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Economy of Macedonia

Macedonia is a small economy with a gross domestic product (GDP) of about $9.17 billion (2010 est.), representing about 0.01% of the total world output. It is an open economy, highly integrated into international trade, with a total trade-to-GDP ratio of 81.6% at the end of 2009. Agriculture and industry had been the two most important sectors of the economy in the past, but the services sector has gained the lead in the last few years. Economic problems persist, even as Macedonia undertakes structural reforms to finish the transition to a market-oriented economy. Modernization of the largely obsolete infrastructure is happening slowly, and foreign investment has not kept pace with neighboring economies. Labor force education and skills are competitive in some technical areas and industries but significantly lacking in others. Without adequate job opportunities, many with the best skills seek employment abroad. A relatively low standard of living, high unemployment rate, and modest economic growth rate are the central economic problems. Five years of continuous economic expansion in Macedonia was interrupted by the 2001 conflict, which led to a contraction of 4.5% in 2001. Growth started to pick up in 2003 (2.8%) and continued in 2004 (4.6%), 2005 (4.4%), 2006 (5.0%), 2007 (6.1%), and 2008 (5.0%). In 2009 and 2010, the economy slowed as a result of the world economic crisis, although the financial sector remained sound. This was largely due to conservative banking and financial regulation and limited exposure to global financial markets. Real GDP dropped by 0.9% in 2009. The economy slowly started to recover in 2010 as real GDP is estimated to have grown by 1.3%. Consumer Price Index (CPI)-based inflation was -0.8% in 2009 and 1.6% in 2010. Living standards still lag behind those enjoyed before independence. The United States is supporting Macedonia's transition to a democratic, secure, market-oriented society through targeted foreign assistance. Background After the breakup of Yugoslavia in 1991, Macedonia, the former Yugoslavia's poorest republic, faced formidable economic challenges posed by both the transition to a market economy and a difficult regional situation. The breakup deprived Macedonia of key protected markets and large transfer payments from the central Yugoslav government. The war in Bosnia, international sanctions on Serbia, and the 1999 crisis in neighboring Kosovo delivered successive shocks to Macedonia's trade-dependent economy. The government's painful but necessary structural reforms and macroeconomic stabilization program generated additional economic dislocation. Macedonia's economy was hurt especially by a trade embargo imposed by Greece in February 1994 in a dispute over the country's name, flag, and constitution, and by international trade sanctions against Serbia that were not suspended until a month after conclusion of the Dayton Accords. The impact of the 2001 ethnic Albanian insurgency in Macedonia, decreased international demand for Macedonian products, canceled contracts in the textile and iron and steel industry, and poor restructuring of the private sector affected Macedonia's growth and foreign trade prospects through 2004. Macedonia's political and security situation is stable. This has allowed the government to refocus energies on domestic reforms, boosting economic growth, and attracting increased levels of foreign investment. In 2004, the government passed a progressive Trade Companies Law aimed at easing impediments to foreign investment, providing tax and investment incentives, and guaranteeing shareholder rights. The government's fiscal policy, aligned with International Monetary Fund (IMF) and World Bank policies, helped maintain a stable macroeconomic environment which sent promising signals to investors. However, economic growth remained sub-par in 2005 and 2006, due in part to poor government results in combating corruption, a weak judiciary, poor contract enforcement, and high domestic finance costs. The new government that took office in August 2006 put the fight against corruption and attracting foreign investors at the very top of its priority list. In 2007, it launched an expensive marketing campaign promoting the country as a good investment destination and put in place a one-stop process for business registration that considerably shortened the time required to register a new business. It provided business incentives by cutting rates on profit tax and personal income tax and implemented a so-called "regulatory guillotine," an activity which