R pub IC OF MONTe eGO THe M N sT Y OF F NANCe

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Minis try o f Fi n a n c e o f Mo n t e n e g r o Bulletin XVI Ap r i l - Ju n e 2009

www.ministarstvo-finansija.vlada.cg.yu

Administration

TAX ADMINISTRATION: www.poreskauprava.vlada.cg.yu

CUSTOM ADMINISTRATTION: www.upravacarina.vlada.cg.yu

DIRECTORATE FOR ANTI-CORRUPTION INITIATIVE: www.antikorup.vlada.cg.yu

ADMINISTRATION FOR THE PREVENTION OF THEMONEY LONDERY: www.gom.cg.yu/aspn

DIRECTORATE FOR REAL ESTATES: www.nekretnine.cg.yu

PUBLIC PROCUREMENT DIRECTORATE: www.djn.vlada.cg.yu Bulletin of the Ministry of Finance of Montenegro / April - June 2009

Table of Contents 4-5 Introduction - Mr. Igor Lukšić, PhD, Deputy Prime Minister and Finance Minister 6-12 In THE Focus: IMF Arrangements in the Light of Global Economic Crises - mr Ana Krsmanović, Independent Advisor I

13-14 Security interest in immovable property - mortgage - Milanka Otović, Independent Advisor III

15-18 Activities of the SPO Unit in Preparation of the Projects for National Multi-beneficiary IPA 2010 Programme - Ms. Irma Nišić, Advisor - Ms. Branka Despotović, Advisor 19-24 Realization of the Capital Budget in First Half of 2009 Department for public investment planning - Ms. Ljiljana Crnčević, Independent Advisor I - Ms. Snežana Mugoša, Independent Advisor I 25-27 Report on the State Debt of Montenegro as of 30 June 2009 - Mr. Nemanja Pavličić, Asistant minister - Ms. Ana Banović, Advisor in the Division for Debt and Cash Management 28-29 FROM THE JOURNALIST PERSPECTIVE: Montenegro and Global Economic Crises: Vicious Cycle - Ms. Dragica Lalatović, TV Montena, Journalist 30-32 First Level Control as a Tool for Reducing Irregularities in the Process of Using EU Funds - Ms. Bojana Kaluđerović, Independent Advisor I, CFCU

33-34 Accounting and Auditing Reform in Montenegro - Ms. Ana Krsmanović, Independent Advisor I - Ms. Aleksandra Popović, Independent Advisor II

35-39 Activities of the DEPUTY PRIME MINISTER AND Finance Minister in the period from 1st April to 30th June 2009 - Ms. Gordana Jovanović, Spokesperson - Ms. Ivona Mihajlović, Assistant to the Spokesperson

40-43 INFO/WEB Other Activities in the Period from 1st April to 30th June 2009 - Ms. Gordana Jovanović, Spokesperson - Ms. Ivona Mihajlović, Assistant to the Spokesperson

44-46 IPA Adriatic Cross-Border Programme - Mr. Milorad Samardžić, Independent Advisor III, CFCU - Ms. Katarina Živković, Independent Advisor II, CFCU

47-50 Draft Budget Final Account of Montenegro for 2008 - Ms. Stanimirka Mijović, Independent Advisor I 51-53 Commentary: Impact of Global Economic Crises to Labor Market - Ms. Ana Krsmanović, Independent Advisor - Ms. Bojana Bošković, Independent Advisor I

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54-55 Procedures in Printing and Issuing Excise Tax Stamps Sector for Tax and Customs System - Ms. Ružica Bajčeta, Independent Advisor II - Mr. Jovica Petričević, Independent Advisor I

56-58 International Cooperation: International Cooperation of the Finance Ministry - International Financial Institutions Meetings - Mr. Dragan Darmanović, International Cooperation Division Head Ministry of Finance of Montenegro - Mr. Marko Vukašević, Advisor in the International Cooperation Division

59-60 Elections for the European Parliament Bulletin of the - Ana Ivanović, Independent Advisor Ministry of Finance - Nina Vukotić, Advisor April-June 2009 61-63 TRIM MNE FINAL CONFERENCE ROUND TABLE WITHIN THE COMPONENT: State Aid „State Aid - New Challenges or Obstacles for Montenegro NUMBER: and Entrepreneurs” 16 - Ms. Sonja Bećović, Advisor of Minister - Ms. Šefika Kurtagić, Senior Advisor III PUBLISHED: 64 Payment of Converted Foreign Exchange Savings Bonds quartely - Ms. Marina Popović, Independent Advisor I PUBLISHER: 65-67 Issuing, Withdrawing or Suspension of Accreditation for Ministry of Finance Decentralized Management of the European Union Funds - Ms. Nataša Kovačević, Assistant Minister, CFCU FOR PUBLISHER: 68-69 Return of Pension and Disability Insurance Contributions Igor Lukšić, Ph.D. - Ms. Tatjana Bošković, MSc. Independent Advisor in the Sector for Tax and Customs System EDITOR-IN-CHIEF: 70-72 Fuel Consumption Assessment Based on Collected Excise as the Gordana Jovanović Economic Activity Indicator - Mr. Vladislav Karadžić, Independent Advisor I EDITORIAL BOARD: - Mr. Radovan Živković, Independent Advisor I Koviljka Mihailović 73-74 World Bank Project - REPARIS MA Milorad Katnić - Ms. Ana Krsmanović, Independent Advisor I Krsto Racković - Ms. Aleksandra Popović, Independent Advisor II MA Nikola Vukićević 75-79 Leasing Market in Montenegro - Report for First Quarter of 2009 Dušan Perović and Comparative Analysis of Leasing Market Trends in the Region Mila Barjaktarović - Bojana Bošković, Independent Advisor I - Jelena Vojinović, Independent Advisor III DESIGN: 80-87 Medium - Term Expenditure Framework 2010-2012 Adil Tuzović - Ms. Tamara Gačević, Independent Advisor I - Ms. Slobodanka - Mila Popović, External Advisor TeHnical ASSISTANT: Ivona Mihajlović 88-89 How to Exit Crises - Possible Scenarios and Repercussions to Montenegrin Economy - Mr. Vladislav Karadžić, Independent Advisor I - Mr. Radovan Živković, Independent Advisor I CONTACT: PR Office of the 90-95 Realization of Public Expenditure on Local Self - government LevelJanuary - March 2009 Ministry of Finance - Ms. Radović Gordana, Independent Advisor I in the Sector for Tax and TEL: Customs System +382 20 224 581 - Ms. Slobodanka Buric, Independent Advisor I, Budget Department FAX: 96-99 Consolidated Public Consumption in Montenegro +382 20 224 450 for the Period from I - VI 2009 E-MAIL: [email protected] - Mr. Stanko Jeknić, Independent Advisor I WEB: - Mr. Vladislav Karadžić, Independent Advisor I www.mf.gov.me - Mr. Radovan Živković, Independent Advisor I - Mr. Iva Vuković, Senior Advisor III ADDRESS: Stanka Dragojevića br 2, 100-102 Removing International Double Taxation Podgorica - Mr. Mitar Bajčeta, Independent Advisor I

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Con­taCt:

phone: +382 20 242-835 Deputy Prime Minister fax: +382 20 224-450 and Mi­nis­ter of FInance e-mail: [email protected] Igor Luk­šić PhD web: www.mf.gov.me

Introduction

Dear readers,

After the end of the first half of 2009, we may con- capital market, being a consequence of primarily EPCG clude that Montenegro is struggling with advers­ities of recapitalization process, and the Decision on payment the huge financial and economic crises. Financial sys- of dividends in few business organizations, prior to all tem deviation, transferring negative consequences into Telekom. the real sector, have generated significant weakening of economic activity in our country. Logically, industrial In my opinion, economic policy measures intro- production is most affected, accounting for significant duced by the Government are amortizing negative eco- decline, partly but not sufficiently compensated by in- nomic trends. As it was expected, immediately after creased activities in the electricity generation sector. elections, the new Government continues with activi- On the other hand, it looks like that the sector of servic- ties that will counteract potential consequences of the es, especially tourism, will remain more or less stable, crises, both by engaging direct measures, as by imple- generating favorable impact on the overall situation. menting measures that in the long run should assist Generally, apart from unfavorable GDP trends, and the economic growth acceleration. In the light of the declined budget inflows, we may talk about stabiliza- above, the first step is the adjustments in budgetary tion in prices, employment, as well as due to significant consumption, both in the revenue and the expenditure decline in imports, strong adjustments in the current side, through certain corrections in excise tax. It should account deficit. Moreover, we can talk about banking be emphasized that in that context, the programme with sector stabilization, as well as on certain recovery in IMF still remains an open and realistic option which in

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any case should be held active. The Budget rebalance, times of crises, is crucial to share the burden. Such ap- provides for rebalancing between tolerated/accepted proach, means the assistance to most vulnerable cat- level of the budget deficit that is lower than Maastricht egories. The essential approach should mean that is criteria and the level of debt which will remain on sus- necessary to liberalize the economic system to the full tainable percentage against GDP. At the same time, extend and that the social policy is completed through the budget deficit is lower than capital budget expens- budget consumption. Subsequently, it is necessary to es, which goes in favor of efforts used in maintaining implement programmes for optimizing large business the budget structure favorable. From January 2008, entities in order to have industrial production on sus- wages increased by 30% in all spending units, as well tainable grounds providing the basis for production as the assumption of liability of repayment of debts to expansion. pensioners, which resulted in less room for maneuver in the time of recession. Anyway, forthcoming challenges require full com- mitment, abandoning unrealistic requirements and However, in the long run, it is necessary to focus populism, as well as the provision of full contribution to on several plans. The continuation of improvements the social dialogue. in the business environment and creation of condi- tions for attracting foreign direct investments are cer- tainly priorities. This refers both to further alignment of the tax policy, as to elimination of business barri- ers, whereas it is necessary to continue with the strong investments in infrastructure making the grounds for future uniform economic growth. Moreover, the forth- Mr. Igor Lukšić, PhD, coming negotiations with the social partners on Gen- Deputy Prime Minister and Finance Minister eral Collective Agreement should result in the balance between the need to have more flexible system on one side and fulfillment of social minimum of earnings on the other side. It is important to understand, that in

5 In the focus

IMF Arrangements in the Light of Global Economic Crises

International Monetary Fund (IMF) has three basic activity areas – surveillance, lending and technical assista­ nce. Surveillance involves the monitoring of economic and financial developments, and the provision of policy advices, especially aimed at crisis-prevention. The IMF also lends to countries with balance of payments difficulties, to provide temporary financing and to support policies aimed at correcting the underlying problems; loans to low-income countries are also directed to poverty reduction problem. Third, the IMF provides countries with technical assistanc and training in its areas of expertise. Activity supporting all three aforementioned activities, is the economic research and statistic arrangement.

This article is focusing on credit activities of the IMF, which became very important in the period of outbreak and expansion of the crises worldwide. However, these activities imply surveillance and provision of advisory services and statistical activities, having in mind conditions under which IMF’s lending are approved and used.

With the outbreak of global financial crises, the role of the IMF significantly increased, especially having in mind the need of countries for financing, as well as the impossibility of countries with the lower level of national income to access international financial markets.

IMF Lending

On the request of a country, the IMF lending is usually provided as arrangement, prescribing obligating policies and The IMF developed different types of loan, addressing measures with the objective of overcoming the problems. The different needs of its member countries. Low-income cou­ economic programme, which is the basis of arrangement, is ntries may land money through two units of the Fund on the formulated in a country requiring lending with the assistance basis of concessional1, interest rate. They can use the Poverty of the IMF. The programme is than presented to the Executive Reduction and Growth Facility – PRGF and the Exogenous Board in a form of the Letter of Intent. Once the Board approves Shocks Facility, - ESF). Non-concessional are mostly­ provided the loan, the payment is made in tranches, depending on through the Stand-By Arrangements -SBA), Flexible Credit achieved progress in programme implementation. Line – FCL for the members with the strong policy and policy

1 - The interest rate which is significantelly lower than the market interest rate. Bulletin of the Ministry of Finance of Montenegro / April - June 2009

frameworks and Extended Fund Facility –EFF, mostly used by the low – income countries. The IMF is providing the urgent support, with the objective of providing recovery from natural disasters and conflicts.

With the exception of PRGF and ESF, lending is approved on the basis of the IMF interest rates, based on the SDR (Special Drawing Rights), determined weekly, linked with the changes on international money marker. The amount which the country may lend from the Fund (access limit) depends on the type of the loan, and usually represents the multiplication of the quote.

The most important instrument or the most important type of lending which the IMF is providing is the Stand-by arrangement (SBA). The SBA is intended for overcoming of short term imbalance of payment of the countries. The SBA is usually provided for the period from 12 to 24 months, while the payment period is from 3 to 5 years.

IMF arrangements as the mechanism for mitigating the consequences of global economic crises in selected countries

Many European countries, even some EU member states, required IMF’s assistance in a form of SBA, in order to overcome consequences of global financial crises. The most common reasons for these arrangements are in maintaining the currency exchange rate of the national currency, assistance to the banking sector in crises, as well as in maintaining the fiscal balance. Commonly, the SBA arrangements are approved as cases of extraordinary access, since the usual amount of SBA may not fulfill all needs for funding. (Box 1 Indicates the cases of exceptional access criteria).

Hungary was one of the first EU countries to entered stand-by arrangement with the IMF, opting for exceptional access, i.e. landing which value exceeded the Hungarian quota - per 1000%. The same arrangement was used by Ukraine, Latvia, Iceland, Serbia, Rumania and Bosnia and Herzegovina.

Table 1. Amounts and availability of SBA for selected countries Purchase Country Availability data Million SDR % quote Hungary November 2008 – February 2010 10.537,5 (12,5 billion €) 1.014,8

Iceland November 2008 – October 2010 1.400,00 1.1970,5

Ukraine November 2008 – October 2010 11,000.00 801,7

Latvia December 2009- February 2011 1.521,6 (1,7 billion €) 1200,0

Belarus January 2009- February 2010 1,618,12 (2,5 billion $) 418,8

Serbia January 2009-Februar 2011 2.619.12 560,0

Rumania May 2009 – March 2011 11.443,0 (12,95 billion €) 1110,8

Bosnia and Herzegovina May 2009 – March 2011 11.443,0 (12,95 billion €) 1110,8

Source: MMF, www.imf.org

Depending on the problem with which the country is facing with, the economic programme or conditions to be fulfilled by the country differentiate; however economic programmes are mostly focused on decrease in public consumption, strengthening financial sector supervision and assisting the countries facing with the fluctuation in national currency – maintaining the currency. There are some differences in measures, which in some areas must be implemented, e.g. in the area of fiscal policy, measures are aimed at decreasing the current expenditures, with the special focus on expenditures for salaries and other transfers, as well as on decrease in capital expenditures and focusing on priority projects. In the following text is indicated the review of basic elements of economic programmes for selected countries.

HUNGARY –SBA approved in november 2008

Required funds for: • Significant fiscal adjustments with the provision of reduction of financing needs of the government; • Maintaining liquidity and capital in banking sector.

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Hungary: Exceptional Access Criteria

Staff’s assessment is that Hungary meets all four criteria for exceptional access requiring an evaluation of the case for exceptional access based on the four substantive criteria under the exceptional access framework:

(1) The member is facing with the exceptional balance of payments pressure in the capital account resulting in a need for Fund financing that cannot be met within normal limits. (2) Rigorous and systematic analysis had shown that there is high probability of a sustainable debt position. (3) The member has good prospects of regaining access to private capital markets in time when the debt is due. (4) The policy program provides a reasonably strong prospect of success, including not only Hungary’s adjustment plans but also its institutional and political capacity to deliver that adjustment.

This framework also established stricter procedures for decision making on exceptional cases, with the objective of strengthening security and improving accountability. Procedures include:

• Systematic consultations of the Board on programme negotiations, through confidential informal briefings. Direc- tors receive short notes including the following: (i) temporary problem diagnosis; (ii) description of necessary measures; (iii) the basis for assessment of needs for the exceptional access, being in conformity with the preliminary assessment of four important criteria; and (iv) discussion timeframe. Directors are also receiving informal letter, providing the as- sessment on the grounds of exceptional access which is based on further review of the four important criteria. • The burden is in programm documents. The reports of personnel suggesting exceptional access, must include all four criteria, in-depth elaboration of the necessary balance of payments, comparison of suggested access with other indicators except the quota and systematic and comprehensive information on capacity of debt repayment, the Board is provided with the risk assessment and the liquidity impact to the Fund . • Ex-post programme evaluation in the period of one year following the finalization of the programme.

