Interview with Mr. Ljube Trpeski, Governor of the NBRM
Interview for "Nova Makedonija"
ECONOMIC GROWTH - POSSIBLE WITHOUT MONEY PRINTING
Interview with Mr. Ljube Trpeski, Governor of the NBRM
Exactly one year ago, the Parliament of the Republic of Macedonia appointed Mr. Ljube Trpeski Governor of the National Bank, who was until then Deputy Prime Minister in the Government. Regarding the numerous financial scandals which had wider, political consequences, the, until then, attractive position turned into a "hot chair". The man of confidence, one of the leading monetary experts in the Republic, presents to "Nova Makedonija" the current circumstances in the Macedonian Economy and the role of the central bank in the processes that promise better times.
· The representatives of the World Bank publicly praised the Government, because in the election year it undertakes even some unpopular reforms. Does the National Bank feel the approach of the elections and are there pressures for money printing?
The world experience shows that before elections, the governments loosen the economic policy in order to attract the sympathy of the voters. Therefore central banking institutions are established as independent from the executive authority, and control the monetary policy. We in the National Bank appreciate the fact that in the area of monetary policy, the Government behaves as if it is not an election year, it leads tight budgetary policy, which enables us to lead a consistent monetary policy too. Otherwise, if the budgetary position had been looser, we would have had to tighten the monetary policy, because according to the Constitution and the National Bank of the Republic of Macedonia Act, basic target of the National Bank of the Republic of Macedonia is to look after the internal and external stability of the currency. As you can see, high representatives of the World Bank - Mr. Peter Stake and Mr. Ajay Chibber especially appreciate it, and therefore they highly evaluated the economic policy that is being led in Macedonia. In the strategy of the World Bank towards Macedonia for the following three years, it is said that in respect of the macroeconomic stability, Macedonia together with Macedonia is at the top position. Out of the Maximum grade 5 - it received 4,17.
· What about the evaluations of the other indicators, are they favorable as well?
Regarding the structural reforms se received 3,76 - which is little lower, yet significantly above the average of the countries in transition which is 3,19. Even in this regard we are close to the top, so that the overall impression of the international institutions is very favorable. As a result of that, we expect the IMF to approve the second year ESAF arrangement in the following couple of months, as well as the second tranche of the SAL and SSAC arrangements. Undertaking such sensitive reforms which might deteriorate the popularity in an election year, but on the other hand from a long-term perspective would give positive results for the country, is an especially positive surprise for the World Bank.
· Statistical indicators for the first months of the year are favorable. Did the overall economic and monetary policy have a stimulating or destimulating influence on the expected change?
We have always been emphasizing that it is important first to achieve macroeconomic stability, and then to have economic growth. That is a sound economic growth. We are witnesses of such a sound, high economic growth. We have a macroeconomic stability - inflation which is on the level of highly developed countries, 2 - 3%, growth rate of the industrial production in the first four months over 11%. This high growth does not appear in only one or two branches, but in 22 out of 32. They participate with 80% in the creation of the GDP. This indicates that the overall economy follows an upward direction. This can convince even the deepest skeptics that sound, high economic growth can be achieved even without money printing, which will incur new employment, new investment...
· However, situation in the external trade operations are not optimistic. Has the last-year devaluation achieved the expected results in the export area?
The trend in the external trade area after the devaluation, from the second half of the last year continued more intensively in the first four months of this year. I shall not disclose the data regarding the external trade, because the Bureau of Statistics is in charge of that, but I can say that we have growth both in export and import. The new quality in this is that now we have an increased growth of raw materials which began in the last months of the last year, and resulted in a high growth of the industrial production. Instead of the increased import of consumer goods, as we had last year, now we have an increased growth of raw materials which are implemented in the production and further on exported. If import is stopped, we shall stop the industrial production growth, because our economy can not restructure from import-dependable into export-oriented over night. We should work hard on that over a long period of time. However, movements in the external trade are in positive direction, and if they continue as such, the targets set in the documents adopted by the Parliament last December, shall be met.
· There are some misunderstandings on the relation Customs - Statistics regarding the data about the external trade operations. What can the National Bank of the Republic of Macedonia do in respect of improved quality of data as basis for reaching other important decisions?
On behalf of the NBRM all activities has been undertaken in order to enable the institutions, first of all the Bureau of Statistics, to have precise and accurate records for the external trade, because we need it for the purpose of leading consistent macroeconomic policy. We have to have precise and accurate records. We must not allow the practice of having the data for January in May. We must receive the data month after month. The Customs received equipment and a modernized its operations through the so called Asicuda system, which enables the Bureau of Statistics to receive numerous data for processing. Now we need experts who will know how to use it and establish a link between the Bureau of Statistics and the Customs, in order to get accurate data. Even if the Bureau of Statistics is not able to do it, we will take the obligation of doing it ourselves. It would be extremely unusual for the National Bank to keep records of the external trade and it will be among the rare countries in the world, but in the interest of the country, if this institution is not in a position to do it, we shall undertake it, because it is very important for us to have precise and accurate data.
· In many world economic magazines (Euromoney, Financial Times) Macedonia as a country in transition is ranked at the last place according to the inflow of foreign direct investments. Does the NBRM have precise data regarding the volume of foreign capital invested in domestic enterprises?