reduced procedures and legislative requirements for doing business. Reinvested profits became tax free, social contributions rates on salaries are being gradually reduced, and a regulatory impact assessment (RIA) procedure is being carried out to re-evaluate legislation for doing business. Macedonia's moderate economic growth was halted by the world economic crisis in 2009, which hit the real sector strongly, although the financial sector remained sound and stable. Exports dropped dramatically and the economy entered into a recession, albeit one that was shorter and, given the already low level of economic development, far less severe than in many other transitional and developed economies. Macroeconomy Real GDP in the third quarter of 2010 increased by 1.3% on annual basis. This modest growth was driven by an 18.4% rise in the construction sector, a 3.8% rise in financial intermediation services, 2.7% higher wholesale and retail trade, and 2.4% growth in agriculture. At the same time, industrial output in 2010 was 4.8% lower than in 2009. In 2010, low government and external debt and a comfortable level of foreign exchange reserves allowed for a slight relaxation of the monetary policy. The CPI moved from negative to positive, with the cumulative CPI rising moderately to 1.6% at end-2010. Due to rising prices for energy, fuel, and food on international markets, inflation continued an upward trend, reaching 3.9% at end-February 2011. The official unemployment rate dropped to 31.7% in the third quarter of 2010. Many people work in the gray economy, and many experts estimate Macedonia’s actual unemployment as being somewhere between 20%-25%. Revenue collection fell well below government projections in the first half of 2010, leading the government to finance the budget through domestic borrowing. In July the government amended the budget to decrease projected expenditures and bring it in line with the budget deficit target of 2.5% of GDP. A dividend received from the government’s shares in Macedonian Telekom later in the summer boosted revenue collection, and at the end of 2010 total budget revenues were 2.8% higher than in 2009. This allowed expenditures to increase by 2.4% and still keep the deficit within the target. Public debt increased from 32.1% in 2009 to 34.5% in 2010, a level still considered moderate, but one that could raise concerns if fiscal performance were to continue this pattern in the mid- to long term. The Central Bank kept the liquidity indicators for banks and the reserve requirement unchanged from 2009, but significantly reduced the Central Bank bills rate from 9% in December 2009 to 4% at the end of 2010. This relaxed monetary policy was reflected in a 7.1% growth in private-sector credit. Although slightly improved from 2009, Macedonia’s external trade still struggled in 2010 due to the slow recovery from the economic crisis by its main trading partners, particularly EU members. Starting from a very low base, in 2010 exports grew by 22.7% and imports rose by 8.1%, leaving a trade deficit of 23.4% of GDP. At the same time, the current account balance significantly improved in the second half of 2010 and was estimated at 2.3% of GDP at the end of 2010. This was primarily due to a 19.1% higher inflow of private transfers, most of which came in the second half of 2010, despite poor foreign direct investment (FDI) of about $236.6 million by end-November 2010. Foreign currency reserves remained at about $2.3 billion, a level that comfortably covers 4 months of imports. After the conclusion of its 3-year Stand-By Arrangement (SBA) with the IMF in August 2008, the Government of Macedonia decided not to request additional financial assistance from the IMF. In October 2010, the World Bank Board of Directors approved a new Country Partnership Strategy (CPS) with Macedonia for the period 2011-2014, which could potentially bring to the country assistance of about $200 million in funding for improving competitiveness, strengthening employability and social protection, and using more sustainable energy resources. Part of that assistance is a commitment of $30 million in direct budget support. Macedonia became the first country eligible for the IMF’s Precautionary Credit Line in January 2011. This program gives Macedonia a line of credit worth 475 million euros (about $675 million) over 2 years. The credit is intended to be accessed only in case of need brought about by external shocks. The credit line was agreed to following extensive consultations with the IMF in October and December 2010. Trade Macedonia remains committed to pursuing membership in the