Requirements: payments, decrease in monthly installments and extending the deadline in case payment inability; Fiscal policy • Strengthening the role of the Central Bank and Instit­ Decrease in revenues through: ution in charged of financial supervision, to evaluate and • Maintaining constant level of salaries in the public react to liquidity problems; sector in 2009; • Rescue package for the banking sector – assistance • Elimination of 13th salary to all public sector for improvements in capital and guarantee fund; employees; Strengthening financial regulations and supervision Elimination 13th pension; through: introducing credit registry for households, providing • Postponement of indexation of social protection the Central Bank to obtain individual, unidentified data and benefits; to analyze credit risk, implementing maximum ratio of loan/ • Across-the-board cuts in other spending allocations value for new housing loans, monitoring the exposition of the to ministries; banks to foreign currencies. • Prioritization of capital projects co-financed by the EU structural funds and programme for the support of SME; Monetary policy and currency • Prevention of debt accumulation; • Since the currency exchange rate is fluctuating, • Control over expenditures of local governments and monetary policy is focusing on maintaining the inflator level. application of correction measures, if necessary; Apart from IMF (12, 5 billion Euros), Hungary is receiving • Adoption of the Law on fiscal accountability setting the EU assistance – 6, 5 billion Euros, from the World Bank - rules on public debt and primary deficit and medium-term 1 billion or total of 20 billion Euros. budgetary framework strengthening.

Fiscal sector policy iceland – SBA approved in november 2008 Defining strategy for resolving private debts to which the citizens are exposed; fixing monthly installments, conversion Required funds for: of foreign currency credit into forint, without additional • Restoring confidence and stabilization of the currency

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through strong macroeconomic policy; domestic financial funds and foreign creditors will not be • Limiting losses in failed banks and implementation socialized. of multi - annual programme of fiscal consolidation directed to feasibility in mid-term through gradual decline in public Monetary and currency policy debt; • Stabilization of koruna and preparation for slow • Design and implementation of the comprehensive, currency appreciation; sound­ and nondiscriminatory strategy for the banking sector, • Slowing/preventing the capital outflow will be fulfilled with the objective of promoting domestic banking sector and through: preservation of international financial relations. • increase in interest rate to 18%; • strong credit control of the Central Bank over the Requirements: commercial banks; • use of currency reserves for the prevention of Banking sector restructuring and insolvency fram­e­ excessive volatility of koruna; work reform • fixed restrictions on a temporary basis for capital • Extending authorization of the inspection body; account transactions; • Splitting banking sector – three biggest banks to be • temporary control of the currency rate as a response divided each into the new and the old bank; to the strict worsening in the value of koruna and pressure on • Adoption of the organizational structure providing reserves will be removed during the programme. the possibility to resolve problems of banking sector and transparent renewal of property; Income policy • Appraising new and old banks to provide that the • Reaching national agreement on programme for recovery of creditors is not jeopardize by splitting; salaries adjustment. • Following the appraisal, new banks will be recapitalized up to the ratio of capital adequacy of at least 10%; • Implementation of a sound and transparent process Belaruss –SBA approved in january 2009 related to creditors in banks where the intervention is made; • Revision of the regulatory framework for banks and Required funds for: supervision­ to strengthen security in case of new crises; • Adjusting to extreme shocks ; • Insolvency framework must be changed to lower the • Addressing current economy vulnerability. leverage and to provide the recovery in the banking, corpo­ rative and households sector. Requirements:

Fiscal policy: Fiscal policy • Overcoming the banking crises will represent huge • Targeting balanced budget of the central government over­­burden to the public sector – of around 80% GDP, will in 2008 and 2009, excluding recapitalization of banks; represent the gross expense for the payment of liabilities - • Measures for targeting the central government bala­ insuring deposits and recapitalization of commercial banks nce in 2009, are: and the Central Bank; • Limiting the growth of salaries in the public sector to • Allowing for full application of fiscal stabilizers in 2009, 10%, which is less than planned inflation level; increase in need for funding and its pressure on financial • Increase in salaries in companies where the state has markets will be limited by purchase of state pension bonds. a controlling stake mustn’t exceed 5%; The functioning of the central government will be limited by • Limiting capital expenditures – decrease in capital quarterly limits of net lending; expenditures realized in 2008; • It is planned to implement ambitious medium-term • Increase in the fee for public utility services; fiscal consolidation plan. The fall of structural primary deficit • Targeted social consumption will be increased in by 2 to 3% annually, with the objective of obtaining low order to protect the most impoverished categories up to the structural surplus up to 2011, and primary structural surplus adjusting measures; of 3 - 4% GDP 2012; • Additional external funding for the budget, in order to • Fiscal framework strengthening – for the first time accelerate economic growth by implementing fiscal stimulus the four-year medium – term is sent to Parliament for in the second half of 2009; adoption at the same time when the budget was sent, the • Accelerating privatization process focusing on large fiscal framework will be analyzed and debt strategy will be companies; developed, and both documents will be analyzed to provide • Establishing the agency which will allow for leasing of better alignment of the national finance with the fiscal plans equipment for exporters. of the central government. • Public sector will not assume additional obligations Financial sector policy related to the financial crises – losses of the pension fund, • Strengthening confidence in banks, with the full

9 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

guarantee in household deposits; addressing problems of the Prominvest Bank, improvements • Uncollateralized support to the banks liquidity must in financial reporting; represent the exception and support to liquidity may be • Development of comprehensive strategy for resolving provided only on the basis of qualitative collateral; problems, including diagnostic strategies and banking sector • In order of providing adequate capitalization of the research, financial support to sustainable banks, adoption state banks, additional funds are allocated from the budget; of regulations allowing the Central Bank to engage in the • Institutionalization of the framework for reacting to process of addressing problems. potential financial crises; • Prohibition to central and local governments to transfer Fiscal policy additional funds to deposit accounts with the commercial • Maintaining low-level general government deficit to banks; the low level; • The Central Bank will suspend direct lending to non- • Decelerating salary growth in the public sector; financial institutions; • Maintaining the budget for 2009, to the budget level • Privatization of large state owned banks. from 2008, in nominal amounts; • Limiting salaries growth, pensions and other social Monetary and currency policy transfers in accordance with projected inflation. Salary of • Implementation of the stronger currency regime, public servants will remain at the same level, postponing linkin­g the currency to the basket of currencies and allow for the increase in minimum wage for two years and revising fluctuation­ ±5%; indexation of the social benefits with past inflation and their • Monetary policy will support new currency regime and indexation with forecasted inflation; it will be directed to achieving targeted inflation of 11,5%. • Ensuring higher transparency and financial stability in extended public sector – Naftogas. Balancing the prices of Policies for improving business environment domestic and imported gas up to 2011. • Liberalization of salaries, the state will not interfere in salary policy of companies having minority stake; Support to the private sector policies • Monthly increase prices limitation will be abolished; • Facilitation of the solution for corporative sector • The number of products whose prices are controlled debts; will be significantly decreased; • Creation of the functional market for agricultural land; • Decreasing the tax burden – decrease in half the • Agreement on list of companies to be privatized. sales tax, local sales taxes and decreasing effective tax rate on income. Latvia – SBA approved in december 2008

Ukraine – SBA appoved in december 2008 Required funds for: Banking sector liquidity improvement (Parex Bank, Required funds for: second in size national bankis facing with huge withdraw Stabilization of the domestic financial system jeopardized in foreign deposits and at the beginning of 2009, debts are by the global crises and domestic confidentiality crises; maturing); Economy adjusting to extreme shocks in terms of Support to the currency rata. trade. Requirements: Requirements: Monetary policy Monetary policy • Maintaining currency rate, fiscal policy and income • Implementation of the flexible currency rate; policy will provide for adjustments; • Activities of the Central Bank and regulations related • Partly nationalization and control of Parex Bank, to the foreign currency markets will be revised with the already implemented; objective of improving market mechanisms; • Testing the banking system solvency – external • Main objective of the monetary policy is the increase international audit; in inflation to 17%, up to the end of 2009; • Sustainable banks which need increase in capital • Medium-term objective – directing monetary policy to are requiring private restructuring through selecting foreign reaching inflation objectives. investors or support of the domicile banks; • Use all supervisory limitations in accordance with the Financial sector policies pillar II Basel standards and require increase in capital and • Restoring stability and confidence in the banking liquidity of banks; sector, by supporting well designed liquidity targeted to • Improve capacities of the crises management, inclu­ increase in guaranty of deposits, banking monitoring system, ding all individual banks (property and liabilities) provi­ding

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urgent liquidity support; • Decreasing compensation to employees in the public • Laws on banks will be improved and provide for sector by 15% (compensations include salaries and all other institutions to undertake timely and efficient actions in order personal earnings of employees); to restore financial stability and to improve special solvency • Pensions freeze; regime; • Subsidies rationalization (including social transfers) • Private debts restructuring: - defining the strategy by • Decrease in consumption of goods and services; the end of June 2009; • Amendments to the Budget Law and request to all • Fixed currency rate policy will represent a support to agencies and ministries to maje prioritizations of their monetary policy up to adopting Euro. activities and further savings plan by March 2009; • Decrease in local self – government expenditures – Fiscal policy decrease in salaries by 15%; • Medium – term fiscal framework will decrease the • Introducing the obligation for weekly forecasts of cash deficit to 3% GDP up to 2011. flow, for all budgetary users and local self governments; • Increase in revenues through: • Structural reforms • VAT increase by 3% to 21%, and decrease in rates • Stricter control over consumption by the Ministry of from 5% to 10%, in 2009; finance; • Increase in excise tax for fuel, alcohol, non – alcohol • Application of the medium-term budget framework; beverages and coffee (2009); • Increase budget transparency. • Reincrease recently decreased non-taxable part of income for income taxes of physical persons and decrease Salary policy the tax rate on income by 2 % to 23% (2009); • Decrease in compensations (salaries and bonuses) • To introduce from 2010, the tax rate on all capital for 15%, compared to planned budget for 2009. revenues by 10%; • Establishment of the Committee for promotion of • From 2010, increase property and immovable property limiting of salaries, mechanism for calculating salaries must be taxes; in accordance with limitations imposed by fixed currency rata. • Increase non-tax revenues, increase in dividends paid by the state owned companies to 50%; Apart form IMF (1,7 billion Euros), Latvia is receiving • Expenditures will decrease by: assistance from the EU – 3,1 billion Euros, Nordic countries –

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1,8 billion Euros, Czech, Poland and Estonia 0,4 billion Euros, • Withdrawal of the state from the ownership in banks the World Bank and the EBRD - 0,5 billion Euros, or in total and insurance companies. amount of 7,5 billion Euros. Structural policies • Privatization, restructuring and elimination of the Serbia –SBA approved in january 2009 large number of state owned enterprises; • Modernization of public enterprises enabling particip­ Funds required for: ation of public sector; • In the arrangement agreed in January – as a precaut­ • Privatization plan for 480 state owned enterprises; ion measure in case of global crises overflow as well as the • Insuring discipline in salaries in public enterprises as platform for possible (higher access case); well as on the central government level. • Revised arrangement from May 2009, directed to the maintaining of macroeconomic and financial stability in light Apart form SBA arrangement, the IMF was providing of stronger negative impact of global economic crises than Flexible Credit Lines (FCL). First countries to require this type anticipated. of assistance in the time of economic crises were Poland and Mexico. Requirements: FCL arrangement is much favorable because it is not Fiscal policy anticipating conditioning and gradual access as it is the case • Limiting general government deficit to GDP; in other programmes. FLC flexibility includes: • As for expenditures, measures are as follows: public • provision of significant funds without ex-post sector salaries freeze (including public companies) in the requirements; nominal amount in 2009 and 2010; nominal freeze of pension • renewable credit lines, to six or twelve months; benefits up to the end of 2009; suspending employment on • Extended repayment period (three to five years); all levels of the government, including contracts on temporary • The absence of limitations in the sense of ratio period; decrease in funds allocated to ministries; return of between required funds and quote; 40% of own funds of budget institutions in 2009; decrease • Flexibility to withdraw funds at any time or to treat it in transfers to local self governments; decrease in transfers as caution measure. to health fund. • As for revenues, measures are as follows: increase in FLC requirements are (a) strong economic fundaments excise tax on fuel and diesel fuel; implementation of excise and institutional framework; (b) application and existence of tax on mobile telephony services; increase in duties for cars; sustainable record of implementation of strong policies and increase in collection of property tax. commitment in implementation of such policies in future. • Administrative capacity building with the objective of These requirements are assess by the IMF team based on increasing tax legislation compliance; following criteria: • Coordination of all levels of the government and Sustainable external position; strengthening public sector financial management; Private flows are dominant in capital account; • As back-up measures, in case of worse financial posit­ Holds permanent independent access to foreign capital ion of the government, it is planned to increase VAT and to markets under favorable conditions; decrease nominal wages; Reserves position is relatively conform when the FLC is • For 2010, is planned to decrease general government required as caution measure; deficit to o 1,75% GDP. Sound public finance, including sustainable debt position; • Monetary and currency policy Low and stable inflation; • Monetary policy will be focused on maintaining lower Absence of insolvency problem in the banks representing inflation, instruments – interest rate; the threat to the system crises of the banking sector; efficient • The Central Bank will not increase loans to the public supervision over financial sector; sector, directly or through primer market by purchasing Date transparency and integrity. debtors securities; • Amendments to the Law on Central Bank and application of the EU acquis and full prohibiting of lending to the public sector.

Financial sector policies • Continuous monitoring of liquidity, deposits and foreign currency reserved of banks; Ms. Ana Krsmanović, M.Sc. • Development of bonds market in Dinars; Independent Advisor I

12 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

Security interest in immovable property - mortgage

Security interest, as the right of a creditor (mortgagee or pledgeholder) to demand satisfaction of his claim by fore­ closing the pledged property with priority over creditors who do not have a pledge created on that particular property, is regulated by the new Law on Ownership Rights (Official Gazette of Montenegro, No. 19/09). Security interest in immovable property, i.e. mortgage, authorizes a creditor to foreclose the mortgaged property if a debtor does not pay his debts when due. A mortgage can be created on an individual property that has the capacity to be monetarily valued, as well as on a percentage (aliquot part) of that property, building under construction, as well as a separate part of the building under construction (apartment, business premises, garage, etc.), regardless of whether it has already been built, provided that a building permit has been issu­ed in accordance with the Law regulating construction of buildings; land that can be freely disposed of, land parcel having a building permit issued, or land parcel in the State ownership that can be disposed of by legal entities. A mortgage cannot be separated from the encumbered immovable property even when a third party acquires owne­ rship of the property. A mortgage cannot be transferred from one immovable property to the other unless the mortgagee and mortgagor agree otherwise. The mortgage shall secure the entire claim, interests and other ancillary claims and Milanka Otović enforced collection costs. A mortgage can be created to se­ cure conditional or future claims. A mortgage shall be used to secure the satisfaction of an obligation based on the value of the encumbered property which obligation must be a all elements prescribed by the Law and necessary for its financial obligation or an obligation that can be monetarily conclusion. valued. A change introduced by the Law on Ownership Rights A claim is specific enough if the creditor and debtor, the is the possibility to register mortgage on the building under legal grounds and the amount, i.e. the maximum secured construction. In case of contractual mortgage on the building amount, are determined. under construction, the registration procedure is as follows: on A mortgage shall be created by registration in the the land where the building is constructed, a mortgage shall cadastre of immovables on the basis of contract (agreement) be registered on the building under construction, and upon between the parties (contractual mortgage), statement of registration of the building in the cadastre of immovables, pledge (unilateral mortgage), law (statutory mortgage), and a mortgage shall be registered ex officio on the constructed court decision (judicial mortgage). building or separate part of the building. A mortgage agreement shall oblige a debtor or a third If the building during construction changes its owner, a party (mortgagor) to register his security interest in the new owner shall have the rights and obligations of the former cadastre of immovables in order to secure creditor’ s claims, owner against the mortgagees. whereas a creditor shall be obliged to issue a certificate to This change enables the persons, who do not own alre­ delete the mortgage upon satisfaction of his claims. ady constructed residential or business units that can be A mortgage agreement must be concluded in writing used as security or that may be mortgaged, to obtain loans and authenticated by a competent body, and it must contain from banks.

