Banking problems have afflicted both industrial and emerging market countries, including the US, which weathered the savings and loans and banking problems of the 1980s and early 1990s. Crises around the world have exacted a high price, with direct fiscal costs of associated resolutions typically starting at roughly 5 percent of GDP (in the US case, such costs ran more than $ billion). To these substantial sums, one must add the less quantifiable, but no less real, consequences for the economy and financial system. A weakened financial sector cannot serve its role as intermediary - as banks seek to repair their balance sheets, restrict new lending, and shore up capital - leading to diminished growth prospects. In a number of Asian countries today, exporters have difficulty obtaining trade financing from domestic banks, delaying the process of economic recovery and raising fears of a credit crunch in which even sound companies are driven into bankruptcy. Banking sector problems reduce depositor confidence in the banking system and can trigger capital flight. Banking system problems, significant in their own right, can cause distortions in monetary policy, render monetary policy tools less effective, and put at risk the integrity of the payments system. In an integrated international financial system, it is increasingly difficult to contain a banking crisis within a country’s borders. Finally, we must not forget the human consequences of a financial and broader economic crisis, which disproportionately fall on those least able to weather the storm.
In such circumstances, the only way to maintain the competitiveness of the Macedonian producers was the specialization and exports of lower quality products. These developments did not generate inflationary pressures, which caused absence of real appreciation that was evident in the other transition countries. In the past several years, Macedonia is quickly moving closer to the more advanced transition economies. Several years in a row we have achieved positive and stable growth rates, equaling 5.1% in 2007, which is the highest growth rate since independence. Even though economic growth rates are lower than the ones in Baltic countries as well as some of the countries in the region, this is a sure sign for the acceleration of the process of real convergence. This process is also supported by the foreign direct and portfolio investments (6.3% of GDP in 2007) and the faster credit expansion, with annual growth rate of 39% in 2007. As far as nominal convergence is concerned, Macedonia is facing challenges that are common for most of the economies in the region and elsewhere. Since the last quarter of 2007, we are having an acceleration of the inflation rate, which is mostly caused by the global rise of food and energy prices. Therefore, the uncertainty regarding the movement of these prices, as well as the expectations for pressures initiated by the process of real convergence are the main challenges for monetary policy in the medium term.