| U.S. Government Assistance to Eastern Europe under the Support for East European Democracy (SEED) Act -FY 2004 Released by the Bureau of European and Eurasian Affairs January 2005 II. Country Assessment--Macedonia U.S. STRATEGIC INTERESTS
A Europe whole, free, and at peace is the overriding U.S. strategic interest in South Central Europe, including Macedonia. Throughout the region, the U.S. supports continued peace and stability, ethnic reconciliation, neighborly relations among states, development of market-based economies, and integration into Euro-Atlantic institutions. Macedonia’s relatively well-educated population, strategic location, and mineral resources also make it a potential force for economic growth and stability in its region. The Government of Macedonia (GOM) lent its airspace and voice at the United Nations in support of Operation Enduring Freedom, has troops in Iraq and Afghanistan, and continues to provide lines of communication for the operations of NATO’s Kosovo Force (KFOR). Macedonia aspires to European Union (EU) and NATO membership and is modernizing its military. It also is working to overcome its legacy as a transit route for smugglers, traffickers, and money-launderers, and to make the transition from a socialist to a market economy. It is in the U.S. interest to promote Macedonia's prosperity and ensure that its limited high-technology capabilities are applied to legitimate civilian purposes.
OVERVIEW OF U.S. GOVERNMENT ASSISTANCE
In FY 2004, the U.S. Government (USG) provided an estimated $52.45 million in assistance to Macedonia:
U.S. ASSISTANCE PRIORITIES
Democratic Reform Programs: In FY 2004, the USG’s democracy and governance program focused on increasing citizen participation in political and social decision-making, promoting the rule of law, improving the effectiveness and accountability of local government, and increasing public confidence in government institutions and political processes. As part of this broader USG effort, the Justice Department’s (DOJ) Office of Overseas Prosecutorial Development Assistance Training (OPDAT) targeted its assistance at strengthening the independence of the judiciary, enhancing the efficacy of public prosecutors; promoting the reform of the substantive and procedural criminal codes of law, including the adoption of the law on electronic surveillance; and encouraging cooperation between prosecutors and the police.
Economic and Social Sector Reform Programs: USG assistance to accelerate private-sector development and growth, which is implemented by USAID, focuses on strengthening financial sector institutions, increasing the competitiveness of private firms, and improving the investment and business environment. To mitigate the social impacts of the transition from a socialist to a market economy, USG assistance concentrates on increasing the demand for labor, addressing unemployment problems through local economic development, and making the education system more relevant to the labor market. This program includes training and technical assistance to improve the quality of schools, decentralize the education system, and increase access for minority groups to education at all levels.
Security, Regional Stability, and Law Enforcement Programs: Several USG programs are addressing corruption, rule of law, and organized crime. In addition to the democratic reform programs described above, OPDAT worked to raise awareness among the law enforcement community of the need to run parallel proceedings in prosecuting financial crimes, while encouraging the courts to use applicable laws on freezing and seizing assets of the accused. The OPDAT program also focused on strengthening Macedonia’s institutional capacity to stop the trafficking of women and children across its borders. The Justice Department’s International Criminal Investigative Training Assistance Program (ICITAP) is active in the areas of professional standards, community policing, organized crime, and trafficking in persons. The Export Control and Related Border Security (EXBS) Assistance Program is providing training and materials to thwart proliferation of materials with weapons-of-mass-destruction (WMD) and ballistic missile applications through an efficient export control regime, and the U.S. Department of Homeland Security, Customs and Border Protection, has been cooperating closely with the Macedonian Customs Authority to control smuggling and corruption, while reducing border wait times for legitimate cargo. Foreign Military Financing (FMF) and International Military Education and Training (IMET) funding support military reform to bolster Macedonia’s NATO candidacy, and have enabled the Macedonian military to interoperate with NATO-member forces in regional exercises, as well as in Iraq and Afghanistan.
SECTORAL ASSESSMENTS
Democratic Reform
The key legislative elements for decentralization are now in place, which should lead to full implementation of this aspect of the 2001 Ohrid Framework Agreement. The Law on Local Government Finance, the Law on Territorial Redistricting, and other key laws creating the statutory basis for true decentralization were enacted during FY 2004. USAID assisted substantially in the drafting process. Efforts in FY 2005 will focus on ensuring that municipal government elections for the new municipal districts, to be held by March 31, are free, fair and credible. USG assistance also will be provided to help the new municipalities prepare for their increased responsibilities, as new competencies are devolved to the local level. The USG and EU continue their close donor coordination, serving as co-chairs of a donor working group, to ensure that decentralization assistance and advice are consistent and complementary.