13

To secure a claim, a mortgage can be created on several to foreclose the mortgage using the extra-judicial sale pro- immovable properties, regardless of whether they belong cedure, by submitting a complaint to the competent court to one or several owners. If a debt is not paid when due, a within the deadline prescribed by the Law. Submission of mortgagee can choose from where to satisfy his claim. Such the complaint does not postpone the foreclosure, except a mortgage is called a joint mortgage. if the mortgagor submits evidence that secured claim has In the cadastre of immovables, a mortgage securing been fulfilled or is not due, that there has been a breach of a claim that does not have to occur can be registered - the the procedure prescribed by the Law on Ownership Rights, so-called conditional mortgage. In addition to conditional or that the mortgage has not been registered in accordance mortgage, the Law on Ownership Rights regulates credit and with the Law. continuing mortgage (continuing security clause). Security interest in immovable property, i.e. mortgage In the case there are several mortgages on the same shall terminate, when the mortgagee renounces the mortgage immovable property, the priority of a mortgage shall be in writing; the claim secured by the mortgage ceases to exist established according to the moment of submission of or is satisfied together with interests and other subsidiary the request for its registration, and creditors shall satisfy claims; the mortgaged property is sold at a judicial or extra- their claims in the order of priority that cannot be changed judicial sale to fulfill the secured claim; the mortgaged without the agreement of all persons whose rights may be property is destroyed; a decision ordering termination of the affected by the change. mortgage becomes final and binding; the same person is A mortgagor shall have the right to keep and use the both mortgagee and mortgagor; a mortgagee acquires the mortgaged property, to lease it or divest of it without the ownership right on the mortgaged property; and when the consent of the mortgagee, but the right of a mortgagee shall mortgage is deleted from the cadastre of immovables. not be diminished. A mortgagor shall be obliged to maintain the mortgaged property, and he shall be obliged to inform the mortgagee of all changes in the property, and especially on deterioration of its condition or loss in value. A mortgagee shall be authorized to protect his right (mortgage) against all third persons, as well as mortgagor. A mortgagee shall be entitled to demand the satisfac- tion of his claims from the value of the mortgaged property regardless of whether the mortgagor or a third party owns it. The notice of commencement of foreclosure must be registered in the cadastre of immovables in which the mort- gage agreement was registered. In case the claim secured by the mortgage agreement is not satisfied, the mortgagee may satisfy his claim by judicial or extra-judicial sale. Milanka Otović, The mortgagor may contest the right of the mortgagee Independent Advisor III

14 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

Activities of the SPO Unit in Preparation of the Projects for National Multi-beneficiary IPA 2010 Programme

The use of IPA funds is one of the instrument for obtaining the EU candidate status aimed at providing support in facing in the European integration challenges, implementation of reforms enabling the fulfillment of the EU requirements, progress in stabilization and accession process, as well as creating the grounds for meeting the Copenhagen criteria for the EU membership. Namely, IPA instruments differ according to the possibility of beneficiary countries in using funds. Unlike candidate countries, having accredited decentralized management system of the European Union Funds (DIS) pursuant to which the assistance is provided through all five components, not accredited potential candidate countries and candidate counties for DIS – such as Montenegro, receive the assistance only through the first two components. Irma Nišić The first IPA component (Transition Assistance and Institution Building) is divided into the national and multi- beneficiary IPA funds (hereinafter referred to as: MB IPA), while the second component is designed for the cross-border and regional cooperation strengthening. On the basis of the Article 72, of the IPA Implementing Regulation (Commission Regulation (EC) No 718/2007)), the first IPA component is divided into two components, i.e. into national, regional and horizontal programmes - MB IPA. The main difference between the national and the MB IPA is in the fact that one project from MB IPA is at the same time realized in several EU accession countries, while national IPA programmes provides direct assistance to a certain country. Branka Despotović National IPA 2010 Programme

As already known, national IPA programme is focused process composed of six phases, such as: programming, on priorities set by the IPA beneficiary countries. Montenegro, identification, formulation, financing, implementation, evalua­ as potential candidate country for joining the EU and the tion and audit. IPA beneficiary, is currently preparing projects for IPA 2010, Namely, the IPA programming of funds requires that the which is developed on the basis of standard programming identification and preparation process of projects is based on

15 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

relevant strategic and programming documents. The programming process, is a long-term process requiring strategic approach, inter-sectorial consultations, coordination between institutions and appropriate public administration capacities enabled identific­ ation of priorities and preparation of project proposals. The IPA 2010 programming process starter at the end of January 2009 when the Secretariat for European Integration submitted the information to the line ministries on initiation of the IPA annual programming process. Line ministries are informing relevant institutions, from their area of competency, on the beginning of the programming process. Namely, every ministry appointed Senior Programming Officer comprising the Project Implementation Units (SPO Units), participating in the IPA funds programming phases within their respective ministry and providing coordination between the Secretariat for European Integration and relevant institutions under the authority of certain ministry. Following the submission of information by the Project Implementation Units (SPO Units), on the start of the programming of the IPA 2010 programme and submission of the basic strategic documents and guidelines necessary for the identification of projects, administrations and agencies under the authority of a ministry have submitted their project ideas in prescribed deadline. The obligation of the Project Implementation Units (SPO Units) is to check whether the project ideas are prepared in accordance with determined pattern, as well as to insure the absence of overlapping between the donors projects, as well as that the project ideas are submitted to the Secretariat for European Integration. The MIPD (Multi-annual Indicative Planning Document) is the main documents used in the programming of IPA projects, providing strategic framework for multi-beneficiary IPA funds for candidate and potential candidate countries. The MIPD is a three year document and is updated annually. The MIPD relies on the MIFF (Multi-annual Indicative Financial Framework) setting forth indicative review of distribution of the EU funds on a yearly basis and by components for each country which is entitled to use IPA funds. In accordance to the MIFF, in 2010 Montenegro is entitled to use the total of 34 million Euros for the first and the second component, which may be seen in the following Chart:

Table 1: Montenegro: Multi-annual indicative financial framework, in million Euros. Component [2007] 2008. 2009. 2010. 2008-2010 I. Transition Assistance and Institution Building [27.5] 28.1 28.6 29.2 85.9 II. Cross-border cooperation [3.9] 4.5 4.7 4.8 14.0 Total [31.4] 32.6 33.3 34.0 99.9

It should be emphasized that SPO Units are in charge only for the first IPA component, thus all aforementioned projects may be financed from this component, i.e. available funds for Montenegro amount to 29.2 million Euros for the Transition Assistance and Institution Building, ensuring proportional distribution of funds. Following the review of strategic documents, the Ministry of finance, or institutions from the area of its competency, proposed following project ideas for the IPA 2010:

Title Project purpose Support to the Tax Administration with the objective of achieving legal, procedural, human resources and IT Tax Administration objectives, as set forth in the strategic plans of the Tax Administration, complying with the EU criteria. Public procurement Provision of effectiveness, efficiency, transparency and information on public procurement procedures and directorate provision of value for money. Customs Administration Improvements in the customs system in accordance with the EU standards and support to trade facilitation. Anticorruption Initiative The objective of the Project is to ensure continuous application of obligations, set forth in the National Administration anticorruption strategy and organized crime; implementation of the integrity law in the public sector. Ministry of finance (state Improvement of financial transparency and achievement of enhanced policy by creating efficiency – based aid, budget department on knowledge and experience – budgeting process, tax policy, customs and state aid system in order to and sector for tax and achieve more efficient allocation of government resources. customs system) Harmonization with the EU standards in the area of agro-monetary statistics; development of the Registry which will contain data on legal entities (companies and cooperatives), as well as the data on family MONSTAT agricultural holdings used in statistical purposes; Harmonization of the educational and science system with international standards and recommendations.

By the end of February 2009, the Secretariat for European Integration, as the coordinator of the donors assistance, organ­ ized a donors meeting. The suggestion was that similar smaller projects should be merged and described as activities of a bigger project in order to improve the quality of proposed projects, which is the recommendation of the European Commission with the objective of achieving more efficient project implementation. As for the Ministry of finance, it was suggested that the

16 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

Customs Administration and the Tax Administration merge Bosnia and Herzegovina, Macedonia, Croatia, Montenegro, their projects into one, MONSTAT – should align components Serbia and Turkey. with the components of the Ministry of agriculture, forestry Projects included in the MB IPA programme are prepared and water management, Administration for anticorruption on centralized level, i.e. by the European Commission, with initiative – should merge the project in the area of fight the objective of promoting regional cooperation. MB IPA against corruption with the Police Administration and Police programming is based on preparation of project forms and Academy projects. The Project of the Ministry of finance was financial proposals by the European Commission. The Eu­ assessed as priority in the finance area, while the project of ro­pean Commission initiates and prepares draft project the Public procurement directorate was postponed, due to ideas, on the basis of the needs of countries in the region the fact that is overlapping with the project from IPA 2007 and priorities set forth in the MB MIPD. Prepared proposals programme. After corrections, project proposals of the Mini­ are submitted to beneficiaries for comments followed by stry of finance were finalized and sent to the Delegation of the inter-sectoral consultations within General Directorates of European Commission for review, and it includes following the European Commission. Final decision on approving /di­ project ideas: sapproving the Project Fiche is passed by the IPA Committee composed of the representatives of the member states. The 1. ,,Modernization of the customs and tax system in decision of the IPA Committee on proposed projects is fo­ Montenegro in accordance with the EU standards’’, benefi­ llowed by signing the Financial agreement between the Eu­ ciaries: Customs Administration and Tax Administration. ropean Commission and the beneficiary countries. 2. "Harmonization of the statistical system of Monten­ As for the regional support to the Multi-beneficiary MIPD egro with the European statistical system’, beneficiary Mo­ for the period 2009-2011, it focuses on regional cooperation nstat. activities providing the support in reconciliation and political 3. ,,Administrative capacity building in budgeting, mac­ dialogue within the Stabilization and association process of roeconomic projections and analysis, tax and customs system Southeastern Europe. As for the horizontal programming, it and state aid assistance’, beneficiary Ministry of finance. focuses on the activities related to the economic development in cooperation with the international financial institutions, as Delegation of the European Commission is developing well as participation of beneficiary countries in programme of the short list of project ideas, after which the institution the Community open for the Western Balkan. in charge is expected to develop the project ideas into the In accordance with the aforementioned, in 2010, Mon­ Project Fiche, as well as in the format prescribed by the tenegro was offered around 50 project ideas from the multi- European Commission. Project Fiche is developed during the beneficiary programme. In principle, the Ministry of finance third and the forth quarter of the current year. provided consent for the following project ideas:

We are now expecting the final decision of the European 1. Fight against money laundering, terrorism financing, Commission, setting forth which projects will be financed assets confiscation through IPA funds. After the European Commission approves Project Fiche, preparations for approval and signing of the This project will be financed through GRANT not impo­ Financial agreement on national annual IPA programme sing financial obligation to Montenegro. It relates to the are made. The Financial agreement on national annual IPA structures directly involved in fight against money laundering programme sets the obligations of the institutions/be­ne­ in the following countries: Albania, Bosnia and Herzegovina, fi­ciaries. Next step in the programming process is the pre­ Croatia, Macedonia, Serbia, Montenegro, Moldova, Turkey paration and implementation of tenders. and UNMIK Kosovo. The purpose of the Project is to strengthen regional level of inter-agency cooperation and administrative capacities Multi-beneficiary IPA 2010 programme for reveling and prevention of money laundering operations and terrorism financing. The second objective of the Project The importance of the multi-beneficiary regional and is the harmonization of national legislation in the area of horizontal programmes is in supplementing and increasing money laundering with the EU legislation system, policies, the value of the programmes planned under national IPA procedures and standards with the special focus on linkage programmes. Multi-beneficiary MIPD means the cooperation between the money laundering and illegal migrations and and dedication of the beneficiaries of the European and human trafficking, money laundering trends and indicators Accession partnership. Apart form aforementioned, this and terrorism financing, non-profit organizations in the light of programme prescribes active participation of national bodies their possible connections in terrorism financing. Additional in beneficiary countries in programming. purpose of this project is the improvement of operational Programmes that are realized within the MB IPA are de­ structures, implementation of laws and improvements of the fined by the Multi-Beneficiary Multi-annual Indicative Plann­ judicial system. ing Document - MB MIPD in which development are parti­ Expected outputs are as follows: creation of more efficient cip­ating the beneficiary countries of the MB IPA - Albania, mechanism for fight against cross-border money laundering

17 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

and terrorism financing and strengthening the cooperation Activities related to the implementation of this Project between the bodies responsible for implementation of laws, will be focused on technical support to beneficiary countries as well as creation of capacities for fulfilling the requirements aimed at realization of this Project, provision of the support prescribed by the EU legislation related to the fight against for the purchase of equipment and software licenses. money laundering. Technical support will refer to coordination of activities of the administrations of beneficiary countries providing support in Project activities will include the following: support to programming, project design and consulting services, as well bodies in charge for implementation of the law and crimi­ as the training to the users. Support in the procurement of nal prosecution in creating procedures for international co­ equipment will rely on technical expertise for the purchase of operation and for adoption of legislation making differentia­ server hardware and software licenses, as well as devices in tions in competences of the police and prosecution; order to insure sound functioning of the system. de­­­t­­er­­mi­ning characteristics of money laundering on the regio­ nal­ level, as well as emphasizing differences between 4. Statistical cooperation between the beneficiary cou­ the countries if any; identification of obstacles in successful ntries pre­vention and repressive judicial policies on national and regional level; development of recommendations related to The allocation of funds for this Project started in 2003 the regional policy and practice. (CARDS program), and it was intended for the Balkan count­ ries and Turkey. Since this is not an investment project, Mon­ 2. Development of regional mechanism for direct te­negro does not have the financing obligation. exchange of data between the agencies responsible for the The purpose of this Project is to improve and strengthen return of assets in Southeastern Europe. statistical system in beneficiary countries related to availa­ bility, quality, comparability and accuracy of statistical data. Beneficiaries of the Project are the countries that establ­ The expected outcome of the Project is the improvement ished agencies for the return of assets: Albania, Bosnia and in productivity of the statistics, sustainability, transfer of Herzegovina, Croatia, Macedonia, Serbia, Montenegro, Mol­ knowledge, quality and compatibility; preparation of bene­ dova, Turkey and UNMIK Kosovo. ficiary countries for the application of the acquis commu­ The purpose of the Project is strengthening of activities nautaire, to improve coordination between beneficiary cou­ of relevant state bodies related to determining of cross-border ntries and national statistical system, as well as to impr­ove criminal groups and evaluation of the cooperation level provision of statistical data to EUROSTAT. between the agencies for return of assets, establishment of Activities necessary for the fulfillment of aforementioned foundation for determination of mechanisms for improvement objectives, relate to the provision of technical support in the of the data basis and its further development in the system light of sending experts missions in beneficiary counties, for direct exchange of operational information. organizing seminars and workshops, functioning of the help Activities that need to be undertaken for the fulfillment desks in order to provide continuous support. Generally, of these objectives relate to the analysis of the existing these activities will help in integrating statistical personnel in legal framework in the area of the return of assets, revising international network and therefore it should be focused on the best international practice in the area of international motivating the personnel. cooperation and identification of the cooperation grounds, as This project will include following statistical areas: ma­ well as signing the contract on establishing the mechanism c­roeconomic­ statistics, statistics of prices, foreign policy st­ for the direct exchange of information between the bodies a­tistics, demographic statistics, labor market statistics, agr­ responsible for return of assets. icultural statistics, business statistics, statistics in the area­ of science and technique, information society statistics, energy 3. Electronic data exchange and automatic connection and transport statistics, environmental protection statistics, to the customs information lists tourism statistics.

The Project does not prescribe financing obligation. The users of the Project are Customs Administrations in the Western Balkan countries and Turkey. General objective of the Project is administrative capa­ cities building in the structures of customs administration related to the creation of efficient system of electronic data exchange. Specific objective of this Project is the imp­ lementation of the procedures and technical realization of the system for electronic data exchange improving the fight against frauds and elimination of irregularities, regional­ coope­­ ration,­ as well as the question on status of administ­ ­ Ms. Irma Nišić, Advisor rations. Ms. Branka Despotović, Advisor

18 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

Realization of the Capital Budget in First Half of 2009

On the basis of the Budget Law of Montenegro for 2009 (“Official Gazette of Montenegro”, No. 82/08), funds for the capital budget are planned in the amount 217.212.715, 00 €. The amount of planned funds for the Directorate of public works is 122.612.715, 00 € and for the Directorate of traffic 94.600.000,00 €. The Directorate of public works, within planned capital projects in the first half of the current year, continued with the realization of already initiated projects and started the prepa­ ­ration of the project documentation related to following projects:

• Construction and reconstruction of pre-school edu­ cation facilities - Kindergarten in Golubovci Ljilana Crnčević Following the public bidding procedure, the Directorate of public works contracted works aimed at construction of facilities, the obligation of city municipality Golubovci is the cleaning up of the construction location, and the obligation of the Ministry of education and science is to obtain construction license. Realization of this project will improve conditions for the conduct of pre-school education programme.

