Nova Makedonija Daily Dose and Interviews (June 2008- )
By: Dr. Sam Vaknin
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Written June 23, 2008
No Foreign Banks - A Curse or a Blessing?
Written June 24, 2008
The Future of Oil and the Economic Future of Macedonia
The price of oil is no longer an important determinant of the economic health of the West. To create the same amount of economic output, manufacturers use much less oil than they used to.
Moreover, today, there are futures contracts, which allow one to fix the price of purchased oil well in advance. There are options contracts which can be used to limit one's risks as a result of trading in such futures contracts.
So, why is the price of oil going through the roof?
Because oil has become a form of investment and a hedge against rising inflation. People plough their savings into oil and speculators drive the markets. As Saudi Arabia correctly observes, the price of oil is no longer determined merely by supply and demand.
Who decides on the domestic price of oil and its derivatives?
In some countries, prices are fixed entirely by market forces, supply and demand, usually through specialized exchanges (e.g., the Rotterdam Exchange). The market is completely deregulated: exports and imports are totally allowed and free.
In other countries, prices are fixed by a committee of representatives of the government, the oil industry, the biggest consumers of oil, and representatives of households and agricultural consumers.
In most countries, prices are changed every 3 or 6 months based on the cost of oil at a certain port of delivery. In Israel, for instance, the price of oil fluctuates every three months according to the price of oil delivered in certain Italian ports (where Israel gets most of its oil delivered). This is an AUTOMATIC adjustment.
In a few countries the prices are fixed by the competent Ministry in accordance to the ACTUAL costs of the oil (importing, processing and distribution) + a fixed percentage (usually 15%). This is called a COST PLUS basis pricing method.
The international price of oil is determined by the following factors:
Written June 26, 2008
Macedonian Stock Exchange to Resume Upward Trend
On June and October 2007, I made two presentations to the members of the Association of Brokers in the Chamber of Commerce. In these presentations, I warned that the market values of most of the firms listed and traded on the Stock Exchange, especially the components of the MBI-10 index, were grossly inflated. The fair value of the MBI-10 should be around 4300, I calculated.
I also predicted a sharp deterioration in the global and Macedonian
economic environments. I repeated these prognoses in an
2007, published by the Los Angeles Chronicle.
Since then, the MBI-10 has gone down by over 50% and is now around 4600.
Last week, I conducted a series of fundamental and technical analyses on behalf of foreign brokers and investors.
1. The market has hit its technical bottom. The MBI-10 is unlikely to deteriorate much further. On the contrary, the next big move ("trend") is
up, to 5800 and then 7200. In the long term (2-3 years), the MBI-10 should reach 13,300.
2. Out of 10 components of the MBI-10, eight (8) firms are seriously undervalued. The shares of these companies make excellent investments in the
medium (1 year) to long-term (3-5 years).
3. Sentiment among professionals - both domestic and foreign - is turning positive. Buying activity is likely to increase. Non-professionals will join
the market much later, though, so volumes may remain thin for quite a while.
4. The only drag on the market right now is Macedonia's deteriorating macroeconomic outlook (inflation, trade deficit, MKD exchange rate, etc.)
and political instability. But, these have now been largely discounted and are reflected in current prices. Barring a major collapse of the international financial system, these issues will not affect the market in the next few months.
Written June 27, 2008
Who is Paying for Macedonia's Trade Deficit?
Macedonia's trade deficit in the first FOUR months of 2008 ballooned to 903 million USD, almost double the figure for the same period in 2007.
If this continues, Macedonia's trade deficit will equal 2.7 billion USD, or 35% of the GDP, an unprecedented figure and one of the highest in the WORLD.
But who is paying for all this?
There are FIVE SOURCES of foreign exchange flows that are then used to cover (pay for) the trade deficit:
1. Remittances from Macedonian workers abroad, as well as other unilateral transfers. These more or less stabilized over the last 8 months and now
stand at 1.8 billion USD annually.
Contribution to trade deficit coverage in first four months: c. 650 million USD
2. Borrowing in foreign capital markets - virtually non-existent. Macedonia has issued Eurobonds only once, a few years ago, and these amounted to a
paltry 150 million euros.
Contribution to trade deficit coverage in first four months: ZERO
3. Foreign aid and multilateral credits from international financial institutions
Contribution to trade deficit coverage in first four months: c. 50 million USD net
4. Using Macedonia's foreign exchange reserves to finance the trade deficit
But, according to Narodna Banka, foreign exchange reserves declined by a mere 22 million euros this year, owing mainly to interventions in the
foreign exchange markets.
Contribution to trade deficit coverage in first four months: ZERO
5. Foreign Direct Investments (FDI)
The government claims that FDI reached 100 million euros in the first months of the year.
Contribution to trade deficit coverage in first four months: c. 200 million USD.
Written June 28, 2008
There are four types of interaction between politics and business:
1. Politics can be in the service of business (plutocracy)
2. Business can be in the service of politics (socialism and authoritarian regimes)
3. Business is politics, they are inextricable (corporatism, fascism, failed states).
4. Incestuous relationship between politics and business (rent-seeking).
In Macedonia, the fourth model is in full force.
The State (i.e., the party in power) constitutes one third of economy (employment, investment, budget, taxes).
How can we heal Macedonia's economy?
The first step in every process of healing is: facing the truth.
And the truth is that Macedonia, in its current state, is not a viable economic entity. It suffers from low natural endowments; is economically dependent on foreign flows of capital to survive; has no critical mass for a self-sustaining internal market; has ruined infrastructure and an antiquated legacy of capital goods. Macedonian firms have low profitability. Macedonia's institutions are dysfunctional and self-serving. Macedonia has low-grade elites, owing to negative selection (brain drain) and a low level of knowledge and education; it lacks social cohesion.
If this litany of woes in not enough ...
The governments of Macedonia are a perfect manifestation of Parkinson's Law of Triviality: in a committee, it is easier to agree on a billion dollar atomic reactor than on the roofing of a bikeshed or on coffee procurement for the administration. The reason: politicians know less about mega-projects than they know about bikesheds and coffee.
When lacking in knowledge or experience, politicians concentrate on micromanagement and demonstrative gestures and neglect the big picture (real reforms and macroeconomic management).
Macedonian politicians have repeatedly failed. Macedonia's only hope lies in de-politicization and in having a small, technocratic government at the service of the private sector.
Real reforms in Macedonia include: changing the national ethos and mentality; openness to outside input and constructive criticism; suppression of special interest groups; depoliticization of the civil administration, if necessary by employing foreign managers; second-phase deregulation and privatization (the transfer of government functions to the private sector); transition from dying industries and economic sectors to new ones; overhauling state institutions; reduction of political risk (predictability of laws, regulations, and government decisions; continuity of state commitments and undertakings; less political involvement in business); media ownership rules; special-purpose courts; attracting FDI as an engine of innovation and internal reform (transmission mechanism: competition).
The government's role is to provide the conditions for business to operate and thrive - on both the micro and the macro levels.
Macroeconomic management revolves around the optimal allocation of economic resources. Anything that goes against it should be fought: inflation, cronyism and nepotism, corruption, credit-driven consumption, populist wage and pension increases, unrealistic exchange rates, increased tax burden.
This Government has good intentions and has succeeded in improving the business climate and in implementing some microeconomic reforms. But it lacks the basic knowledge or willingness to implement a wider, more fundamental transformation and on how to manage the economy. In the long run, its achievements (such as the construction and consumption driven growth of GDP and industrial production) are ephemeral and conjectural.
The Macedonian economy is akin to the Macedonian Stock Exchange: the bubble will burst. Macedonians are now living in a state of self-induced psychosis: the preference of fantasy over reality. This may be a pleasant feeling, but denial cannot last long. Sooner or later, Macedonians will have to wake up to a bitter and challenging reality, every bit as harsh as when they started their collective exercise of auto-suggestion.
Written June 30, 2008
Give Vouchers to the Unemployed
Despite all the promises, the increase in FDI, and the improvement in the
business climate, unemployment in Macedonia remains stubbornly high, at 35% of
the workforce. The government claim that real unemployment is lower because
many employees in the informal (black) economy go unreported. The truth is
that real unemployment is even higher than the official figure: many are
underemployed (they go to work, do nothing there, and return home); about 10%
of those officially employed don't get paid; and many stopped looking for a
job altogether, they simply gave up.
One solution which is gaining traction in the West (mainly in the USA, the UK, and northern Europe) is to use vouchers to alleviate the nefarious side-effects of unemployment.
"Voucher Communities" are communities of unemployed workers organized in each municipality. The unemployed exchange goods and services among themselves in a barter-like or countertrade system. They use a form of "internal money": a voucher bearing a monetary value.
Thus, an unemployed electrician can offer his services to an unemployed teacher who, in return, gives the electrician's children private lessons. They pay each other with voucher money. The unemployed are allowed to use voucher money to pay for certain public goods and services (such as health and education).
Voucher money is redeemed or converted to real money - so it has no inflationary or fiscal effects, though it does increase the purchasing power of the unemployed; vouchers enhance the purchasing power of the unemployed and the homeless; they restart the economic cycle in deprived neighborhoods and regions; they increase the psychological well-being and motivation of deprived and dysfunctional strata of the population; vouchers engender networks of service-providers and customers which can later integrate into the formal, monetized economy.
Written July 1, 2008
What is Wrong with Macedonia's Inflation Figures?
Inflation in May 2008 declined,
on an annual basis, from 10.2% to 9.5%.
The government claims that the sources of inflation in Macedonia are external and that inflation is imported INTO Macedonia through the ever-increasing prices of foodstuffs, raw materials, and energy.
In other words:
Prices INSIDE Macedonia are increasing because prices of foodstuffs and energy OUTSIDE Macedonia are increasing.
But, if this is true, inflation in May in Macedonia should have gone sharply UP, not down!
Global prices of foodstuffs and energy soared to their highest levels in April-May. Oil prices, for instance, increased more in April-May than they did in January-March (and they continued their vertiginous climb in June). So did the prices of many foodstuffs, especially corn and rice.
How can we explain that inflation in Macedonia went down even as prices of imported foodstuffs, raw materials, and energy exploded?