USG assistance implemented by USAID also helps local governments develop the systems and procedures to carry out their increased authorities and manage finances in a competent, transparent, and responsible manner. This has included the opening of a number of urban planning and one-stop permit centers to streamline the urban planning and permit process, reducing the number of stops from seven to three. The support provided through four property tax pilot projects led to a 25-percent increase in the average collection rate in 25 municipalities.
The death of President Trajkovski in a February 2004 plane crash necessitated extraordinary presidential elections. USG assistance to the State Election Commission (SEC) ensured a technically sound election in the shortened timeframe available for organizing the elections. The assistance included logistical and operational support on issues ranging from determining material requirements and procurement of supplies to distribution of voting materials. Some 14,000 poll workers were trained, and a training manual was developed. Additional efforts focused on helping the local NGO coalition MOST to recruit, train and deploy over 3,200 domestic poll watchers, covering more than 60 percent of the polling stations around the country. According to the reports of international and domestic observers, the election, overall, met international standards.
A legal system with fair, transparent, and effective judicial procedures, based on internationally recognized standards for delivery of justice, is essential to Macedonia’s political and economic development. The USG continued to support efforts to reform the judiciary as the third branch of government, a key element in strengthening the rule of law in Macedonia. Activities centered on reforming two major laws to address the key procedural impediments to efficient and timely delivery of justice. Work continued with seven pilot courts around the country on implementing strategies for reducing case backlogs by USAID’s target rate of five percent per year. Efforts also continued to train judges and court staff to perform in the most ethical, professional, and efficient manner. USAID also directed assistance toward improving minority access to the legal system, both as clients and as professionals. USAID coordinates closely with the EU to ensure that program efforts are complementary and consistent with Macedonia’s EU accession objectives.
Consolidation of the rule of law is essential for Macedonia’s transition to a market-oriented democracy. To support the development of rule of law, the USG supports training and technical assistance to strengthen the professionalism and independence of the judiciary, police, and other law enforcement agencies, such as customs officers, financial police, and the public prosecutors’ office. To ensure the fair, consistent, transparent, and timely adjudication of cases, the USG provides assistance to reduce the case backlog and improve the effectiveness of the courts. The USG supported the drafting of the National Strategy for the Reform of the Judiciary, the Public Prosecutor’s Office, the Bar, the Public Attorney’s Office, and the Notary System that was adopted by the GOM in late November 2004. The National Reform Strategy is a comprehensive document that sets out a plan for thorough constitutional, legal, and organizational reform of the justice sector to overcome current deficiencies. USG legal reform projects supported the drafting and adoption of the new Law on the Public Prosecutor’s Office, which provides for a stronger role for prosecutors in criminal proceedings, allows for prosecutorial specialization, institutes permanent terms of office for deputy prosecutors, and makes prosecutors accountable for professional misconduct. As part of the overall criminal justice reform process, the Crimes Code and the Law on Criminal Procedure were extensively amended to provide better tools to combat complex crimes, especially organized crime. USG legal reform assistance is closely coordinated with the EU to ensure harmonization with EU standards in this area.
Macedonia’s judiciary benefited from workshops provided by OPDAT/ICITAP, in conjunction with the OSCE Mission in Macedonia. In the second half of 2003 and in 2004, OPDAT presented three plea-bargaining conferences for law enforcement officials, prosecutors and judges. Increased utilization of some tools for alternative resolution of criminal proceedings available under Macedonian criminal law resulted. Also, the new Law on Criminal Procedure includes an immunity statute, providing stronger instruments for prosecuting complex crimes. To improve the justice sector’s ability to investigate, prosecute, and adjudicate financial crimes, particularly tax evasion and corruption, OPDAT and USAID rule-of-law implementing partners presented six seminars for prosecutors, judges, and law enforcement officers in the first half of 2004. The number of cases of tax evasion and abuse of official position prosecutions increased in 2004.