European Union and NATO. It became a full World Trade Organization (WTO) member in April 2003. Following a 1997 cooperation agreement with the European Union (EU), Macedonia signed a Stabilization and Association Agreement with the EU in April 2001, giving Macedonia duty-free access to European markets. In December 2005, it moved a step forward, obtaining candidate country status for EU accession. Macedonia has had a foreign trade deficit since 1994, which reached a record high of $2.873 billion in 2008, or 30.2% of GDP. Total trade in 2010 (imports plus exports of goods and services) was $8.752 billion, and the trade deficit amounted to $2.149 billion, or 23.4% of GDP. A significant 56.2% of Macedonia's total trade was with EU 27 countries. By individual countries, Macedonia's major trading partners are Germany, Greece, Serbia, Bulgaria, Russia, and Italy. In 2010, total trade between Macedonia and the United States was $116.6 million. U.S. exports accounted for 1.9% of Macedonia's total imports. U.S. meat, mainly poultry, and electrical machinery and equipment have been particularly attractive to Macedonian importers. Principal Macedonian exports to the United States are tobacco, apparel, and iron and steel. Macedonia has bilateral free trade agreements with Ukraine, Turkey, and the European Free Trade Association (EFTA--Switzerland, Norway, Iceland, and Liechtenstein). Bilateral agreements with Albania, Bosnia and Herzegovina, Croatia, Serbia, Montenegro, UN Mission in Kosovo (UNMIK), and Moldova were replaced by membership in the Central European Free Trade Agreement (CEFTA). Macedonia also has concluded an “Agreement for Promotion and Protection of Foreign Direct Investments” with: Albania, Austria, Bosnia and Herzegovina, Bulgaria, Belarus, Belgium, Luxembourg, Germany, Egypt, Iran, Italy, India, Spain, Serbia, Montenegro, People’s Republic of China, Republic of Korea, Malaysia, Poland, Romania, Russia, Slovenia, Turkey, Ukraine, Hungary, Finland, France, the Netherlands, Croatia, Czech Republic, Switzerland, and Sweden. Economy GDP (2010 est.): $9.17 billion. Per capita GDP (2010 est.): $9,400. Real GDP growth (2010 est.): 1.3%. Annualized inflation rate (2010, Consumer Price Index): 1.6%. Unemployment rate (third quarter 2009): 31.7%. Trade: Significant exports --steel, textile products, chromium, lead, zinc, nickel, tobacco, lamb, and wine. Official exchange rate (2010): 46.434 Macedonian denars (MKD) = U.S. $1.

Geography of Macedonia

Macedonia is located in the heart of South Central Europe. It shares a border with Greece to the south, Bulgaria to the east, Serbia and Montenegro (Serbia and Kosovo) to the north, and Albania to the west. The country is 80% mountainous, rising to its highest point at Mt. Korab (peak 2,764 m). Official Name: The United States and the United Nations officially refer to Macedonia by its provisional name, "The Former Yugoslav Republic of Macedonia," pending the outcome of UN-mediated negotiations between Macedonia and Greece. Area: 25,713 square km. (slightly larger than Vermont). Cities: Capital--Skopje 600,000; Tetovo, Kumanovo, Gostivar and Bitola 100,000+ (2001 est.). Geography: Situated in the southern region of the Balkan Peninsula, Macedonia is landlocked and mountainous. Climate: Three climatic types overlap--Mediterranean; moderately continental; and mountainous-producing hot, dry summers and cold, snowy winters.

Government of Macedonia

The unicameral assembly (Sobranie) consists of 120 seats. Members are elected by popular vote from party lists, based on the percentage parties gain of the overall vote in each of six election districts of 20 seats each. Members of parliament have a 4-year mandate. The Prime Minister is the head of government and is selected by the party or coalition that gains a majority of seats in parliament. The Prime Minister and other ministers must not be members of parliament. The President represents Macedonia at home and abroad. He is the commander in chief of the armed forces of Macedonia and heads its Security Council. He also appoints the Chief of the Defense Staff (CHOD), the head of the intelligence agency, and the Governor of the National Bank of the Republic of Macedonia (NBRM). The President is elected by general, direct ballot and has a term of 5 years, with the right to one re-election. The court system consists of a Supreme Court, Constitutional Court, local and appeals courts, and Administrative and Higher Administrative Courts. Judges appointed by the Judicial Council are appointed without a time limit. The Judicial Council also evaluates, promotes, disciplines, and removes judges. The