• Construction and reconstruction of secondary school facilities - Elementary School “Risto Manojlović” and Eleme­ ntary music school in Kolašin

Snežana Mugoša

construction of the facility is planned to be finalized in 2010. The total space of the facility is cca 6.300 m2. One part of the facility will be used for the needs of Elementary school, in total space of 5.750 m2, designed for the needs of 1200 – 1300 pupils, for the work in two shifts, and the second part of the facility will be used by the Music school, space of 550 m2. Realization of this project will create teaching conditions. The works related to the realization of the first cons­ truction phase of this facility were finalized during 2008. - Elementary School “Ante Đedović” in Bar During 2009, is planned to continue with the works, and the During 2008, project documentation was developed

19 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

and works initiated, while in 2009, after the end of the tourist and it is planned to finish the construction by the end of the season, is planned to continue with works. current year. This facility will provide working conditions for 350 – 400 students in accordance with normative for this type of facility.

- Building complex of music arts and drama academy in Cetinje In the first half of 2009, the tendering procedure was completed for the selection of the best architect concept design. After adopting planning documents by the municipality Cetinje, is planned the development of the project documents and creating the conditions for development. The objective of the project is to create adequate conditions for normal functioning of teaching.

The realization of this Project, provided the construction - Student Campuses in Podgorica and Nikšić of the facility of approximately 5.900 m2 with multi use In 2009, was planned the reconstruction of students halls, capacity of 1.200 sits. The building counts 26 rooms campuses in Podgorica and Nikšić. In the first half of 2009, for general purpose, hall for physical education and other activities related to the redemption of land for the construction supporting administrative and technical premises. of the Students campus in Nikšić were completed.

• Construction and reconstruction of secondary • Construction and reconstruction of administrative school facilities: space for the work of public bodies: - Reconstruction and adaptation of secondary - New building of the Government of Montenegro in schools Podgorica. On the basis of the reports on inspection supervision of educational institutions and public institutions carried out by sanitary inspectors, reconstruction of facilities started in order of creating better working conditions for pupils and teachers in the following cities: Podgorica, Bar, Berane, Plav, Rožaje, Bijelo Polje, Kotor, Herceg-Novi, Nikšić, Pljevlja, Budva, Tivat.

• Construction and reconstruction of high education facilities: - University center – Berane.

During 2007 and 2008, project documentation was developed and works initiated, in 2009 it is planned to finish construction and furnishing of the facility.

- Business building of the Police branch unit in Podg­ orica

During 2008, project documentation was developed and works initiated, in the first half of 2009 works continued

20 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

During 2009, the continuation and finalization of all In the first half of 2009 works started in 2008 were contracted works by the end of the current year is planned. continued. By the end 2009, is planned to continue and to By construction this facility working conditions for police finalize the building. This projects will provide the building prescribed by the new Law on criminal procedure and the of total space cca 7.000 m2 and the working space for 250 Law on police. Moreover, required European standards will be employees, permanently resolving the issue of working fulfilled related to the premises for retaining and recognition conditions important for the states, providing institutional of perpetrators. strengthening in the environmental protection area and urban planning. - Administrative facility of the Ministry of interior and public administration in Pljevlja - New building for the Defense Command and barrack »Milovan Šaranović« in Danilovgrad The development of project documentation started in the first half of 2009. it is planned to finish the development and technical control over the projects documentation.

- Construction, reconstruction and adaptation of the cultural facilities: - Music center – Reconstruction and adaptation of he facility “Dom vojske” in Podgorica.

Following public tender procedure, works were contra­ cted and initiated related to the construction of boiler facility connected to newly constructed building. By the end of the year is planned to finish the construction of the boiler facility in order to put in operation the building.

- New building of the Defense Ministry, Army Headqua­ rters, Ministry of internal affairs and Montenegrin Academy of Arts and Science Following the finalization of the tendering procedure, the development of the project documents was contracted. By the end of 2009, is planned to finalize project documentation, During 2007, was finished the public bidding for the acquire necessary licenses and consents and to start with development of the main project and realization of the project the construction of the building for aforementioned institu­ have started. During 2008, finished project documents and tions, on location DUP Nova Varoš II, being property of Monte­ the construction will start. In 2009, reconstructions works negro, whereas the Defense Ministry us the user. Planned will continue on the facility with 4.800 m2 of space, with construction of the building is conditioned by the need to constructing additional 450 m2. Realization of this project provide working capacities for the Defense Ministry, Army will create modern technical – technological conditions, Headquarters of Montenegro, Ministry of internal affairs and primarily for the development of the music art and music Montenegrin Academy of arts and science. activity and protection and presentation of the film fund, as well as the development of other missing cultural content. - State Agency’s Building – II phase - Reconstruction and adaptation of the cultural facilit­ ies on the north of Montenegro Following the tendering procedure, started the instal­ lation of the missing equipment in the cultural centers in: Andrijevica, Berane, Bijelo Polje, Plav, Gusinje, Murino, Pluži­ ne, Pljevlja, Rožaje. It is planned to continue works related to furnishing of facilities, as well as the beginning and finalization of adaptation and reconstruction works in the following­ cultural centers: Andrijevica, Berane, Bijelo Polje, Žabljak, Plav, Gusinje, Murino, Plužine, Pljevlja, Rožaje.

• Apartments construction - Apartments for the needs of the Defense Ministry

21 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

During 2008, project documentation was developed. of this mini bypass with all supporting infrastructure will be Following the tendering procedure in 2009, construction finished, length of 1.100 m. This project will create conditions works were initiated. On the basis of this project, the const­ for better inflow and safer traffic in urban zone. ructed building in gross space of 8.966 m2 with 76 apartment units and approximately 890 m2 business space. - Reconstruction of the main road in Žabljak

• Construction and reconstruction of cross-border passes - Cross-border passes (Dobrakovo, Dračenovac, Božaj, Šćepan Polje and Debeli Brijeg) It is planned to continue with the works aimed at mo­ d­ernization­ of the cross border points. A part of project do­ cumentation was developed for the cross-border points Dobrakovo and Dračenovac at the level of design concept. Planned activities to be completed by the end of 2009, relate to the development and technical control of the project documents for cross border points Dobrakovo, Dračenovac and Sitnica, as well as expropriation of land for cross-border points Dobrakovo and Dračenovac. Reconstruction started following finalized tendering pro­ cedure. The project includes the reconstruction of the road, • Local infrastructure construction length 550 m. until the end of 2009, it is planned to finalize - Street »13 jul« - Nikšić works related to the reconstruction of this part of the road including the reconstruction of complete road.

- Caravan road - Rožaje During 2008, reconstruction works were contracted and initiated for 2.250 m of the road. Reconstruction works will be finished by the end of 2009.

- Support to local administrations in resolving infrastructure-related problems In 2009, planned works on modernization of local roads and reconstruction of city traffic roads will finish by the end of the year.

At the beginning of 2009, following finalized public tend­ ering procedure, works were contracted and initiated on one part of the road length 950 m. total length of the road which is planned for reconstruction amounts 4.700 m. Reconstruction of the road, along with all necessary infrastructure, will create conditions for safe traffic in both directions.

- Construction of mini bypass in Plav

Local road in Danilovgrad

Moreover, during 2009, is planned to start with the works for cleaning up the riverbed of the river Ćehotina in Pljevlja and drainage collector in Berane.

• Environmental protection Projects: During 2008, project documentation was developed and - Sanitary dumps the construction works were initiated. In 2009, construction For the Project for sanitary dumps, during 2008 act­

22 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

i­­viti­es initiated. In 2009, started the development of pro­ ject documentation for dumps in Nikšić, Bijelo Polje and Berane. Until the end of year, it is planned to finish with the development of technical documentation and contro, as well as to create conditions for the construction of dumps.

- Facilities for filtering waste waters Feasibility studies are under development as well as the elaborate of evaluating the impact in environment for the facility of filtering waste waters in following municipalities: Plav, Ulcinj and Cetinje.

• Project for “Integral governance over the eco system of Skadarsko Lake “ The Project is being realized in Montenegro and Albania, and the funds are provided by the Global fund for environmental protection in the form of donation, whicle the project is being implemented by the World Bank. The obligation of the Governemnt of Montenegro is to use Oncology department of the Clinical Center of Mon­ planned funds for construction of filtering waste water facility tenegro in Podgorica in Vranjina. During 2008 was finished the development of project documents and works had started. In 2009, planned first con­ • Tourism Projects: struction phase was finished. Following completed tendering - Creating conditions for the development of »Hiking procedure, the second construction phase was initiated. and biking « - Institute for public health in Podgorica The realization of aforementioned project started in 2008. In 2009, activities were completed related to the development of promotional material and participation in funding with the UNPD for strengthening capacities of hiking and biking association of Montenegro.

• Regional water supply system construction: - Regional water supply system The construction of this system will improve the quality of water supply services in Montenegrin coast and remove the deficit in water supply during the tourist season. Following During 2007 was finished the development of project institutions will participate in the financing of this Project: documents and works had started. During 2008, construction the World Bank, the European Bank for reconstruction and and reconstruction of the building was dome. By completing development, Public Company »Regionalni vodovod Crnogo­ this Project, conditions will be created aimed at the control, rsko primorje« and the government of Montenegro. prevention and elimination of contagious and chronically Funds planned by the Capital budget for 2009, relate noncontiguous diseases. to the participation of the Government of Montenegro in this Project. - Transfusion Centers

• Construction and reconstruction of the Health cen­ ters: - Health Centers in Podgorica During 2008 was finished the development of project documents and works had started related to the 1st phase, reconstruction and construction of the Health Centers “No­va Varoš” and “Pobrežje” in Podgorica is in process. The first During 2007 works were finished in Bijelo Polje and phase is planned to be finished by the end of 2009. Pljevlja and the construction of the new facility in Berane

23 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

started. During 2008 continued the rough construction works • Road Risan – Grahovo – Žabljak for transfusion center in Berane were finished. For 2009 was The construction of the road Risan – Grahovo – Nikšić – planned to continue and finalize works for the construction of Žabljak is realized through several projects, and the financing aforementioned project. model for these projects is provided by the contractor in the long – term period. In 2009, is planned to reconstruct • Construction and reconstruction of social care a part of the road from Kruševica to Jasenovo polje, and facilities reconstruction of the part of the road from Risan up to Niksic - Nursing home in Bijelo Polje is planned to be finished by the end of the year and it will be put into operation.

• Maintenance of the state roads This programme comprises regular and investment maintenance of state roads. The investment maintenance programme comprises the supervision works, projecting, rehabilitation of the sliding spots, walls, slopes, bridges, tunnels, reconstruction of roads and the road Slijepač most – Tomasevo.

• Third road bars on highways On the basis of the Programme for the construction of the third bars, the problem of bottle necks on high slopes and in places of great traffic peak will be resolved. The construction of the third bar was planned for 2009 in the length of 9,6 km:

Funds planned by the capital budget for 2009, will - Third road bar on the highway Podgorica-Nikšić, prov­i­de complete finalization of the facility, of cca 5.100 - Third road bar on the highway Podgorica-Cetinje, and m2, providing the space for 180 elderly persons creating co­ - Third road bar on the highway Cetinje-Budva. nd­itions for lodging and nursing of elderly persons for the northern region of Montenegro. • Railway infrastructure maintenance The Project comprises the current and investment mai­ • Purchase of fire extinguishing airplane and equi­ ntenance of the Railway infrastructure as well as regulating­ pment the railway transport. - The purchase of this type of plain improved equip­ment capacities for fire protection of the Ministry of internal affairs and public administration and municipal fire protection units.

Department for public investment planning

Ms. Ljiljana Crnčević, Independent Advisor I Moreover, the Directorate of traffic within planned capit­ al projects, in the first half of this year will continue with the Ms. Snežana Mugoša, realization of the following capital projects: Independent Advisor I

24 Bulletin of the Ministry of Finance of Montenegro / April - June 2009 Report on the State Debt of Montenegro as of 30 June 2009

The state debt of Montenegro as of 30th June 2009 amo­ unts to EUR 1,003,6 mil or 28,4% of gross domestic product (GDP). Internal debt amounts to EUR 450.0 mil or 12.7% GDP, while external debt amounts to EUR 553,3 mil or 15,5% GDP. Guarantees of Montenegro amount to about EUR 65,8 mil, or 1.9% GDP, or 6,6 0% of the state debt. The state debt makes abo­ut 62.2% of totally generated budget revenues in 2008 (not including privatization receipts, loans or donations).

External Debt Trends in the first quarter of 2009

In the first half of 2009, the external debt increased by EUR 71,6 mil in comparison to the end of 2008. The external debt amount increased due to assuming the debt of the Railway Infra- structure A.D. (Joint Stock Company) with the Czech Export Bank (CEB) in the amount of EUR 48,1 mil, with the European Invest- ment Bank (EIB) in the amount of EUR 7,0 mil €, the European Nemanja Pavličić Bank for Reconstruction and Financing (EBRD) in the amount of 11,0 mil €, and assuming the debt of the Railway Transport AD with the EUROFIMI in the amount of CHF 34,5 mil. The stock of debt has been reduced based on regular repayments of the prin- cipal in the amount of about EUR 11,9 mil €. The external debt amount does not include the obligations in respect of unresolved debt-related issues to Libya, Kuwait, Czech Republic and Slovakia and UBS Bank in respect of bonds issued within the London Club. Montenegro inherited this debt towards the governments of these four countries based on the division of non-allocated debt (5.88% out of 38% for Serbia and Montenegro) and in accordance with the Agreement on Succes- sion Issues from Vienna 29th June 2001, it has been resolved through positions agreed within the Committee for Division of Financial Assets and Liabilities of the former SFRY. The Commit- tee has not had sessions for the period of over two years. As to Ana Banović API bonds, it is expected that at the beginning of the next year the negotiations will take place with the UBS Bank representa- tives, for the purpose of finding the options for bilateral resolu- of the Railway with the EIB in the amount of EUR 6,8 mil and with tion of this issue. The total amount of the obligation in respect EBRD in the amount of EUR 4,0 mil. Also, in the future period it of unresolved debt issues will most likely equal to about 1% GDP is expected that the following will be disbursed: the funds of the and it is included in the projections of debt trend for the period commodity loan of the Government of Spain for the recycle cen- 2009-2012. ter in Podgorica amounting to EUR 5.0 mil, where the condition The mentioned information on the stock of foreign debt im- for disbursement is the signing of a special Agreement between plies the amounts of disbursed loan funds in respect of individual the Ministry of Finance of Montenegro and the Spanish side, the loans. Out of the total available credit funds, around SDR 10,4 mil funds of the Austrian Erste Bank loan amounting to EUR 6.0 mil, € in respect of IDA loan, EUR 28.3 mil of KfW loan (water-supply the loan of the International Bank for Reconstruction and Devel- phases II and III), about EUR 1,4 mil of EBRD loan for the project opment (IBRD) for the project “Cadastre“ amounting to EUR 11.0 of rehabilitation of roads, about EUR 0,3 mil of the Polish loan, mil, “Energy Efficiency“ amounting to EUR 6.5 mil, as well as EUR about EUR 3.2 mil of the Hungarian loan and EUR1.9 mil of the 4.0 mil from the European Investment Bank (EIB) signed during French loan for EPCG about 0,2 mil €, as well as assumed loans the time of the Union of Serbia and Montenegro for the project

