Damages Incurred by Macedonia
in Operation "Allied Force"

By: Sam Vaknin, Ph.D.

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Macedonia was most heavily damaged during Operation Allied Force.

But one would do well to separate the irreversible damages from the reversible ones.

The former have a corrosive, pernicious effect - the latter, though harmful and painful, can be remedied through added aid and investment and the adoption of the right frame of mind.

The trade sector in Macedonia suffered c. 50 million US dollars in damages in the past three months.

This loss can be attributed to the blocking of 18% of the trade turnover (with FRY) - 40% of which was net value added to the economy. Some of this trade can and will be revived.

Some companies - those big and resourceful - will survive. Many small and medium sized trading and manufacturing firms are doomed. The latter is an irreversible effect. It has no beneficial effects on the economy because it is the result of ABnatural selection, of war. Perhaps the introduction of microcredits and loans directed at small to medium enterprises can help revive this sector, but I doubt if the whole damage can be undone.

50 million dollars were added to the transport costs of Macedonian exporters having to ship and truck their goods in roundabout ways throughout half Europe to circumvent the war zone. More than 10,000 truckloads were directly effected. More than 80% of Macedonian trade (to the EU, to the FRY, to the Danube countries, to the CIS) - an annual total of c. 3 billion US dollars of which 15% are transport costs, has been adversely effected. There has been an average increase of 30% in transportation costs during the three months of this war. This predicament is not entirely behind Macedonia but it is slowly getting better.

A direct damage of 150 million US dollars was inflicted upon the textile, tourism, electro and heavy machinery and chemical industries, not to mention other sectors of the economy. Some of it is irreversible. The tourism season is behind us, for instance. The hope is to resuscitate the orders and business cycle next year. A long shot perhaps but a must if the economy as a whole is to survive.

The result of all the above was an increase in unemployment, both hidden and official. My estimate is that 50,000 people lost their jobs. This cost the government more than a million dollars in direct unemployment benefits (equivalent to 150 DM per person monthly). More importantly, it cost the nation c. 25 million US dollars in lost GDP (GDP per capita is 1900 US dollars annually). It is part of the 5% decrease in the GDP directly attributable to the war. While a cyclical reaction, due to the closure of firms, some unemployment will remain with Macedonia structurally.

The list of other damages is long. Macedonian infrastructure (such as roads, electrical grid, sewage system, water system, cellular and fixed telephony, etc.) endured a minimum of 25 million dollars in damages. Roads don't take kindly to tanks and airports don't react favourably to multiple landings of heavy cargo planes. Macedonia has expended more than 100 million dollars as direct outlays on 250,000 refugees (c. 12% of the population) who descended upon it in a matter of days and remained there for three months. Our net foreign borrowing increased (by c. 190 million USD, the equivalent of 7% of GNP) and our debt-servicing bill has already increased by 4 million USD quarterly.

Unless donor conferences and foreign governments meet their pledges - Macedonia will be in dire straits indeed. Out of 60 million dollars of aid pledged Macedonia has hitherto received only half. It has received c. 10% of the total pledges of aid, grants, credits and donations hitherto.

The government's cash inflow has collapsed both externally (unfulfilled pledges and the apparent intransigence of the IMF) and internally (lost tax and customs revenues amounting to c. 25 million US dollars).

But some damages are more "catastrophic" than other. Who will help Macedonia change the mind of those investors who chose NOT to invest in Macedonia due to the war? Foreign Direct Investment decreased by 42 million US dollars this quarter from a miserly basis of 50 million US dollars last year. Will the 14% devaluation of the Macedonian denar versus the US dollar which increased Macedonia's foreign debt servicing bill (in denar terms) by 70 million US dollars - will it be reversed? And the clear though yet unquantifiable increase in inflation - how can one quantify the long term, all-pervasive and venomous effects of this disease?

Macedonia's credit rating which improved by an average of 50 points in the last three years(!) depending on the rating agency - went all the way back.

The damage in added costs of foreign borrowings is incalculable.

Inflation and devaluation signify a DOMESTIC loss of trust in the economy. The decrease in credit rating indicates a FOREIGN loss of trust in it. This loss of trust both internally and externally is the most worrisome. It has to be fought tooth and nail so that it does not take hold. Coupled with (hopefully a cyclical and reversible) increase in crime, politically motivated terrorism, social unrest (an increasing number of strikes) and a massive diversion of management resources on all levels - it could prove insurmountable if not determinedly surmounted.

It is in such times that a nation is tested. It is in such times that the mettle of international solidarity is exposed. Macedonia must restore itself to its previous course of growth and stability. All of us - locals and foreigners - must collaborate in this effort and not only in Macedonia but in the whole region of the Balkans. This region knew only occupation and abuse by the outside world. Its nations turned inwards and took weapons to one another because violence is what the world taught them. It is time for them to learn and be taught a different language - the language of growth, of investments, of the joy of entrepreneurship, of communications, of belonging to the family of nations rather being excluded from it.

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