credit growth, it is necessary to strengthen the capacity of the banks to assess adequately the credit risk, as well as to monitor the quality of the credit portfolio through the nbrm's banking supervision. 3. danger of real appreciation of the currency, encouraged by : potential capital inflows, expected productivity increase in the sector of tradables in the process of approaching the developed economies ( appearance of the balassa samuelson effect also in the macedonian economy ) as well as completion of the process of price deregulation. real depreciation of the exchange rate registered so far distinguishes the republic of macedonia as a specific example in comparison to almost all the countries in transition. to a high extent such performances are due to the improved competitiveness of the macedonian economy as a result of the relatively lower rate of inflation compared to the trading partners, given the higher productivity achieved in the non - tradables sector, and the higher new value added that was significantly influenced by the relatively lower number of employed persons. in 2005, this trend experienced a change ( which was expected ) shown by achieving higher growth rate of productivity in the sector of tradables compared to the sector of non - tradable products. such changes indicated the beginning of the process of exchange rate appreciation that is actually recorded in the course of 2006 ( primarily caused by the higher domestic prices, mainly because of the higher additional duties on tobacco. generally speaking, real appreciation leads to deepening of the current account deficit, but negative effects would be partially mitigated, having in mind that it does not come from erosion in the external competitiveness of the economy, but is to some extent caused by the sound macroeconomic factors, such as the higher productivity. 4. uncertainty related to the future inflows of private transfers. private transfers, as a component of the balance of payments that registers surpluses, traditionally compensate a significant portion of the negative trade balance of the macedonian economy, on average around 60 - 70 percent. the upward trend was significantly intensified in 2005 when the transfers increased substantially and reached approximately 18 percent of gdp. that's how they compensated about 90 percent of the negative trade balance and brought the current account deficit to the relatively low level of 1. 3 percent. fast growth of the transfers, given the inability to actually identify the sources from which they origin and consequently the difficulty to anticipate their future size and future sustainability, is another factor that produces sensitivity of the macedonian economy. in this context, one may

without any doubt puts the central bank in a delicate position when the external position is deteriorated, since the current account is a function of the interactions between the private sector entities'decisions and the decisions of the economic policy decision - makers. therefore, the identification of the factors that cause these movements and the implications for the monetary policy conduct are essential. the analyses of the main features of the balance of payments in transition countries indicate that the key and dominant factor for the external disequilibrium is high trade deficit. the experiences of the transition countries in dealing with this problem vary. one can notice, though, that in most of them the process of structural reforms implementation and conduct of sound and consistent macroeconomic policies, with the eu integration being a clearly defined objective, produced positive achievements in the external sector. nevertheless, registered improvements in the exports are still insufficient for a more significant reduction of the trade deficit, having in mind the initially high imbalance in the foreign trade, which is a logical consequence of the inherited economic structures, whose main p. lane, g. m. milesi - ferreti, " capital flows to central and eastern europe, working paper 188, 2006, imf. it refers to 11 countries from central and eastern europe - cee. feature is lack of flexibility and import dependence. the problem regarding the balance of payments current account deficit is even bigger if one has in mind the fact that the negative trade balance is to a large extent compensated with the positive achievements in services and private transfers, as current account components, which in 2003 ( according to bis 3 calculations ) compensated over 45 percent of the negative trade balance. vulnerability of the transition economies with respect to the sustainability of the current account balance is additionally increased, if it is considered that in the process of creating a " market economy ", these economies faced also with a process of trade liberalization, which, especially in a short run, may additionally contribute to the trade imbalance. the intensification of the process of financial integration and liberalization of the capital transactions as global processes, have set new challenges for the countries in transition, which reflected not only in the balance of payments capital account, but in return in the balance of payments current account, as well as the exchange rate regime. positive macroeconomic performances of the countries, as well as the fast global growth, low rate of inflation and historically low level of the interest rates in the developed countries are factors that caused high capital inflow in the transition countries and produced