Supreme Court is the highest court in the country and is responsible for the equal administration of laws by all courts. The Constitutional Court is responsible for the protection of constitutional and legal rights and for resolving conflicts of power among the three branches of government. Its 9 judges are appointed by parliament with a mandate of 9 years, without the possibility of re-election. The Public Prosecutor is appointed by parliament with a 6-year mandate. Principal Government Officials President--Gjorge Ivanov Prime Minister--Nikola Gruevski Deputy Prime Minister (EU Integration)--Ivica Bocevski Deputy Prime Minister (Economic Affairs)--Zoran Stavreski Deputy Prime Minister (Framework Agreement Implementation)--Abdulaqim Ademi Foreign Minister--Antonio Milososki Education Minister--Pero Stojanovski Information Society Minister--Ivo Ivanovski Defense Minister--Zoran Konjanovski Economy Minister--Fatmir Besimi Finance Minister--Trajko Slaveski Interior Minister--Gordana Jankuloska Agriculture, Forestry and Water Minister--Aco Spasenovski Justice Minister--Mihajlo Manevski Ambassador to the United States--Zoran Jolevski Ambassador to the United Nations--Slobodan Tasovski The country maintains an embassy in the United States at 1101 30 Street, NW, Suite 302, Washington, DC 20007 (tel: (202) 337-3063; fax: (202) 337-3093). Type: Parliamentary democracy. Constitution: Adopted November 17, 1991; effective November 20, 1991. Amended January 6, 1992. Independence: September 8, 1991 (from Yugoslavia). Branches: Executive--prime minister (head of government), council of ministers (cabinet), president (head of state). Legislative--unicameral parliament or Sobranie (120 members elected by popular vote to 4-year terms from party lists based on the percentage parties gain of the overall vote in each of six election units, with 20 seat per unit). Judicial--Supreme Court, State Judicial Council, Constitutional Court, Public Prosecutor's Office, Public Attorney. Legal system is based on civil law; judicial review of legislative acts. Subdivisions: 84 opstini (municipalities) plus the city of Skopje. Suffrage: Universal at age 18. Main political parties: Internal Macedonian Revolutionary Organization-Democratic Party for Macedonian National Unity (VMRO-DPMNE); Social-Democratic Union of Macedonia (SDSM); Democratic Union for Integration (DUI); Democratic Party of Albanians (DPA); New Social Democratic Party (NSDP); Internal Macedonian Revolutionary Organization-People's Party (VMRO-NP); Party for Democratic Prosperity (PDP); Albanian Democratic Union (DUA); Democratic Renewal of Macedonia (DOM); National Democratic Party (NDP); Liberal-Democratic Party (LDP); Socialist Party of Macedonia (SPM); Liberal Party (LP); Democratic Alternative (DA); Democratic Union (DU); Democratic Party of the Turks in Macedonia (DPTM); Democratic League of Bosniaks; Democratic Party of Serbs in Macedonia, United Party of Romas in Macedonia; Democratic Union of Vlachs from Macedonia; Labor-Agricultural Party of Macedonia, Socialist-Christian Party of Macedonia.

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History of Macedonia

Throughout its history, the present-day territory of Macedonia has been a crossroads for both traders and conquerors moving between the European continent and Asia Minor. Each of these transiting powers left its mark upon the region, giving rise to a rich and varied cultural and historical tradition. After the fall of the Western Roman Empire, the territory of Macedonia fell under the control of the Byzantine Empire in the 6th and 7th centuries. It was during this period that large groups of Slavic people migrated to the Balkan region. The Ottoman Turks conquered the territory in the 15th century; it remained under Ottoman Turkish rule until 1912. After more than four centuries of rule, Ottoman power in the region began to wane, and by the middle of the 19th century, Greece, Bulgaria, and Serbia were competing for influence in the territory. During this time, a nationalist movement emerged and grew in Macedonia. The latter half of the 19th century was marked by sporadic nationalist uprisings, culminating in the Ilinden Uprising of August 2, 1903. Macedonian revolutionaries liberated the town of Krushevo and established the short-lived Republic of Krushevo, which was put down by Ottoman forces after 10 days. Following Ottoman Turkey's defeat by the allied Balkan countries--Bulgaria, Serbia, Montenegro, and Greece--during the First Balkan War (autumn 1912), the same allies fought the Second Balkan War over the division of Macedonia. The Treaty of Bucharest (August 