Don't believe these fairy tales
The government wants you to
believe these fairy tales. Don't.
1. This year cannot end with 5% inflation. Inflation in the first 6 months was 10% (on an annual basis). Inflation would have to drop to 2% and less in the next 6 months in order to end up at 5% for the entire year. More likely, inflation this year will be between 9-11%. Even this projection is based on the official, suspicious figures. Real inflation is probably higher still.
2. Macedonia's out-of-control trade deficit (the difference between its imports and its exports) is mostly financed with remittances (transfers that Macedonian workers abroad send back to their families). Remittances tend to drop when there is a global recession and foreign workers are fired and sent back home. As remittances decline, the government will have to dip into the country's foreign exchange reserves in order to finance the trade deficit. This may jeopardize the stability of the denar's foreign exchange rate against the euro. While devaluation is not on the cards, macroeconomic instability is.
3. Even if the government succeeds to attract foreign direct investment (FDI), this will not even begin to solve Macedonia's unemployment problem. Economic research teaches us that FDI is employment-neutral: some people get hired, others get fired. Foreign investors employ foreign managers and rely on automation, rather than on manpower. At best, FDI will create 20-30,000 jobs in the next ten years. This figure is less than 10% of the total number of unemployed people.
4. Real unemployment is higher than the official figure, not lower. Many ostensibly employed people are actually underemployed (they go to work, do nothing there, and return home); about 10% of those officially employed don't get paid; and many stopped looking for a job altogether, they simply gave up. The government has no coherent national plan to cope with unemployment or to encourage domestic investment.
Written July 3, 2008
Is Foreign Direct Investment (FDI) the Solution to Macedonia's Economic Problems?
In 2007, with 239 million euros, Macedonia was yet again
in the last place among the 20 countries of Central and Eastern Europe as far
as foreign direct investment (FDI) goes. The situation may improve next year
when, the Vienna Institute for International Economic Studies says, FDI will
double to half a billion euros.
But is FDI the solution to Macedonia's main problems: unemployment and the poverty it engenders?
Recent economic research says: no, it isn't.
The role of foreign direct investment (FDI) in promoting growth and sustainable development has never been substantiated. There isn't even an agreed definition of FDI. In most developing countries, other capital flows - such as remittances - are larger and more predictable than FDI and ODA (Official Development Assistance).
Several studies indicate that domestic investment projects have more beneficial trickle-down effects on local economies. Be that as it may, close to two-thirds of FDI is among rich countries and in the form of mergers and acquisitions (M&A). All said and done, FDI constitutes a mere 2% of global GDP.
FDI does not automatically translate to net foreign exchange inflows. To start with, many multinational and transnational "investors" borrow money locally at favorable interest rates and thus finance their projects. This constitutes unfair competition with local firms and crowds the domestic private sector out of the credit markets, displacing its investments in the process.
Many transnational corporations are net consumers of savings, draining the local pool and leaving other entrepreneurs high and dry. Foreign banks tend to collude in this reallocation of financial wherewithal by exclusively catering to the needs of the less risky segments of the business scene (read: foreign investors).
Additionally, the more profitable the project, the smaller the net inflow of foreign funds. In some developing countries, profits repatriated by multinationals exceed total FDI. This untoward outcome is exacerbated by principal and interest repayments where investments are financed with debt and by the outflow of royalties, dividends, and fees. This is not to mention the sucking sound produced by quasi-legal and outright illegal practices such as transfer pricing and other mutations of creative accounting.
Moreover, most developing countries are no longer in need of foreign exchange. "Third and fourth world" countries control three quarters of the global pool of foreign exchange reserves. The "poor" (the South) now lend to the rich (the North) and are in the enviable position of net creditors. The West drains the bulk of the savings of the South and East, mostly in order to finance the insatiable consumption of its denizens and to prop up a variety of indigenous asset bubbles.
Still, as any first year student of orthodox economics would tell you, FDI is not about foreign exchange. FDI encourages the transfer of management skills, intellectual property, and technology. It creates jobs and improves the quality of goods and services produced in the economy. Above all, it gives a boost to the export sector.
All more or less true. Yet, the proponents of FDI get their causes and effects in a tangle. FDI does not foster growth and stability. It follows both. Foreign investors are attracted to success stories, they are drawn to countries already growing, politically stable, and with a sizable purchasing power.
Foreign investors of all stripes jump ship with the first sign of contagion, unrest, and declining fortunes. In this respect, FDI and portfolio investment are equally unreliable. Studies have demonstrated how multinationals hurry to repatriate earnings and repay inter-firm loans with the early harbingers of trouble. FDI is, therefore, partly pro-cyclical.
What about employment? Is FDI the panacea it is made out to be?
Far from it. Foreign-owned projects are capital-intensive and labor-efficient. They invest in machinery and intellectual property, not in wages. Skilled workers get paid well above the local norm, all others languish. Most multinationals employ subcontractors and these, to do their job, frequently haul entire workforces across continents. The natives rarely benefit and when they do find employment it is short-term and badly paid. M&A, which, as you may recall, constitute 60-70% of all FDI are notorious for inexorably generating job losses.
FDI buttresses the government's budgetary bottom line but developing countries invariably being governed by kleptocracies, most of the money tends to vanish in deep pockets, greased palms, and Swiss or Cypriot bank accounts. Such "contributions" to the hitherto impoverished economy tend to inflate asset bubbles (mainly in real estate) and prolong unsustainable and pernicious consumption booms followed by painful busts.
Written July 6, 2008
Don't Trust Foreign Reports about Macedonia!
The Heritage Foundation and the Wall Street Journal are the joint publishers of the much-vaunted "Index of Economic Freedom". The annual publication purports to measure and compare the level of economic freedoms in 155 countries.
The index made rice one of Macedonia's "major" agricultural products. It was, actually, first on its list. Alas, little rice was grown in Macedonia in 2001. Nor did the country produce noticeable quantities of citrus, or grains, as the index would have us believe.
The authoritative-sounding introduction to the 2002 index informed us that Macedonia maintained a budget surplus "from the sale of state-owned telecommunications". Yet, in its first decade of existence, Macedonia enjoyed a budget surplus only in 2000 and it had nothing to do with the sale of its telecom to the German-Hungarian MATAV. The proceeds of this privatization were kept in a separate bank account. Only a small part was used for budgetary and balance of payment purposes.
The index stated that Ljubco Georgievski had "privatized approximately 90 percent of (the country's) state-owned firms". These were actually privatized by the SDSM when it was in power until 1998. It is true that major assets, such as Macedonia's refinery and its leading bank were privatized under Georgievski. It is also true that the bulk of state-owned loss making enterprises were either sold or shut. But these constituted less than 15 percent of the number of companies the state owned in 1992.
The fiscal burden of Macedonia was 34 percent of GDP in 2001 - not 23 percent as the index stated. It has surpassed 30 percent of GDP years before. Moreover, in the sub-chapter titled "Fiscal Burden of the Government" the authors contended that "government expenditures equaled 23.3 percent of GDP". A mere three lines later they contradicted themselves: "the government consumes 19 percent of GDP". Which is it?
The "monetary policy" segment of the index is a misleading one-liner: "Between 1993 and 2000, Macedonia's weighted annual average rate of inflation was 7.15 percent." The term "weighted annual average rate of inflation" is not explained. Whatever happened to the hyperinflation followed by near-deflation of Macedonia's first decade? The straight average in this period was 56 percent, not 7 percent.
The index says that "the country's political instability has had a debilitating effect on foreign investment". It sounds logical but does not stand up to scrutiny. Investment flows actually increased in the conflict year 2001 as bargain hunters from Greece, Slovenia, Germany, and other countries converged on Macedonia.
And so this list of errors and misrepresentations continues.
Macedonia is a tiny and unimportant country. But many of the erroneous data used by the index could have been avoided merely by using Google! Sloppy editing, internal contradictions, and outdated information regarding one country, regardless of how inconsequential it is, render the entire index suspicious.
Unfortunately, indices such as these affect both portfolio and direct investment flows, the country's rating, its image in the international media, and the government's standing domestically. The golden rule with such indexes is: "handle with care".
Written July 12, 2008
Myths and Facts about
the State Budget
In a television interview Vice-Premier Stavreski said that he does not understand the critics: clearly a state budget that has a surplus is anti-inflationary. The more the government collects in taxes, the less money there is in the economy. The less money there is in the economy, the less the upward pressure on the general level of prices. Professor of Economics Trajko Slaveski confidently stated that the budget promotes growth and he prefers growth with inflation to no growth with no inflation.
Written July 12, 2008
The world is sinking into one of the worst global recessions ever. How will this affect Macedonia?
In two major ways:
1. Less foreign direct investment (FDI)
Historically, in times of global recession, foreign direct investment (FDI) dries up. During the last global recession (2000-2002), FDI flows declined by more than 50%.
The government of Macedonia gambled everything it has on FDI - and ONLY on FDI. This government is obsessed with FDI as the only solution, the nostrum, the panacea to Macedonia's pressing economic problems. The government has no Plan B.
Even in good times, FDI has never been the solution to Macedonia's pressing problems (such as unemployment).
Now, with the world in crisis, FDI transactions already concluded will be cancelled and FDI, in general, will decline precipitously.
2. Life-threatening trade deficit
Until now, Macedonia's incredibly high trade deficit (c. 35% of GDP this year and 25% of GDP last year) was covered by remittances (transfers) from abroad. Macedonians working in other countries sent money back to their families. These money transfers fully financed the trade deficit.
With the onset of global recession, Macedonian workers abroad will be the first to be fired and sent back home.
Remittances will decline. The trade deficit will not be covered anymore. This could threaten the stability of the Macedonian denar and the Macedonian economy.
Macedonia can still shift its emphasis from FDI to domestic investment and job creation. It is not too late. It is not shameful to admit to a mistake in orientation.
Can Gross Domestic Product (GDP) Figures be Trusted?