The need to improve the country’s criminal legislation and overall capacity to tackle organized crime received increased attention in 2004. OPDAT presented an introductory seminar on organized crime and a workshop for criminal investigators, financial police, customs officers, anti-money laundering specialists, special organized crime prosecutors and judges. It also hosted three workshops on the creation of countywide task forces to combat trafficking in persons (TIP) and other types of organized crime, in conjunction with the Chief Public Prosecutor. The Minister of Interior supported the task force concept, together with the Directors of the Customs Administration, Financial Police, Public Revenue Office, and Directorate on Prevention of Money Laundering. As a result of OPDAT’s promotion of the task force approach, appropriate legal provisions were included in the new criminal legislation that was adopted in 2004.
Good governance and government accountability are centerpieces of USG democracy assistance. In this context, USAID has sought to increase the responsiveness of political parties and their representatives to voters' interests. FY 2004 assistance has helped parties develop better communication capacity with the media and general public. USAID continued work to enable Members of Parliament (MPs) to reach out and engage with their constituents. In FY 2004, USAID assistance supported 60 MPs, including the four minority-group MPs, in opening 45 constituency offices around the country. Out of about 5,136 constituent issues raised, some 2,560 cases have been resolved satisfactorily.
USAID’s support for citizen participation and community development yielded results. Nearly two-thirds of the community organizations involved in the participatory planning process continued to work together after the assistance ended. Assistance in drafting legislation to grant tax exemptions to public benefit organizations and provide for tax deductions for donations by businesses and individuals to such organizations aimed to improve the legal environment for NGOs. USAID remained the principal donor in building trade unions’ capacity effectively to represent their members in the social, economic, and political transition. As a result of such assistance, the Union of Education, Science and Culture (CONK) has implemented leadership and outreach changes to represent its ethnic Albanian members better.
In FY 2004, the Macedonian Institute for the Media (MIM), supported by USAID and the Danish School of Journalism, launched a one-year journalism diploma course that aims to improve the professionalism of the media by introducing the first modern, practical journalism program in the country.
The Democracy Commission Small Grants Program, administered through the U.S. Embassy’s Public Affairs Section, supported 17 projects in FY 2004, the focus of which was on anti-trafficking, including public awareness improvement through the print media, the production of special television programs, and programs to educate children about trafficking through the NGO sector. Other significant activities included programs to improve capacity-building of the NGO sector and partnership work, NGO cooperation with and accessibility to the Parliament, women’s rights and the fight against domestic violence, education in human rights, and democracy and ethnic tolerance.
USAID has also sought to expand educational opportunities for the Roma minority. A multi-donor education project is increasing access to education for Roma in secondary and tertiary education. The scholarship component of the activity exceeded expectations, and 80 additional scholarships were funded in cooperation with the OSCE.
As more Macedonians become proficient in English, their interest in studying in the U.S. remains strong and is increasing. Advising centers, including services available at the American Corner in Bitola in its first year of operation, receive growing numbers of inquiries from students about admission to academic institutions and financial aid opportunities in the U.S. The American Corner in Skopje will provide such services, beginning December 2004.
Economic and Social Sector Reform
Macedonia’s economic performance was mixed in FY 2004. President Trajkovski’s death, the resulting special Presidential election, and a protracted debate over the passage of laws to implement the Ohrid Framework Agreement diverted the GOM’s focus from economic issues. Nevertheless, the economic policy dialogue between the GOM and relevant stakeholders, including the country’s nascent think tanks, the USAID-supported National Entrepreneurship and Competitiveness Council, trade associations, and economic journalists, was constructive.
A restrictive monetary policy ensured low inflation and a stable (in Euro terms) exchange rate. Macroeconomic stability boosted investor and public confidence. However, the exchange rate appreciation relative to non-Euro trading partners had a negative impact on competitiveness. Moreover, the high interest rates on treasury bills (T-bills) used to soak up excess liquidity crowded out the inherently more risky commercial lending. The T-bill rate in November rose to 10 percent. Credit available to small and medium-sized enterprises (SMEs) became even more dependent on donor-driven programs like those of the EBRD-led ProCredit Bank and USAID’s Moznosti Savings Bank, SME Fund, and FULM Savings House. Even without GOM policy action, foreign direct investment (FDI) increased significantly. Construction projects, both large and small, are apparent everywhere, suggesting that the economy may be stronger than the data suggest.
There is increasing concern over trade issues. Macedonia’s accession to the World Trade Organization (WTO) has led to reduced tariffs on finished goods, but the GOM has yet to reduce raw material duties adequately, disadvantaging local manufacturers. Of particular concern, textiles, Macedonia’s second largest manufacturing sector, suffered competitively from tariff and exchange rate movement. That fact prompted a request, which the USG denied, for an increase in the U.S. quota. Despite rate reductions, customs and other import tax collections increased by 23 percent.