1913) ended this conflict by dividing the territory between Bulgaria, Greece, and Serbia. The Treaty of Versailles in 1919 sanctioned partitioning Macedonia between The Kingdom of Serbs, Croats and Slovenes, Bulgaria and Greece. In the wake of the First World War, Vardarian Macedonia (the present day area of Macedonia) was incorporated into the newly formed Kingdom of Serbs, Croats, and Slovenes. Throughout much of the Second World War, Bulgaria and Italy occupied Macedonia. Many people joined partisan movements during this time and succeeded in liberating the region in 1944. Following the war, under Marshall Tito, Macedonia became one of the constituent republics of the new Socialist Federal Republic of Yugoslavia. During this period, Macedonian culture and language flourished. As communism fell throughout Eastern Europe in the late 20th century, Macedonia followed its other federation partners and declared its independence from Yugoslavia in late 1991. Macedonia was the only republic of the former Yugoslavia whose secession in 1991 was not clouded by ethnic or other armed conflict, although the ethnic Albanian population declined to participate in the referendum on independence. The new Macedonian constitution took effect November 20, 1991 and called for a system of government based on a parliamentary democracy. The first democratically elected coalition government was led by Prime Minister Branko Crvenkovski of the Social Democratic Union of Macedonia (SDSM) and included the ethnic Albanian Party for Democratic Prosperity (PDP). Kiro Gligorov became the first President of an independent Macedonia. President Gligorov was the first president of a former Yugoslav republic to relinquish office. In accordance with the terms of the Macedonian constitution, his presidency ended in November 1999 after 8 years in office, which included surviving a car bombing assassination attempt in 1995. He was succeeded by former Deputy Foreign Minister Boris Trajkovski (VMRO-DPMNE), who defeated Tito Petkovski (SDSM) in a second-round run-off election for the presidency on November 14, 1999. Trajkovski's election was confirmed by a December 5, 1999 partial re-vote in 230 polling stations, which the Macedonian Supreme Court mandated due to election irregularities. In November 1998 parliamentary elections, the SDSM lost its majority. A new coalition government emerged under the leadership of Prime Minister Ljubco Georgievski of the Internal Macedonian Revolutionary Organization-Democratic Party for Macedonian National Unity (VMRO-DPMNE). The initial coalition included the ethnic Albanian Democratic Party of Albanians (DPA). During the Yugoslav period, Macedonian ethnic identity was evident in that most of Macedonia's Slavic population identified themselves as Macedonians, while several minority groups, in particular ethnic Albanians, retained their own distinct political culture and language. Although interethnic tensions simmered under Yugoslav authority and during the first decade of its independence, the country avoided ethnically motivated conflict until several years after independence. Ethnic minority grievances, which had erupted on occasion (1995 and 1997), rapidly began to gain political currency in late 2000, leading many in the ethnic Albanian community in Macedonia to question their minority protection under, and participation in, the government. Tensions erupted into open hostilities in Macedonia in February 2001, when a group of ethnic Albanians near the Kosovo border carried out armed provocations that soon escalated into an insurgency. Purporting to fight for greater civil rights for ethnic Albanians in Macedonia, the group seized territory and launched attacks against government forces. Many observers ascribed other motives to the so-called National Liberation Army (NLA), including support for criminality and the assertion of political control over affected areas. The insurgency spread through northern and western Macedonia during the first half of 2001. Under international mediation, a cease-fire was brokered in July 2001, and the government coalition was expanded in July 2001 to form a grand coalition which included the major opposition parties. The expanded coalition of ruling ethnic Macedonian and ethnic Albanian political leaders, with facilitation by U.S. and European Union (EU) diplomats, negotiated and then signed the Ohrid Framework Agreement in August 2001, which brought an end to the fighting. The agreement called for implementation of constitutional and legislative changes, which lay the foundation for improved civil rights for minority groups. The Macedonian