Petar Goshev: Alleviating the negative effects of the financial crisis
Welcome address by Mr Petar Goshev, Governor of the National Bank of the Republic of
Macedonia, at the World Bank event, Skopje, 15 March 2010.
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Distinguished ladies and gentlemen,
It is my honor to give a welcome address at this important World Bank event that it is taking
place at a critical transitional stage when it seems that the strongest impact of the severest
crisis since the Great Depression is behind us and the global economy is beginning to grow
again. Still, although we believe the worst is behind us, the global crisis has had strong
negative effects that will continue to be felt in the years to come. Because of that, the efforts
of the national authorities and international financial institutions for mitigating the negative
effects have to continue. In this regard, the enhanced role of the international financial
institutions, including the World Bank, is vital.
The economic, social and human implications of the global crisis have further
emphasized the World Bank's mission of eliminating poverty, enhancing growth and
Achieving Millennium Development
providing inclusive and sustainable development.
Goals (MDGs), as a set of priorities for the World Bank, is becoming more challenging. As
stated in the World Bank Annual Report 2009 "targets that it would have been difficult to
reach even before the crisis are now considered implausible, and a real risks exists that the
financial and economic crisis that begun in United States may develop into a humanitarian,
political, and security catastrophe in the world's most vulnerable regions."
The ECA Region was the hardest hit region by the global crisis. The decline of external
demand, unfavorable terms of trade, decline in capital flows, as well as spillover effects to
the domestic demand resulted in a fall of region's GDP in 2009 of about 6%. With the real
sector of the economy contracting and financial flows being constrained, unemployment and
poverty have risen. Although all countries in the region faced with challenges during this
turbulent time, still the crisis has had a disproportionate impact on the vulnerable in the less
developed countries calling for bigger assistance to mitigate social impact.
The World Banks' assistance was of a paramount importance in the past and will
continue to be. It is not only about the financial support, but the support and guidance
in implementing structural reforms. The mix of the World Bank programs aimed at
creating broader based growth, efficient public sector and social protection, has yielded in
decrease of the poor or vulnerable population in the region (18% of the total population has
exited this group, since 1999).1 The region has grown quite rapidly, reaping the benefits of
increased productivity, to a large extent being explained by the restructuring of the
enterprises, technological improvements, enhanced infrastructure and investments in human
resources. The cross regional comparison indicates that the ECA region is a leader in terms
of the GNI per capita. What is even more important is the sharp growth of the GNI per capita
from 6.265 current international $ in 2000 to 12.229 current international $ in 2008, thus
giving the region a feature of a leader in improving living standards.
However, the region is quite a diverse with GNI per capita ranging from 1860 current
international $ in Tajikistan to 18420 current international $ in Croatia. This points to the
fact that there are big disparities that need to be tackled to speed up the process of
convergence which will mean less political and social tensions, less poor and homeless
people, and less desperate migrations conducive to expression to different sorts of
prejudices and frustrations. For many subregions the role of the World Bank is of a crucial
importance, in particular for the Western Balkan, which is heavily lagging behind the leading
countries in the region, faced with the problems of undeveloped infrastructure, poor health
care systems, high unemployment and socially desperate people, i.e., faced with different
forms of dehumanization of the living standards, including problems of climate change. Some
parts of the subregion sometimes have problems with floods, but in many parts there is
permanent lack of even drinking water.
Macedonia's track record within the relations with the World Bank, can be assessed as
quite successful. The World Bank has been one of the most important partners in the
process of designing and implementing important structural reforms. The strong focus of the
World Bank programs on the financial and the enterprise sectors, public administration, and
business environment, has proved to be an important trigger and contributor to the
productivity gains and real convergence of the economy.
Personally, I am deeply grateful to the World Bank and the IMF for the contribution
It is my personal opinion,
they have made in overcoming our existential problems.
however, that our need for the cooperation with and support of the World Bank is more than
necessary. We have made some progress, but we have also encountered a lot of problems.
The global crisis emphasized a number of structural issues that are bottleneck for the growth
of the Macedonian economy. A comparative analysis shows that Macedonia has pretty low
level of investments (on average about 15% of GDP during 1997-2007). Thus, further
support which will lead to higher investments and higher stock of capital will play an
important role for the long-term growth. We substantially lag behind those we want to keep
up with. The unemployment rate is still staggering (32.4%). Income per capita is only half of
the highest GNI in the group, or only 33% of the average GDP per capita (PPP terms) of the
27 EU countries. We have a strong need of funds and permanent technical assistance in
order to continue with and accelerate our structural reforms. The Greek example is a newest
lesson. European and other funds, without all the painful and grave structural reforms, could
not protect the country from facing the present crisis. However, it seems that, without
structural reforms, they just boost the illusion.
The recent crisis has highlighted the need for the international financial institutions to
have adequate level of resources and flexible, innovative and swift technical
It is a prerequisite for a well targeted, timely, coordinated and efficient
infrastructure.
response to global shocks. The strong increase of IBRD disbursements, policy based lending
and advisory services in 2009, the dominance of social protections programs, on the
background of the social implications of the crisis, pinpoint the rapid and well targeted
adjustments in the lending policy and expertise provided by the World Bank. The share of the
World Bank financial support to the region in the total WB financing in 2009 rose to 20%
(compared to the average of 16% for the previous three years). Significant weight was put on
the enhanced social protection, regulation adjustment for the purpose of trade promotion,
financial sector reforms and improved governance.
Dear guests,
Let me once more repeat that looking forward, the role of the World Bank becomes
even more pronounced. Unprecedented policy support has yielded in tangible results
reflected in improved global financial conditions and improved economic prospects.
However, financial conditions are far from normal and growth prospects are highly uncertain
and dependent on a policy support. The fiscal room has substantially narrowed and access
to private financing is uncertain amidst high budget deficits and rising public debt.
To be able to respond to the demand for its services a capital increase and
Although current situation calls
reconsidering priorities in the region seems inevitable.
for immediate assistance to protect poor and vulnerable people from the hardship they are
faced with, the support in implementing structural reforms is of a vital importance. Structural
reforms should not stall as they are crucial for paving a way for long-term sustainable growth
and higher living standards, which is one of the main missions of the World Bank. Financial
and technical assistance by the World Bank will play a key role in this process. Rising
unemployment and growth in poverty asks for more "aggressive" role when it comes to social
issues. But, also supporting reforms aimed at improving competitiveness, as well as
addressing the issue of "climate change" should be priority on the agenda. Given the
diversity of ECA region, assistance tailored to the specifics of the different groups within the
region, remains important.
It is my personal opinion that the World Bank should increase its contribution to the
accomplishment of global financial stability. It is rare to find another institution with such
an experience. Preservation of global financial stability proved to be an issue of utmost
importance to both the growth and the fight against poverty. Basel II has been definitively
transforming into Basel III. There is a lot of work to be done to promote the micro-prudent
and the macro-prudent frameworks. World Bank's contribution through its participation in
FSB and other international bodies and its cooperation with countries which use its financial
and technical assistance is indispensable.
I will finish my address with quoting the leaders of the Group of Twenty from the
meeting in London, 2009: "We start from the belief that prosperity is indivisible; that
growth to be sustained, has to be shared; and that our global plan for recovery must
have at its heart the needs and jobs of hard-working families, not just in developed
countries but in emerging markets and the poorest countries of the world, too; and
must reflect the interest not just of today's population, but of future generations, too."
Thank you for your attention and I wish you a fruitful discussion and a pleasant stay in
Skopje.