Moderators: ·
Dr. Franz-Lothar Altmann, Member of the Board, Southeast Europe Association; Head of the Department of the "Western Balkans" SWP, Berlin, Germany
Dr. Dr. h.c. Roland Schönfeld, Vice-President, Southeast Europe Association, Regensburg, Germany
Rapporteur: ·
Dr. Dieter Falk, Consultant for Business Development, Frankfurt/Main, Germany

Introduction
Several speakers noted that many years of instability in the region (the Yugoslav wars; the Greek embargo; the UN sanctions against Serbia; the Albanian and Bulgarian economic crises; the Kosovo Crisis; and now violence in Macedonia) have severely impeded Macedonia's transition to a free market economy. Participants identified, for example, that there are still monopolies in the fields of oil and electricity. Further, politicians still steer the economy (or at least try to) and the influence of businessmen, who lack a strong lobby, is negligible.

The Working Group frankly discussed grey markets, including the banking sector ("money lenders", especially among the Albanian population in Macedonia), drug and cigarette smuggling, corruption involving the highest ranks of government, and the presence of Mafia activities. As a result of all these factors, a grave lack of trust in Macedonia's economy has developed - both internally and abroad, and this deters investment. The only comparative advantage over the other parts of former Yugoslavia - peace - has now vanished owing to the current crisis.

Although, on the one hand, foreign help is actively sought, especially concerning accession to the EU, on the other, outside "interference" is often seen as problematic ("Give us money but no advice"). The IMF and the World Bank were cited several times as examples. In particular, it was these institutions that insisted upon the introduction of the complicated VAT law of 2000. Participants complained it was introduced too quickly, had too high a rate, and, in effect, doubled taxation because the excise tax still existed. The surprisingly high amount of tax collected led to a lack of liquidity in the whole economy, which was still recovering from the Kosovo crisis of 1999. This aggravated the lack of working capital in business. The only one who did in fact benefit from VAT funds was the government budget which posted a surplus in the year 2000 which in part was used to repay debts.

While there was general agreement on much of the above, options regarding other topics broke down along ethnic lines.

Ethnic Albanian participants claimed that the negative effects of the economic crisis were higher on the ethnic Albanian population than on the ethnic Macedonians. Ethnic Macedonians suggested that a Western Macedonian (read ethnic Albanian) farmer could make at least as much money as an employed person (read ethnic Macedonian) in Skopje with an income of 300 DM per month.
The debate touched on the roots of the ethnic Albanian problems and whether they are inherited, self-inflicted, or imposed. No conclusions were drawn, but higher statistical unemployment, a lack of equality especially for women, and a general lack of vision were mentioned as issues that contribute to the problem.
One participant lamented that Albanians participated very little in privatisation, which in general did not help in maintaining production, creating new jobs, or attracting foreign investors.

Participants discussed whether Albanians have greater problems in obtaining loans from banks because of their ethnicity. Several people suggested that banks in general were very hesitant to make loans and that sound investment projects were rare. Moreover, non-functioning and/or often changing laws, e.g. on mortgages and on bankruptcy procedures, aggravated the situation.

Ethnic Albanians noted that not one bank is officially owned by Albanians, hardly any bank employs ethnic Albanian workers, and there are no ethnic Albanian managers at all. Further, one participant representing a private company from Gostivar, lamented that for 10 years his region has suffered economic deterioration without help from Skopje.

Ethnic Macedonians, for their part, stressed that economic problems affect all citizens of Macedonia equally and that the Working Group should therefore concentrate solely on macro-economic problems, and should reject ethnic causes for differences.

Recommendations by the participants (not necessarily shared by all):
The following recommendations are an outgrowth of the afternoon's discussion.

1) Stop the current conflict at any price. Here, there was unanimity. One participant noted that the large military expenditure required to fight the insurgency will place a heavy burden on the budget. Another added that the $300 million allocated for Macedonian Telecom privatisation should not be used to pay for the costs of ending the fighting by deploying the military.

2) Design a blueprint for how to live together. One participant stated "We must put our home in order". Major pieces for this blueprint include: ·
- Fight corruption and the Mafia everywhere, including all the way up through government. ·
- Set and reach statistical targets for the employment of ethnic Albanians ("Affirmative Action") for both economic and psychological reasons. Although statistics, especially the results of the 1994 census were repeatedly questioned by the ethnic Albanians, a declaration of intent to guarantee more Albanian participation in the official economy and the public sector was considered helpful by all, including ethnic Macedonian managers. ·
- Strengthen the rule of law. ·
- Enact fair and practical legislation for businesses. ·
- Do not change the laws too often. ·
- Deregulate. (See the last sentence of Article 8 of Macedonian constitution: "Anything that is not prohibited by the Constitution or by law is permitted in the RM.") ·
- Make private investors, especially foreign ones, welcome. ·
- Promote a free market system and open competition. ·
- Develop all underdeveloped regions in Macedonia. (See Article 57 of the constitution: "The RM stimulates economic progress and provides for a more balanced spatial and regional development, as well as for the more rapid development of economically underdeveloped regions.") ·
- Develop the infrastructure - it has short-term positive effects, notably employment, and long-term ones leading to economic stability. ·
- Create an elite management school for the whole region. According to this Working Group, education and training have high priority in general for everybody in the region, especially for minorities and women; for more details, see Working Group I. ·
- Create new textbooks and curricula, employ international staff, and give scholarships in the universities. ·
- Give international scholarships to the new International Tetovo University and find a way to acknowledge the degrees of the hitherto illegal Tetovo Albanian University.
- Promote inter-ethnic companies. ·
- Support young entrepreneurs.
Working Group members agreed that many measures can only be implemented with the help of, and active support or even pressure from, outside Macedonia.

3) The supreme goal of the state should be to become a member of the EU as quickly as possible. That said, some non-Macedonian members warned that financial assistance alone will not solve the inherent problems of Macedonia. They urged that all the borders be opened as quickly as possible in order to guarantee free trade and foster the flow of investments.

4) The population in general wants and needs quick, visible measures. To be assured that stability is returning, appropriate and doable items should be identified and acted upon. One such quick measure is knowledge and in support of this, know-how transfers were identified.

5) Easier access to capital in general was demanded (despite some warnings that money alone does not solve the problems) accompanied by a more relaxed monetary policy. In this connection, the pivotal role of the independent National Bank in guaranteeing the stability of key economic parameters, such as inflation and exchange rate stability, was acknowledged.
The working group closed with the following consensus: Nobody wants a "Greater Albania" and "Macedonia is all we have".

Dr. Dieter Falk

executive summary
report working group I
report working group II