Written July 17, 2008
Measures to Contain Inflation and the Trade Deficit
Countries around the world - from Vietnam to Kazakhstan - have adopted these measures to reduce their burgeoning inflation and trade deficit:
Hedging (fixing the future prices of foodstuffs, oil, and commodities by purchasing forward contracts in the global markets)
Removal of import duties, excise taxes, VAT, and other taxes and fees on all energy products and foodstuffs
Subsidizing the consumption of the poorest 10% of the population
Introducing price controls and freezing the prices of essential products
Banning the export of foodstuffs (or introducing customs duties and quotas on such exports)
Raising interest rates and reserve requirements in the banking system to prevent new credit formation
Forcing banks to purchase government bonds to reduce liquidity in the market
Administratively capping credit growth and tightening lending to consumers and for real-estate transactions
Freezing, reducing or waiving public sector fees and charges
Releasing commodities, oil, and minerals from strategic reserves
Capping interest rates on deposits (to prevent credit formation using money from new deposits)
Reclaiming agricultural lands and modernizing farms and agriculture (long-term measures)
Declaring a World Trade Organization (WTO) emergency and introducing import quotas and duties on non-essentials and luxury goods
Introducing an inflation target
Allowing for a gradual devaluation of the currency, within a band or range or as a crawling peg. A strong currency has anti-inflationary effects, so any devaluation must be minimal, slow, and subject to market forces.
Written July 18, 2008
One Reason Why Macedonia is not Prosperous
Macedonia has consistently ranked lowest in Europe in a variety of economic dimensions: from FDI to productivity. Its endemic poverty is the inevitable outcome of multiple factors: its corrupt and incompetent political elite; rent-seeking businessmen; primitive banking system; bankrupt education system, and so on. But, one important factor usually goes unmentioned: Macedonia is landlocked, it lacks access to the sea.
In April 1998, John Luke Gallup and Jeffrey Sachs, published a
seminal study titled "Geography and Economic Growth". The two eminent
development economists concluded that "
Even more crucially, geographical constraints seem to affect economic policymaking. Thus "populations that are located far from coasts and navigable rivers and that thus face large transport costs for international trade, as well as of populations in tropical regions of high disease burden" are automatically disadvantaged. To these we must add the effects of inferior natural endowments and the impact of lack of access to natural resources (such as water, or oil) on growth.
As Irene Botosaru points out in another paper titled "Geography, Demography, Trade, and Economic Growth", geographical determinism is again in fashion among economists. Her recommendations:
(Landlocked countries) "should export more manufacturing goods rather than agricultural raw materials ... (and) would profit from improved political relations with their transshipping partners, from improved information and physical infrastructure, as well as from increased population density in urban areas and in areas close to the border with transshipping countries."
In other words, good relations with Greece should be the cornerstone of Macedonia's economic policies. The current jingoism is not only ridiculous, coming from a tiny nation, but it is also detrimental to economic growth and future prosperity.
All told, lacking access to sea lanes or large rivers "shaves" 0.7-1 percent off GDP growth every year. As these percentages accumulate, poverty is the outcome. till, what's new? Centuries ago, Adam Smith, wrote in "the Wealth of Nations":
"“As by means of water-carriage a more extensive market is opened to every sort of industry than what land-carriage alone can afford it, so it is upon the sea-coast… that industry of every kind… begins… and it is… not till a long time that those improvements extend themselves to the inland parts of the country.”
The Real Threats to the Economy of the USA
The outcry about offshoring (outsourcing - the relocation of domestic jobs to more efficient and cheaper suppliers abroad) is politically motivated. Outsourcing affects the vocal, politically active, emblematic, and well-connected hi-tech industry in a year of presidential elections. No wonder it has become a campaign issue.
But outsourcing is far from being a real threat to America's economic well-being and prospects. As technologies mature, outsourcing is both inevitable and welcome. It encourages the optimal allocation of economic resources, frees up capital and labor for more productive uses, and, in the medium to long run, generates more jobs than it eliminates.
The largest economy in the world is faced with other, structural, more daunting dangers, though.
1. Huge costs are imposed on the American economy by the global geopolitical realignment following the Cold War and its manifestations - ubiquitous instability, ethnic and national tensions, and terrorism. Military budgets soar and the private sector is crowded out of the credit markets.
2. The ageing of the population in the United States portends a crisis of mammoth proportions in the pension and social security systems. The shrinking of the productive age group is not fully compensated for by immigration.
3. The decline of American science and technology requires the importation of brainpower from other countries. This process - of net brain absorption - is about to reverse and become net brain drain as American scientists flee restrictions in the free flow of scientific information and religious constraints on research (e.g., on stem cell studies).
4. The rise in religious sentiment, the "esoteric sciences", and sheer superstitions carries an economic price tag. As economic decisions - for instance: the allocation of funding for research and the arts, foreign aid, the workings of the Internet - become less rational the allocation of scarce economic resources is rendered more wasteful.
5. The shift from productive economic activities to speculative and derivative pursuits (i.e., trading in financial instruments) transformed the United States into a "paper economy", both literally and figuratively. Consequently, as it increasingly opens up to international trade, it imports more than it exports (generating unsustainable trade deficits). The resultant excess capacity (slack) prevents rapid and energetic recoveries from slumps and recessions.
6. American fiscal and personal profligacy buried the United States and its denizens under a mountain of debt. America has a monopoly on printing US dollars and these have become its main export. A global shift in the composition of international reserves (e.g., the emergence of the euro as a reserve currency) threatens America's ability to erode its debt through inflation. The increasing ubiquity and intrusiveness of government - both Federal and in the various states - adds to the economy's underlying inefficiency.
Written July 22, 2008
How Macedonia's Banks Discovered America
Recently, the United States government was forced into literally nationalizing its financial sector owing to the irresponsible conduct of mortgage banks and brokerage houses. In 1983, the Israeli government bought the entire banking system owing to rabid speculation in the Tel-Aviv Stock Exchange. This may soon be happening in Macedonia as well - albeit for a different reason.
Macedonia's banks are not involved in the country's real estate bubble. Over all, they have acted prudently and refused to lend more than 50% of the values of properties pledged as collateral by borrowers. Similarly, by and large, they have refrained from getting directly involved in the pyramid scheme that passed for the Macedonian Stock Exchange in the last 4 years.
But, the banks here are sitting on a time bomb: consumer credits. Their total profits of 60 million euros (up 30% on 2006, on paper, at least), derived also from a growth of 39% in credits given to "non-financial entities". But this was dwarfed by the huge increase in lending to individuals (up 56%), through credit cards (up 122%) and overdrafts (up a whopping 77%). Loans and credits to individuals nearly equal those doled out to businesses.
The quality of all these types of credits worsened throughout the last 18 months. In other words: people are defaulting on the re-payments of the loans they have taken, especially through credit cards. The National Bank estimates that the portfolio risk of the banks has increased by 33% and is the highest in the last 4 years. Moreover, the credits are not taken in order to finance productive activities and thus generate future streams of income: rather, they are mostly used to defray the costs of new cars, vacations, residential property, and consumer goods.
Driven by the need to improve bottom lines and compete in an over-crowded sector, banks such as NLB Tutunska Banka, now relaxed their requirements and lending criteria. People who, in the past, would have been refused credit, now obtain it with little difficulty. Of the total liabilities of the banks (c. 3.6 billion euros in 2007 compared to 2 billion euros in the first quarter of this year alone), the amount of bad loans may be far larger than the banks admit in their financial statements.
Should many more loans turn sour, some banks will inevitably suffer from a liquidity crisis and be rendered insolvent. Runs-on-the-banks may transpire and these will force the government's hand: some banks are too big to fail and the state will have to bail them out to avoid a systemic meltdown of the entire sector.
Written July 26, 2008
Dangerous Liaisons: Online Banking in Macedonia
All of Macedonia's major banks offer to their customers financial services and products through the Internet. However, as opposed to their counterparts throughout Europe, none of them is aggressively pushing its clientele to adopt online banking. This may be the result of multiple reasons: (1) A computer-illiterate public, unaccustomed to working on the Web; (2) Staff lacking in training; (3) Computer systems that do not integrate seamlessly Internet-generated transactions with the banks' ledgers; (4) In Macedonia, online banking may be no less costly to process than "bricks and mortar" transactions at the branch.
But there's another problem: computer security. To withstand the coordinated onslaught of hackers and cyber-criminals, who are constantly trying to empty the bank accounts of their victims, online banking Websites must incorporate many defensive safety features. These render the entire experience cumbersome and complicated and deter the vast majority of clients.
Go through the list below to see how secure is your bank's online presence. It is short and by no means exhaustive and is based on a study conducted at the University of Michigan by Atul Prakash, a professor in the department of electrical engineering and computer science, and two doctoral students, Laura Falk and Kevin Borders:
1. All the pages of the bank's Website must use SSL (Secure Sockets Layer) and TLS encryption technologies. In the Internet Explorer Web browser, a small, yellow padlock icon appears at the bottom of the page when such encryption is available. It prevents hackers from tapping into the exchange of information between the user's computer and the bank's servers and routers.
2. Users should not use their computer keyboard to type in passwords. Many computers are infected with keyloggers: small software applications that monitor the user's typing and pass on the information to networks of criminals. Instead, the bank should provide a "virtual keyboard" (a tiny on-screen graphic that looks like a keyboard). Users can then click their mouse and press the various "keys" of the virtual keyboard to form the password.
3. The banking Website should not re-direct the user to other domains or sites (which potentially are not as secure).
4. The bank should insist on strong passwords: minimum five characters, allowing combinations of numerals and letters, including capitalized ones.
5. The bank should never send any information pertaining to the account - especially not passwords - via e-mail.
6. The bank should insist on "two-factor authentication". The user would need a username and password to access the Website. But, to transact in the account, he would make use of one time "tokens" (codes). Each user should be equipped with printed lists of such codes or with a special device that generates them. They can also receive the codes via SMS. The codes are used to transfer money, change the password, change the limit of withdrawal, give instructions regarding securities and deposits, etc.
Crashing and Cashing, Pumping and Dumping: Stock Manipulation in the USA
Two weeks ago, America's Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority and New York Stock Exchange Regulation announced that they will investigate the spreading of unsubstantiated or patently false rumors in order to manipulate the prices of stocks. Networks of broker-dealers, hedge funds and investment advisers allegedly participate in these activities on behalf of short-sellers (clients who make a profit when the prices of stocks collapse).
