign currency from the NBY at official exchange rate for import of these strategic products, we should not rush into the idea to declare monetary independence. Additionally, a question was raised on the manner of providing initial foreign currency reserves, necessary for smooth functioning of the economy in the first months after the introduction of the new currency.
Third, a question was raised on the reaction of the international community, i.e. the major creditors, regarding the act of the monetary independence, whether or not they will require immediate payment of the liabilities of the Republic of Macedonia towards them, whether or not to discuss this issue with them before we introduce our own currency?!
Fourth, what will be the reaction of the rest of Yugoslavia, whether it will impose economic blockade or it will continue to trade with us. In case of economic blockade, what would be our optional solution.
Due to the complexity of the issues and the short period for their completion, the expert Government engaged almost all distinguished scientists in the area of economics in the Republic of Macedonia. Looking back from a distance of ten years, this effort is worthy of recognition. The Government, i.e. the Ministry of Development, concluded an agreement with MANU on the project “Strategy for Adjusting the Macedonian Economy in the New Conditions, Including Global Understanding of the Economic Development “, which was to be implemented in only few months.
Fifteen scientists from the Faculty of Economics and other institutions took part in that project, which was under the leadership of the academicians Ksente Bogoev and Nikola Uzunov.
At the same time, another group of (at that time) young scientists led by Goce Petreski, including Mihajlo Petkovski and Trajko Slavevski, worked on an anti-inflation program.
The work group or commission, established to work on the issue of the monetary independence of the Republic of Macedonia, operated in strictest secrecy due to the nature of its assignment. The meetings were held either in the President’s Office or in the Prime Minister’s Office. It was composed of:
· Prime Minister (Nikola Kljusev, Prof. Ph.D.);
· Minister of Finance (Metodija Toshevski, M.Sc.)
· Governor of NBM (Borko Stanoevski, M.Sc.);
· Ksente Bogoev, Academician; and
· Ljube Trpeski, Prof. Ph.D.
The last two mentioned were representatives of the science.
The National Bank and the Ministry of Finance took on the largest burden during the preparations for monetary independence.
Now, I would like to avail myself of the opportunity to give them a credit for their work. Also, separate tribute should be paid to the group of enthusiasts who worked at the printing house “11 October” in Prilep. The graphic designers Sasho Josifovski and Borce Nikolovski, as well as the artist Borce Todorovski are among the distinguished persons who designed the first Macedonian money. Isn’t there a symbolic meaning: October 11, the first uprising - October 11, the first Macedonian money.
In only few months, we managed to prepare the necessary laws, to purchase adequate paper, to bring it in Macedonia secretly, to prepare all technical solutions and to print the money.
It was considered that the most suitable time to adopt the necessary laws was the period immediately before the Labor Day’s Holidays, in order to make corrections during the holidays, in case of unforeseen events. That’s how we determined that historically important April 26, 1992 as the date when the Parliament would be in session and adopt the necessary laws, as follows:
· Law on the Monetary Unit of the Republic of Macedonia;
· Law on the Usage of the Monetary Unit of the Republic of Macedonia;
· Law on the National Bank of the Republic of Macedonia;
· Law on Assuming the Deposited Foreign Currency Deposits of the Citizens by the Republic of Macedonia;
I believe that each of you, present here in this hall, remember the moment when the Prime Minister, during his introductory speech to the Parliament, pulled out the first Macedonian money out of his pocket and the lengthy applause that followed.
The name of the currency is not written down on the first Macedonian money. It was due to the fact that a law on the name is required, however it was not possible to adopt such a law due to the secrecy of the entire operation. Therefore, although the adoption of the Law on the Monetary Unit on April 26, 1992 made the name of our currency official, however, it was not possible to print it on the first denominations due to the fact that the money was printed prior to the adoption of the Law.
Nevertheless, it was not an obstacle for the people to accept them with joy, and to start paying with them, as if they have existed forever.
The exchange rate of the Dinar against Denar was 1:1. It was done to make the exchange easier and simpler for the citizens.
In April 1992, alongside the laws on monetary independence, the Macedonian Parliament adopted the anti-inflation program, as well.
The anti-inflation package consisted of the following key measures:
· introduction of the new currency - Denar, with a fixed equivalence of 360:1 against the Deutsche Mark
· restrictive monetary policy, directed towards reducing the money supply and preserving the real positive interest rates;
· reducing the portion of the national product aimed at joint consumption from 38% to 35%;
· wage freezing;
· limited price freezing, which covered about 18% of all goods.
The anti-inflation (stabilization) program was implemented under extremely difficult circumstances. Furthermore, certain deviations occurred in the implementation of the program, since the conversion of the Dinars into the Denars was considerably higher than expected.