SME development and financing are central to U.S. economic growth assistance. Program emphasis is on financial products to stimulate new jobs, provide management training, and encourage movement out of the informal and into the formal sector. A Law on New Companies, drafted with USAID assistance, should increase shareholder and investor confidence, and will significantly shorten business registration times by mid-2005.
The USAID Fiscal Policy project completed its mandate in central budget, treasury, and tax administration support. A new E-Government project will take reforms to the next level, seeking information technology (IT) solutions to automate and streamline government services. This will be particularly important for the decentralization program. Equally important, IT solutions are being designed to help minimize opportunities for corrupt practices. Concerning anticorruption activities, a director was finally appointed for the Financial Police Unit created in 2003. Unfortunately, the GOM has not provided the needed budget and assets for the unit to become fully effective. Amendments to the Anti-Money Laundering Law (AML) gave the National Bank (NBRM) authority to monitor and supervise AML compliance of financial institutions and agents. USG assistance will support the NBRM in developing a comprehensive compliance monitoring and enforcement program. The NBRM’s AML unit is now fully staffed, and an energetic director has been appointed. However, planned EU assistance to the unit has been delayed, which will slow progress in unit effectiveness.
A U.S. Treasury Department Resident Advisor helped the Ministry of Finance develop a government budget and treasury system better to plan and execute fiscal policies. The new Law on the Budget requires line-item detail on budgetary items, as well as transparency and accountability for expenditures. The Treasury advisor provided technical assistance and training to help the MOF implement its budget and treasury system. Lack of control over government finances in the past led to corruption as well as inaction on important capital projects.
USAID also worked to upgrade the integrity of financial market operations. Better laws, more modern regulations, and more capable regulators improved the environment for local and foreign investors. Pension area assistance is closely coordinated with the World Bank, as Macedonia moves toward implementing, in early 2006, a mandatory accumulation phase for the new pension system. Assistance was provided to upgrade technical capacity in the new Energy Regulator. Related to this, a new Energy Law, a prerequisite to the upcoming privatization of the Macedonia Electric Power Company (ESM), is being drafted with USAID help. The privatization of ESM should significantly increase FDI in Macedonia in 2005.
USAID is also seeking to help Macedonia increase its production of value-added agricultural products, with an emphasis on marketability; as a result, output has been growing gradually. Meat and dairy processors have concentrated on the domestic market, building market share, while the fruit and vegetable industry seeks to expand exports to the EU. In both areas, USAID has helped improve food safety and quality control, keys to enhanced competitiveness. Specifically, harmonization with EU standards and requirements is essential.
A better-educated workforce is critical to overall competitiveness, reducing unemployment, and ensuring that Macedonian youth are prepared for their future. In FY 2004, USG educational assistance focused on increasing access, quality and the relevance of education at all levels. USAID has helped re-establish links between vocational schools and the businesses they serve. In FY 2004, student-centered teaching methods and computer skills were introduced to about 1,000 teachers and administrators in primary and secondary schools. USAID worked with teachers and school administrators to identify opportunities to provide students with relevant work experience before they graduate. Activities to de-politicize and professionalize school directors were also undertaken. With respect to higher education, continuing support is being provided to minority-oriented, multi-ethnic South Eastern European University.
Security, Regional Stability, and Law Enforcement
In FY 2004, there were no new major outbreaks of ethnic violence, and the number of minor, isolated incidents decreased. The USG and international community focused on controlling crossborder crime, strengthening the rule of law, preventing criminal violence, and preparing the Macedonian military for accession to NATO.
Although Macedonia initiated a series of far-reaching reforms to its criminal justice system last year, the country’s institutional infrastructure remains plagued by low salaries, insufficient training and equipment, and widespread corruption. In FY 2004, the USG provided training to law enforcement officials, prosecutors, and judges in the areas of money laundering and financial crimes, corruption, trafficking in persons (TIP), and organized crime. DOJ and USAID have been working closely with senior GOM officials to improve money-laundering laws and strengthen the ability of prosecutors to charge parallel crimes and seize the proceeds of crime and corruption in narcotics and TIP cases. In FY 2004, Macedonian law enforcement officials initiated a series of cases involving corruption, money laundering, and other financial crimes allegedly committed by former and current government officials.