25 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

of rehabilitation of roads and EUR 5.0 mil for the waste waters amounts to EUR 1.102,8 mil or 31.2% GDP. The amount of obli- project, and for the financing of the Project “Purchase of special gations of enterprises under majority state ownership was calcu- fire protection vehicles” with the Austrian Bank – Steirmarkisiche lated based on guarantees by the Government, the data of the und Sparkassen AG in the amount of EUR 16,9 mil., as well the Central Bank and data provided by enterprises. funds of IBRD for financing the Project for institutional develop- During the first half of 2009, around EUR 10,2 mil were re- ment and agriculture strengthening in the amount of 11,0 mil. €. paid in respect of interest to nonresidents, and around EUR 11,9 In accordance with the above, the total amount of available and mil. in respect of principal to nonresidents, while around EUR 0,4 non-disbursed funds is about EUR 121,5 mil €. mil. were paid in respect to interest to residents and EUR 22,1 During the first quarter of 2009, the Loan Agreement for mil in respect of principal, while around EUR 32,2 were paid in the financing of the project “Purchase of special fire protection respect to repayment of debt from previous years. On the basis vehicles” with the Austrian Bank – Steirmarkisiche und Sparkas- of the Budget Law for 2009, it is planned that on the basis of sen AG in the amount of EUR 22,0 mil., Loan Agreement for the the principal will be paid around EUR 127,74 mil, including the financing of the “Project for institutional development and agri- liabilities on the basis of early redemption and liabilities of the culture strengthening” in the amount of EUR 11,0 mil € and the Compensation Fund, while the payment of liabilities on the basis Contract of Guarantee withe the European Bank for Reconstruc- of interest will amount around EUR 24,0 mil. tion and Development (EBRD) for the realization of the Project for Railway, phase III in teh amount of 4,0 mil €. Trend and sustainability of state debt in the following pe­ On 30th June 2009, deposits of the Ministry of Finance riod amount to about EUR 72.7 mil, including 38,477 ounces of gold, which is by about EUR 18.0 mil more than at the end of 2008, while Table 2. - Amount of public debt and GDP percentage in the the deposits of state funds which are not fully integrated in the period from 2003 – 2008 Treasury system – Pension Insurance Fund, Health Insurance Fund Year Public Debt Public debt /GDP and Development Fund of Montenegro, according to the data of the 2003 711,2 49,6% st Central Bank of MNE as of 31 May 2009 amount to EUR 51.1 mil 2004 742,4 48,4% €, so the net amount of state debt is about 24.9% GDP. 2005 700,4 42,7% Internal debt trend during the first quarter of 2009 2006 701,1 38,3% 2007 737,2 32,4% During the first quarter of 2009, the internal debt increased 2008 894,7 26,8% by EUR 37,3 mil. The growth of internal debt in 2009 was caused by the continuation of the realization of the projects of the Direc- Table 3. Amount and structure of state debt of Montenegro torate of traffic in order to resolve bottle necks in traffic, assum- in the period end 2009-2012. ing the debt of the Railway transport of Montenegro and Railway 2009 2010 2011 2012 infrastructure of Montenegro towards commercial banks in the Projection Projection Projection Projection amount of around EUR 3,0 mil and assuming the debt of the Foreign debt 882,0 1.128,7 1.341,7 1.344,9 Radio and TV Station of Montenegro in the amount of EUR 4,1 (in mil €) mil, treasury bills issuance in the amount of EUR 34,7 and by Foreign debt 24,9 29,6 32,7 31,3 increasing the indebtedness amount of municipalities. (in % GDP) It is expected that the internal debt will grow in the sub- Internal debt 469,5 456,3 461,4 448,1 sequent period due to the increase in liabilities on the basis of (in mil €) restitution. Internal debt 13,3 12,0 11,3 10,4 The total liability in respect of restitution amounts to EUR (in % GDP) 106.5 mil, which is by EUR 10,3 mil less than at the end of 2008. Total debt (in 1.351,9 1.585,0 1.803,1 1.793,0 The decrease of the debt in respect of restitution is caused by mil €) payment of liabilities in cash and redemption of bonds FO01 Total debt (in 38,2 41,6 44,0 41,7 and FO02 by the State in the stock exchange. The Government % GDP) of MNE, for the purpose of reducing the internal debt, made the decision on redemption of restitution bonds in respect of the note: estimated GDP in 2009 is €3,538 mil, € 3,807 mil in compensation of former owners prior to maturity, and up to now 2010, € 4.098 mil. in 2011, and € 4.303 mil. in 2012 - Source: redemption was made for EUR 11,2 mil value of bonds which is Ministry of Finance EUR 3,5 mil. In 2008, the Government adopted the Decision on redemp- Table 3 shows the projected amount of state debt, based on tion of foreign exchange savings of the citizens for 2016 and undertaken legal and contracting obligations of the State, for the 2017, and up to now the total value of redemption was EUR 1,1 purpose of debt sustainability. mil out of which EUR 0,3 mil in 2009. The projection of the internal debt trend in the period from The debt of municipalities amounts to EUR 61,7 mil, ac- 2009 to 2012 from Table 1 is based on the assumptions that the cording to data provided by municipalities. In November 2008 debt in respect of restitution will reach .50,0 mil € up to 2012, the Ministry of Finance adopted the Instruction on the content while the repayment of obligations in this respect will amount to of the request for borrowings of municipalities and fulfillment of about 0.5% GDP. The amount of repayment of the obligation in financial requirements for their borrowings, which in details de- respect of over due pensions will be EUR 34.0 mil. annually and termines the procedure of borrowing for local self-governments. it will be repaid fully by the end of 2011. New borrowings are also The State debt of Montenegro including public enterprises envisaged in 2009 for the purpose of financing the projects of the

26 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

STOCK OF STATE DEBT OF MONTENEGRO AS OF 30th June 2009 EURO (million) Foreign Debt Foreign % foreign Creditor Debt stock GDP est debt/GDP debt % public debt (2/3) 1 234 5 6 International Bank for Reconstruction and Developmen 183,6 3.538,0 5,2% 33,2% 18,3% International Financial Organization (IFC) 7,4 3.538,0 0,2% 1,3% 0,7% Countries members of the Paris Club Creditors * 127,8 3.538,0 3,6% 23,1% 12,7% International Development Association (IDA)** 53,8 3.538,0 1,5% 9,7% 5,4% European Investment Bank (EIB) 36,0 3.538,0 1,0% 6,5% 3,6% EBRD 16,4 3.538,0 0,5% 3,0% 1,6% Council of Europe Development Bank 1,2 3.538,0 0,0% 0,2% 0,1% European Community 5,5 3.538,0 0,2% 1,0% 0,5% German Development Bank (KFW) 10,8 3.538,0 0,3% 2,0% 1,1% Austrian loan 4,1 3.538,0 0,1% 0,7% 0,4% Hungarian loan 11,8 3.538,0 0,3% 2,1% 1,2% Polish loan 11,8 3.538,0 0,3% 2,1% 1,2% Societe General - Education IT 1,8 3.538,0 0,1% 0,3% 0,2% French loan*** 8,3 3.538,0 0,2% 1,5% 0,8% EUROFIMA - debt of Railway***** 22,9 3.538,0 0,6% 4,1% 2,3% Czech EXIM - Debt of Railway 45,0 3.538,0 1,3% 8,1% 4,5% Steirmarkische Bank und Sparkassen AG***** 5,1 3.538,0 0,1% 0,9% TOTAL 553,3 3.538,0 15,6% 100,0% 55,1% * Amount of original debt in EUR is 71%, American dollars 26% and 3% in other currencies. **Original amount is in special drawing rights (SDR). Exchange rate XDR/EUR = 1.1101 is used. ***Commodity loan - EPCG **** EIB loans in the total amount of EUR 47.0 mil serviced by public enterprises (Monteput, Aerodromi CG and EPCG) are not included in external debt amount, but are treated as guarantees. ***Debt towards EUROFIMA is CHF34,5, and used currency exchange rate is 0,6636 vehicles for the Ministry of Interior

State Debt Creditor Debt stock GDP Dom debt/GDP % dom debt % public debt (2/3) 1 234 5 6 Old FX savings 116,2 3.538,0 3,3% 25,8% 11,6% Local self-government debt 61,7 3.538,0 1,7% 13,7% 6,1% Obligations in respect of compensation 106,5 3.538,0 3,0% 23,7% 10,6% Loans with commercial banks 54,0 3.538,0 1,5% 12,0% 5,4% Non-financial institutions loans 12,1 3.538,0 0,3% 2,7% 1,2% Over due pensions 65,1 3.538,0 1,8% 14,5% 6,5% Treasury Bills 34,7 3.538,0 1,0% 7,7% 3,5% TOTAL 450,3 3.538,0 12,7% 100,0% 44,9% TOTAL STATE DEBT 1.003,6 3.538,0 28,4% Notes: 1) The loans from German KfW bank for the needs of water supply are used by municipalities but it is presented in the summary table of foreign debt. 2) Bonds acquired in respect of the Law on compensation of beneficiaries of rights from pension and disability insurance were issued on 15th September 2008 in the total amount of EUR 105.0 million

Directorate for Transport, for resolving the bottlenecks in trans- The Division for Debt and Cash Management has already con- port, in the total amount of about EUR 5,0 mil. The assumption tacted potential creditors and our view is that there are realistic is that the amount of debt of local self-governments will remain odds for the projected amount of € 200.0 mil in 2009 for deficit on the current level. The repayment of the obligation in respect financing to be provided for. However, the development of the fi- of FX savings will amount to about EUR 14.0 mil. annually. The nancial crisis and its impact on liquidity and lack of confidence in redemption of old FX savings bonds OB16 and OB17 and DO16 the credit market, particularly towards the creditors with specula- and DO7 is not taken into consideration, or the redemption of tive rating, disable the availability of reliable sources of funding. restitution bonds. The projection does not include the obligations that are to With regard to the projection of foreign debt, new borrow- arise in respect of the construction of the high road Bar-Boljare, ings and on-lending are projected in accordance with the agreed or other infrastructure projects which are not defined through the framework of cooperation with international and bilateral credi- cooperation with international financial institutions and bilateral tors, and funds will be used for projects from the area of waste creditors. Also, potential growth of obligations of the Pension waters, regional water-supply, road and railway infrastructure Fund and Health Fund due to negative demographic trends in and energy. Foreign debt trend is projected, with the assumption the structure of population was not taken into consideration. of average three-year disbursement of the loan funds, as well as that available and non-disbursed funds in the amount of 121,5 Mr. Nemanja Pavličić, mil € will be disbursed during 2009. in 2009, additional 200,0 Asistant minister mil € were added for financing budget deficit and repayment of loan, 2010 additional 180, mil € and in 2011, 150 mil €. It is Ms. Ana Banović, expected that the financing will be provided from foreign sources. Adviser in the Division for Debt and Cash Management

27

From the journalist perspective: Montenegro and Global Economic Crises Vicious Cycle

Apart from recession, global economic crises caused dis- agreements on causes and the tools for resolving the crises between the main two entities managing the crises: the Gov- ernment and the Central Bank of Montenegro.

It wasn’t too long ago when the highest Government of- ficials of Montenegro »admitted« that our country is entering recession. The economy entered illiquidity, the production in the biggest industrial capacities was cut in half, and the tour- ist season according to some prognoses, primarily in hotel in- dustry, will be realized at the level of 70% compared to the last year. More concretely, the Aluminum Plant cut the produc- tion in half, Bauxite Mines are closed, the Coal Mine in Pljevlja will decrease its capacities in half because the Thermal Pow- er Plan Pljevlja is out of operations for six months, while the Dragica Lalatović Hydro Power Plant Perućica will be out of operations for three months. If we know that the share of EPCG in GDP is between 18 to 20% in GDP, it is realistic to expect that the most realistic

28

prognoses on null growth will fail. It is rather to expect that we announced that in June two banks used compulsory reserves will have minus and it is only the question how big it will be. fund, which means that they had liquidity problem. We have the situation now that the economy is in cash shortfall, compel- The problem persists due to the shortfall of money, and ling the Central Bank of Montenegro to pass the Decision on due to the global financial crises and increasing lack of confi- decrease in compulsory reserves and decrease in provisions/ dence in banks. At the end of last year, Montenegrin citizens reservations for potential looses. So far there aren’t announce- withdrew savings in amount of around half billion Euros, de- ments that Montenegrin authority is going to go for it, which spite adopted Law on the basis of which the government guar- are the expectations of both the Government and majority of antees the deposits. Due to aforementioned, banks impover- bankers. ished and foreign inflows significantly declined whereas foreign investments are far from the amount reached in last two years Even if the Central Bank of Montenegro would opt for it, following the independence. the results may lack since only two banks have over 60% in market share. The biggest banks in Montenegro - Crnogorska The Government, primarily the Ministry of finance and the komercijalna Banka and Prva banka Crne Gore participate with Central Bank are disagreeing on both the causes of the crises over 60% in investments in the economy and due to different and on how to exit the viscous cycle. The Government is not reasons neither of up to now is issuing loans. The question is satisfied with the measures undertaken by the monetary agent, how other nine banks that are issuing loans will improve the thinking that by »untightening of monetary mechanisms« would inflow of money into economy. Aren’t the expectations of the improve the liquidity of the economy. The argument is on the economy which are on a daily basis requiring the banks to pro- level of compulsory reserve which commercial banks are hold- vide more favorable conditions to some industry or company ing with the Central Bank of Montenegro, amounting approxi- unrealistic? And there are already delays in payment of loans mately 160 million €, being compulsory in accordance with the and payment of income to employees, and on time payments regulations in force in the country and in abroad, as well as are mostly paid without taxes and contributions which forced reserves for invested loans. the Ministry of finance to decrease expenditures. Not to men- tion that adequate health protection to insurers, regular pay- The opinion of the Central Bank Montenegro is that they ment of pensions and salaries for state employees has to be are safeguarding the stability of the banking sector within its provided. competency, while the Government’s opinion is that the sta- bility must be in favor of the development of Montenegro. Mechanisms introduced by the Government are well Therefore, the Government’s opinion is that the compulsory known, but it looks like they are not going to be enough. The reserves of commercial banks with the Central Bank of Mon- Government still needs to face with the challenges of introduc- tenegro, should be decreased, as well as the provisions for po- ing new interventions, while most citizens will face the time tential losses jeopardizing the capital. Most bankers agree with that could be called »in pursuit for food«. The Government with Government’s opinion, and their reaction to the remark of the Erste Bank concluded the contract on budget support in the Central Bank of Montenegro that the reservations for potential amount of 30 million Euros, and it is negotiating with the Swiss losses are quite low, is that they are higher than in Serbia, Aus- Bank on additional loan. Montenegro is not still insolvent and tria or Croatia. Their example that goes in favor of their opinion therefore the loans will be approved, but the question is what is that if a company, facing global economic crises problem or will happen with the economy. The support of German KFW operating at a loss, would be approved a loan of 1 million €, the Bank of 50 million Euros for small and medium-sized enterpris- bank would have to allocate reservations of 20 to 30%. In their es is announced, but from Crnogorska Komercijalna Banka are opinion, these are immobilized funds increasing loan costs. saying that the signing of contract is pending, which means 30 Namely, in the situation of high provisions, banks are mostly million Euros less. With regard to the support of the European reacting by applying higher effective interest rate. Investment Bank of around 100 million Euros, there is again a question on when this funds will be released. The following Just to remind: the Central Bank of Montenegro is not the possible source of new money is announced recapitalization of issuing agent and its competences are therefore limited. Apart the part of EPCG. But expectations are that the tender will be from its important role in banking supervision, it has the com- finalized by the end of autumn. Till than. stick with the people petency of regulating the quantity of cash in circulation. This and with the quote: »don’t worry, you’ll see no good«. instrument is called compulsory reserve. In situation of too much cash, compulsory reserve increases and vice-verse when is lacking it increases. On the website of the Central Bank of Montenegro it is written that this instrument is not used up to this year, because of the sound banking system and stable macroeconomic situation. At the beginning of this year, in order to improve the liquidity of the budget, banks were entitled to purchase treasury bills engaging a part of funds from compul- Ms. Dragica Lalatović, sory reserves, while the Central Bank of Montenegro recently TV Montena Journalist

29

First Level Control as a Tool for Reducing Irregularities in the Process of Using EU Funds

The new European Commission’s financial instrument cooperation is achieved between one or several member - IPA (Pre-accession Instrument) which entered into force in states and one or several candidate/potential candidate 2007, did not represent the only new thing that occurred coun­ ­tries for joining the EU (IPA funds beneficiaries), in the programming period from 2007.-2013. Apart from the implementation is done on the basis of the shared the candidate and potential candidate countries being management­ principle, which is making the programme beneficiaries of the IPA funds, also the member states of the management very similar to the management over structural European Union had to face once again with the changes and funds, including financial management and control, i.e. challenges as beneficiaries of structural funds. First Level Control applied in the same manner as to other cross border programmes financed from structural funds. Montenegro, as potential candidate country, exercising These are characteristics has only the Adriatic programme. the right to use the funds from I and II component of this The other two programmes are distinctive, because they pre-accession instrument1, within II component participates represent transnational programmes in which, unlike the in four neighboring bilateral programmes (Montenegro – EU member state, apply different principles to IPA funds Croatia, Montenegro - Bosnia and Herzegovina, Montenegro beneficiary country. – Albania), and in Adriatic cross-border programme and in two transnational programmes (Mediterranean programme Within the cross-border programme, in which the EU and Programme for transnational cooperation for the area member states are participating, it is necessary to appoint of Southeastern Europe). Every aforementioned programme Managing Authority, Certifying Authority, as well as Audit comprises priorities, managing bodies, joint structures for Authority which by the rule are located in the EU member state individual programmes represented by all countries, as well participating in the programme. Apart from aforementioned as the rules that are in force. authorities, it is necessary to establish Joint Monitoring Committee, Joint Steering Committee and Joint Technical Having in mind the fact that partners of Montenegro out Secretariat. from the first four neighboring programmes are candidate/ potential candidate counties for joining the EU, these pro The overall responsibility of the Managing Authority, grammes are implemented under the EU centralized2, or supported by the Joint Technical Secretariat, is the implem­ decentralized3 management system. For programmes where entation of the programme in accordance with the sound

1 - I Component – Transition Assistance and Institution Building, II Component – Cross-border cooperation 2 - Montenegro, Serbia, Bosnia and Herzegovina and Albania 3 - Croatia

30 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

financial management principle. The Joint Monitoring Co­m­ mittee has the final word in selecting the projects and reports on implementation. The Certifying Authority checks the statements on expenses and certifies that they comprise only expenses which are in accordance with the rules in force. The Audit Authority provides opinion on regular functioning of the system and legality and regularity of stated expenses, annually.