Other shady operators act through the Internet: they target "penny stocks" (illiquid shares with low market capitalization). They spam millions of e-mail inboxes with "good news", "exclusive tips", and "privileged information". When gullible victims buy the shares, they sell at a huge profit. These operations are known as "pump and dump".
Still, it is not easy to prove that a broker or an investment advisor knew that the information he was parlaying was false. Gossip spreads through ephemeral means, such as texting (SMS), IM (Instant Messaging), and anonymous or encrypted re-mailing. Moreover, the unhampered flow of information is at the foundation of both free speech and the efficient operation of financial markets.
Still, maliciously planted false data can undermine trust among market players, dry out liquidity, and ruin perfectly healthy firms. Banks and brokerage houses are especially vulnerable as their main asset is their reputation.
Some people have already been brought to justice. On July 14, 2008, the New-York Times reported:
"In April, the S.E.C. settled a securities-fraud and market-manipulation charge against Paul S. Berliner, a trader formerly with the Schottenfeld Group. The S.E.C. charged he had spread a false rumor about the price of the Blackstone Group’s potential acquisition of Alliance Data Systems, and profited from short-selling Alliance’s stock."
Written July 28, 2008
Democracy and Prosperity Don't Always Go Together
Many nations have chosen prosperity over democracy. As they see it, yes, they can't speak their mind or protest or criticize or even joke lest they be arrested or worse - but, in exchange for giving up these freedoms, they have safer streets, food on the table, they are fully employed, they receive ample health care and proper education, they save and spend to their hearts' content. In return for all these worldly goods, they forgo the right to vote once every four years. Many insist that they have struck a good bargain - not a Faustian one.
From Venezuela to Russia and from China to Ecuador, democracy is out of favour. The West has transformed the ideal of democracy into an ideology at the service of imposing a new colonial regime on its former colonies. Spearheaded by the United States, the white and Christian nations of the West embarked with missionary zeal on a transformation, willy-nilly, of their erstwhile charges into profitable paragons of "democracy" and "good governance".
The defenders of democracy use the wrong arguments in their fight to preserve and propagate it:
I. They argue that democracies are more peaceful than dictatorships
This is patently untrue. The two most belligerent countries in the world are, by a wide margin, Israel and the United States (closely followed by the United Kingdom). As of late, non-democratic China is one of the most tranquil polities.
II. They argue that democracies are inherently stable (or to successfully incorporate the instability inherent in politics).
This, too, is a confabulation. The democratic Weimar Republic gave birth to Adolf Hitler and democratic Italy had almost 50 governments in as many years. The bloodiest civil wars in history erupted in Republican Spain and, seven decades earlier, in the United States. Czechoslovakia, the USSR, and Yugoslavia imploded upon becoming democratic, having survived intact for more than half a century as tyrannies.
III. They argue that democracies are conducive to economic growth (indeed, are a prerequisite to such)
False. The fastest economic growth rates in history go to imperial Rome, Nazi Germany, the Stalinist USSR, Putin's Russia and post-Mao China.
Granted, democracy allows for the free exchange of information and, thus, renders markets more efficient and local-level bureaucracies less corrupt. This ought to encourage economic growth. But who says that the airing of municipal grievances and the exchange of non-political (business and economic) ideas cannot be achieved in a dictatorship?
Even in North Korea, only the Dear Leader is above criticism and reproach - all others: politicians, civil servants, party hacks, and army generals can become and are often the targets of grassroots criticism and purges. The ruling parties in most tyrannies are umbrella organizations that represent the pluralistic interests of numerous social and economic segments and strata. The composition of the cadre in these parties reflects this shifting landscape as efficiently as any democracy. Totalitarian regimes do react the popular will. For many people, this approximation of democracy - the party as a "Big Tent" - is a more than satisfactory solution to their need to be heard.
Mankind has hyet to invent a better form of governance than democracy. Its proponents, though, would do well to use more realistic, mature, and informed arguments in its defense. So far, they haven't fared well and, consequently, democracy is on the retreat throughout the world.
Written July 29, 2008
Why Apartment Rental Prices in Macedonia Are So High?
In most countries, the renting of residential property (apartments) provides the owner with an annual income equal to 2-3% of the value of his or her real estate. In Skopje, owners make 6-7%. An apartment selling for 100,000 euros will often rent for 7000 euros a year. One pays the same to rent an apartment in Skopje and in Berlin, even though, in Berlin, apartments are three to five times more expensive to buy.
Why this excess yield?
(1) Limited supply. Despite the construction craze of recent years, there is still a shortage of at least 20,000 apartments, especially properties to let.
(2) Criminals and politicians, whose sources of funding are unlimited, jack up the prices and rarely bargain. They use other people's money to pay for their luxuries and don't care to save or to secure a reasonable price.
(3) Foreigners who live in Skopje are usually employed by NGOs, international financial institutions (IFIs), and multinationals. Their employers pay their expenses and have little time and inclination to haggle over the rent in a crowded market. They pay the asking price every time.
(4) Yuppies - young, upwardly mobile Macedonians, employed mainly in the financial services industry - earn 3 to 6 times the average salary and can afford to pay exorbitant rents.
(5) The process of urbanization in Macedonia is unrelenting. Tens of thousands of peasants and villagers relocate to the cities every year, with Skopje their main destination. They support rental prices by increasing the demand, although they cannot usually afford the more expensive apartments.
Written August 7, 2008
Written August 12, 2008
Are Macedonian workers lazier or more stupid than their counterparts elsewhere? Not so. Labor productivity does depend on the existence of a work ethic (longer hours and more effort and initiative). But, more importantly, it reflects the workers' level of education and skills, the age and quality of machinery and other capital goods and equipment used in the production process, the availability of knowledge and technology, and the proliferation of better management. Macedonia needs to work hard in all these spheres merely to catch up with the rest of the region, let alone the world.
From my correspondence:
Written August 13, 2008
African Economy, American Dreams
Macedonia has an African economy, but, ever since Gruevski came to power, it has American-level consumption: two new cars per family, vacations abroad, unlimited bank credits, and every conceivable electrical gadget and appliance. To sustain this grandiose insanity, Macedonians borrow from everyone and live off remittances (transfers from Macedonian workers and family members abroad). Macedonians have become consummate parasites with the government's blessing and encouragement.
There is only one path to reduce Macedonia's threatening trade deficit: to discourage imports. There are many ways to reduce imports. For starters, the government should correctly price items like electricity and fuel. Subsidies need to be limited only to the neediest 10% of the population. Everyone else should pay much higher, realistic, global market prices.
As far as passenger cars are concerned, the government should make it very expensive to buy a new car and very attractive to keep a used one. The Ministry of Finance, eager to please the population and with an eye on the ratings of the governing coalition, spews out nonsense to justify its irresponsible acts. "New cars consume less fuel and need fewer spare parts", they say. True. But, a new car costs 10,000 euros, paid for with scarce hard currency. The savings that are the results of higher fuel efficiency do not amount, over the life of the car, to 10,000 euros.
Had this government been leading rather than following the opinion polls, it would have embarked on a campaign to encourage the use of public transport; would have cut the costs of owning and maintaining a used car; would have slapped punitive taxes and charges on buyers and owners of new passenger cars; and would have used remedies available to it under the WTO to impose import quotas and other duties, tariffs, and non-tariff (e.g., environmental) limitations on luxury, gas-guzzling vehicles.
Macedonians consume imported vegetables, imported chocolate, imported meat and dairy products; they buy imported "white electronics" and "black electronics"; they vacation outside the country, some of them in order to boast about it to their friends. A craze of conspicuous consumption has gripped this impoverished country that has no economy to speak of. Macedonians are living over and above their means and over and above their economic contribution to society. This will end badly: with a banking crisis, hyper-inflation, and massive indebtedness of both this profligate state and its gullible citizens, who want so much to dream and to fantasize.
Written August 29, 2008
Foreign Direct Investments in Macedonia - The Facts
As usual, the government spins facts and doctors the evidence to "prove" that its utterly misguided economic policies are working. Well, they are not. The lot of the average Macedonian has never been worse since 1996.
Transparency and honesty are called for- and, preferably, some real foreign investors.
The Economics of Social Solidarity and National Identity
Written August 30, 2008
How the Government of Macedonia Revolutionized the Economic Sciences
The 29th of August this year will be remembered as a crucial date in the annals of the science of economics: Zoran Stavreski, in his column in "Dnevnik", has proved conclusively that Macedonia's unprecedented trade deficit is actually a sign of its growing economic health. In his magnum opus, he relied on economic beliefs and theories which were proven wrong and became obsolete more than a decade ago.
The consensus among economists today (those who bother to read the latest economic literature) is that trade deficits of more than 4% of GDP and which are financed with borrowing or remittances are cancerous and should be reduced post haste. The IMF think the same, but Stavreski dismisses them and other experts, both domestic and foreign, whom he derisively calls "independent". It is well known, of course, that the only two truly independent economic experts in Macedonia are Stavreski and Trajko Slaveski, the Minister of Finance. All the others are automatically suspect and should be ignored.
In his presentation, Stavreski makes seven crucial mistakes, none of them intentionally, I am sure:
1. He says that the growth in Macedonia's imports in current dollar terms is owing to the increase in the prices of goods and commodities imported. Not true. Actually, the quantities of many imported items (such as passenger cars) rose considerably over the last 12 months.
2. He attributes the meteoric and vertiginous rise of the trade deficit to the increase in the prices of crude oil and other raw materials. But, the costs of oil, foodstuffs, and minerals have risen by an average of 30% this year - while the trade deficit has tripled during the same period.
3. He boasts that Macedonian exports have soared by 28%. Not exactly, The prices paid for Macedonian produce, mining extracts, and other goods have increased. Judging by various measures of GDP unit labor costs, Macedonia is no more competitive or productive than it has been a year ago.
