III. The Case of Macedonia 1991-2006
The National Bank of Macedonia (NBM) is highly autonomous under the law regulating its structure and its activities. Its Governor is selected for a period of seven years and can be removed from office only when he is charged with criminal deeds. Still, it is very much subject to political interference. High ranking political figures freely admit to exerting pressures on the central bank (even as they insist that it is completely independent).
In Macedonia, until recently, when a new Law of the Central Bank was enacted, annual surpluses generated by the central bank were transferred to the national budget and could not be utilized by the bank for its own operations or for the staff training and re-skilling.
The NBM is young and most of its staff, though bright, are inexperienced. With the kind of wages that it pays it cannot attract the best available talents. The budgetary surpluses that it generates could have been used for this purpose and to hire world renowned consultants (from Switzerland, for instance) to help the bank overcome the experience gap.
So, in the past the bank had to do with charity received from USAID, the KNOW-HOW FUND and so on. Some of the help thus provided was good and relevant — other advice was, in my view, wrong for the local circumstances. Take bank supervision: it was modeled after the American and British experiences, whose bank supervisors are arguably the worst in the West (if we ignore the Japanese).
The bank also had to cope with extraordinarily difficult circumstances since its very inception. The 1993 banking crisis, the frozen currency accounts, the collapse of the savings houses (culminating in the TAT affair). Older, more experienced central banks would have folded under the pressure. Taking everything under consideration, the NBM has performed remarkably well.
The proof is in the stability of the local currency, the denar. Currency stability is widely thought to be the main function of a central bank. After the TAT affair, there was a moment or two of panic and then the street voted confidence in the management of the central bank, the denar-deutschmark rate reverted to where it was prior to the crisis.
Still, bank supervision needs to be overhauled and lessons need to be learnt. The political independence of the bank needs to be enhanced. The bank must decide what to do with TAT and with the other failing institutions. The issue of who can own banks is high on the agenda with the liquidation of Makedonska Banka, forced on it by the central bank in 2007.
Failing banks can be sold to other banks as portfolios of assets and liabilities. The Bank of England sold Barings Bank in 1995 to the ING Dutch Bank.
The central bank could — and has to — force the owners of failing financial institutions to increase their equity capital (by ploughing in their personal property, where necessary). This was successfully done (again, by the Bank of England) in the 1991 case of the BCCI scandal.
The State of Macedonia could decide to take over the obligations of the failed system and somehow pay back the depositors. Israel (1983), the USA (1985/7) and a dozen other countries have done so recently.
The central bank could increase the reserve requirements and the deposit insurance premiums.
But these are all artificial, ad hoc, solutions. Something more radical needs to be done:
A total restructuring of the banking system. Savings houses have to be abolished. The capital required to open a bank or a branch of a bank has to be lowered (to conform with world standards and with the size of the economy of Macedonia). Banks should be allowed to diversify their activities (as long as they are of a financial nature), to form joint venture with other providers of financial services (such as insurance companies), and to open a thick network of branches.
And bank supervision must be separated from the central bank, so that it could criticize the central bank and its policies, decisions and operations on a regular basis.
There are no reasons why Macedonia should not become a financial centre of the Balkans and there are many reasons why it should. But, ultimately, it all depends on the Macedonians themselves.
Dr. Sam Vaknin is the author of Malignant Self Love - Narcissism Revisited and After the Rain - How the West Lost the East. He served as a columnist for Central Europe Review, PopMatters, Bellaonline, and eBookWeb, a United Press International (UPI) Senior Business Correspondent, and the editor of mental health and Central East Europe categories in The Open Directory and Suite101.
Until recently, he served as the Economic Advisor to the Government of Macedonia.
Visit Sam's Web site at http://samvak.tripod.com.