By Sam Vaknin, Author of "Malignant Self Love - Narcissism Revisited"

Macedonia is a useful microcosm of the post-communist countries of the Balkan (self-importantly renamed by its denizens "Southeast Europe"). Prodded by its pro-Western president, Boris Trajkovski, it vocally - though implausibly - aspires to NATO and European Union membership. Its socialist prime minister - newly-elected in a remarkably smooth transfer of power - has just inked a landmark "social contract" with the trade unions.

Macedonia boasts of being an island of modernity and stability in an otherwise volatile (and backward) region. Indeed, in a sign of the times, Macedonian cellphones were rendered Internet-enabled this month Mobimak, one of the two providers of wireless communications services.

Yet, Macedonia's nationalist opposition boycotts both parliament and the peace process launched by the Ohrid Framework Agreement in August last year. Macedonia's biggest minority, the Albanians - at least 30 percent of its population, as a recently concluded census should reveal, unless blatantly tampered with - are again restless. Though an erstwhile group of terrorists (or "freedom fighters") made it to the legislature and the government, splinter factions threaten to reignite last year's civil war. Inter-ethnic hostilities are in the cards.

The country's new government, egged on by a worried international community, has embarked on an unprecedented spree of arrests intended to visibly combat a paralyzing wave of corruption and crime. Several privatization deals were annulled as well. Regrettably, though quite predictably, this newfound righteous zeal is aimed only at the functionaries and politicians of the opposition which constituted the former government.

In the meantime, Macedonia's economy is in tatters. At least one quarter of its population is below the poverty line. Unemployment is an unsustainable 31 percent. The trade deficit - c. $800 million - is a shocking 28 percent of its puny gross domestic product. Macedonia survives largely on charity, aid and loans doled out by weary donors, multilateral financing institutions and friendly countries. It is slated to sign yet another IMF standby agreement this coming February.

And this is the situation throughout most of the region. Macedonia is no forlorn exception - it is the poignant rule. Flurries of grandiose meetings, self-congratulatory conferences and interminable conventions between the desperate leaders of this benighted corner of Europe fail to disguise this hopeless prognosis.

Decrepit infrastructure, a debilitating brain drain, venal and obstructive bureaucracies, all-pervasive kleptocracies, dysfunctional institutions, reviving enmities, shoddy treatment of minorities and a reigning sense of fatalistic resignation - are cross-border phenomena.

International commitment to the entire region is dwindling. The British, German and American contingents within NATO intend to withdraw forces from Bosnia and Kosovo next year. Aid to refugees in Kosovo and Croatia may cease altogether as cash allotted to the United Nation's for this purpose has dried up.

Both Serbia and Montenegro have endured botched presidential elections. Disenchantment with much-derided politics and much-decried politicians is evident in the abysmally low turnout in all the recent rounds of voting. Tensions are growing as Yugoslavia is again slipping into a constitutional crisis. The new union of Serbia and Montenegro is a recipe for instability and constant friction. A lackluster economy doesn't help - industrial production has nudged up by an imperceptible 2.5 percent from a vanishingly low basis.

Political and economic transformations are likely to stall in Yugoslavia as nationalism reasserts itself and the reform camp disintegrates. Solemn mutual declarations of peace and prosperity notwithstanding, tension with neighboring countries - notably Croatia and Bosnia-Herzegovina - will flare up.

Despite some private sector dynamism and the appearance of law and order, Kosovo's unemployment rate is an impossible 57 percent and more than half of its destitute inhabitants survive beneath the poverty line. Its status unresolved and with diminishing international profile, it fails to attract the massive flows of foreign investment needed merely to maintain its utilities and mines. It is a veritable powder keg adjacent to a precariously balanced Macedonia.

Bosnians of all designations are rearming as well. The country has become a center of human trafficking, illicit weapons trading, smuggling and worse. The IMF, the World Bank and the European Bank for Reconstruction and Development (EBRD) are doing their best to resuscitate the moribund economy, but hitherto to little avail. The World Bank alone is expected to plough $102 million into the ailing economy. A dearth of foreign investment and decreasing foreign aid leave the ramshackle country exposed to a soaring balance of payments deficit.

Albanians are busy putting their crumbling house in order. The customs service is revamped in collaboration with concerned neighbors such as Italy. Transport infrastructure will connect Albania to Greece, Bulgaria, Macedonia and even Yugoslavia. Albania's air control system will be modernized next year. Still, a sapping budget deficit of almost 7 percent of GDP ties the government's hands.

Indeed, infrastructural projects represent the Balkan's Great White Hope. Transport corridors will crisscross the region and connect Bulgaria to Macedonia, Greece, Albania, Yugoslavia and Hungary. A Balkan-wide electricity grid is in the works and might even solve the chronic shortages in countries such as Albania.