4. He fallaciously reassures his trusting readers that foreign direct investments (FDI) pouring into Macedonia explain the sorry state of the country's current account and balance of payments. But, FDI has grown by a mere 130 million euros year on year, while the trade deficit is up one billion dollars and the deficit in the current account is 341 million euros. Hitherto, Macedonia was lucky to have received 1.2 billion euros annually in remittances from abroad. This money was used to defray the profligacy of its citizens, intoxicated as they are by the government's fantasies. The bonanza is at its end, however, as Macedonians working abroad are cutting back on their transfers. As remittances decline, Macedonia will be forced to borrow money externally or to dip into its foreign exchange reserves to cover its trade/current account/balance of payments deficits.
5. This government has constructed its entire macroeconomic policy around the twin pillars of FDI and remittances. This is the Macedonian version of playing Russian roulette. As the global economy enters one of the worst recessions on record, both FDI and remittances will decline precipitously. The government has no plan B.
6. This government is obsessed with foreigners and their money because it refuses to acknowledge the fact that there is a lot of money in the informal sector (the grey economy). Contrary to what Stavreski says, Macedonia has sufficient domestic resources to foster growth. The government needs only to legalize these resources and to level the playing field by granting domestic investors the same treatment, the same benefits, and the same red carpet that they extend to foreigners.
7. Finally, FDI in Macedonia is of the wrong sort: acquisitions (mainly of banks), construction of shopping malls, and consumption. Such FDI does not lead to economic growth. At 35% of GDP no sane economist - independent or not - will call the trade deficit a positive sign of economic health and growth. It takes a politician to make such an outlandish statement. Stavreski used to be a damn good monetary economist. Judging by his column, he is now merely a politician.
Written September 4, 2008
In their unwise statements (that Macedonia can survive and grow economically even without NATO and the EU), the Prime Minister and the Minister of Foreign Affairs are confusing cause and effect. The growth in Macedonia's FDI (foreign direct investment) and GDP (Gross Domestic Product) in 2007 and 2008 was and is a direct result of Macedonia's process of Euro-integration.
Without European prospects, Macedonia's economy will stagnate, the
educated young will emigrate (brain drain) and the country will become
hopelessly addicted to foreign aid and remittances from Macedonians
In the last 5 years, foreign investors have flocked to Macedonia because they believed that it will join the EU shortly. Domestic consumers and domestic investors consumed and invested in Macedonia because they believed that it will join NATO soon.
Macedonia is an anomaly:
While all other countries seek to join NATO in order to defend themselves against an EXTERNAL threat (Russia) - Macedonia needs to join NATO to fend off an INTERNAL threat (its restive minorities). A NATO membership guarantees peaceful and harmonious inter-ethnic relations and the kind of stability that attracts investors and fosters growth.
Moreover, Macedonia already has literally unfettered access to the EU through its CEFTA membership and other free trade agreements; its WTO membership; and its liberalized customs regime. While all other countries seek to join the EU to gain access to its enormous common market, Macedonia needs to join the EU so that the EU can force Macedonia's politicians to
implement painful but inevitable reforms.
Written October 4, 2008
Public Debt, Partial Truth
Having prepaid some of the country's foreign debt, the Ministry of Finance is boasting that Macedonia's public debt is down by well over 100 million euros. At the same time, the total public indebtedness is up by close to 300 million euros because the private sector has been borrowing furiously.
This is not a bad thing. Some of these new debts were surely accrued as businesses have invested in new machinery, tools, intellectual property, and marketing. This is "good" debt. Future profits from these investments will more than cover the interest payments and the repayment of the principal.
Still, private sector debt is more expensive than public sector debt because lenders charge businesses a higher interest rate than they charge the government. In other words: not only has the total debt of Macedonia gone up, but the cost of servicing this debt has grown.
The Ministry of Finance never lies: it merely presents a partial and distorted picture of reality by omitting crucial facts. This is called in America "spin doctoring". This case is no exception. The Ministry could have been completely honest and say: "Public debt is down, but you should know that private borrowing is up and the average cost of servicing the debt - the payments of interest and principal - is up". Instead, the Ministry only says: "Public debt is down, another great achievement of our infallible and farsighted policies."
Increase the Bank Deposit Insurance!
In the last few days, literally every country in the West has doubled or tripled its deposit insurance. This served to harness the panic that spread through the financial system and to prevent runs on vulnerable banks.
Deposit insurance is the guarantee that the state - or a special institution owned by the local banks - gives to depositors. It covers bank fixed-term deposits and, in some countries (for instance, in the United States) it also pertains to certain types of liquid accounts, known as money market funds.
If a bank collapses, the deposit insurance scheme kicks in and depositors get their money back up to a certain amount. If someone has several deposits in a few banks, all these deposits are covered.
Macedonian banks will not survive a systemic collapse of the European banking system. Many of them are owned by foreign banks. Their capital is invested with and deposited in European banks. They enjoy credit lines issued by Western banks.
If Greek, Bulgarian, Turkish, Swiss, German, French, and British banks begin crumbling one after the other, depositors in Macedonia will lose trust and try to withdraw their money all at once. Very few banks can outlive such an onslaught. Macedonian banks are not diversified. They depend exclusively on deposits for their business.
The government should increase the deposit insurance. It is the only way to counter a potential panic. With their deposits insured, people will sleep better at night and will be less likely to go back to stashing their money under the mattress.
Written October 6, 2008
Mexican Lessons for the Macedonian Economic Leadership
As opposed to Macedonia, Mexico is lucky to have oil. It generates the country's main flow of foreign exchange. Mexico's second largest source of US dollars is remittances: money sent back home by Mexican workers in the USA. It sounds familiar: Almost 20% of Macedonia's GDP is in the form of remittances. These transfers help pay for the country's insane trade deficit. Macedonians are living way beyond their means because they have family members abroad who keep bankrolling them, month in and month out.
In the last 12 months, remittances by Mexicans to their homeland dropped by 12% and are still declining fast. Experts predict an even sharper outcome: 20% less remittances by year's end. Remittances to Macedonia have also been ebbing since November 2007.
Macedonian decision-makers would do well to read what Luis Pena, a Mexican economist, had to tell the CNN:
"Temporary workers are always the first to lose their jobs in crises like this one. Since many Mexicans in the United States are there illegally, they are most vulnerable to unemployment."
With reduced remittances, the Macedonian government will be forced to borrow - or to dip into the country's foreign exchange reserves - in order to finance imports. Many families will be left without a source of income. Banks will do less business and the National Bank will have fewer resources at its disposal. This is not a hypothetical situation. It is happening now.
Written October 8, 2008
Too Much Politics - Or Not Enough?
Macedonians often complain that their country has "too much politics". Politicians and political parties are everywhere, as they make sure that their cronies get lucrative jobs, their supporters land sinecures, and their family members run the state. It is impossible to be employed in the public administration unless one joins a political party in power and displays a "party membership booklet" (knishka). It is outlandishly difficult to obtain needed licenses and permits without the right connections and without pledging future benefits to decision-makers.
Still, it is wrong to say that Macedonian public life and private business are too politicized. Macedonia's political parties are not political and they are definitely not parties in the Western sense of the word. Macedonia's political parties revolve around money, not around competing ideologies and platforms. They function as part business concern, part employment agency, part tour operator for their members.
Macedonia's political parties use the guise of politics and the bluster of perpetual campaigning to hide the fact that they care little about social issues and the country's future. They are concerned with one thing only: upward social mobility. The political organizations here - the parties and the NGOs they spawn and finance behind the scene - are out to maximize income for their members, personal wealth for their leadership, profits for their oligarch supporters, perks for everyone involved.
In Britain, the government pays the salary of the head of the main opposition party. There, the opposition is an integral and crucial part of governing the state. The government consults the opposition on issues of national interest and involves it in decision-making processes. In Macedonia, the opposition is merely the competition. Macedonia's resources are scarce and both coalition and opposition are rapacious business organizations, not political parties. They are both out to maximize their take and they prey on Macedonia's impoverished population.
Macedonia doesn't have too much politics - it doesn't have enough politics. It has no political parties, no true opposition, no politicians to speak of. The day this changes, Macedonia will have joined Europe. Until that time, though, it is merely an African country with European pretensions.
Irish Trash and Macedonian Plastic Bags
The Connecticut, Massachusetts, and Maine legislatures have recently rebuffed proposed legislation to ban the use of plastic bags. Americans dispose of more than 100 billion of them every year. Supermarket checkout counters, dry cleaning outfits, and other establishments all furnish their customers with plastic carrying bags which cannot be efficiently recycled and are taking up expensive and scarce space in trash landfills. Moreover, plastic bags are made of non-renewable energy resources, such as natural gas and petroleum. Thus, they contribute to global warming and, when they end up in the ocean, they endanger marine life.
So, why not ban them altogether?
Because there is a much better idea.
In 2002, Ireland imposed a tax on plastic bags. Within one year, their number dropped by 90 percent. The proceeds from the tax on the remaining ten percent of bags in circulation went to finance environmental causes.
Lessons? Tax, don't ban. Tax, don't recycle. It would also make Minister of Finance, Slaveski, happy, as the government's share of Macedonia's economy grows even further.
Written October 11, 2008
It is Europe's and Asia's Turn Now
The crisis in the United States has little to do with its real economy. Last quarter, GDP there grew by an impressive 3.3%. IBM's profits are up 22% year on year. American commercial banks, though in need of re-capitalization, are sound. Its investment banks - the sources of the current crisis - are gone. The Dow Jones is unlikely to drop below 7100. The end of the crisis is near. The Treasury will semi-nationalize some banks (take equity positions against an injection of capital), buy some toxic debts and that's it. Within 12 to 18 months, the USA will emerge from this crisis, strengthened and Wall Street will be back at 10,000.
Not so Europe.
Europe's real economy as well as its financial sector are a mess. France's GDP declined by 0.3% last quarter. In sliding officially into a recession, it has joined Spain, Ireland, and, now, the United Kingdom and Germany. Battered by a strong euro, expensive energy, and mighty competition from China, the US, and India, European exports have stagnated. As opposed to the USA (where exports constitute 18% of GDP), Europe is dependent on foreign carbon fuels and foreign markets for its goods and services. Exports constitute more than 40% of Eurozone GDP.
Moreover, Europe's commercial banks are in horrible shape - far worse than America's. This year alone, European banks must pay 1.41 trillion US dollars in principal and interest, mainly to bondholders. They don't have the money and they cannot borrow it from other banks because interbank lending has all but dried up. Many of them are already technically insolvent.