However, established structures, as for the stated ex­ p­enses of beneficiary countries, are not responsible for expenses compliance against the rules on expenses acce­ ptability, legality and regularity. None of the mentioned structure represents the 100% filter in checking all expenses stated by beneficiary countries that would subsequently annul irregularly stated amounts. On the other hand, due Bojana Kaluđerović to the lack of knowledge of beneficiary countries, there is always a risk from stating expense that cannot be accepted for financing from the EU funds. And this situation is bringing us to the definition of control which became the burning issue in this programme period, becoming especially through In order to achieve the objectives of the First Level the obligation of the member states to appoint a body that Control, it focuses on the following two activities: will perform the First Level Control for each programme. • Administrative check - desk based check over every request for compensation; Definition and Legal Basis • on – the – spot - check.

Programme period 2007-2013, provided new interpr­ Desk based check is based on 100% review of all etation to the definition of control, differentiating it from expenses paied by the user of funds. Apart from the request the audit. The control means the check carried out by the submitted by the user of funds, all supporting documents, first instance-level controllers in accordance with the IPA such as copies of invoices, packing lists, tender documents, Im­plementing Regulation (Commission Regulation (EC) No contracts, etc.. with regard to the on – the – spot – checks, 718/2007)), which at the same time represents the basis for it related to the situation in which the controller is visiting the establishment of the First Level Control over beneficiary the place of the project in order to insure himself: in certain countries IPA funds, or Regulation (EC) No. 1080/2006 of the activities, in provision of services, supply of products, in European Parliament and Council regulating the European accordance with approved application for the EU funds. Co­ Fund for regional development, more precisely articles 108 n­trollers, apart from checks, have to insure that all costs (IPA Implementing Regulation), or (ERDF Regulation where is are properly documented, confirmed and accepted. It is stated that „each participating country (or the EU member important to emphasize that the rules on acceptability of are state) shall designate the controllers responsible for verifying not the same for all countries. The percentage of identified the legality and regularity of the expenditure declared by each and unaccepted costs in the previous period ranged from 3% final beneficiary participating in the operation. Participating to 25% against total amount of compensation requests. The countries may decide to designate a single controller for the purpose of the control on which controllers are basing the whole programme area“. certificate of expenses acceptability, is to insure that the user has appropriate management and control system, as well as Unlike control, the audit represents the second level that the declared costs are indeed in compliance with the control, i.e. additional verification of expenses applied on European, national and programme rules. certain sample. Verification of expenses aroused on the basis of activities In principle, First Level Control, represents the verifi­ of one partner in project (user of funds), may be carried out ca­tion of the project expenses, carried out during its imple­ only by external bodies increasing the independence of mentation prior to submitting progress report, including fo­ first instance controller against project partners, higher tra­ llowing verifications: nsparency in the control process, as well as providing stimulus • Supply of goods and services financed from co- to the development of expertise in the area of control. financing funds, in accordance with approved application for distribution of funds; How can be organized First Level Control? • Regularity of declared expenses; • Expenses compliance with the programme rules, EC The literature addresses following four possible ways of and national rules. organizing First Level Control:

31 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

1. Centralized control on national level through a public biggest problems make the expenses for employees and administration body; ge­neral expenses. These problems concern errors in calcu­ 2. Centralized control on national level through auditing lation of the number of working hours, unfilled timeshe­ets, company; or calculation of general expenses related to the project or 3. Decentralized control through some internal or the absence of clear traces / evidence on the manner of external controller proposed by project partner, approved on cal­culation. Very often controllers face with the problems in national level; procurement, thus one of the requirements is a good kno­ 4. Decentralized control through a controller selected wledge of procurement procedures. by a project partner on the basis of the short list for the selection of candidates (centralized/joint body publishes the Conclusion list of authorized controllers), so called. Mixed system. Incomparable number of errors identified in the First One of the features of centralized systems is that bene­ Con­trol Level is not the result of frauds, but more the re­ ficiaries of the programme are appointing joint central body sult of the lack of knowledge or information. In order to performing the task of the First Control Level. Unlike this eli­minate this negative factor, should provide information system, the feature of decentralized system is that a user of on requirements for both the concrete programme and funds is free to suggest the controller with the objective of for the First Level Control. In this way the error rate of 17% certifying for the conduct of First Control Level over expenses would decrease. What would the world of implementing IPA declared by a project organization that suggested him/her. funds and structural funds look like without control? The assumption is that this rate would be 25%. Unfortunately, the current experience is not adequate for selecting the system with the biggest advantages / lowest disadvantages. However, since the basic requirement for the controllers – the absence of conflict of interest, as well as independence against project partners – is the system where an auditing company is carrying out the control, the practice had proved that this is the biggest disadvantages since it is very difficult to find an auditor who is not in conflict of interest.

First Level Control within Adriatic Programme

Having in mind the fact that the First Level Control is required for the Adriatic programme, it is necessary to emphasize that it is planned to establish the FLCO – First Level Control Office and decentralized offices for the FLO within the administration of the member states and can­ didate/potential candidate countries participating in the programme, in order to develop control organization in supporting Managing Authority. The First Level Control Office is competent for every country in the programme, checking documents for all activities (100%) for which users declare expenses. Following the verification of documentations, the Office issues certificate on acceptability of expenses, or if necessary, requires additional documentation to be submitted in prescribed deadline for explanation purposes. The certificate of acceptability of expenses is submitted to: 1) user subject to control; 2) First Level Control Office; 3) Lead Beneficiary.4

Up-today experience Up to date experience of the member state countries Ms. Bojana Kaluđerović, participating in territorial cooperation is showing that the Independent Advisor I, CFCU

4 - Article 96, of the IPA IPA Implementing Regulation prescribes the designation of the Lead Beneficiary prior to submitting activity proposal within the project and prescribes its activities.

32

Accounting and Auditing Reform in Montenegro

Accounting and auditing area was very dynamic in the World Bank on the initiative of the Ministry of finance and last. The Strategy and the Action Plan for financial report- through the Center for the reform of financial reporting, mo- ing improvement in Montenegro was adopted, as well as the bilized certain donor funds within the Project FIRST Initiative. Law on amendments to the Law on Accounting and Auditing Based on the requirement of the Ministry of finance, the main (“Official Gazette of Montenegro“, No. 80/08), subordinate objective of the Project is the support to the development of legislation was published, and the control of regularity of the Strategy and the Action Plan for financial reporting im- submission of financial statements by the business organi- provements in Montenegro , as well as the provision of funds zations was conducted for 2007, and the REPARIS Program for the implementation of the Strategy. implementation initiated, etc.. The main objectives of the FIRST Initiative Project are The Government adopted the Strategy and the Action as follows: Plan for financial reporting improvements in Montenegro on 30th October 2008. The document represents a clear and Task 1: Provision of technical assistance to the Govern- systematic programme of measures for improvement of le- ment of Montenegro in setting priorities within the Action gal framework, institutions and accounting profession, es- Plan for financial reporting improvements in Montenegro for pecially in the part related to the accounting and auditing the period from 2009 - 2011. and business culture with the overall objective to reach the Task 2: Provision of technical assistance to the Account- high quality in financial reporting. Moreover, the objective of ing and Auditing Council in expanding the Action Plan in mid the Strategy is to recognize and define activities and instru- and medium term. ments leading to the harmonization of the financial reporting with the acquis, including the preparation of consolidated The result of the activities set forth in the first task, sho­ financial statements, auditing companies regulations and uld represent the concrete Project proposals enabling mo- electronic publication of financial statements, as well as to bilization of donors funds for the implementation of certain define proportional requirements for financial reporting of activities set forth in the strategic documents. The procedure small and medium-sized enterprises. on selection of the consultant is in process and activities re- The implementation of the document will result in in- lated to setting of priorities should start in mid June 2009. crease in reliability of all stakeholders in financial statements The Law on changes and amendments to the Law on of business organizations in Montenegro. In that light, the accounting and auditing was adopted by the Parliament at

33 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

the end of December 2008. Previous Law on accounting and and types of registry of the auditing companies and autho- auditing (“Official Gazette of Montenegro“, No. 69/05) went rized auditors (“Official Gazette of Montenegro“, No. 30/09), through significant redesigning and changes related to the published on 28th April 2009; electronic reporting, submission of quarterly reports, consoli- The Rulebook on the manner of maintaining the registry dated financial statements, changed deadlines in submissi­ and forms of registry of auditing companies and authorized on of financial statements, introduction of inspection super- auditors (“Official Gazette of Montenegro“, No. 30/09), pub- vision, categorization of legal entities, establishment of the lished on 28th April 2009; Accounting and auditing Council. Decision on establishment of the Accounting and Audit- On the basis of Law on accounting and auditing (“Official ing Council (“Official Gazette of Montenegro“, No. 32/09), Gazette of the RoM No. 69/05 and the “Official Gazette of published on 12th May 2009; Montenegro“, No. 80/08) the Ministry of finance prescribed The Rulebook on requirements for issuing and revoking the obligation of issuing licenses to the auditing companies. the license for authorized auditor (“Official Gazette of Monte- Up to now, 13 licenses were issued to existing and newly negro“, No. 33/09), published on 20th May 2009; established­ auditing companies. The Rulebook on the manner and deadlines in develop- The Law introduces the obligation of maintaining the ment of inventory list and harmonization of the bookkeeping registry of authorized auditors and auditing companies which balance with the actual one (“Official Gazette of Montene- a competent body is maintaining in a form of a public book. gro“, No. 34/09), published on 29th May 2009; In that light, developed registries are published on the web- The Rulebook on amendments to the Rulebook on more site of the Ministry of finance1. detailed conditions for obtaining the license for authorized The Law introduces the Inspection supervision, as a auditor (“Official Gazette of Montenegro“, No. 41/09), pub- new institute being the obligation of the Ministry of finance. lished on 26th June 2009. In this manner, the preconditions were created to reduce mis- use and increase the quality of financial statements through The adoption of the Rulebook on validation of the cer- the inspection supervision and application of sanctions pre- tificate and Instruction on requirements for the issuance and scribed by the Law. At the same time, the Law sets forth more revoking the working license from auditing companies is in severe penalties which should motivate the users of the law procedure. Moreover, the Rulebook will be the subject of the to proceed in accordance with prescribed provisions. public debate which will be organized from 15th June to 15th Moreover, the Government of Montenegro established July 2009. The draft Decision on the amount of insurance for the Accounting and Auditing Council (“Official Gazette of Mon- compulsory insurance related to the accountability of the au- tenegro“, No. 32/09), from 12th May 2009. The Accounting diting companies and authorized auditors for possible dam- and Auditing Council Is composed of multidisciplinary group of age which may be caused to a person for whom the audit is public sector composed of the following institutions: Ministry being performed and following the review of comments and of finance, Commercial Court, Central Bank of Montenegro, opinions the final version of the Decision will be sent for fur- Securities Commission, Insurance supervision agency and ther procedure. institutions which are authorized by the public administra- tion body in charged for accounting and auditing to perform Conclusion: these operations and which have the knowledge in the area of accountancy, finance and audit. The task of the Council is In the forthcoming period, in cooperation with the rel- to support the implementation of the Strategy and the Action evant institutions the Ministry of finance will continue with Plan for financial reporting improvements in Montenegro with the implementation of the accounting and auditing system the objective of harmonizing the requirements with the ac- reform process in Montenegro, which will further improve ac- quis communautaire related to the accounting and auditing, counting and auditing practice, financial reporting, increase as well as the provision of advices to persons in charged for corporative culture, transparency, faster and easier access policy creation, regulators and other stakeholders, creation to required data and information necessary to both to the of the environment for the improvement of accounting and shareholders and investors and to other stakeholders/ The auditing regulations and practice in Montenegro, with the implementation of aforementioned measures will get us clos- overall objective to improve the financial reporting quality. er to more developed market economies, full implementation of the acquis communautaire and compliance with interna- Following subsidiary regulations were adopted2: tional standards.

The Rulebook on the content of the statistical annex Ms. Ana Krsmanović, (“Official Gazette of Montenegro“, No. 17/09), published on Independent advisor I 6th March 2009; Ms. Aleksandra Popović, The Rulebook on the manner of maintaining registry independent advisor II

1 - Registries of the auditing companies and authorized auditors are updated on the regular basis (source: www.mf.gov.me). 2 - The text of subordinate legislation may be downloaded on the website of the Ministry of finance (www.mf.gov.me).

34 Bulletin of the Ministry of Finance of Montenegro / April - June 2009 Activities of the Deputy Prime Minister and Finance Minister in the period from 1st April to 30th June 2009

and customs. This is understandable, because in the first quarter the gap trend was reduced to 30 and 40%. This is not the consequence of the taxation manner, but directly the economic crises. The Government of Montenegro is not considering the 2nd April 2009 – Mr. Igor Lukšić, possibility of introducing progressive taxation which is creating the habit PhD, the Deputy Prime Minister and Mr. Igor Lukšić, PhD, the Deputy to plan public consumption against Finance Minister tool part in the Prime Minister and Finance Minister Round Table “The Other Side of Surge: expenditures, and not against reve­ and Mr. Marek Lorinc, the Head of Fiscal Policies Effective in Pro-cyclic nues. Proportional taxation of emplo­ the EBRD Office in Podgorica, signed Environment” yees wages in the previous period gave the Guarantee Agreement for the “Montenegrin Government would positive effects. The new Government thi­­rd loan tranche for the Project be satisfied if the economic growth will make the decision on budget “Ur­­gent Rehabilitation of Railway in this year would range from 0 to rebalance and possible arrangement Inf­­r­astructure”. The signing of this Ag­ 2%. This would provide for stability in with the IMF. For now, there aren’t any reement, was preceded by the Lo­ economic circumstances. Around 90% special delays in budget execution. an Agreement for the Project “Ur­gent of Montenegrin commercial activities Montenegro is not running from the Rehabilitation of Railway Infrastructure“­ are undertaken in the region and the cooperation with the IMF, but the new in the amount of 4.000.000,00 Euros, EU. If these countries enter recession, Government will be opting for it. Our signed by exe­c­utive director of the it will be very difficult to struggle with job is to define possible cooperation Public Co­mpany Railway Infrastructure the challenges in Montenegro. We model with the IMF, which would be of Montenegro JSC Podgorica (JP believe, that the measures of the immediately activated, if necessary. Željeznička infrastruktura Crne Gore Government and credit lines from In the previous period we led cautious A.D. Podgorica), Mr. Vladimir Šaulić, international institutions, will be more policy avoiding the situation of urgent and representative of EBRD. In the effective and evident in the next period. support packages. In the absence of previous period, contracts were signed Our task is to implement measures banking crises, in this moment the for the first two tranches of the Project which will not extinguish fire in a short consequences of global economic (in 2007 - 6.000.000 Euros, in 2008 - run, generating expenses for future crises would be at minimum. Therefore 5.000.000 Euros), while the realization generations. Decline in taxes provided it is clear how crucial is that we jointly of the third tranche is in the amount of and still provides good effects, resu­ ­ provide for banking sector stability …” 4.000.000 Euros for 2009. Contracted lting in increase in liquidity, consu­ variable interest rate amounts to six- mption, salaries. This is the way to 6th April 2009 - Mr. Igor Lukšić, month EURIBOR plus 1%, and the mitigate the consequences of the PhD, the Deputy Prime Minister and contract prescribes the possibility of cri­ses. It is true that the decrease Finance Minister, signed Guarantee transferring to the fixed interest rate in tax rates has a limit set forth by Agreement for the third loan tranche depending on financial market trends. national legislation. The biggest gap of the Project “Urgent Railway Infra­ The Contract also prescribes that the is in the VAT revenues from import structure rehabilitation” third tranche funds will be used for