Yet, not all is grim.

The Balkan is clearly segmented. On the one hand, countries like Macedonia, Albania, Yugoslavia and Bosnia seem to be cruelly doomed to a Sisyphean repetition of their conflicts and the destitution they entail. Slovenia, Croatia, Bulgaria and Romania, on the other hand, are either EU candidates or would be members. Slovenia - though it vehemently denies its regional affiliation - would be the first Balkan country to join the European Union in May 2004. Romania and Bulgaria are slated to follow it in 2007.

So much of Croatia's economy - especially its banking system - is in European hands that it is a de facto EU member, if far from being a de jure one. It, too, relies on IMF financing, though - the latest $140 million standby arrangement was just initialed.

Croatia's external debt is out of control and it needs all the foreign exchange it can lay its hands on. Labor unrest is growing and likely to mushroom in the dark winter months ahead - despite impressive strides in industrial production, up 10 percent year on year in November. Additionally, Croatia is intimately linked to the German market. It is an important export market for its goods and services (such as construction). Should the German economy stagnate, the Croats may suffer a recession.

Relationships with Slovenia are not too improved either. Several rounds of incendiary verbiage were exchanged between these uneasy neighbors over the fate of money owed to Croats by Slovenian banks and a co-owned nuclear facility. These - and trade issues - will be satisfactorily resolved next year.

Bulgaria has descended from euphoria, upon the success of the Simeon II National Movement in the June 2001 elections, to unmitigated gloom. It is besieged by scandals, skyrocketing energy prices, a totteringly balanced - albeit IMF sanctioned - budget, a growing current account deficit, surging unemployment and a privatization process in suspended animation.

Next year will be better, though: the telecoms, the electricity utility and its regional branches, the State Savings Bank and tobacco firms are likely to be disposed of, sold to consortia of foreign - mainly Greek - and domestic investors. GDP is already growing at a respectable annual clip of 4.5 percent.

Public debt declined by 15 percent in the last 4 years. Households' real income and consumption will both continue their double digit takeoff. Moody's recently upgraded the country's credit rating to "positive" and Standard and Poor followed suit and elevated the rank of four local banks.

Next year's big positive surprises - and erstwhile miscarriages - share a common language: Romanian.

Romania's NATO membership in 2003 will seal the astounding turnaround of this bleak country. Almost two thirds of its burgeoning trade is already with the EU. Unemployment dropped by a significant 2.4 percent this year. Some commentators foresee a snap election in the first half of the year to capitalize on these achievements, but this is unlikely.

Recently, the IMF has unblocked funds, though reluctantly. This time, though, Romania will keep its promises to the Fund and implement a rigorous austerity and enterprise reform package despite the vigorous opposition of unionized labor and assorted virulent nationalists assembled in the Greater Romania Party.

The tax system is already rationalized - corporate tax is down to 25 percent and a value added tax was introduced. The government currently consumes merely 6 percent of GDP. Privatization proceeds have shot up - admittedly from a dismal starting point. The Ministry of Tourism alone enjoyed an influx of $40 million of foreign direct investment. Some major properties - such as Romtelecom - will go on the block next year.

Both Moody's and the Japan Credit Rating Agency have upgraded the credit ratings of the country and its banks. GDP is predicted by the Economist Intelligence Unit to grow by 4.6 percent next year and by a hefty 5 percent in 2004. In purchasing power parity terms, it is already up 20 percent on 1998. Foreign exchange reserves have doubled since 1998 to c. $6 billion.

Even Moldova is affected by the positive spill-over and has considerably improved its ties with the IMF. It is pursuing restructuring and market-orientated reforms. It may succeed to reschedule its Paris Club debts next year. The United States - the country's largest donor - will likely increase its contribution from the current $44 million. The Moldovan president met United States President George Bush last week and came out assured of American support.

The Balkan in 2003 will be an immeasurably better place than its was in 1993, both politically and economically. Still, progress has been patchy and unevenly divided. Some countries have actually regressed. Others seem to be stuck in a time warp. A few have authentically broken with their past. While only five years ago it would have been safe to lump together as basket cases all the post-communist Balkan countries, with the exception of Slovenia - this is no longer true. It is cause for guarded optimism.

ABOUT THE AUTHOR

Sam Vaknin is the author of Malignant Self Love - Narcissism Revisited and 25 other books. He served as a columnist for Global Politician, Central Europe Review, PopMatters, Bellaonline, and eBookWeb, a United Press International (UPI) Senior Business Correspondent, and the editor of mental health and Central East Europe categories in The Open Directory and Suite101 as well as the Economic Advisor to the Government of Macedonia. Visit Sam's Web site at http://samvak.tripod.com