Europe's recession will be profound and protracted. Asia is likely to follow suit: Singapore is already technically in recession and china's growth rate is abating. It seems that yet again, the USA will be faced with the daunting task of dragging the rest of the world back to growth and profitability.
Written October 13, 2008
Who Needs the European Dis-Union?
The current global financial crisis should have been the European Union's finest hour. The countries comprising this much coveted club could have joined to battle the waves of bank failures, industrial closures, layoffs, and bankruptcies that are threatening to overwhelm their economies from Iceland to Italy.
The European Union finance ministers should have come with a coherent plan to introduce cross-border regulation, a Europe-wide bank bailout fund, clear, continent-wide guidelines as to state subsidies and export stimulation, and other joint policies. Instead, pompous declarations aside, each government rushed to implement unilateral steps, regardless of the needs of their allies and the risks to the Union. The EU was reduced to pathetic and disheartening caricature in the space of less than a week. Iceland was so disgusted by the spectacle that it asked Russia for a loan rather than approach the EU.
But the cracks in the Union were evident long ago. A much-trumpeted EU Constitution was soundly and multiply rejected by the French, the Dutch, and the Irish. Rows erupted over the dispatch of a contingent of soldiers to Afghanistan and 24 helicopters (!) to Darfur. An EU-brokered truce in Georgia was humiliatingly ignored by Russia. Members disagree on virtually every issue: from how to treat Kosovo to how to deal with terrorism.
Both passport-free travel (the Schengen Agreement) and the single currency, the euro, do not apply to the entire EU. The process of enlargement to the Balkans and to Turkey is contentious and may not come to pass. "What's the point of having an EU?" - wondered the Associated Press last week. The Financial Times called the current disarray "a suicidal position".
Moreover, the EU's new (formerly communist or socialist) members differ strongly from old members (Germany, France) on a host of topics, including the extent of collaboration with the United States and whether to nationalize crumbling financial institutions. "The politicians in Europe are crazy. We didn't live under communism for 40 years just to return to it on EU soil," said Czech Finance Minister Miroslav Kalousek.
Written October 18, 2008
Cash is King
Libya has recently emerged as the second-biggest shareholder in Unicredit, Italy's number one bank and Europe's sixth largest banking institution, with a massive presence in Central and Eastern Europe. Japanese, Chinese, and Arab investors and sovereign wealth funds are purchasing Western assets at bargain basement prices: banks, brokerage houses, factories, and real estate.
The last 5 years witnessed a massive transfer of wealth from the West to the developing world. As the international prices of oil and commodities soared, Western consumers had to pay double and triple in hard currency. Trying to cut costs in a competitive, globalized world, Western companies established facilities and back offices in countries with cheap labor and tax benefits (a process called "offshoring").
The US dollars and euros accumulated by the likes or Russia, China, Venezuela, South Korea, Vietnam, and Nigeria were invested in bonds issued by Western governments and institutions. China alone holds more than 1 trillion (!) US dollars in American debt. The West pays an average of 6% in interest on these obligations, thus enriching the bondholders further.
It is safe to say that close to 7 trillion US dollars have relocated from the USA and Europe to Asia, Africa, and Latin America. Add to these another 10 trillion US dollars in losses in the various stock exchanges of the West and we are faced with an unprecedented situation: an impoverished West, financed by rich and increasingly more self-assertive Third World countries. Colonialism in reverse.
Gambling with the Foreign Exchange Reserves
Macedonia's foreign exchange reserves, assures us the governor of the central bank of Macedonia (NBM), are safe. Why are they safe? Because they are invested in bonds issued by governments of rich nations, such as Germany and the USA. Only if these governments default on their obligations will these bonds become worthless. But, such an event - a default by the governments of the USA or Germany or Switzerland - is unlikely.
True, but highly misleading.
To start with, most of these bonds do not provide a protection against inflation. If the NBM owns a US treasury bond that pays 6% interest annually and inflation in the USA shoots up to 8%, the NBM will lose 2% annually (the difference between the interest coupon and inflation).
Secondly, the value of the bond is determined daily in bond markets around the world. Prices of bonds have been known to decline by up to 35% (!). If the NBM buys a bond and holds it to maturity then I agree with the governor, the investment is safe and guaranteed. But, if the NBM has to buy and sell the bonds prior to their maturity there is no way it can foretell their value.
Imagine that the NBM suddenly needs 500 million euros. It would have to sell the foreign bonds it owns in the open global markets. If the prices of the bonds declined in the weeks or days preceding the sale, the NBM would get less money than it has invested when it purchased the bonds in the first place!
How likely are bond prices to collapse? Very likely. Countries from China to Saudi Arabia are reluctant to purchase newly issued American bonds because of the low interest rates they are paying (the low coupons). The prices of European bonds will crumble as Europe enters a continent-wide recession and as government issue and sell to the public 2 trillion euros worth of new bonds to allow them to recapitalize the ailing banking system. The NBM better pay heed.
Written October 25, 2008
Why all the Stock Exchanges Collapsed
In the wake of the global credit crunch, stock exchanges throughout the world collapsed in tandem. Why?
1. All of them - from the mighty Wall Street to the puny Macedonian Stock Exchange - have come to depend on a regular and inexorable flow of foreign portfolio capital to sustain the bull market. When this influx of hot, speculative funds ceased and foreigners began to sell their holdings, the bubbles burst everywhere at once.
2. The sharp reversal from negative real interest rates (in 2000-2001) to high positive interest rates (in 2004-7) rendered equities unattractive. It was safer and often more profitable to simply park one's money in a fixed-term deposit, money market fund, or bonds. At first, this had no effect on the bull market. But, when sentiment turned, this yield spread favored risk-free instruments over risky ones. At the crucial moment, all markets dried up: it was difficult to sell stocks or real estate; to trade in collateralized debt obligations (CDOs) and other derivatives; and to obtain new loans. Banks refused to lend to each other or even to open letters of credit on behalf of perfectly solid customers. As the real economy soured (and, in Europe, devolved into a recession), corporate profit projections were slashed and stock prices reflected the gloom.
3. Over the last 3 years, market volatility has soared to record highs. Stock indices habitually went up and down 2-3% daily and, in the last 12 months, even 5-8% daily. This did not merely reflect investors' lack of certainty and fear. It was also the outcome of massive stock manipulation, a lack of education (as many small-time, uninitiated investors entered the fray), and the deleveraging of debt-financed investments.
4. Over the last 2 years, the number of new IPOs (Initial Public Offering) declined precipitously and companies began to go private, withdrawing their listed shares from the stock exchanges. This dearth on the supply side affected liquidity and hampered investors' ability to diversify their portfolios and thus reduce their risks.
5. Finally, as real economies were affected by the global financial crisis, macroeconomic indicators flashed alarm. Foreign direct investment is on the wane; remittances - which buttress numerous emerging economies - sharply declined; inflation shot up, together with the prices of commodities, foodstuffs, raw materials, minerals, and energy products, chiefly crude oil; current account and trade deficits ballooned. Emerging economies provide 75% of world economic growth. They are the true engine of globalization. Their decline is ominous. Their domestic stock exchanges are merely reflecting this potentially apocalyptic state of affairs.
Vox Populi, Vox Gruevski: Time for Plan B
Macedonian politicians and analysts often confuse populism with a true expression of the popular will. Populism, in the derogatory sense, is when a leader manipulates his supporters by fanning their base emotions, by making unrealistic, fantastic promises, and by doling out money. Popular will, on the other hand, is what we call "democracy".
By rejecting any meaningful compromise on the name issue, Gruevski is fully in accord with the will and sentiments of the vast majority of Macedonians. Only the (often self-designated) "elite" is unhappy with the course he is taking.
Of course, such intransigence has a price. Gruevski is acting as a populist when he refuses to reveal to the people the painful cost of his nationalist and popular policies. Macedonia can forget about the EU for the next few years. Anyhow, it is not welcome by this august club. I won't be surprised if it joins it after Serbia, or not at all (though NATO is a different story).
Consequently, Macedonia can also forget about becoming an attractive business destination. Foreign direct investment will become even more of a pipe dream. Access to international credit lines will be highly restricted. Exports will languish. Even tourism will be adversely affected. The Albanians in Macedonia are likely to be extremely unhappy with this glorious isolation. Who knows what form this dissatisfaction may take?
It is time for Plan B. Macedonia has to reorient its geopolitical and economic policies: to develop Asian export markets; to attract foreign direct investment from North America, Eastern Europe, Russia, Asia, the Middle East, and Latin America; to establish itself as a free zone, catering to banking, manufacturing, and transport; to offer back office IT services; to encourage domestic rather than foreign investment (perhaps by offering a conditional amnesty to tax evaders).
In the absence of such Plan B, Macedonia will find itself an isolated, backward, impoverished backwater an African enclave at the heart of Europe.
Written October 31, 2008
What not to Learn from the National Bank of the Republic of
On October 30, 2008, Nova Makedonija published a harsh attack on me by the Investment Committee of the National Bank of the Republic of Macedonia. I will ignore the personal slights (without which no Macedonian can communicate, it seems) and get straight to the core: the worryingly amateurish and manifestly wrong claims made by the authors.
1. The authors refer me to the biannual reports published by NBRM and available on their Website. Alas, either by design or by omission these reports are meaningless, partial, and fail to contain the most critical information. The reader cannot learn from them how the Committee selects its investments,what specific financial instruments were chosen (except in the most vague terms), in which banks the reserves are deposited, etc.
2. The authors are correct in noting that as inflation rises, the prices of traded bonds drop. This is precisely my point: the prices of bonds already owned by NBRM will drop steeply if and when inflation in the issuing countries were to rise. In the near future, inflation will begin to climb, as the enormous injections of money (1 trillion USD in Europe alone!) will affect the money supply.
3. The authors' next claim that the investment portfolio of the NBRM can never lose more than 2.7% is utter nonsense. No one can predict the losses and profits on money invested in bonds and gold. No one can predict future prices of bonds and gold with certainty. No one can predict the future direction of interest rates (up or down) with certainty. If the geniuses of NBRM were truly able to limit their future losses to 2.7% they would be working in Wall Street, not in Skopje and making billions of dollars in salary.
