8
3. 2001-2004 was marked with post-conflict stabilization and renewed reform (6).
The most difficult years were between 1991 and 1994 with a 25 percent decline in GDP
and financial instability and inflation rates at 1,600 percent per annum. These were the
years of soft budget constraints due to the important position of socially owned enter-
prises that were provided with financial resources. NBRM rediscounted the loans of those
firms to the commercial banks and the financial framework operated on a non-
commercial basis. Economic decline was leveled out in 1994 and inflationary pressure
brought to the single digit level in 1996. These results were achieved with tight fiscal pol-
icy and stricter monetary control marked with declining monetary expansion. Credits to
publicly owned enterprises were limited and from 1994 the Denar was not only nomi-
nally but de facto pegged to DM. Additional, another difficulty in that period was the
trade embargo imposed by Greece (from early 1994 until September 1995) as reaction
against the name and the flag of the FYR Macedonia.
Economic performance between 1996 and 2000 improved and the GDPs rate of
growth was about 3 percent per annum, while the inflation rate was kept at 2 percent per
annum. During these years the economy of the FYR Macedonia, in many cases, went
through what many considered insiders privatization. One important step was reform of
the foreign trade system marked with a reduction of tariff rates and the abolishment of
various non-tariff trade barriers--particularly licensing requirements for exports and im-
ports. While at the same time, there was a very weak performance of the current account
deficit that reached almost 8 percent of GDP. Low levels of exports and high interest
rates imposed a need for the devaluation of the Denar in mid-1997. Because of the de-
valuation of 15.5 percent, the current account almost reached a level of balance but not
for the long term.
The crisis in Kosovo and bombing of Yugoslavia brought many refugees to Ma-
cedonia, but also prompted the inflow of international aid. Under those conditions the
“normal” process of economic reform was interrupted which made it more difficult to ob-
jectively evaluate the effects of the reform.
Convention