In FY 2004, the USG funded seminars on anti-corruption, anti-trafficking in persons, anti-organized crime, trial advocacy skills, plea-bargaining, prosecutors, police, judiciary and customs officers training, judicial reforms, and criminal legislation reform. The USG also supported regional conferences in Bulgaria, Serbia and Montenegro, and the Czech Republic that facilitated cooperation among local judges, prosecutors, police and legislative drafters from Macedonia and its neighboring countries. DOJ, in cooperation with the U.S. Embassy’s Public Affairs Section (PAS), sent a group of Macedonian prosecutors to the United States under the International Visitors Program. In FY 2004, DOJ designed an English-language course for judges and prosecutors, financed and administered by the PAS, that operated in two regions in Macedonia.
TIP remains a major challenge for Macedonia, which continued its steady progress and improvement with the help of SEED funds in FY 2004. Macedonia is considered both a transit and a destination country for TIP, particularly women and children, as evidenced by the number of search warrants executed. More than 700 women have been rescued since the transit center, operated by the Interior Ministry with support from the International Organization on Migration (IOM) and local NGOs, started functioning in early 2001.
Macedonia is the only Tier I country in Southeastern Europe, according to the Department of State’s 2004 Trafficking in Persons Report. Macedonia's attainment of Tier I status indicates that the GOM fully complies with internationally accepted minimum standards for the elimination of trafficking. This shows that significant efforts were being made to prevent TIP, protect victims and prosecute perpetrators. NGO activities such as those supported by SEED funds were cited as playing an important role in the achievement of Tier I status. SEED-funded anti-TIP efforts in Macedonia also included extensive outreach programs that focused on public education and awareness-building. Other projects included training seminars to enhance reporting and coverage of the issue, and computer access to trafficking assistance and support offered by U.S. and regional NGOs. Also, in FY 2004 the USG financially supported the implementation of four projects related to improving efforts against TIP.
As part of continuing anti-trafficking efforts, OPDAT participated in regional TIP workshops in Bulgaria and Serbia. In conjunction with ICITAP and OSCE, OPDAT hosted three in-country TIP workshops for junior police officers and legal assistants – future prosecutors and judges. It was a positive development that experienced Macedonian law enforcement officers, prosecutors, and judges were engaged as co-instructors in presenting the curriculum to their younger colleagues.
ICITAP police development began to shift from conducting community policing assessments to implementing a pilot project encompassing six components: a self-paced community policing curriculum for certifying police officers; community leadership courses; a bicycle community action team; a community advisory group; local presence of the Professional Standards Unit; and a Citizens’ Police Academy. These components will be tested and improved, incorporating "lessons learned" into future iterations in other parts of the country. Community policing standards now are more widely accepted and utilized at the municipal level throughout Macedonia. Two new community action teams were established and succeeded in bringing together stakeholders to resolve neighborhood problems by partnering with police. The Minister of Interior directed that ICITAP's community policing curriculum be expanded into a nationwide training program; the first 90 police officers graduated from the program in October 2004, and the curriculum will also be incorporated into the Police Academy’s curriculum. The Macedonia National Police (MNP) proposed that a community policing station be established in an ethnically diverse community. The first Citizen Police Academy (CPA) was a major success.
Assistance provided to the Professional Standards Unit (PSU) in the Ministry of Interior continued to address issues in staffing, training, policy and procedure, legal reform, case tracking/investigation, and community confidence. The program component, which includes the assignment of an ICITAP Senior Police Advisor, has resulted in the adoption of a rule book, full staffing of offices throughout Macedonia, and a new structure to include a criminal investigations section. The PSU now conducts covert investigations aimed at corruption. Early results indicate progress, i.e., disciplinary actions against 70 police, ranging from suspension to criminal charges. Officials involved included station administrators and commanders accused of bribery and misappropriation of funds. Train-the-trainer programs in support of new policies for administering discipline are ongoing.
An Export Control and Related Border Security (EXBS) Assistance Program office, funded and supported by the Departments of State and Homeland Security, was established in Macedonia in March 2004. Its main goal is to assist and support the Interior Ministry’s Border Police and the Finance Ministry's Customs Administration in detecting and deterring illicit movement of WMD and conventional weapons through specialized training and equipment donations.