35 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

financing urgent construction works for A competent team will develop the of the crises, related to the support to rehabilitation of railroads. Pro­ject, and planned expenses will economy, small and medium-sized amount to around 920, 000 Euros, enterprises, banking sector, citizens, provided through three tranches. Th­ etc. The EU and the World Bank credit is Project becomes more important support was emphasized as potential in the time of economic crises. We crises absorbers. To the question now have a possibility of using local why Montenegro did not borrow from experts, because we are no longer the IMF, the Deputy Prime Minister depending on external knowledge and explained that up to now, Montenegro expertise outside Montenegro. The didn’t need the IMF arrangements, project team will have available cap­ and the new Government will decide acities of the Government, and the on this issue. As for economic reforms, 13th April 2009 - Mr. Igor Lukšić, Ministry of Finance will be responsible the Deputy Prime Minister stressed the PhD, the Deputy Prime Minister for coordination...“ importance of introducing Euro since­ it and Finance Minister, met with Mr. proven to be crucial in stabi­lization of Simeon Djankov, the creator of the monetary system, free in­flow of capital Doing Business Report and policy of single digit taxes, as well Mr. Igor Lukšić, PhD, the Deputy as on the concept of creating open Prime Minister and Finance Minister economic system for new investments. met with the World Bank delegation – IFC/FIAS, led by Mr. Simeon Djankov, Chief Economist of the Finance and Private Sector vice – presidency in 28th April 2009 –Interview of Mr. the World Bank, creator of the Doing th Igor Lukšić, PhD, the Deputy Prime 4 May 2009 – the Interwie Bu­siness Report (“Ease of Doing Bu­ of Mr. Igor Lukšić, PhD, the Deputy siness“). Mr. Lukšić presented the Minister and Finance Minister for Voice of America, on the occasion of Prime Minister and Finance Minister, ac­­­t­i­vities of the Government of Mo­ for Reuters ntenegro aimed at improving doing regular spring meetings with the IMF bu­siness institutional framework of and the World Bank. Montenegro, and subsequently the ra­­­nking in this year’s Doing Bus­i­ ness Report. The Report is based on determined indicators, ranking a co­ untry with regard to starting a bu­siness, issuing licenses, employ­ment, property registering, possibility of obtaining lo­ an, investors protection, payment of 5th May 2009 – Interview of Mr. ta­xes, cross-border trade, contracts re­ Igor Lukšić, PhD, the Deputy Prime th alization and closing of business. 29 April 2009 – Presentation Minister and Finance Minister, for Ec­ of Mr. Igor Lukšić, PhD, the Deputy o­nomic Portal - Montenegrowing.me Prime Minister and Finance Minister, at Johns Hopkins University Mr. Igor Lukšić, PhD, the Depu­ty Prime Minister and Finance Mini­s­ter held the presentation at promi­nent Johns Hopkins University in Wa­shington “Global economic crises effects to Southeastern Europe“. The Deputy Minister acquainted the students with th 14th April 2009 – Signed Mem­ the Euro - Atlantic int­e­g­ra­tion process, 12 May 2009 - Mr. Igor Lukšić, o­­r­andum on Development of the Do­ WTO accession and other important PhD, the Deputy Prime Minister and cument “Montenegro in XXI Cen­tury political and eco­nomic topics in Mo­nt­ Finance Minister took part in Round – in Competitiveness Era“ – Sta­tem­ enegro. When talking about the eco­ Table “Impact of Economic Crises ent of Mr. Igor Lukšić, PhD, the Deputy nomic and fin­ancial crises effects to on European Integration“ organized Prime Minister and Finance Minister: Montenegro, Mr. Lukšić presented the by weekly magazine “Monitor“ and “It necessary to complete the do­ package of social-economic measures German Embassy to Montenegro, wi­ c­ument in the following 15 months. aimed at overcoming the consequences thin “Montenegro and European In­ tegration“ Project.

36 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

cooperation with the Hayek Institute the role of the European Bank for Res­ from Vienna, within the Programme tru­cturing and Development, in the “Free Market Road Show“ previous period, not only from the aspect of economic and development priorities of Montenegro, but also of almost whole region of Southeast Europe. By fulfilling its objectives, the Bank is meritorious for the achieved progress and reforms in all countries, “Extraordinary economic circum­­­ which certainly has had positive polit­ stances failed in delaying the impl­ ical and economic implications for the ementation of activities and priorities development of Montenegro. defined by the National Programme “If Montenegro wants to achieve However, in last few months of European Integration. This may be consistent economic growth and pro­ most countries have postponed the the best indicator of our committed ductivity, it is necessary to focus on finalization of the transition process work in the process of joining the infrastructure-related projects. All this for a post-crisis period. The need to EU, as well as the awareness of Eu­ does not mean that we will not end­ preserve the social and economic rope of best endeavors used by Mo­ ure the negative impact of the crises. balance worldwide resulted in a tacitly ntenegro. Global economic crises, We are neither immune nor isolated. reached ecumenical priority. All world will not essentially affect steps and To the certain extent it is inevitable economies, including the Montenegrin en­deavors of Montenegro towards that consumers will adjust their prefe­ one, are committed to creating new the European family. The crises will rences. No governmental action can ways and models to overcome the affect the management of more fle­­ prevent that. But there are no mar­ cri­sis. It seems however that smaller xible economy and monetary po­li­ ket failures, either – market is a me­ countries like Montenegro have experi­ re mirror, reflection of what we are cy, creating certain changes in fiscal­ enced the advantages of the small doing as participants in the market policy of the EU member sta­tes and and open economy, as well as good interaction. On the other hand, there is stagnation of economic devel­o­pment economic policies dating from the pre- plenty of examples how state policies on the road to Europe. Ho­wever, noting crisis period. Due to the positive public fail. The more state interference the aforementioned will affect the European finance performances – surplus in the more distorted markets and the impli­ integration pro­cess of Montenegro. last three years, decrease in the public cation is that price structure can not Montenegro is independently fighting debt amount - Montenegro generated a tell of real profit chances. Actually, the with the challenges­ of the crises, small advantage over other countries, real question is whether economies providing regular payment of state thus it easily buffered the first attack are able to bear the social cost of the liabilities, despite declined realization of the crisis...” turbulence....” of revenues in the amount of 18%, which is less than planed. Regardless the economic momentum, requiring additional eng­agement in overcoming the cons­equences of the crises, the Government is fully committed in fulfillment of objectives and obligations set forth in the Stabilization and Association Act. The process of joining Montenegro, shouldn’t be the 20th May 2009 - Mr. Igor Lukšić, harvest of economic crises, committed PhD, the Deputy Prime Minister and application of European legislation Finance Minister, participated to will surge further strengthening of Presentation organized by the Real institutions and rule of law, which Estate Directorate for the Project of along with economic freedoms, is the developing digital map of topographic best combination of foster economic maps, in proportion 1:25 000 and development...” GIS Data Base, as well as activity for 18th May 2009 - Mr. Igor Lukšić, development of Immovable Property 13th May 2009 - Mr. Igor Lukšić, PhD, the Deputy Prime Minister and Cadastre of Montenegro PhD, the Deputy Prime Minister and Finance Minister, took part in the “Production of digital maps in Finance Minister, took part in the Meeting of the EBRD Governors Mo­ntenegro, represents an important Conference “Financial Crises: State or Board in London prerequisite for fast and successful Markets Failure” organized by UDG in „... It is very important to emphasize economic development and qualitative

37 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

investments. Digital maps will not be signed the Loan Agreement between i.e. in which manner will obligations on only useful to the Real Estate Dire­ Montenegro and IBRD, for the Project for the basis of this loan be regulated in ctorate, they will be used as a basis Institutional Building and Agricultural the next period. This implies changes to for the provision of users service to Strengthening and the Grant Agreement the Budget Law, because it is necessary all interested companies, as well as of the Global Fund for Environmental that everything is in compliance with to national and foreign investors. Mo­ Protection (GEF Grant), which will be the Parliamentary procedure. This ntenegrin Government with the World realized by the Ministry of agriculture, Memorandum is creating conditions Bank signed the Contract on financing forestry and water management, Bur­ both for Russians and the Government several projects, which will be realized eau of Statistics of Montenegro and to abandon court procedures and to in the following period providing the Veterinary Administration, as well as withdraw processed complaints. Ado­ survey of around 340 thousand acres by institutions responsible for project pted Memorandum is not the final act­ of space. Our objective is after 2013, implementation in the amount of ion, because a number of activities to have as less possible unsurveyed 2.955.000 €. The Loan Agreement si­ need to be completed, prior to all ne­ areas. In the forthcoming period, the gned between Montenegro and IBRD, gotiations with the consortium of banks Ministry of finance and the Real Estate for this Project was signed for the period that will start tomorrow, because it is Directorate will continue to invest of 11,5 years, grace period of 5,5 years our objective to resolve the problem as significant funds in similar projects, and it will be repaid semiannually at soon as possible. In this manner, the focusing special attention on human favorable interest rates. Government is addressing the workers resources and technical capacity who think that the Government should building of the Directorate in order to take over the ownership over both the be fully trained for the provision of most KAP and Bauxite Mines from Russians. complex operations. The first big step The Government was considering two was done few days ago, by adopting options – to cease the production and to the Rulebook on Internal Organization resolve problems and create conditions and Systematization of the Real Estate for continuation of production. The Directorate. Last couple of years, ana­lysis have shown that is neither the Ministry of finance and the Real realistic nor economically justified to Esta­te Directorate are continuously 4th June 2009 – Statement of close the KAP and Bauxite Mines. Th­ imp­lementing activities focused on Mr. Igor Lukšić, PhD, the Deputy at’s why we decided to give them a improving records and measuring Prime Minister and Finance Minister, new change, whereas the Government unmeasured part of the country. Two on the occasion of adopting the Me­ will have its member in the Board of Projects are in the implementation m­o­­r­andum on joint cooperation and Directors of KAP, who will have the right phase,­ including the survey of over general consent between the Gover­ to veto which will be prescribed by the 140 thousand acres, in relation to nment of Montenegro and En + new purchase and sale agreement – the highway Bar-Boljare and Adriatic – Group including the Decision on production Ionic highway..” “The Government will issue gua­ levels. Comparing with the bankruptcy r­antees for the part of total credit proceeding, this option proved to be indebtedness of the Aluminum Plant cheaper for the state...” (KAP) – loan of 25 million Euros. The 16th June 2009 - Mr. Igor Lukšić, Government is ready to earmark the PhD, the Deputy Prime Minister and part of money from the budget funds Finance Minister, was a host of Ne­ for realization of the social programme therlands Constituency IMF and the – up to five million Euros. We are ready Wo­rld Bank, organized from 14 – 16 to issue guarantees for indebtedness June in Budva – Welcome Speech of the KAP, worth 20 million Euros. This “...I won’t hide my personal money would be used for financing pleasure with the fact that Montenegro 27th May 2009 – Signed Loan working capital and for the payment hosts the Dutch Constituency meeting in Agreement between Montenegro and of outstanding liabilities to CKB. With times of the global economic downturn. IBRD, for the Project for Institutio­nal the consortium of banks, we will I hope that this meeting will be the pla­ Building and Agricultural Strength­ negotiate the amount of guarantees ce for a quality, constructive and fruitful ening and the Grant Agreement for which we are ready to provide for the exchange of opinions and experiences. the Global Fund for Environmental part of outstanding debt. This is very First and foremost, it is an opportunity Pro­tection important, because it is providing long for the constituency members to pr­e­ Mr. Igor Lukšić, PhD, the Deputy term stability of the KAP’s balance and sent their experiences and thus co­ Prime Minister and Finance Minister creating conditions for changes in this ntribute to our joint fight in the upc­ and Mr. Ian – Peters Olters, the Head of company. We would like to hear what is oming period for better, more flexible the World Bank Office in Montenegro, the discount that banks ready to offer, and innovative solutions, which will

38 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

help us overcome the global economic p­­enditures reduced by total ca­p­­i­­­tal 26th June 2009 – Mr. Igor Lukšić, turmoil with minimum consequences. expenditures amounted to 37,32%. PhD, the Deputy Prime Minister and But, I also hope that this will be a This is a confirmation that the u str­ ­ Finance Minister, met with the DG good opportunity, in the year when all cture is recovering against infr­astr­ Budget representatives of the Eu­ the destinations are fighting for their ucture-related investments. In last ropean Commission. place in the tourism calendar, for You ye­ar consolidated expenditures of the In period 24 - 25 June 2009, the to contribute to our package of anti- bu­dget amounted to 38,1% GDP, and European Union DG Budget Repre­se­ crisis measures and to spread further current expenditures amounted to ntatives, Mr. Robert Gielisse and Mr. Your positive views of Montenegro. 33,6%. This is undoubtedly favorable Raymond Hill visited the Ministry of I am pleased that You will have the public expenditure structure. The amo­ finance and met with Mr. Igor Luksic, p­o­ssibility to discover, experience and unt of deposits at the end of last year the Deputy Prime Minister and Finance enjoy the beauties of Monteneg­ro that was 96,58 million Euros. The State Minister, and his assistants Ms. Mila we are so proud of. And I also hope disposed of around 23,6 million Euros Barjaktarović and Mr. Dušan Perović. that through the progra­ms we have in gold. The Parliament should decide The topic of the meeting was the prepared, we will manage to present on budget rebalance by the end of July achieved progress in the public internal part of our youth, creativeness, art and of the current year.” financial control. The representatives cultural diversity...” of the DG Budget of the EC, were pre­ 25th June 2009 – Statement sented with undertaken activities of of Mr. Igor Lukšić, PhD, the Deputy the Ministry of finance related to the Prime Minister and Finance Minister, development and adoption of the on the occasion of adopting the sub­ordinate legislation necessary for Report on macro - fiscal trends for the implementation of the Public inte­ the first three months of 2009; rnal financial control Law, as well as 18th June 2009 –Interview of Mr. Report on realization of macro - fiscal planned activities with the objective Igor Lukšić, PhD, the Deputy Prime policy for the first three months of of establishing and strengthening the Minister and Finance Minister to 2009, and Proposal of objectives public internal financial control, both in Press Agency Beta and fiscal policy guidelines used as the area of financial management and a basis for planning the receipts and control as in the internal audit area. expenditures, with the projection for the next three years, capital budget projection for 2010, and financial ceilings and medium term expenditure framework for 2010 – 2012. “The public consumption should be at the level of 41,3% GDP, in next 18th June 2009 – Speech of Mr. three years. This years expected pu­ Igor Lukšić, PhD, the Deputy Prime blic consumption deficit amounted Minister and Finance Minister, on the to 2,89%. In the next three years, the occasion of passing the Draft Budget decrease should balance the budget. Law Final Account of Montenegro for With regard to the central budget 2008. and state-owned funds budget, public consumption should be kept between “Total receipts of the budget 35 and 36%, and capital budget sho­ we­re by 0,74% higher than planned, uld amount to 3,5% GDP. The budget generating the surplus of around 0,4% deficit corresponds to the level of GDP. GDP real growth is 8,1%, and capital expenditures – although it sh­ nominal 18,8%, indicating dynamic o­uld be lowered against it. In the foll­ gro­wth of Montenegrin economy in owing period, activities will be focused last year. Crises effects was postponed on amendments to the Budget Law to the certain extend. Montenegro for this year. The Government should has low level of public debt, the pu­ pass the proposal in the mid of July. It blic debt in last year amounted to implies corrections to the current and Ms. Gordana Jovanović, 26,8% GDP, unemployment fell to capital budget, answers to company’s Spokesperson, 10,8%. Consolidated public consu­ restructuring comprising budget appr­ mption amounts 46,6% GDP or 1,55 opriation. This is one of the measures Ms. Ivona Mihajlović, billion Euros. Consolidated pub­lic ex­­ correcting medium – term plan... Assistant to the Spokesperson

39

INFO/WEB Other Activities in the Period from 1st April to 30th June 2009

1st April 2009 – Workshop on » Objectives System« in cooperation with the GTZ The first day of the Workshop was focused on the Gordana Jovanović following: presentations and discussions on the objectives system and experience of the Federal Republic Hessen, as well as discussions on open issues related to the pro­ gramme budgeting in Montenegro aimed at defining mission statements. During the first day of the Workshop, further steps in implementation of the programme budgeting in spending units were analyzed with the objective of su­ ccessful implementation of the programme budgeting in Mo­ ntenegro.

3rd April 2009 – Mr. Milorad Katnić, Assistant Minister, took part in the Round Table of the Closing Conference of TRIM MNE Project The Round Table addressed main issues related to the accession of Montenegro into WTO, regional trade, measures, Ivona Mihajlović trends, consequences, economic crises and other current economic and financial issues.

