“There is no way for Macedonia to isolate itself from the global recession. It will come from the back, if not from the front door”, Sam Vaknin, a Skopje-based international economic analyst, told SeeNews.
Elaborating on the global market turbulence, Vaknin said that the two financial crises, in the U.S and in Europe, have different origins and trajectories but are developing simultaneously and are even interlinked.
The U.S crisis that affected mainly investment banks is about making bad investments contracts, based on mortgages, while the emerging crisis in Europe affects commercial banks, which is far more dangerous, Vaknin said.
“In an effort to merge and become giant institutions, capable to compete on the global arena, European banks issued a lot of bonds […] In an aim to pay these bonds they borrow among each other”, Vaknin said, adding that due to the U.S. crisis, interbank lending is tight, putting them in a position to be unable to make payment operations, and become technically insolvent.
European governments have so far bailed out five financial institutions: two in Belgium, Fortis and Dexia, British mortgage lender Bradford & Bingley, Germany's Hypo Real Estate, and the third-largest lender in Iceland, Glitnir bank, Western media have reported. Credit markets, meanwhile, remained locked up as banks are wary of lending to each other, unsure of which might be the next to collapse.
“[The] government can help in one, two, three cases. But no government can fight a systemic collapse of the banking system”, Vaknin said.
“Macedonia is connecting with the international banking system in two ways, with interbank lending and with ownership”, said Vaknin, adding that almost 80% of the country's banking sector is foreign-owned as is the case with Ohridska Banka, owned by France’s Societe Generale, Investbanka, recently purchased by Austria’s Steiermärkische Bank und Sparkassen AG, and Tutunska Banka, part of Slovenia's NLB group.
According to Vaknin, the upside is that Macedonia’s banks are self-reliant as they can not borrow much from foreign banks.
But in case of a possible collapse of the European banking system, Macedonia will be completely isolated in its ability to conduct business, and that will affect export and import-oriented companies alike, the analyst said.
“These companies would have difficulties to issue letters of credits, to collect money from clients, to get loans in foreign exchange. It will result in a massive reduction of economic activity. It will affect GDP, economic growth and the trade deficit”, Vaknin explained.
Macedonian Deputy Prime Minister for Economic Affairs Zoran Stavreski said recently that the global financial crisis would have no significant impact on Macedonia, but warned monetary authorities to be watchful of future developments. He stressed that most of Macedonian banks’ deposits come from domestic sources (household deposits).
According to Jovan Pejkovski, an economics professor at the Skopje-based American College, the current crisis in Europe will have no immediate effect on Macedonian banks, as there is no information that any of them are directly connected with European banks in trouble.
“But, from the wider perspective, the global crises, in terms of market declines, job losses […] may be felt in Macedonia in the future […] Macedonia will feel the global ripple effects, but the question is to what an extent”, Pejkovski added.
He praised the bank rescues performed by the U.S. and some European governments as positive moves in preventing the spread of contagion.
According to Pejkovski, what happened in Europe was limited to individual banks with bad loans, but there is no indication of a collapse of the entire banking system.
Miroljub Sukarov, an economics professor at Tetovo-based South East European University, said that Macedonia is not really a part of the global financial system and any spillover effects it will face will be indirect, like a decline in exports.
Concerning the Macedonian banks’ interest rates, he said they had nothing to do with the global crisis.
“They may rise only if Macedonia's central bank takes anti-inflation measures, although there is nothing to suggest such a move as annual inflation slowed down to 7.1% [in September]”, Sukarov said.
Macedonia’s inflation was 10.1% as recently as June before coming down to single digits in July.
“The Macedonian banking system in general will not experience any jolts. But whether individual banks will be affected or not can not be predicted”, Sukarov said.
