Macedonia's debt repayment sparks mixed reviews

The Macedonian government announced on April 11th that it will repay about $137m in debt earlier than planned to the World Bank and the European Investment Bank (EIB). Eight credits, taken out before 1997, will be repaid in the move. The original repayment deadline is 2021.

In March, Macedonia repaid $103m to the Paris Club of Creditors. The money is being repaid from the foreign exchange reserves, which have increased rapidly in the past three years, reaching 1.8 billion euros.

"Decreasing our debt by $240m moves us from the list of average-indebted countries and ranks us as a low-indebted country," Prime Minister Nikola Gruevski noted. He said the amount is 20% of the total foreign debt, and 12% of the total foreign and domestic debt.

The World Bank was Macedonia's largest single creditor with $639.5m in January, according to the country's central bank. During the same month, Macedonia was $162.3m in debt to the EIB.

Gruevski also announced that the country would soon repay its debt to the IMF. He said the repayments send a strong signal to international investors, demonstrating a sound and stable economic policy.

The Finance Ministry projects that early repayment will save more than $37m in interest. This year alone, interest savings will amount to 2.8m euros. It will total 5.8m euros in 2008 and 5.2m euros the following year.

The savings will go towards development projects, Gruevski said.

The opposition Social Democratic Union of Macedonia (SDSM) disagrees with the government's move. The party says that agencies evaluating credit rating take into account two parameters -- public indebtedness and foreign exchange reserves. Therefore, it argues, nothing is gained if the money from the foreign exchange reserves is spent in order to lower the debt.

At the same time, the SDSM accuses the government of squandering revenues from the privatisation of the power utility Elektrostopanstvo na Makedonija (ESM) -- a move by the SDSM government in 2006 that was opposed by Gruevski's VMRO-DPMNE.

Some Macedonian analysts also call into question the claimed interest savings because Macedonia takes credits from the World Bank under privileged, so called IDA terms.