Having in mind that the Macedonian economy is characterized by initially high trade deficit and current account deficit (substantially mitigated by the private transfers) it is essential for the macroeconomic policy decision-makers to consider the experiences of the advanced transition economies with respect to all significant aspects related to the process of real convergence to the EU, including the enlargement of markets and facing with increased competition, possible effects from the liberalization of the goods and capital flows, as well as the possible measures and reactions of the macroeconomic policies with respect to these issues. High trade deficit, and consequently the current account deficit, had certain repercussions on the monetary policy conduct. Lack of foreign exchange in the Macedonian economy caused constant pressures for depreciation of the Macedonian Denar, which under a strategy of exchange rate targeting ultimately produced relatively higher interest rates. Such conditions changed significantly in the last two years. The political stabilization of the country and of the region, given the maintained macroeconomic stability and clear European orientation confirmed in 2005 with the acquiring of the status of candidate country for European Union membership, created environment for significant positive achievements in almost all sectors of the economy. In the external sector, higher growth rates of exports are recorded, which in 2005 were twice higher than the growth rate of imports of goods. The stabilization generated high foreign exchange inflows from private transfers that enabled significant decrease of the current account deficit. In 2006, sizeable external inflows were registered from the continuous privatization process.

In spite of this, such flows may not be considered as one-time effects, but as flows that are characteristic for the process of transition and which have to be incorporated in the monetary policy conduct. The implications of the capital inflow and appreciation of the domestic currency, as well as the reactions of the macroeconomic policy decision-makers will vary from case to case and will depend on the features of the economy itself. Balance of payments deficits, potential factors that may cause their deepening and the liberalization of the capital flows, obviously pose numerous challenges for the monetary policy, both regarding the monetary strategy and the exchange rate regime and regarding its operational setup. The central banks, as key institutional macroeconomic policy makers, and at the same time institutions that permanently work on strengthening and maintaining of their own credibility, unavoidably should focus on the contemporary challenges of the monetary policy, making attempts for timely comprehension of the possible solutions and repercussions. Having in mind this objective, I am glad that on the today's conference are present distinguished experts, governors and representatives of central banks from a number of countries across the world, as well as high rank officials from important international institutions, whose expertise and experience may contribute to good quality discussions regarding the specified contemporary challenges for the monetary policy.