The fact that we did not manage to keep the preparations of the monetary independence secret till the end, and what seemed logical for the other parts of former Yugoslavia, that after Slovenia and Croatia, Macedonia would introduce its own money, sooner or later, contributed to exchange of money twice than expected in the exchange of Dinars for Denars. That was one of the reasons why the anti-inflation program was short-lived, since at a fixed exchange rate of Denar 360 per one Deutsche Mark, the twice as higher amount of Denars contributed to disturbance of that proportion and immediate reestablishment of the “black exchange rate” at considerably higher level compared to the official one.
These factors strongly supported by the decision of the Parliament to abandon one of the key pillars of the anti-inflation program - wage freezing -, contributed to abandonment of the anti-inflation program and made the inflation knock on our doors again.
The renewed inflation and the low quality of the paper of the first money-coupons kept bothering the leadership and the employees of the National Bank. We had to take rapid steps towards preparing the second money issuance. However, now, it was easier, at least we did not have to purchase the paper in secrecy.
The paper was purchased from the same firm in Slovenia, which, this time, was of a higher quality. The banknotes were again designed by the team of experts of the printing house “11 October” from Prilep. The inflation required immediate beginning of the operation, erasing the two zeros in the process of replacement of the coupons with the new money, carried out in 1993.
In the meantime, the preparations for production of the first Macedonian money commenced.
It was decided the coins to be also produced in the Republic of Macedonia. Out of the numerous tool factories in the Republic of Macedonia, only the employees of the factory “Suvenir” from Samokov were courageous enough to take hold of that operation. I would especially like to distinguish the engineers Risto Dzishev, Dimce Boshkovski and Zana Atanasovska. They also merit praise, since they produced coins in denominations of Deni 50, Denar 1, 2 and 5, which would make even much more developed countries proud of them.
The sea gull, the dog originating from the Sara Mountain, the wildcat and the Ohrid trout - as graphical solutions for the coins and as symbols characteristic for our country, remained unchanged until now.
Immediately after the adoption of the set of laws by the Parliament of the Republic of Macedonia, including the Law on the National Bank of the Republic of Macedonia as well, the first Council of the National Bank was also constituted, which consisted of the Governor and seven external members, elected by the Parliament, with a term of office of seven years.
At its session held on 10.12.1992, the Council passed a decision on announcing an open competition for production of the new money, the money that are in use today, which would be made of paper with much better quality and better security features. In addition, a selection committee that had to make a selection of best offers was formed. The selection committee consisted of the following members:
1. Academician Ksente Bogoev, President of the Academy of Science (MANU);
2. Ljube Trpeski, Ph.D., Minister in the Government of the Republic of Macedonia;
3. Aleksandar Nikuljski, Ph.D., Dean at the Faculty of Architecture;
4. Dimitar Kondovski, academic painter, corresponding member of the Academy of Science;
5. Aleksandar Cvetkovski, illustrator in “Detska radost”;
6. Tome Nenovski, M.A., Deputy Governor in NBRM.
The competition was open and anonymous. It requested the solution for the design from an artistic aspect to be made and submitted in two sets of 6 denominations each, as follows:
a) Set “A” of six denominations, containing portraits of distinguished persons from the historical and cultural past of the Republic of Macedonia and motives related to the life and work of those persons;
b) Set “B” of six denominations which should contain the symbols of statehood, historical tradition and cultural inheritance of the Republic of Macedonia.
Eight offers were received during the given period. The selection committee stated that four out of the total number of eight offers being received did not fulfill some of the criteria stipulated with the competition.
For example, the offer submitted by the printing house “11October” - Prilep, was not submitted under a code, and it contained the stamp of the printing house on the envelope, with which it violated the anonymity criterion and therefore was excluded from the competition.
Other three offers did not fulfill the criteria from the technical aspect (they were made in an inappropriate technique, dimensions, colour, number of denomination submitted etc.).
One of the remaining four offers that entered the competition, under the code “Dorian” stood out by its quality from the others. All members were unanimous that this offer deserves the first prize. None of the members of the selection committee had a dilemma on this issue.
The winner of the competition was Biljana Unkovska, an artist with whom the National Bank of the Republic of Macedonia has established an extraordinary cooperation since then. I would like to use this opportunity to extend to her my congratulations, as well as to mention two other persons that merit praise for the appearance of our Denar. They are the academician Petar Ilievski, who proposed the name for our currency and Blagoja Drnkov, whose photographs were used in designing of certain denominations.