4. To say that NBRM will never have to sell bonds at a loss is again an example of lack of experience, amateurism, and ignorance. No one can predict the future. It is possible that Macedonia will suddenly need a big sum in foreign exchange (for instance, if it has to bail out a big bank about to go insolvent). In that case, NBRM will have to sell bonds in the marketplace and may incur a loss.
5. Finally, the authors come to my help in order to teach me about the global bond market. It would have been comic had it not been tragic. I am the author of a bestselling book about modern portfolio management theory and have spent the last 32 years analyzing and writing about financial markets and instruments all over the world. I have traded bonds in Wall Street long before Macedonia became an independent state.
And what do the esteemed authors say? Because prices of bonds have climbed during this financial crisis, they will continue to climb.
Wrong. As governments issue trillions of USD in new bonds, the prices of bonds are bound to come under pressure. As interest rates drop below 1%, buyers will lose interest in bonds and move to other assets. As countries that hold trillions in bonds begin to feel the pinch of the global crisis, they will be forced to liquidate their bondholdings in order to finance their needs.
In other words, bond prices are poised to crash precipitously. In the last 50 years, bond prices have collapsed by more than 35% at least on three occasions. Should this happen, the NBRM will lose a fortune.
The NBRM Investment Committee should not behave as individual investors do. They should not predict prices and then act on their predictions. They should not gamble with money that belongs to the people. They should keep it safe. And they should hire professional money managers, and not rely on recent university graduates, oligarchs, professionally unqualified politicians, and failed bank managers to manage their investment portfolio.
Written November 1, 2008
Why Minister Trajko Slaveski Deserves the Nobel Prize for Economics
Professor-turned-Minister, Trajko Slaveski, goes around, gloating and bragging: "I told you so! You see, inflation was nothing to worry about after all!". But, he is ignoring the two main criticisms leveled at him: (1) That most of the high inflation during the first months of the year was not imported from the outside, but was the inevitable outcome of the government's profligate and populist spending plans and (2) That the government took no steps whatsoever to quell the inflation that it has wrought. Macedonian paid a high price for its unnecessary inflation.
Slaveski further says: "Our main problem now is deflation, not inflation." In years of working with and for governments in Macedonia, I have come to strongly distrust the official figures released by the pliant and heavily politicized Bureau of Statistics. I cannot understand how deflation is possible in Macedonia.
Deflation is a drop in the general price level. Such a drop occurs under these conditions: (1) That the prices of raw materials, energy, and foodstuffs are collapsing. Indeed, this is happening. Imported inflation may well have become imported deflation; (2) That bank lending and, consequently, the real economy is contracting. In Macedonia, the opposite is true: both bank lending and GDP (Gross Domestic Product) are growing strongly; (3) That the amount of money in circulation and the velocity of money (how many times money changes hands) have dropped precipitously (for instance, as a result of bursting asset bubbles or much higher interest rates). Again, this is not happening in Macedonia. On the contrary: money supply has been growing vigorously; (4) That government spending is drastically cut and the personal savings rate is meteorically up (and, thus, consumption equally down). In Macedonia, the reverse is true.
No question that inflation in Macedonia should drop from the dizzying heights of January-June 2008. But the science of economics teaches us that conditions for deflation do not exist in Macedonia. Even more suspicious is the fact that inflation in Macedonia mysteriously began to abate two months before the end of the uptrend in global commodity and energy prices. Macedonia, actually, was the only country in Europe whose inflation turned into deflation when it did. Slaveski deserves the Nobel prize for Economics as he was the only Minister of Finance and economist who correctly predicted the level of inflation in his country - down to the last decimal point.
Telling Macedonians What They Want to Hear
Macedonians love a certain type of foreigner: ambassadors, authors, columnists, and visitors who tell them how great and wonderful Macedonians are; how perfect their country is; how right Macedonians are to feel aggrieved ("the whole world is really against you, poor things!"); how impeccable and infallible their customs, traditions, and way of thinking are; and how it will all turn out well in the end. These fake friends, who tell them what they want to hear, Macedonians embrace and adore.
Macedonians hate a certain type of foreigner: ambassadors, authors, columnists, and visitors who tell them how flawed Macedonians are; how imperfect their country is; how counterproductive it is to nurture grudges that spawn xenophobic paranoia; how ill-suited to modern life are their customs, traditions, and way of thinking; and how, if they don't wake up and reform themselves and their dysfunctional institutions, the Macedonian experiment may well turn out badly and short-lived. These true friends, who confront them with the truth, Macedonians hate, despise and threaten. They suspect their motives and develop all kinds of inane conspiracy theories to account for their involvement in the country's affairs.
I am true friend of Macedonia and Macedonians. My wife is Macedonian. I have given years of my life to teach and write in this country. I never charge for my work here: my columns in Nova Makedonija, Fokus, and Kapital are free of charge; my lectures and seminars are free of charge; consultancy services that I provide are free of charge. At a grave risk to my personal safety, I have contributed to Nikola Gruevski's career in all its crucial stages. Judging by election results and opinion polls, most Macedonians seem to regard Gruevski as the only good thing to have happened to Macedonia since its independence.
In a sense, I am more of a Macedonian patriot than most Macedonians. But, I am a true friend, not a fake one. I will never tell Macedonians what they want to hear. I owe Macedonians the truth (as I see it), the whole truth, and nothing but the truth.
As we all know, though, the truth threatens the vested interests of many groups in Macedonia. The self-appointed "elites" who enrich themselves at the people's expense, don't want Macedonians to know the truth. People like me, who expose their lies, ignorance, and shenanigans constitute a threat. So, they fight back by spreading ugly rumors and deception, by labeling truth-sayers and truth-seekers "traitors".
And so, when I criticized its policies, the National bank of Macedonia
called me "malicious" on the pages of Nova Makedonija (October 30) and
said that my aim is to destabilize the trust in the country's
On October 17, Nova Makedonija published another long "pismo" (letter to the editor) in which the anonymous reader wrote that I am a "dokazen neprijatel" (proven enemy) of Macedonia and am here in order to damage it. In the name of "national interests" and "national unity", the reader called upon the editors not to publish my column any more.
Recently, a government official warned a visiting foreign analyst that I am "an enemy of Macedonia" and publicly berated the journalists present for associating with me.
A senior minister is spreading false rumors (knowing full well that they are false) that my Ph.D. is fake. Luckily for me, my Ph.D. thesis is listed in the online catalog of the Library of Congress and in the UMI repository of dissertations in Michigan.
"Don't worry, these are mere words" - my friends try to reassure me. But, if words were to fail the members of these "elites", the next stage in such a campaign may not be limited to verbiage. Look what happened in Croatia to the courageous editor-in-chief of "Nacional". Macedonians' freedom of speech is at stake and their ability to tell apart their true friends from those who only pretend to be their friends in order to further their diplomatic careers or enrich themselves.
Macedonia's Steel Industry: Too Big To Fail?
Steel prices are down 40-80% since July (depending on the product). Such a precipitous drop threatens the very existence of the steel processing sector in Macedonia. Should the government extend a helping hand? Should it provide the steel industry with handouts, or, as a minimum with -heavily subsidized loans?
The answer is: yes. Steel products make up a sizable part of Macedonia's exports at a time when its trade deficit is record-shattering and its current account deficit equals 8% of GDP. Thousands of families depend on income from that sector in a country where the official unemployment rate hasn't budged from 35% in years. In the United States, they call firms and sectors that are critical to the economy TBTF (Too Big To Fail).
Still, any assistance granted by this poor state to the rich shareholders of the steel industry must come with many strings attached:
To start with, the government should take shares in the companies it helps as collateral. It should charge a hefty interest rate for trade credit facilities and subsidize only the loans whose proceeds are to be invested in machinery and other capital goods and infrastructure. It should impose onerous conditions on the shareholders: as long as they enjoy the government's largesse, they should receive a minimum wage and no bonuses. The companies should not distribute dividends until they have paid back the state in full. And, most importantly, the government should impose a "windfall tax" on profits made by the shareholders in the past as a result of the steep rises in commodity prices. Justice must be done and be seen to be done.
Written November 3, 2008
Macedonia's Miraculous GDP
To remind all of us (including former employees of the World Bank):
The formula to calculate GDP (Gross Domestic Product) is this:
GDP (Gross Domestic Product) = Consumption + investment + government expenditure + net exports (exports minus imports) =
Wages + rents + interest + profits + non-income charges + net foreign factor income earned.
Remittances make up close to 20% of Macedonia's GDP. In the last 12 months, they have fallen by 20% (or c. 300 million USD). This alone has subtracted 4% from the country's GDP. This shortage was balanced by a spurt of growth in FDI (Foreign Direct Investment) of c. 300 million USD (if we believe the official figures). Yet, net exports have declined by 1 billion USD over the last 12 months (in other words, the trade deficit and the current account deficit have both shot up). Moreover, Macedonia's exports are in decline, owing to the global crisis, and so this gap is bound to widen and further depress GDP growth.
Professional economist-turned-amateur politician, Deputy Prime Minister Zoran Stavreski, promises us that GDP this year will grow by 5%, as predicted. This is possible only if consumption and government expenditures will shoot up. As consumption is likely to stagnate (at best), we are left with the state budget as the sole engine of growth. The government will simply tax more, spend more and make sure that GDP grows. It will raise wages, pay higher rents, employ more people, spend more on self-promotion, and build additional churches and tennis courts. That's what it did last year, when the budget ballooned into 42% of GDP - and GDP grew by 5.2%.
Written November 11, 2008
Borrowing Its Way into a Financial Crisis
At 2.7 billion euros, Macedonia's central budget equals c. 50% of its Gross Domestic Product (GDP). A year ago, I met the representatives of the IMF, then on one of their endless missions here, and warned them that Macedonia will have a budget deficit this year and next. They laughed me off: the Minister of Finance had assured them that tax receipts were high and climbing; a budget surplus was literally guaranteed.