No matter how strange and unusual it may sound, at this moment we do not have precise records of foreign investments that entered in the Republic of Macedonia. We know that they are insufficient and we also know that there is a possibility to have them increased, but they certainly do not amount to 12 million, as it was registered last year; they were significantly higher. The NBRM has undertaken certain activities in that respect, and if necessary, natural persons and legal entities in the Republic of Macedonia which admit foreign investments will be obliged by the law to record such cases. At the moment they are not obliged to undertake any activities. Anyone can build a factory without even informing the authorities that it is done with a foreign capital.
· You said that the import of raw materials has increased. That means that larger amount of foreign exchange is needed for payment of such import. Are NBRM and the commercial banks in a position to meet that needs of the economy - is there any deterioration in the foreign exchange reserves?
Seasonally in the first quarter, NBRM has always intervened the foreign exchange market. In this period we intervened mostly because of the import of oil and wheat. We bought larger quantities of oil and wheat than needed in normal circumstances. That is so out of two reasons; first, due to the low price of oil on the world market, both Makpetrol and OKTA tried to purchase as much as possible and take advantage of such market conditions. On the other hand, due to the current situation in Kosovo, the government wanted to have larger stock of oil than usually. Same goes for the wheat. Therefore we had larger intervention, but in the following quarters less funds will be earmarked for that purpose, of course if the situation in Kosovo calms down. If the interventions for oil are excluded, the foreign exchange market is balanced. I hope that until the end of the year we will meet the target of purchasing excess foreign exchange on the foreign exchange market, maintaining the stability of the foreign exchange rate. It is planned to increase the foreign exchange reserves by USD 60 million, out of which USD 30 million are planed to be an excess on the foreign exchange market, and USD 30 million to be received from the two tranches of the IMF.
· Several months ago there was a serious "blow" on the foreign exchange bureaus market, which was officially explained by the purchase of tobacco, whereas ordinary people speculated about a new denar devaluation. How do you explain that, and in general, how do you explain the speculations about the need for devaluation?
We are small and open economy with a high degree of liberalization. The economies which used to live in a different system have always been a subject of speculations that they can survive only in conditions of unstable foreign exchange rate. Certain entities in our system prefer an unstable exchange rate and continuous devaluation of the denar, because it will be easier for them to disguise the weak points in their operations. Since we are a small country, speculations in one town are very quickly spread all over the country, so that in the past period we needed several million German Marks to balance the exchange rate, which was mostly a result of the psychological pressure that "tomorrow something will happen, this is an information from the highest authorities", but that tomorrow never comes. Therefore, from the funds for payment of the tobacco, which were in denars, foreign exchange was purchased, but only German marks. At certain periods we offered US Dollars, but the people didn't want them. They wanted only German marks, so we had to withdraw from abroad just in order to satisfy the demand. That is an interesting phenomenon in Macedonia, people prefer German marks, unlike Russia for example, where the people prefer US Dollars. Here we have markization of the overall calculation and recording, German mark is even used in laws. The exchange rate remains to be key nominal anchor as it was stated in the documents adopted by the Parliament, and at this moment the exchange rate is optimal in order to achieve the targets regarding the increase of GDP, inflation movement, and increase of export.
· Can you, as a Governor, promise that , let's say, until the end of the year the current parity of 31 denar for 1 DM shall be maintained?
Yes, I can promise you that.
· In the recent report of the EU on Macedonia, it was stated that the reforms in the banking sector are too slow, which confirms the opinions of some foreign experts working in this country that in Macedonia there are practically no real banks. What is your opinion, as a highest body of the NBRM, of the reforms in the banking sector?
We should always have in mind where we were in the past, were we are now, and what are we aiming at. In the past we had a banking system which was even worse than the banking systems of the East European countries with central planning. That was so, because we had banks of associated labor, where debtors, literally, managed the banks. When we gained our independence, all the banks were technically insolvent. At firs a linear rehabilitation was undertaken, and then an individual rehabilitation of the largest bank, which brought it into position to sell its shares to a foreign bank at a normal price. Much has been done in the legal regulations as well. Now the large debtors do not object their not ruling the banks, not dictating the credit policy. They know that they can not be in the managing bodies of the banks. It is a very significant improvement in understanding the things. Supervision standards have been strengthened, Basle principles have been implemented with which most banks comply. We came into a situation when banks, with their credit policy, do not meet the NBRM limitations, because they are very cautious in extending credits. Objections from the EU are in two directions - first, we do not have the presence of foreign banks i.e. only East European countries are present, which they do not take as positive. Entrance of the Erste Bank will completely change the situation. Second, the problem with the collection of mortgages to which many banks complain. It is a result of the slow court procedure, which is far behind the practice in the western European banks. Part of the criticism are due to the fact that the same management structure remained. In the western countries it is a usual procedure to change the management structure in a bank that is undergoing a rehabilitation process - whereas here the same management structure remained because of the opinion that we do not have enough experienced bankers, in order to change them so frequently.
· The objections were also that he banks do not enter risks.
I praise that objection - that the banks do not enter risks. If it is an objection, according to me it is a compliment for the banks.