Perhaps we are subjective and the graphical solutions for our money seem to be the most beautiful for us, because they are ours. That is why I would recommend that you read the work of Virginia Hewitt, Ph.D. and Tim Unvin, Ph.D.: “Cultural Inheritance: Evolution in the Design of the Macedonian Banknotes”, two eminent scientists, the one from the London University and the other from the museum in London, who are, of course, free of partiality. This work is published in the book that you will be able to get hold of very soon. I will quote only the last sentence of this work: “For Macedonia, bringing forth the banknotes is part of the rising of the country itself, and now, when they are in circulation, they represent ambassadors of their country, agents of the economic growth and icons of the cultural identity”.
In the meantime, the Republic of Macedonia became a member of the IMF and the World Bank and concluded its first arrangements with these institutions.
During 1993, the new Government prepared a new stabilization program that like the previous one also relied on the three pillars: the monetary policy, the fiscal policy and the income policy, but this time it was more consistent, the money supply - foreign exchange rate, money supply - salaries were in line, which facilitated its implementation. On the other hand, the fact that we had an arrangement with IMF with performance criteria, which were monitored quarterly, made all agents and institutions involved in the program implementation to be more responsible and more disciplined.
The successful accomplishment of the STF arrangement enabled us to conclude the classical Stand-by arrangement for a very short period of time, with which we practically achieved a complete macroeconomic stability. The further arrangements that we concluded with the IMF and the World Bank enable us, so to speak, to maintain the achieved macroeconomic stability quite routinely.
The Republic of Macedonia belongs to the group of countries in transition having the most intensive relations with IMF and the World Bank. The Republic of Macedonia had multilateral benefit from that cooperation.
First, these arrangements helped us to solve the problems that originated from the deficit in the balance of payments. (It is known that in the Republic of Macedonia, while it was a part of SFRY, numerous economic facilities that operate on the basis of imported raw materials were built, and that situation continued over a longer period of time until the economy was restructured and until equilibrium was achieved in its balance of payments).
They were not only the funds received from those arrangements, but also other significant funds received in form of grants or “soft” loans from the developed countries aimed at supporting the balance of payments, and which were conditioned with the conclusion of an arrangement of the Republic of Macedonia with the IMF.
In that regard, the arrangements with the IMF and the World Bank helped us regulate the relations with the Paris and the London Clubs of Creditors. These arrangements also helped the Republic of Macedonia to service debts in amount of US Dollar 713.8 million towards foreign creditors, since the independence until the end of 2001.
During the same period, the Republic of Macedonia was extended credits for supporting the balance of payments (mainly from the World Bank and IMF) in amount of US Dollar 550 million, out of which US Dollar 367 million were extended under the so-called IDA conditions, with 35-year period of repayment, 10-year grace period and no interest.
In other words, we replaced the largest part of the external debt inherited from the former SFRY, which was with high interests and matured, with new credits, with no interest and period of repayment of 35 years. Without the arrangements, we would not have received US Dollar 113.5 in donations (grants, with no obligation for repayment) given as a support to the balance of payments.
Second, the concluded arrangements and fulfillment of the so-called performance criteria contributed to the disciplined behavior of all entities relevant in the conduct of the economic policy, and due to that, achievement of permanent macroeconomic stability as a precondition for sustainable economic growth.
Third, the technical assistance that these two institutions have provided for the RM since the independence is invaluable.
The training courses that the IMF and the World Bank organize in Washington and in Vienna every year, attended by dozens of young employees from the National Bank of the Republic of Macedonia and lately from the Ministry of Finance, are school that can hardly be found elsewhere.
I felt the need to stress the usefulness of the concluded and implemented arrangements with the IMF and the World Bank due to the recent frequent critics in the academic circles for the alleged adverse impact of these arrangements on the Macedonian economy. We needed those arrangements and we shall still need them.
Honorable Ladies and Gentlemen,
Up to the monetary independence, the National Bank of the Republic of Macedonia was a part of the National Bank of SFRY.
During that time, its main task was only to implement the monetary, foreign exchange and credit policies on the territory of the Republic of Macedonia.
Unfortunately, we did not follow the steps of the Republic of Slovenia which during the 70’s and 80’s succeeded in making some of the departments and staff at the National Bank of Slovenia even better than the departments and staff at the NBY, although it had the same status as the National Bank of Macedonia.
That helped them handle the new situation in the first years of the monetary independence much better and much more easily.
In the first years after the monetary independence, the National Bank of the Republic of Macedonia faced with the problem of lack of personnel in the domain of preparing the monetary and the balance of payments projections, and especially in organizing the supervision.
