The report drawn up by the Commission of the European Communities contains the review of the political and economic situation in the Former Yugoslav Republic of Macedonia as of 2004 and recommends the measures and actions to be taken to enable the country to shift progressively its focus from the phase of stabilisation to that of association. Constrained by a difficult budgetary and economic situation, the Former Yugoslav Republic of Macedonia has made steps to progress in Stabilisation and Association process. In many areas the reform process is still in its early stage and will need further efforts to be converted into substantial changes to bring the expected benefits. The document analyses the political situation of the country in light of the democracy and rule of law, human rights and protection of minorities as well as the regional and international cooperation. The current economy status is reported based on the review of the free market economy existence, structural reforms and management of public finances with some general statistical data annexed. The implementation of the stabilization and association process is considered via internal market and trade, sectorial policies and cooperation in Justice and Home Affairs. The issues related to the EC’s financial assistance and the attitude of the people of the country to the EU membership are also covered by the document.