Taiwan, The IMF and Macedonia
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You know my views, they are not new to you. I think that a country as economically depressed as Macedonia should not depress itself further by reducing its monetary flexibility. country can get out of recession ONLY by using monetary and fiscal instruments AND by introducing structural changes.
Let us start with the easy part. The structural changes must be slow, calculated and try to minimize the social costs incurred. See what happened in Albania, Bulgaria and Russia (the previous "models" of the IMF!!!). Close factories, yes. Open to exports, yes. Allow free capital movement, yes. Do it at once, without planning, graduality and assessing the consequences - social and economic - at each phase - NO.
But to subscribe to monetary rigidity at such a stage is insanity, nothing less. The denar must be devalued. Russia listened to the IMF. Now Brazil is listening to the IMF. All Southeast Asia has implemented IMF-type policies (though without the direct involvement of the IMF). Look what happened to their currencies and to their economies. Wait and see what will happen to Brazil.
The denar devaluation - if properly, reliably and respectfully done - will achieve the following:
(a) Improve Macedonia's terms of trade and increase exports
(b) Reduce unemployment
(c) STABILIZE the denar (because the balance of payments deficit will be reduced) and, as a
(d) Stabilize other macroeconomic parameters and economic expectations
Inevitably, some of this devaluation will be translated to inflation. Inflation is not a bad thing PER SE. It is bad in certain circumstances and above a certain level. It is normal for a country in rapid growth to have inflation. The more growth, the more employment, the more export proceeds - the more inflation. I agree with Crocker that the target should be to CONTROL inflation. But this is NOT equal to AVOID inflation. If a government (and a Central Bank) declare inflation targets and stick by them - macroeconomic stability will be preserved NEVER MIND WHAT THE INFLATION IS (as long as it is not hyperinflation). What matters is the trust between the citizens and the government - not the ABSOLUTE figure. For instance, imagine that God became a citizen of Macedonia and guaranteed the citizens 25% monthly inflation for 50 the next fifty years. Of course, everyone will believe him (though in Macedonia I am not sure). Now, 25% a month is VERY HIGH inflation. But will it hurt macroeconomic stability? NO!!! Because the citizens know EXACTLY WHAT TO EXPECT. The dual problem of inflation is that people do not know what to expect (a crisis of trust and expectations) and that it distorts the proper allocation of resources in the economy because it distorts RELATIVE PRICES. It also allows for many accounting tricks and hides the true status of firms. So, in the long term it SHOULD be minimized (though too much of this medicine and you will have deflation). In a country in economic depression - INFLATION IS SECOND PRIORITY. Look what the Fed is doing, what the Bank of Japan and the Bundesbank are doing. They don't give a fuck about inflation. They are afraid that the economy will slow down, so they reduce interest rates AND increase the money supply (THE inflationary measures). And in the USA, the economy is BOILING. There, the results of the latest moves by the Fed will definitely be inflation. But first things first: in a graveyard, there is no inflation and no devaluation. Do you want Macedonia to become a graveyard? It is on its way.
A GRAVE MISTAKE
Day by day the folly of the act of establishing diplomatic relations with Taiwan becomes painfully clearer. This unfortunate and unwise decision led directly to China irresponsible act of revenge with UNPREDEP. Without UNPREDEP Macedonia will lose its independence.
There are many ways of losing independence. I am NOT talking about the implausible, improbable and radical scenario of an invasion by Serbia or by Serbia AND Bulgaria. In 1994 it was suggested to "solve four problems and create one" by dividing Macedonia between Serbia, Albania, Bulgaria and Greece. Today, this is out of the question.
I am talking about losing independence through becoming a NATO territory, occupied by its forces and serving as a launching ground against neighbours such as Serbia and Albania. Macedonia is on its way to becoming the colonialist-imperialist outcast of the whole region, a pariah, hated by countries as far afield as Russia and China and criticized by the USA and Europe for its hasty decisions.
It was wrong to establish relations with Taiwan NOW and in the way it was done (abruptly, without a reciprocal and gradual schedule). It is doubly wrong and pig-headed not to admit the mistake and withdraw. Macedonia will not see a penny from Taiwan - no other country has ever seen anything but promises from Taiwan and Macedonia will be no different. The road to economic prosperity is not ALCHEMY and black magic. It is hard work, long term planning and industriousness. Some people have transformed Macedonia the State into a "Lotaria na Makedonija" instead of a serious, respectable member of the international community. In some quarters outlandish promises and dangerous actions cannot be understood. Macedonia must "reconsider" its decision regarding Taiwan and embark on immediate and urgent consultations with China in an effort to minimize the self-inflicted damage.
I will repeat what I wrote a few weeks ago, immediately after the news about the Taiwanese connection. Unfortunately, I see no reason to change even one word, especially not article 4 below:
(1) Either Taiwan will rejoin China (as Macao and Hong Kong did) - and Macedonia will be considered a "country non grata" by the unified entity OR
(2) Nationalistic-democratic tendencies in Taiwan will increase and lead to conflict with China - which will force Macedonia to take sides. Very inadvisable, as Macedonia might find itself pitted against the West.
(3) This move is contrary to the now OFFICIAL policy of the USA (see President Clinton's speech last year in Beijing).
(4) China is a powerful member of numerous international organizations (such as the Security Council which approves the UNPREDEP mandate). It can - and will - wreak havoc on Macedonia's international relations. Macedonia is portrayed as prostituting its foreign relations, reneging on its obligations and an unreliable partner.
(5) China is the second largest economy in the world (in purchasing power parity terms). It is poised to become the largest in 25 years, outweighing and surpassing the USA. To be excluded from such a market at will is nothing short of short-sightedness.
(6) Taiwan is a territory which seceded from mainland China. Macedonia should not support any SECESSION, no matter how justified. Macedonia itself is under threat of secession by its Albanian minority. In next door Serbia, Kosovo is trying to secede. If Macedonia accepts the legitimacy of one secession (Taiwan's) - how will it be able to convincingly argue against the secession of its own minorities? And how will it be able to object to the demands to recognize the Kosovar Republic posed by them?
(7) The process of contracting with Taiwan was fraught
with constitutional irregularities. The President and the Government Cabinet
It was all done conspiratorially. This leaves a bad taste and a bad impression. People are even talking about personal corruption and bribes paid by Taiwan to the people involved in the process, namely Messrs. Tupurkovski and Dimitrov. While I think there is no proof of this - it is still regrettable that public confidence was thus shaken.
(8) Taiwan has made similar offers to many countries. Only a handful of them accepted, mainly the poorest and most despotic countries in Africa and Latin America. This is not good company to be in and it reflects on Macedonia's image internationally.
(9) Moreover, it is very doubtful whether Taiwan will stick to its financial obligations. Macedonia is not important enough. Instead of setting a gradual and RECIPROCAL timetable of ACTUAL investments versus gradual strengthening of diplomatic relations - Macedonia sold out everything it had to offer and received nothing but controversy in return. It is in the position of a girl who gave up her virginity based on marriage promises.
(10) The principle of the continuity of the state was
breached and violated. The current government is bound by all the undertakings
of the previous one, including by international treaties signed prior to
its formation. The Taiwan affair is a stark abrogation of this principle.