However, the investments in young personnel, especially in the last five years, the established principles that only graduated economists, lawyers or engineers with high average grade and excellent knowledge of one foreign language, able to use one of the computer programs, may become employees of the NBM, as well as the introduced practice that all courses organized by the IMF or the World Bank are attended by a participant from the National Bank of the Republic of Macedonia, have given positive results.
Today, I can proudly say that the National Bank of the Republic of Macedonia is not only qualified to perform its functions with high quality and competence, but also to provide a technical assistance to other central banks in transitional countries, including central banks with tradition of over one hundred years.
What are the most significant results that the National Bank of the Republic of Macedonia has achieved in the past 10 years:
1. Maintenance of stable purchasing power of the Denar through successful maintenance of the price stability in the economy, which represents the main objective of the monetary policy. Since 1995, the inflation rate in the Republic of Macedonia has been maintained at a one-digit level (regardless of the unfavorable conditions and influence of the external shocks). From this aspect, the Republic of Macedonia belongs to the group of most successful transitional countries;
2. Maintenance of the stability of the Denar cross-currency value. Through everyday interventions on the foreign exchange and exchange offices market on both the demand and the supply sides, the NBRM maintains the stability of the Denar exchange rate, although it is fluctuating. The stability of the Denar exchange rate is one of the major factors for stable purchasing power of the Denar.
3. Continuing growth of the foreign exchange reserves, with permanent increase in the coverage of the average import of goods on monthly basis. Thus, after regulating the relations with the international financial institutions, with the Paris and London Clubs of Creditors, the NBRM regularly services the external debt on behalf of and for the account of the Government. The international financial circles consider the Republic of Macedonia as a country that regularly services its debt.
4. NBRM is monitoring and controlling the banking system operations and is committed to establish stable and efficient banking system through supervising and controlling activities, as well as permanent improvement of the legal framework. The increased interest of foreign investors for entering the banking system of the Republic of Macedonia in the past few years confirms the solid performance of banks.
The Republic of Macedonia is among the small number of countries in transition that succeeded to avoid systemic banking crisis, although in the Republic of Macedonia there were much more reasons for that than in any other transitional country.
Let us only mention 1999 and 2001 when due to the well-known developments, the scared depositors made run on banks in order to withdraw their deposits.
This is a school example when a systemic banking crisis occurs by default.
And you have witnessed, as well, that we successfully managed to overcome these difficulties. We paid back every Denar, Deutsche Mark or Dollar to the depositors, without letting the banks to get into illiquidity.
Therefore, the banks’ managers are worth of recognition.
Honorable Ladies and Gentlemen,
The National Bank of the Republic of Macedonia, in its attempt to mark the first decade of the monetary independence of our country, decided to issue two publications directly related to the important anniversary, which, I believe, will rouse the interest of the public.
The first, with symbolic title, and memoir subtitle - Creation of the Macedonian Denar: considerations and memoirs, contains the personal memoirs and notes of officials at that time and of the immediate participants in that important project of the monetary independence, each of them, in their own way, directly facing the responsibilities and challenges of the common goal. This chronograph work is an integral recollection of the days in which, racing with the time, the strategy for monetary independence of the Republic of Macedonia and the Anti-inflation Program were planned, the necessary preparations for printing our national currency were made, its name, design and quality were discussed, the exchange of the old Yugoslav Dinars was carried out, the first standardized money issuance was prepared and the second one was planned.
Our aim was to give this achievement to the future generations, but at the same time, to give a credit to everybody who unselfishly offered their hand, knowledge and vision in creating and pursuing one of the fundamental moments of the independence of the country. I would like to use this occasion to publicly express my gratitude to the authors who agreed to spend some of their time and to embed their memories in a written recollection of the time at the beginning of the path that was to be trodden. Also, we would like to express our gratitude to those who helped the outlining, the technical preparation and the issuance of this publication.
The second publication is a chronological review of all banknotes, coins and commemorative coins issued by the National Bank of the Republic of Macedonia in the past ten years, which, actually, is the first reference catalogue containing the features of the money of the Republic of Macedonia. By publishing it in both Macedonian and English language, we would like to make it available to those whose professional interest is related to studying contemporary money.
Honorable Ladies and Gentlemen,
Let me finish my presentation with a saying or aphorism: If you run a 20-kilometer marathon, do not forget that when you pass the 19th kilometer, you have half more to pass. If all of us work and act at our posts, even at the very end of achieving our goal, however aware that we have half more to pass, I believe that at the 20th monetary independence anniversary, we can conclude that the Denar has played its role well, and therefore it can be sent to the annals of the history, since the European Union concluded that the Republic of Macedonia fulfilled all requirements for membership in the EMU.
Thank you,
Ljube Trpeski
Governor