dimitar bogov : recent financial and economic developments in macedonia interview with mr dimitar bogov, governor of the national bank of the republic of macedonia, in the american times, october 2013. * * * please offer our readers a brief on the functions of the national bank of the republic of macedonia ( nbrm ) our primary goal is price stability with a secondary goal of financial sector stability. without jeopardizing the primary goal nbrm should support economic policies. the way in which we execute the primary objective is by pegging the exchange rate with the euro. pegging our currency has been our long term strategy since 1995, originally with the deutsche mark. when one compares our inflation with that of the european monetary union the result is relative alignment ; to put it in real terms, emu inflation is at about 1. 9 % with macedonia hovering at 2. 2 %. we have witnessed in the past 4 – 5 years several very important foreign direct investments. some of them are so large that they already equate to roughly 17 % of our exports. how has the global recession and currently, the strength of the euro, especially when compared to the us dollar effected your ability to maintain price stability, if at all? it affected our economy because our largest export markets are eu countries, equating to 60 %, whose demand for our products dramatically reduced. when one additionally considers our many exports to neighboring, non - eu countries, but who maintain a euro - centric policy we can see an indirect detrimental effect ; which in turn means roughly 90 % of our exports were hit by the crisis. for example, we experienced a decline in gdp of 1 % in 2009 with a recovery of 3 % in the next two years before declining again by – 0. 4 % in 2012 ; which is reasonably low when compared to other countries in the region. although this does not mean the effects from the euro zone crisis were not harsh, they clearly were ; however, there were compensating policies such as a fiscal stimulus from the government which substantially mitigated the negative impact which is most likely why macedonia had the slowest decline in the region. what were some of those hedging fiscal policies? traditionally, macedonia has had low fiscal deficits, ranging from – 1 % to + 1 %, but during the crisis in 2009 this grew initially to 2. 5 % then to 2. 8 % with our highest in 2012 at 3. 8 %.

- type scheme for the purchase of mortgages at a discount for re - financing ). only once the real estate market is stabilized it would be possible to find a real floor for the crises. other shortterm actions may include : interrupting marking - to - market ( at least temporarily ) as on distressed markets proved to be more harmful than helpful, an even more coordinated approach by the leading economies ( to reduce us $ / euro volatility ) and progress towards the setting up of a clearing house for cds. in addition, the current crisis has shown the need to strengthen and partly redesign financial system regulation and supervision, to complement the traditional micro - prudential approach with a greater weighting for macro - prudential measures. the principal objective of these tools is to be able to monitor in an aggregate manner the systemic risks faced by financial systems, evaluating their potential impact on the real sector and adopting preventive measures. furthermore, this approach could be reformed by means of the implementation of countercyclical measures that act on the financial system, some of which could be adjustable, such as dynamic provisioning over the course of the economic cycle, or the setting of capital requirements in accordance with the stage of the cycle. the main methodological techniques for such a system may include : stress test development at aggregate level, systemic early - warning systems providing alerts at a macroeconomic level and warnings of situations endangering financial stability. another of the leading objectives of the macro - prudential approach is to mitigate the pro - cyclical nature of financial systems. proposals such as the ones put forward by goodhart ( time - varying capital requirements on the basis of credit growth ) or kashyap, rajan and stein ( capital insurance mechanism ) as additional elements in the capital - regulation toolkit are welcomed. in addition, in times of hardship, it proved very useful to have in hand criterions to temporarily apply “ reduction ratios ” to adjust capital requirements for the instruments most affected by the crisis resolution mechanisms. this is based on systemic factors, which are somehow involuntary for institutions operating under these conditions. this approach buys the system some time ( a relatively less scarce resource in times of crisis ) and minimizes the need for a government capitalization. also, some central banks and regulatory authorities have begun to define as a priority for both banks and non - banking financial institutions the making of additional efforts to “ save ” some of the profits in boom periods to generate liquidity and capital cushions for