The EXBS Program provided technical assistance to the border agencies on their operational plans for the 2004 Summer Olympic Games in Greece by organizing WMD initial-response training in late May 2004, in the Macedonian city of Gevgelija, which is near the Greek border. Fifty officers from both the Border Police and the Customs Administration attended. EXBS donated hand tool bags, protective gas masks with filters, chemical/biological protective suits, and radiation pagers.
In early July 2004, the Macedonian Police Academy held a three-day class on WMD initial response. This training was incorporated into the Police Academy Curriculum, and 300 Border Police have successfully completed it. EXBS provided teaching materials, and in mid-July, donated chemical/biological protection suits and radiation pagers to the Police Academy in support of its efforts in the EXBS-sponsored WMD program.
In early September 2004, EXBS sponsored a delegation of Macedonian Border Police and Customs Administration representatives on a 12-day International Border Interdiction Training (IBIT) trip to McAllen, Texas. The participants were trained on contemporary inspection techniques for passenger and commercial vehicles using x-ray equipment. Other topics included immigration checks, border patrol techniques and equipment, and weapons used in securing the border. Additional training was provided by the Department of Energy on WMD substances and materials used for their production.
In addition, SEED assistance supported the regional, World Bank/U.S. co-sponsored Trade and Transport Facilitation in Southeast Europe (TTFSE) Program, which works to facilitate trade in the region. TTFSE seeks to promote more efficient, less costly trade flows across the borders of participating states by developing EU-compatible customs standards. The project supports the implementation of ongoing customs reforms that focus on integrated solutions at selected pilot sites located on main European corridors. The program's goal is to increase the productivity of border agencies and reduce processing time and lines at border crossing stations. The customs reforms and pilot site border crossings are supported through funding for infrastructure upgrades, such as updated IT systems, training, and other essential programs. Results show reductions of 26 to 78 percent in average processing times at the four pilot sites in 2004, compared to 2003, meeting most targets established by the World Bank in conjunction with the GOM.
Much of the USG's Foreign Military Financing (FMF) for Macedonia was directed toward enhancing the capabilities and deployability of Macedonian forces in support of missions in Iraq and Afghanistan. Without FMF support, Macedonia would be hard-pressed to maintain its commitment to supporting U.S. forces deployed in these countries. Additionally, almost 40 percent of FMF is targeted to developing a special-capabilities unit. Macedonia has also continued to use FMF to support a Defense Reform Project that provides training in logistics and personnel, planning, and programming budgetary assistance. The project has been successful in helping Macedonia meet its NATO reform targets, specifically in encouraging the transition to a lighter, more flexible force. FMF also financed radios and other equipment to afford Macedonian forces better interoperability with NATO-country forces during regional exercises and with Coalition Forces in Iraq. Under the International Military Education and Training (IMET) program, 68 Macedonian officers, ranging from lieutenants to generals, broadened their military education in the United States.
COUNTRY PERFORMANCE MEASURES ECONOMIC & DEMOCRATIC REFORMS, 1991-2004 Data are drawn from EBRD, Transition Report (November 2004) & Freedom House, Nations in Transit 2004 & Freedom in the World 2004. Ratings are based on a 1 to 5 scale with 5 representing the most advanced.
ECONOMIC STRUCTURE AND HUMAN DEVELOPMENT, 1990-2004 World Bank, World Development Indicators 2004 (2004); UNICEF, Social Monitor 2004 (2004); EBRD, Transition Report (November 2004); and UNDP, Human Development Report (2004).
