Interview with DELO
The Macedonian Newsmagazine

By: Sam Vaknin, Ph.D.

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Delo: Vie ste dolgogodisen prijatel i poznavac na sostojbite na Republika Makedonija. Od kade proizleze Vasiot interes za Makedonija?

SV: I came to Macedonia at the end of 1996 at the invitation of a past partner of mine, Mr. Gideon Sandel. It was a difficult period in my personal life. Macedonia welcomed me and accepted me. This is a kindness I can never repay.

Macedonia reminds me a lot of the Israel I grew in, the Israel of my childhood. It still retains the naiveté and innocence long lost in the West. There is corruption and crime, of course and very bad things are happening every day. But there are still many of the old fashioned values and social institutions. It is enchanting.

Delo: Kako se sluci ete, da stanete i nejzin strucen sovetnik vo oblasta na ekonomijata i bankarstvoto?

SV: As you know, I left Macedonia in 1998, after my friend and associate, Mr. Gideon Sandel, has been arrested. I believed then – and believe now – in his complete innocence in the matter attributed to him. In conjunction with threats and warnings that he and I received, I had good reasons to "take a vacation". I lived for a while in Russia and in the Czech Republic. When the new government came to power, they invited me back and I refused. I insisted that my name be completely cleared before I return. They asked me again during the Kosovo crisis and I accepted, also for personal reasons.

I have Mr. Gruevski in my seminars. He impressed me so much that I co-authored a series of dialogues with him (later published in a book). He introduced me to Messrs. Georgievski and Trajkovski.

Delo: Obidete se da i ja objasnite na makedonskata javnost specifikata na Vasata rabota. Koi se Vasite zadaci i ingerencii vo odlucuvanjeto?

SV: I am the first economic consultant whose services have been contracted directly by any Macedonian government. In a way, we are still defining my job. As I see it, my biggest contribution can be to open a window to the world. There is a lot of provincialism and resistance to change and to learning. Macedonian academics and intellectuals don't know languages, rarely read or have access to foreign literature, are hopelessly outdated and very arrogant. The same can be said about Macedonian politicians. I try to destabilize this consensus of ignorance and greed by putting a mirror to the face of my clients. It does not make me very popular, I am afraid. But this is my responsibility to do it, my obligation.

Hitherto, I have done more than I accepted. I participated in writing laws, gave seminars, provided information and analysis, submitted reports and recommendations (for instance regarding the Grey Economy and regarding Unemployment) – regular things that advisors do.

But I am still very isolated and feared. People feel threatened because deep inside they fear that maybe they are incompetent or inexperienced. I am wrongly regarded as competition rather than as help. And Macedonia has many naked kings who are afraid to be exposed.

Delo: Bidejki kontinuirano ja sledite i analizirate sostojbata na Makedonija, kako taa Vi izgleda sega, otkoga se slucija promenite vo vlasta?

SV: I cannot say that anything fundamental changed. The only differences – which are important, althesame – are differences in style. The current government is more open to learn and to experiment and experience than the previous one.

Delo: Vo kolkava mera Kosovskata kriza ja narusi ekonomskata programa, i dali denes, otkoga vojnata zavri i se sozdadeni uslovi zagubite da se nadminat?

SV: I am not aware of any long-term economic plan that was disrupted by Kosovo. What the current government is trying to do in the Committee headed by the Prime Minister and by Mr. Ante Markovic and in the committee headed by the minister of Development, Milijana Danevska, is to develop exactly such a plan. But until this very minutes, there is no master plan, a vision, according to which economic events are unfolding. It is all fighting fires and improvisation.

I am also uncertain about the losses suffered by Macedonia – if it does receive all the money pledged (but never delivered) to it by the West in donor conferences and in the framework of international financial organizations.

Overall, Kosovo has been a blessing in disguise to everyone involved, except Serbia. The world would have never invested 2-3 billion dollars in this region had there not been a war. Macedonia would have never become an associate member of the European Union had it not been for its contribution to the war effort of NATO. Albania was virtually resuscitated by this serendipitous turn of events.

Delo: Koe e Vaseto mislenje, koi se okolnostite ili eventualno pogresnite potezi sto ja dovedoa drzavata vo vakva ekonomska kriza?

SV: I commend this inexperienced government for its conduct during one of Macedonia's most difficult hours. Its performance was nothing short of impressive.

The only grave mistake was to ignore the foreign media (a mistake which continues to this very day). Macedonia had a once in a lifetime chance to project a positive image and to disseminate positive information about itself all over the world. But the government was so traumatized and shell shocked that it refused to talk to the foreign media in any meaningful way and when it did – its representatives deteriorated to demagoguery and cheap xenophobia.

It was an opportunity missed, worth hundreds of millions of dollars.

Delo: Kako Vie go gledate izlezot od ekonomskata kriza. Sto e ona sto prioritetno treba da se napravi?

SV: The trust between citizens and the state has vanished. This is the most important priority. You cannot fight an economic war without an army (the people). People don't trust the government, the state institutions, each other and themselves. There is a civil revolt going on – no one pays taxes and everyone is trying to steal as much as they can and to live at someone else's expense. They introduce crime not only as a means for survival, not only in the form of drug escapism – but as a method to settle disputes and to get along in life.

