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Macedonia, Economy

alloys of iron, Bitola, trade embargo, Ohrid, independent republic

Of the six republics of the former Yugoslavia, Macedonia was one of the least developed economically. In 1991 its gross domestic product (GDP) per capita was about one-third that of Slovenia, the richest of the republics. GDP, which measures the value of goods and services produced in a country, fell by more than 30 percent from 1991 to 1995. The independent republic saw its first economic growth in 1996. Unemployment has been a dominant problem, with the unemployment rate topping 33 percent in 1995 and rising to 40 percent in 1998. In 1998 continued growth and a government program to create jobs began to reduce the number of unemployed workers. In 2000 the GDP was $3.6 billion.

When the FYROM was part of post-World War II Yugoslavia, its economy was controlled by the state, which effectively owned most enterprises. These enterprises did not have to be profitable and often were managed inefficiently. After independence the country had to make the transition from a modified socialist economy to a free-market economy under particularly unfavorable circumstances. In the first half of the 1990s the economy suffered from a trade embargo imposed by Greece. International economic sanctions placed on Serbia and Montenegro (called the Federal Republic of Yugoslavia after April 1992) by the United Nations (UN) beginning in 1992 took away an important market, especially for the republicís agricultural products. In 1994 and 1995 Greece imposed a blockade on the FYROM, deepening the countryís economic slump. An underground gray economy, which comprises businesses that operate outside the tax and social security systems and that disregard government regulations, grew in the FYROM during that period. At the end of the 1990s the gray economy remained large. It was estimated that in 1998 the gray economy accounted for fully one-half of the republicís GDP.

Nevertheless, the FYROMís economic transition was successful in some ways. Inflation, which was 1,691 percent in 1992, had dropped to 1.3 percent in mid-1998. Many firms were transferred from government control to private control. Transferring firms to private ownership so that they could operate on the basis of supply and demand was an important step in creating a free-market economy in the FYROM. The pace of such structural change was slow until the late 1990s because the process was dominated by insider privatization; that is, many firms were sold to their former managers. However, laws passed in the late 1990s to discourage insider privatization helped speed structural change. A major increase in foreign investment in FYROM firms in 1998 reinforced the trend.

Industry, including manufacturing, mining, and construction, was the largest sector of the economy as the Yugoslav period came to an end. Industry employed 40 percent of the republicís labor force in 1990 and generated 36 percent of the GDP in 1992. During the early 1990s the contribution of industry to the GDP fell while the contribution of services increased. It seemed, at first sight, as if the FYROM were already making a transition to a successful post-industrial society. However, in reality, the structural changes in the economy reflected the collapse of industry rather than any major growth in services. The economic recovery of 1998 was based largely on recovery in the industries that had been developed by the post-World War II Yugoslav regime: iron, steel, and other metals; chemicals; tobacco; textiles; and machinery. In 2000 industry accounted for 33 percent of GDP. Agriculture, forestry, and fishing accounted for 12 percent, and services accounted for 55 percent.

Important agricultural products in the FYROM include wheat; corn, or maize; barley; tobacco; and fruits and vegetables. Dairy farming is also important. Coal is mined and various metals are mined or processed in the FYROM. These include chromium, lead, zinc, and alloys of iron and nickel. Major manufactured goods are food products, textiles and clothing, machinery, chemicals, iron and steel, and tobacco products.

In 1992 the FYROM established a national bank and introduced its own currency, the denar (65.9 denars equal U.S.$1; 2000 average). The banking system that existed just before independence included several commercial banks that operated like those in Western countries. However, many of these banks were insolvent because the government had forced them to loan money to enterprises that could not repay the loans. After independence the national bank launched a program to strengthen the commercial banks. The program yielded good results, dramatically decreasing the share of bad loans from 1992 to 1998. The national bank successfully tamed inflation in the late 1990s.

In 2000 the value of the FYROMís imports was $2.1 billion, compared to exports worth $1.3 billion. The main exports are basic manufactures (especially iron and steel), machinery and transportation equipment, food and beverages, and tobacco. The chief imports are fuels, chemicals, and machinery and equipment. Principal purchasers of the countryís exports are Bulgaria, Germany, Italy, the United Kingdom, and Russia; chief suppliers of imports are Germany, Bulgaria, Italy, and Austria.

Coal is the republicís main source of energy, with power plants that burn fossil fuels producing 82 percent of the countryís electricity in 1999. Most was generated by a coal-fired power plant at Bitola.

The FYROMís transportation network is not well developed. At the end of the 1990s international investment was helping to pay for the construction of modern road and rail networks. The chief airports are at Skopje and Ohrid.

The communications system is small. In 2000 there were 255 telephone mainlines for every 1,000 people. For the same number of people there were 206 radios and 257 televisions. The government owns all broadcasting stations. The republic has 4 daily newspapers. The broadcast media and the press are generally free.

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