Fast forward 12 months: Macedonia's 2009 budget contains an in-built deficit (the difference between taxes and expenditures) equal to 2.8% of GDP. Where will the government find the money to cover the deficit? It will borrow it. Public sector borrowing will increase.
And where will the government find the money to pay for the skyrocketing trade deficit (now at 2.2 billion US dollars and projected to total 3 billion US dollars by the end of the year)? You guessed right: It will borrow it. Public sector borrowing will increase.
Moreover, a deficit of 2.8% of GDP is by no means guaranteed. On the one hand, as economic activity contracts (consumption, employment, and exports are very likely to go down), in the wake of the global crisis, tax intake will stagnate or even decline. On the other hand, the government's profligate and irresponsible promises, wage increases, "projects", campaigns, and other ostentatious displays of populism will put pressure on the expenditure side. I wouldn't be surprised if the actual budget deficit ended up being 4-6% of GDP.
Can the government afford such a spiral of debt or will it become the spiral of death?
In the short-term, Macedonia can afford to borrow money from its citizens and abroad (for instance, in the form of Eurobonds). Macedonia's public debt is actually down this year (although the debts of the private sector are up sharply). This can go on for 2, maybe 3 years. After that, no one in his right mind will lend money to such a spendthrift state; capital will begin to flee the country ("capital flight"); interest rates will go up sharply; and the denar may have to be devalued. Macedonia appears to be borrowing itself straight into a financial crisis.
Written January 6, 2009
Gruevski's Macedonia, Greece, and Alexander the Great, History's Forgotten Madman
The government of Macedonia has recently changed the name of its puny airport to "Alexander the Great". This was only the latest symptom of a growing cult of personality. Modern-day Macedonians, desperately looking for their ancient roots in a region hostile to their nationhood, have latched onto their putative predecessor with a zeal that defies both historical research and the howls of protest from their neighbor, Greece.
In a typical Balkan tit-for-tat, Greece blocked Macedonia's long-sought entry into NATO, citing, among a litany of reasons, the "irredentist provocation" that was the renaming of the airport. Macedonia has designs on a part of Greece, Greek politicians claim with a straight face, and the denizens of this tiny polity have no right to the heritage of Greece of which Alexander the Great is an integral part.
Not to be outdone, Macedonian television is now awash with a lengthy ad depicting the precocious leader berating his pusillanimous and craven commanders ahead of a crucial battle. He speaks fluent Macedonian (the current day, Slav language) and ignores their wise counsel. This pathetic abuse of screen time is supposed to indoctrinate latter-day Macedonians to dare, be decisive, and to face challenges. Alexander the Great would have greatly disliked contemporary Macedonians: they are peace-loving, overly-cautious, consensual, and compromise-seeking. It seems that their own government finds these laudable qualities equally offensive.
It is beyond me why both Macedonia and Greece wish to make a deranged mass murderer their emblem and progenitor. There is little that is commendable in both Alexander's personality or his exploits. Having shed the blood of countless thousands to fulfill his grandiose fantasies of global conquest, he declared himself a god, suppressed other religions bloodily, massacred the bulk of his loyal staff, and betrayed his countrymen by hiring the former enemy, the Persians, to supplant his Macedonian infantry.
Alexander the Great was clearly insane, even by the cultural standards of his time. According to Diodorus, a month before he mercifully died (or, more likely, was assassinated) his own generals invited Babylonian priests to exorcise the demons that may have possessed him. Plutarch calls him "disturbed". He describes extreme mood swings that today would require medication to quell and control. The authoritative Encyclopedia Britannica attributes to him "megalomania and emotional instability". It says:
"He was swift in anger, and under the strain of his long campaigns this side of his character grew more pronounced. Ruthless and self-willed, he had increasing recourse to terror, showing no hesitation in eliminating men whom he had ceased to trust, either with or without the pretense of a fair trial. Years after his death, Cassander, son of Antipater, a regent of the Macedonian Empire under Alexander, could not pass his statue at Delphi without shuddering."
Alexander was paranoid and brooked no criticism, or disagreement. When Cleitus, his deputy, had a petty argument with him in 328 BC, Alexander simply ran a lance through his trusted general and had the army declare him a traitor and, thus, justify the slaying. The same fate befell Cleitus's unfortunate successors as second in command.
From his early youth, Alexander has been reckless (though fortunate) and unusually bloodthirsty. He used the fortuitous occasion of his father's murder to liquidate anyone who opposed him, even implicitly. He then went on a rampage that alienated and united all the Greeks against him. Even his famed campaign against the Persians owed its success to the latter's precipitous decline rather than merely to Alexander's military genius. Long before he came on the scene, other Greeks (the Ten Thousand, Agesilaus of Sparta) have defeated the Persians decisively. His bloodlust never abated: when his army mutinied in India and forced him to return to Babylon, once there, he executed scores of his satraps, military commanders, and other functionaries.
Alexander was known for his hubris and unmitigated narcissism. Using humiliating language, he twice rejected offers of peace from Darius the Great King of Persia, whose family he held captive. When Parmenio advised him to accept the second offer by saying: "I would accept, if I were Alexander", he retorted: "So would I, were I Parmenio". Parmenio paid for his independence of mind with his life: Alexander later ordered him assassinated and his son executed. He also murdered anyone who had anything to do with the two.
When he tried to impose on his free-spirited troupes the obligation to prostrate themselves in his presence, he was subjected to such ridicule that he reversed his decision. But, he kept on wearing the Persian royal garb and he did execute Calisthenes, an hitherto obsequious historian (and nephew of Aristotle) who wouldn't bow to him. The Spartans held Alexander in derision. They published a decree that read: "Since he (Alexander) wishes to be a god, let him be a god".
Wherever he went, Alexander was escorted by scribes whose job it was to embellish history and manufacture legends about their employer. Consequently, most of what is commonly "known" about Alexander is false. But, even so, numerous accounts of his drunken and violent reveries remain, in which he habitually murdered people and tore down cultural treasures (such as the palace of Xerxes). That Alexander was a prodigious imbiber of wine cannot be denied. Virtually all the eyewitnesses concur: Ptolemy, Alexander's bodyguard; Nearchus, his admiral; Eumenes the scribe, his secretary; Chares, his chamberlain; Aristobulus, his military engineer. So do historians who relied on such accounts: Diodorus, Plutarch, Arrian, and the anonymous author of "Historia Alexandri Magni" (History of Alexander the Great").
One could only fervently hope that the government of Macedonia fails in its campaign to transform its citizens into mini-versions of this monster.
Interview granted to "Kapital", April 6, 2009
-Колку и зошто е потребно и неопходно во сегашната економска ситуација Македонија да побара помош од ММФ?
THESES and ANTITHESES for Macedonia and the Global Crisis: Weighing the Options
Forum organized by the Association of Chambers of Commerce , May 28, 2009
THESIS NUMBER 7
Written on May 27, 2009
Israel, Obama, Iran, and Journalism
"During Netanyahu's visit, Israel shared intelligence with the CIA
regarding the potential for a terrorist attack which will dwarf 9/11
if Iran is allowed to continue with its nuclear designs and share its
outcomes with allies such as Hamas and the Hizbullah. Iranian
proliferation is a direct threat to US National security.
Obama's staff is ignoring the intel (HUMINT) because they believe that it is intended to manipulate the Administration into accepting Israel's planned bombing of two facilities in Iran.
They are also ignoring intel regarding a Hamas cell in Cairo that is bent on mischief. The Israelis are shunned. The CIA is exasperated."
How reliable is this information? Can journalists be trusted not to be manipulated; not to substitute opinion and wishful thinking for facts; not to be corrupted with the trappings of power or outright pecuniary incentives?
Consider my case:
On January 20, 2009, I appeared as a guest in the most popular political affairs program in Macedonia ("Glasot na Narodot", or The Voice of the People). I warned that Israel is willing to wait 6 to 8 months for Obama's "diplomacy" with regards to Iran's nuclear capability to show some progress. If Iran remains recalcitrant, Israel plans to bomb two facilities in Iran as it did in Iraq in 1981, I said. Refueling won't be a problem, I assured the program's host: both Egypt and Saudi-Arabia offered to help.
This and other interviews provoked speculations in Balkan media and on the Internet:
Vaknin probably had assumed that the NSA (which has a presence in Skopje, having recently moved some of its facilities there from Athens) will be monitoring the program and will report to Washington, suggested one of them.
Vaknin' sister is Sima Gil-Vaknin, the IDF's (Israel Defense Force's) Chief Censor (true) and Vaknin is a senior Israeli intelligence operative (which I deny emphatically).
Recently, the leading Balkan newsmagazine "Fokus" published a long article about the Eligibility Problem (Obama's missing original birth certificate and other personal documents). In that article, Fokus speculated that Israel may have written off Obama and has embarked on a worldwide campaign to discredit him and counter his dangerous diplomatic and military moves. Vaknin, contended the magazine, spearheaded these activities in Central and Eastern Europe and the Balkans in conjunction with the Hasbara's clandestine unit, which is under the direct control of the Prime Minister's office. I have since denied these rumors, too.
I am a journalist of long standing (since the mid-eighties), have lived and worked in Israel and maintain a network of top-level, unimpeachable sources. I am made privy to a lot of information and disinformation (see my articles about Macedonia's accession to NATO and the name issue). Like every journalist, I sometimes can't tell the difference and get duped. But this is one of the risks of the First Amendment.
As I see it, my job is not to block or filter content. My task is publish with appropriate disclaimers regarding the sources of my information. I should serve as an eBay of data, ranking the past performance of "vendors" of intelligence and letting the fully-informed reader make up his or her mind whom to believe and whom to discredit.
Back to the opening scoop:
Is it true? Did it happen?
Who knows! All I can say is that someone wanted this information leaked. It could be a arrow shot across the Obama administration's bow. It could be part of a much larger picture. It could be a signal aimed at Iran. It may be a brazen fabrication. History will tell.
But one thing it is for sure: a story. Someone(s) told me, a journalist, this story. They wanted it out. The importance of a story sometimes lies not with its content, but with its very release. It is the role of the discerning reader to read between the lines, connect the dots, and come up with his or her own narrative.
Interview granted to Maja Mihailovska of "Spic, May 29, 2009
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