MEASURES OF PROGRAM EFFECTIVENESS IN FY 2004 DEMOCRATIC REFORM Performance Indicator: Governance Rating, Drawing from Freedom House, Nations in Transit 2004 as modified by "Monitoring Country Progress in Eastern Europe and Eurasia" USAID/E&E/PO, #9 January 6, 2005. (1-lowest, 5-highest; data based on previous calendar year -- CY)
FY 2004 Results: The governance rating improved in FY 2004, reflecting progress in decentralization and adherence to the Framework Agreement. Had CY 2004 been included, the score might have been higher, given that the extraordinary presidential election and November referendum met international standards. Performance Indicator: Rule of Law: Constitutional, Legislative, and Judicial Framework Drawing from Freedom House, Nations in Transit 2004 as modified by "Monitoring Country Progress in Eastern Europe and Eurasia" USAID/E&E/PO, #9 January 6, 2005. (1-lowest, 5-highest; data based on previous calendar year --CY)
ECONOMIC AND SOCIAL REFORM Performance Indicator: Foreign Direct Investment (Source: National Bank, Bulletin II / 2004)
FY 2004 Results: Distracted by the death of the President, extraordinary presidential elections, and a major decentralization-related referendum, the GOM did not give the economic agenda priority attention. Even so, FY 2004 foreign direct investment (FDI) increased significantly, both in dollar and in Euro terms, exceeding the FDI target. Notable in the period were the purchases of Balkan Steelworks by an Indian industrialist and of several mines by U.S. and EU interests, and the ongoing construction of a large retail center by a Turkish conglomerate. The outlook for FY 2005 is positive, with expected American investment in a steel plant and the long-postponed privatization of the state electric company. The latter should attract between $250 and $500 million of FDI. During FY 2004, the Investment Promotion Agency was formed in the Ministry of Economy. The Entrepreneurship and Competitiveness Council (NECC) continued to engage in substantive public/private dialogue to define and publicize a national economic agenda that includes attracting FDI. Performance Indicator: Securities Markets and Non-Bank Financial Institutions Indicator is a multidimensional index value calculated annually by EBRD (range: 1 = lowest, 4.3 = highest)
FY 2004 Results: With USAID assistance, the integrity of trading on the exchange continues to improve. Particularly important was the adoption of regulations adding transparency to pricing. In addition, foreign portfolio investment will be encouraged by the qualification of the Central Depository as a qualified securities depository for U.S. investment funds. Total market turnover in FY 2003 was 6.7 billion denars (roughly €110 million). Market turnover has been falling somewhat owing to consolidation measures. The accumulation phase of the pension system, expected in early 2006, should reverse this decline. The volume of treasury securities – first introduced early in CY 2003 -- continues to grow. The 10 auctions held thus far have resulted in an average issuance of $2 million per auction. Lastly, competitiveness in the financial sector continued to improve, with USAID technical assistance directed at the development of non-bank financial institutions. Performance Indicator: Unemployment rate. The unemployment rate is determined using International Labor Office (ILO) definitions. However, the survey is being revised as of 2004, using EU-consistent rather than ILO definitions. Many of those recorded as unemployed are thought to be employed, or perhaps underemployed, in the informal sector. The survey thus needs to be reviewed for validity and consistency.
FY 2004 Results: The recorded unemployment rate in FY 2004 rose slightly with the closure of some under- performing state enterprises. The key to reducing unemployment in Macedonia lies with enterprise generation and sustained economic growth, particularly with SMEs. While some progress has been registered, the GOM has generally been slow to improve the business environment in the following areas: the development and implementation of regulations to facilitate business growth; undertaking improvements in the effectiveness of the court system to protect rights and handle disputes; attacking corruption, an important disincentive to business; and creating a better legal environment for creditors and shareholders. Local and foreign investors have been reluctant to invest, and the result has been sluggish growth and poor employment generation. Efforts are underway to help the GOM make necessary adjustments in the business environment. Medium-term prospects will be more positive if reform measures are fully implemented. SECURITY, REGIONAL STABILITY AND LAW ENFORCEMENT Performance Indicator: Rule of Law: Constitutional, Legislative, and Judicial Framework Drawing from Freedom House, Nations in Transit 2004 as modified by "Monitoring Country Progress in Eastern Europe and Eurasia" USAID/E&E/PO, #9 January 6, 2005. (1-lowest, 5-highest; data based on previous calendar year --CY)
FY 2004 Results: Possibly the most serious impediment to Macedonia's economic growth is the ineffective legal system, which will require time and concerted effort to modernize. USG programs to amend laws, streamline court procedures, and train judges and prosecutors will take time to become effective, while political pressure on the judiciary continues. Performance Indicator: Money Laundering Prevention (Source: FY 2006 U.S. Embassy Skopje Mission Performance Plan)
FY 2004 Results: Both the Financial Police and Directorate of Money Laundering Prevention remain highly dependent on the Minister of Finance, who has not allocated resources for these organizations to staff, equip, and train them properly. The EU has allocated €1.7 million for technical assistance and equipment for the Directorate, but the EU programs are off to a slow start. U.S. Treasury Department advisors have reviewed Macedonia's money-laundering prevention programs and have made recommendations, which may involve the placement of a resident advisor. MACEDONIA
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Area: 25,333 sq km, slightly larger than Vermont
