The Macedonian government is hoping that the recently signed peace agreement with ethnic Albanians will lead to a big increase in foreign assistance that will ease the country's growing budget deficit. Western aid is being conditioned on implementation of the peace agreement.
The European Union and World Bank plan to convene a donors' conference for Macedonia on October 15. That meeting, due to take place in Brussels, will occur only if the Macedonian parliament has acted to implement the agreement that gives substantial new powers to the country's Albanian minority.
Aid officials suggest the donors' conference might produce pledges of $100 million, a large amount for this small Balkan economy.
The money would be available to support a government budget that is being severely strained by unexpected military expenditures. This year Macedonia has spent $35 million of the foreign exchange it received from privatizing its phone company on arms purchases and other security expenditures.
The insurgency crisis has led to a widening and deterioration of the fiscal situation," said Biswajit Banerjee, the International Monetary Fund official responsible for Macedonia. "There has been loss of foreign exchange associated with it, directly on the expenditure side. The economy has also been weakened and therefore revenues have fallen."
Armed ethnic Albanians began their insurgency in February. The peace agreement with its fragile cease-fire was signed less than a month ago.
Inside Macedonia people are skeptical that the peace agreement will hold. Civil war, once NATO forces withdraw, is considered a continuing threat.
A further uncertainty is the likelihood of early parliamentary elections. IMF official Banerjee worries that preparations for elections will delay needed restructuring of Macedonia's still largely state directed economy.
"It is true that probably between now and the elections, realistically, nothing much can be expected," he said. "But if the economy is to recover on a track of sustained high growth, enterprise restructuring is essential. Ultimately it is a matter of political will."
The IMF is considering new lending for Macedonia, but that will not take place until December at the earliest. Previous IMF lending was curtailed because the budget exceeded promised levels.
Macedonia has endured a series of economic jolts in recent years. In 1999 it had to absorb tens of thousands of refugees forced out of Kosovo. It then became a staging ground for NATO's military intervention in Kosovo.
This year's insurgency has reduced exports and the economy has been severely disrupted. Its currency remains stable and the economy is still growing but at a slower than expected pace.