Trust has to be re-established before any talk about reforms or development. This can be done by fighting corruption – with commitment, openly, mercilessly and indiscriminately. Concurrently, the institutions of Macedonia must be revamped: the courts and the banking system above all. Without functioning, non corrupt, professional courts, customs and police – no one will invest here. Without a reasonable, preferably foreign owned and foreign run banking system, the citizenry will not save and there will be no domestic savings to finance investments.

The economic process is like a body. It stands on the ground – the people. It has two legs: trust and functioning, honest institutions. It has a body – reforms. It has two hands – the public and the private sector. And it has a head – development. Macedonia right now has no ground to stand on because the people are disappointed, depressed, angry and alienated. It has no feet – no functioning institutions and no trust.

Concurrently, we must fight cyclical unemployment. It has a horrendous and increasingly irreversible economic, psychological and human price. It can be reduced. It has been done in the past in many countries. I submitted a report to Minister Ibrahimi about two months ago and he promised to establish a committee to study it which I believe he hasn't done yet.

Another top priority is to encourage exporters and exports. Both by simplifying and rationalizing customs procedures and by providing direct assistance and encouragement.

Delo: Sto e dosega sraboteno i na sto vo momentov rabotite?

SV: I am completing the final report regarding "The Informal Economy in Macedonia" which contains 60 recommendations and will be submitted shortly to the Prime Minister.

I have completed the first draft report regarding unemployment and have submitted it to the Prime Minister, to the Minister of Labour and Social Policy and to the Minister of Finance about 2 months ago. I haven't heard a reaction from any of them yet.

I finished writing a "Handbook for Exporters" which will distributed in my forthcoming 4 days seminar "Export Transactions and How to Realize Them".

Otherwise, I advise the Ministry of Trade on current matters and am a member in a newly formed committee for the Development of Macedonia.

Delo: Svoevremeno ne se soglasuvavte so tajvanskoto priznavanje. Kakov e sega vasiot stav, od ekonomski aspekt, po toa prasanje, osobeno koga Tajvan se smeta za adut vo programata za ekonomski razvoj?

SV: Taiwan is not an economic issue. It is a highly charged political issue which lies at the heart of the coalition. It is an example of the over-politicization of Macedonian life when people cannot discuss anything without dividing to bitterly opposed political parties. It is not the way to run an economy and it is not a good sign.

Delo: Kako na kraj so problemot TAT?

SV: I can tell you only my personal opinion. Wherever and whenever the state has done something (or refrained from doing what it should have done) and, as a direct result, adversely affected the economic condition of its citizens – it must compensate them. Israel has done so in 1983 and China is doing it currently – and in both cases these were state-mandated pyramid savings or investment schemes. This is why the law of denationalization. This is why almost all the countries in the world have deposit insurance.

But where the state (I am not talking about individual politicians – I am talking about the state as an entity) has not been involved in economic activities – it should not provide a safety net. It should not compensate people for gambling. It should not create situations of "moral hazard" (If I win, I keep my gains – if I lose, the state will compensate me).

Delo: So Vasite izjavi za sostojbite vo bankarstvoto gi nalutivte bankarite. Kako gi argumentirate Vasite stavovi?

SV: Banks, in general, are very primitive institutions. They take money from their depositors and lend it to business. I Macedonia, they don't do either. Almost no one deposits money in Macedonian banks – and they do not lend to business unless it is politically well connected or belongs to friends and family members. So, the "banks" in Macedonia are nothing but channels through which money flows from the state to all manner of recipients.

The loan portfolios of Macedonian banks are so bad that no one wants to touch them.

This, to me, are sufficient arguments. The banks in Macedonia must be immediately sold – almost at any price – to any foreign commercial bank. This is the only hope.

Foreigners – we all know – have no pity. They are likely to immediately get rid of the incompetent crop of bank managers we have today. They are likely to bankrupt clients who refuse or cannot pay back their loans and thus re-structure the Macedonian economy leaving it with more efficient firms. They are likely to attract depositors. People don't trust local banks but they do trust foreign banks not to disappear with their money or "freeze" it. They are likely to lend money to those sectors of the economy likely to pay it back (growth industries and sound small businesses). They are likely to be a lot less corrupt, nepotist and cronyist.

Delo: Pocnaa pregovorite so MMF i Svetska banka. Kako ke izgleda vo idnina makroekonomskata politika na Makedonija?

SV: Macedonia should maintain its macroeconomic stability. It is a hard gained and important asset. But it should not do so obsessively. Macroeconomic policy is only part of a much larger picture called the national economy. There is the issue of social costs so grave that they threaten the social fabric itself. There are question like unemployment and availability of capital and technological know how, restructuring and the export sector, balance of payments (mainly trade) and budget deficits and so on.

I think that the denar should be devalued gradually to improve our terms of trade and export competitiveness. It would be a wise idea to let it float afterwards.

I think that the central bank should concentrate on inflation targeting. An inflation floor and an inflation ceiling have to be publicly declared and macroeconomic policy has to have as its main goal the attainment of these targets.

I think that interest rates should be reduced considerably by declaring a re-scheduling of all private sector debt, including non-performing debt and by criminalizing non payment of debts as well as by simplifying and enhancing procedures for collection on collateral.

The insanely high interest rates in Macedonia reflect rigid inefficiencies in the allocation of capital because of a non-functioning banking system and an inflation-phobic central bank.

It is time to look forward in hope and not backward in fear.

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