parliament adopted the constitutional changes outlined in the accord in November 2001. The grand coalition disbanded following the signing of the Ohrid Framework Agreement and the passage of new constitutional amendments. A coalition led by Prime Minister Georgievski, including DPA and several smaller parties, completed its parliamentary term. In September 2002 elections, an SDSM-led pre-election coalition won half of the 120 seats in parliament. Branko Crvenkovski was elected Prime Minister in coalition with the ethnic Albanian Democratic Union for Integration (DUI) party and the Liberal-Democratic Party (LDP). On February 26, 2004 President Trajkovski died in a plane crash in Bosnia. Presidential elections were held April 14 and 28, 2004. Then-Prime Minister Branko Crvenkovski won the second round and was inaugurated President on May 12, 2004. The parliament confirmed Hari Kostov, former Interior Minister, as Prime Minister June 2, 2004. Prime Minister Kostov resigned November 15, 2004. On December 17, 2004, former Defense Minister Vlado Buckovski was confirmed by parliament as Prime Minister, maintaining the coalition with the ethnic Albanian Democratic Union for Integration (DUI) and the Liberal-Democratic (LDP) parties. With international assistance, the SDSM-DUI-LDP governing coalition completed the legislative implementation of the Ohrid Framework Agreement, which is a precondition for Macedonia’s integration into Euro-Atlantic institutions. A November 7, 2004 referendum opposing completion of this process failed, freeing the way for the government to complete Framework Agreement implementation. Local elections were held in March-April 2005 under a new territorial reorganization plan that consolidated the overall number of Macedonia’s municipalities and created a number of ethnically-mixed municipalities in which ethnic Albanian populations were dominant. The process of decentralization began in the new municipalities in July 2005 and is continuing. The July 2006 parliamentary elections resulted in a VMRO-DPMNE-led government assuming power, in coalition with DPA, NSDP, and several smaller parties. The new government, which was confirmed in office by a parliamentary vote on August 26, 2006, stated its commitment to completing Framework Agreement implementation and reaffirmed its commitment to pursuing NATO and EU membership. At NATO's Bucharest Summit in April 2008, all 26 NATO Allies agreed Macedonia had met the criteria for membership. Consensus on extending a NATO membership invitation could not be reached, due to the unresolved dispute with Greece over Macedonia's name. Following the Bucharest Summit, the opposition DUI party, in collaboration with the governing VMRO-DPMNE and DPA parties, called for the dissolution of parliament and for early parliamentary elections, which were held in June 2008. On July 26, Prime Minister Gruevski was reconfirmed in office with a new coalition along with the DUI party and one smaller party. Next regular parliamentary elections should be in 2012. In 2009, Macedonia held presidential and local elections in March (first round) and April (second round). In the presidential race, VMRO-DPMNE candidate Gjorge Ivanov won with 64% of the vote.

People of Macedonia

Since the end of the Second World War, Macedonia's population has grown steadily, with the greatest increases occurring in the ethnic Albanian community. From 1953 through the time of the latest official census in 2002 (initial official results were released December 2003), the percentage of ethnic Albanians living in Macedonia rose threefold. The western part of the country, where most ethnic Albanians live, is the most heavily populated, with approximately 40% of the total population. As in many countries, people have moved into the cities in search of employment. Macedonia has also experienced sustained high rates of permanent or seasonal emigration. Population (end-2010 estimate): 2,055,947. Population growth rate (2006 est.): 0.2%. Ethnic groups (2002): Macedonian 64.18%, Albanian 25.17%, Turkish 3.85%, Roma 2.66%, Serb 1.78%. Religions: Eastern Orthodox 65%, Muslim 29%, Catholic 4% and others 2%. Languages: Macedonian 70%, Albanian 21%, Turkish 3%, Serbian 3%, and others 3%. Education: Years compulsory --13 (9 primary and 4 secondary). Literacy --96.1% (98.2% for males, 94.1% for females). Health: Infant mortality rate (2011 est.)--8.54 deaths/per 1,000 live births. Life expectancy (2011 est.)--males 72.61 years; females 77.87 years. Labor force (third quarter 2010): 949,300; employed 648,773; services-- 58%; industry and commerce-- 22.1%; agriculture-- 19.9%.