40 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

10th April 2009 – Steering Committee Meeting – “First Commission at the end of Ja­nuary. The Economic and Fiscal Steps for a Decentralized Implementation System (DIS) in Programme, represents the preparation for the development Montenegro“, Podgorica of the Pre-accession economic programme, that a candidate The second Steering Committee Meeting – SC of the country for the EU membership is obliged to develop. The Project “First Steps for a Decentralized Implementation Sy­ main benefit of the program, is to enable the countries with stem (DIS) in Montenegro“, was organized on 6th April 2009, much easier creation of consistent economic policy, since it in Podgorica. The objective of the meeting was to review is updated on annual basis, providing explanation for possible implemented activities and achieved results in decentralized deviations from established parameters in the previous year. management of the EU pre-accession funds, during the period On the other hand, benefit for the European Commission is from December 2008 to February 2009, as well as planned much easier fulfillment of economic and fiscal criteria of the activities in next six months period. The Quarterly Report European Union. The head of the delegation, Mr. Milorad Kat­ of the Project which was reviewed, comprises comparative nić, M.Sc, briefed the attendees on the current progress in the analysis of planned activities against achieved results. The public finance areas, financial sector and other commercial Report addresses the situation at the expiry of the first sectors. Moreover, Assistant Minister presented set objectives quarter following the inception period and clarifies progress on recently organized annual spring meetings of the IMF and of project activities which have been carried out after the end the World Bank. of the first quarter, conclusions and recommendations to be reviewed by the beneficiary aimed at successful finalization of the Project. During the first quarter, the work was focuses on the Component 0 – Horizontal activities of the DIS pro­ cess, Component 2 - National Fund, Component 3 - CFCU, as well as the Component 5 – Senior Programming Officers (SPO). Activities related to the Component 1 (National IPA Coordinator – NIPAC) and the Component 4 (Internal Audit Unit of the Ministry of finance – IAU – MF) are planned for the next period. The general conclusion was that the action plan of the Project is fully monitored which is supported by 35% of spent budget.

st 21 April 2009 – Compensation bonds with maturity 30th April 2009 – Bulletin No. XV date started The Ministry of finance published the Bulletin No. In accordance with the Law on compensation to the XV, containing the review of activities of the Ministry of hol­ders of pension and disability insurance rights (“Official finance for the period from January - March, the overview Gazette of the Republic of Montenegro”, number 40/08 of the current economic and financial topics, as well as the and 42/08), started the payment of the second installment following articles: Law on ownership rights, experience of of compensation bonds with maturity date to the holders of the Republic of Ireland in the situation of global financial bonds who acquired rights on the basis of compensation for crises, VAT trend analysis and structure, repercussions the period July 2002 to December 2003. Prva banka Crne of measures of G20 meeting to the financial position of Gore, Crnogorska komercijalna banka and NLB Montene­gro­ Montenegro, as well as quarterly reports on the public debt, banka will realize payment through their branch units. public expenditure realization on the local self-government level, public expenditures, etc.

6th May 2009 – Implementing Agreement signed In accordance with the European Union requirements in the area of the conferral of management powers of pre- accession­ funds instrument (IPA) from the European Com­ mission (EC) to Montenegro, i.e. requirements related to the establishment of decentralized implementation system (DIS), the Implementing Agreement was signed between the 27th April 2009 – Montenegrin delegation took part in National Authorizing Officer (NAO) and Programme Authorizing the experts meeting devoted to the preliminary assessment Officer (PAO). In the light of the above, contracting parties of Economic and Fiscal Programme are authorized representatives of the Ministry of finance, Mr. Montenegrin delegation, led by Mr. Milorad Katnić, M.Sc, Dušan Perović (NAO) and Ms. Nataša Kovačević (PAO). The Assistant minister, took part in the experts meeting devoted to Agreement related exclusively to the Decentralized implem­ the presentation and preliminary assessment of the Economic entation System of management of programmes of IPA co­ and Fiscal Programme 2008 – 2011, su­bmitted to the General mponent – Transition assistance and institution building. It is Directorate for economic and fina­ncial affairs of the European important to emphasize that the Implementing Agreement is

41 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

very important for the activities of the Project “First steps for IPA funds, adopted on the Government’s session held on a Decentralized Implementation System (DIS) in Montenegro“ 15th January 2009, along with appropriate activities req­ui­ providing technical assistance to the Ministry of finance r­ed to be completed in 2009, primarily with regard to the and the Secretariat for European integration, as well as to establishment of relevant DIS bodies, development and other DIS players, with the objective of strengthening of the signing of Implementing and Operational Agreements rep­ administrative and managerial capacities and compliance resenting the basis of the legal framework for the DIS with the accreditation criteria by the IPA bodies. The Implem­ establishment, as well as the development of procedures enting Agreement is of extreme importance, being the basis thereto. Namely, all issues important for the overall process for formal defining of responsibilities and functions of the will be subject to discussions, as well as the process of pre­ National Accrediting Officer (NAO), the National Fund (NF), paring supporting/accompanying accreditation package. and Programme Authorizing Officer (PAO) being the Head of the Sector for financing and contracting the EU funds (CFCU) 19th May 2009 - Application for the payment of as a part of Operating structure (OS) for the programmes citizens foreign exchange currency savings deposited with financed through the IPA Component I. authorized banks headquartered outside Montenegro will last up to 30th May 8th May 2009 – Board of Directors of the European The Ministry of finance of Montenegro, reminded the Inv­e­stment Bank approved the initiation of negotiations ci­ti­­zens residing in Montenegro, who deposited foreign ex­ with Montenegrin banks change savings with authorized banks headquartered ou­ Pursuant to the initiative of the Ministry of finance for t­s­ide Montenegro, to apply for payment of savings, in acc­ the provision of the credit support for the improvement of ordance with the amendments to Law on payment of foreign Montenegrin banking sector liquidity, the Board of Directors exchange currency savings deposited with authorized ba­nks of the European Investment Bank approved the issuance of headquartered outside Montenegro. Payments are sche­ loan to Montenegrin banks for funding small and medium- duled up to 30th May 2009. Applications for the payment of sized enterprises projects, worth 100 million Euros, for which foreign exchange savings deposited with authorized banks the Government of Montenegro will issue guarantees. headquartered outside Montenegro should be submitted to On the basis of data submitted to the European Invest­ment Crnogorska komercijalna banka, and this right may exercise Bank and on the basis of analysis produced by the representatives citizens residing in Montenegro. of the EIB in recent months, the Board of Directors approved the initiation of negotiations with the Crnogorska komercijalna 25th May 2009 – Meeting of Enhanced permanent di­ banka, Hypo Alpe Adria Bank, NLB Montenegro Bank, Podgorička alogue between Montenegro and the European Commi­ssion Bank, Societe General, Oppo­rtunity Bank, Komercijalna banka The second meeting of the Interim Subcommittee for Budva and First Financial Bank. The European Investment Bank the follow up of the application of the Interim agreement is considering the possibility to start negotiations with the Atlas on trade and trade related matters in the area of economic Mont Bank, Invest Bank Montenegro and Hipotekarna Bank, and financial issues and statistics, as well as the meeting provided that the banks submit information previously requested of Enhanced permanent dialogue between Montenegro by the European Investment Bank. and the European Commission, took place in Podgorica, on 25th May 2009. The meeting was the opportunity for 11th May 2009 – Mission of General – Directorate the representatives of Montenegrin institutions to pres­ent for enlargement (DG ELARG) of the European Commission achieved progress in aforementioned areas. As for comme­ (EC) with the objective of determining facts rcial area, macroeconomic stability and progress achieved In accordance with the common practice of the Euro­ by Montenegro, with the special focus on economic growth, p­ean Commission related to the determining which phase labor marker and balance of payments was subject to the country reached in the process of transferring to Decen­ discussions. As for financial policy, it was discussed about t­ralized Implementation System of management of the budgetary policy and developments, fiscal framework and European Union pre-accession funds, the mission of the public debt management, and banking and non-banking General – Directorate for enlargement (DG ELARG), with sector.­ Capital flows and business environment were also the objective of determining facts, visited Montenegro in subject to discussion. In the area of statistics, the discussion the period from 12th to 14th May 2009. During the visit, the was focused on review of the national statistical system of representatives of the European Commission reviewed the Montenegro, national accounts, as well as the preparation following phases: preparation, programming and future impl­ for making of census and agricultural census. ementation of the Component III – Regional development, Component IV – Human resources development, as well as 2nd June 2009 – First negotiations round on concluding the Component V – Rural development of the pre-accession the Contract on avoiding double taxation between Mon­ instrument (IPA) and visited all relevant ministries. Review tenegro and the Republic of Ireland of the DIS accreditation status, was scheduled for 13th and First round of negotiations related to the conclusion of 14th May, focusing on completed activities prescribed by the Contract on avoiding double taxation between Monte­ the Action plan for the conferral of management powers of negro and the Republic of Ireland. Ms. Koviljka Mihailović,

42 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

Assistant Minister of Finance, represented the Government obligations and claims in respect of foreign debt and citizens’ of Montenegro, and Ms. Helen O’Graidy, Director of the Div­ foreign exchange savings (“Official Gazette of the Republic ision for corporative and international business, was rep­ of Montenegro”, number 55/03 and 11/04). Installment resenting the Republic of Ireland. The Contract will regulate amount is determined in the certificate (amortization plan). the issue of removing double taxation against income taxes The payment will be made by commercial banks, or regional of legal and physical persons and corporative profit tax centers of the Central Bank of Montenegro. Citizens who (employees earnings, revenues from independent activities, after 1st July 2004, registered with their banks where they interests, dividends, authorial fees, revenues from capital, held deposits, and whose bonds are registered on individual pensions…...), as well as other issues related to avoiding­ account with the Central Depositary Agency, may withdraw double taxation and eliminating tax evasion. the sixth installment in regional centers of the Central Bank of Montenegro and in Atlasmont Bank AD Podgorica, branch unit Pljevlja, depending on the place of residence, on the basis of identification document (ID, or passport).

29th June 2009 - Information on payment of the third installment of converted citizens’ foreign exchange savings bonds deposited with authorized banks headquartered outside Montenegro In accordance with the Law on payment of foreign exchange currency savings deposited with authorized banks headquartered outside Montenegro (“Official Gazette of the Montenegro”, number 81/06 and 20/09), owners of 26th June 2009 – DIS Experts visit converted citizen’s foreign exchange savings will be paid the On the basis of the European Union technical assistance third installment in branch units of Crnogorske komercijalne provided to the Government of Montenegro, through the Proj­ banka AD Podgorica (CKB) from 1st July 2009. Citizens who ect “First steps for a Decentralized Implementation System failed to withdraw the second installment, or whose claims (DIS) in Montenegro“, apart from three long term experts, are not registered with the Central Depositary Agency, should following three short term experts visited the Ministry of register with the branch office of CKB where they submitted finance in the period from 15th June to 3rd July 2009: Rasa the payment request for foreign exchange deposits, where Surauciene, Viktoras Sirvydis and Jovita Ramanauskaite. The they will receive the certificate of conversion of savings into objective of the short term experts visit was the provision of bonds. After reconciliation of the foreign currency account the support in development of the IPA Manual, representing balance, the bank will record the amount of converted foreign the basis for the work of all individual institutions involved in exchange savings into bonds in the booklet. decentralized implementation system of management of the EU funds. The Manual of Procedures in the IPA accreditation 29th June 2009 – Signed Loan Agreement between process, will provide detailed explanation of all phases of KfW and Opportunity Bank the project cycles: programming, identification, evaluation, The German Development Bank (KfW) and the Opportu­ financing, implementation, project evaluation, including irreg­ nity Bank have signed the Loan Agreement in the amount u­larities against prescribed procedures, as well as deviations of 15 million Euros. Out form aforementioned amount, 13 from established procedures for both components. The million are earmarked for financing small and medium-sized Ma­n­ual of Procedures, will cover all managerial structures enterprises projects, while 2 million Euros are earmarked for including the units of the Senior Programming Officer (SPO) the energy efficiency projects. The duration of the loan is seven in all line ministries, internal audit units (IA), National Fund years, with the grace period of two years. In accordance with (NF), Sector for financing and contracting EU funds (CFCU) the credit requirements, the Ministry of finance, on behalf and the Ministry of European integration. Special attention of the Government of Montenegro, signed the guarantee for was focused on more precise defining of the following te­ aforementioned Loan Agreement to the KfW-u. If all formal rms: DIS accreditation criteria, segregation of functions in requirements for the validity of the contract are met, the decentralized management system of EU funds at the level Opportunity Bank may have available funds by 15th July 2009. of the system and organization, on-spot-checks, managing irregularities, communication and reporting, supervision and evaluation process, and so called statement of Assurance.

29th June 2009 – Information on payment of sixth instal­ Ms. Gordana Jovanović, lment of converted citizen’s foreign exchange savin­gs bonds Spokesperson The payment of the sixth installment of converted foreign exchange savings bonds will be made from 1st July 2009, to Ms. Ivona Mihajlović, the owners of bonds, in accordance with the Law on regulating Assistant to the Spokesperson

43 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

IPA Adriatic Cross-Border Programme

Cross-border cooperation, represents traditional tool of the European Union segregating joint activities and achieving common objectives important to all beneficiary countries in the programme. In that light, the European Union is distr­ ibuting funds aimed at cooperation strengthening in the area of economic and social development, environmental protection, natural and cultural heritage, fight against orga­ nized crime, provision of security and efficiency of border, etc. Those activities are completed in accordance with the „joint interest principle“according to which the neighboring countries have joint programmes, managing structures, as well as joint participation in project co-financing. As for the number of participants, cross-border progra­ mmes may be bilateral or multilateral. In Montenegro, cross- Milorad Samardžić border activities are covered by the second component ot the Pre-accession Instrument support (IPA), through the follo­wing four bilateral programmes (Montenegro – Serbia, Montenegro – Croatia, Montenegro – Bosnia and Herzegovina and Monte­ negro - Albania); two transnational programmes (South East European Space (SEES) and Mediterranean programme), as well as through the IPA Adriatic cross-bor­der program. IPA Adri­atic cross-border program is a spe­cial program against other programmes, because eits implem­entation is done differently, i.e., shared management prin­ciple. IPA Adriatic cross-border program 2007-2013 (hereina­ fter referred to as: the „Program“) was approved by the Euro­ pean Commission on 25th March 2008, as the follow up of the New Adriatic Neighboring Programme INTERREG IIIA and its financed through the IPA funds, with the objective of supporting Katarina Živković accession process of candidate and potential candidate countries for the European Union membership. The basic Objectives, priorities and measures of the IPA Adriatic objective of this programme is to improve coope­ration between Programme Adriatic countries, enabling them to define joint objectives and The Strategy is foreseen in the general objective of the to undertake joint activities aimed at promoting sustainable development of their territories. Apart from aforementioned, the programme which is defined in the following manner: objective of the programme is to enable candidate and potential Strengthening sustainable development possibilities candidate countries to become more familiar with the rules of of the Adriatic region through harmonized activity strategy the Community, as well as application procedures. among partners of acceptable territory. The programme includes three member states (Italy, The general objective is defined in a manner providing Greece and Slovenia); one candidate country (Croatia), as assistance to countries which are in the accession process, well as potential candidate countries (Montenegro, Albania in the area of institutional building and ability to manage and Bosnia and Herzegovina. Aforementioned countries are the European Union instruments. Moreover, through the fulfi­lling the territorial acceptability criteria, since each of programme strategy, objectives of the cohesion and regional them is exiting the Adriatic sea. policy of the EU are met, as well as creation of new types

44 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

of integration and creating links between territories that will these three most important bodies of the programme is in contribute the increase in competitiveness of the whole Adr­ Italy in Aquila. iatic region. Joint Monitoring Committee - JMC, together with the There are specific goals originating from general objec­ MA, is conducting evaluation of project effectiveness and tive of the programme, so called priorities. The Adriatic pro­ implementation quality. Pursuant to the articles 110 and 111. gra­mme has four following priorities: IPA IR, the responsibility of the JMC includes, primarily: review Table 1. Review of priorities and measures within the and approval of criteria for the selection of activity to be Programme finances, approval of the call for the submission of the bids, periodic checks over the progress in realizing specific objectives IPA Adriatic Cross-border programme of the programme, verification of the implementation results Priority 1 Priority 2 against set objectives, review and approval of the report Economic, Priority 3 Priority 4 Natural and on implementation, approval of strategic project proposals, social and Accessibility and Technical cultural resources review and approval of the proposal on amendments to the cultural network assistance and risk prevention cooperation programme, development of the draft rulebook on procedures of its work in accordance with institutional, legal and financial Measure 2.1 – Measure 1.1 – Measure 3.1- Measure 4.1 – Protection and frameworks of beneficiary countries, etc. Research and Physical Administration improvement of JMC is composed of the representatives of central, innovation infrastructure and sea and costal i.e. local authority of beneficiary countries. Apart from management area these countries, the JMC member, on advisory basis, is the Measure 1.2 – Measure 2.2 – representative of the European Commission. Moreover, the Financial Natural and representatives if the partnership for the environmental Measure 3.2 – Measure 4.2 – support for cultural resources Sustainable Information, protection, as well as economic and social partnership, innovative management mobility system publicity and participate as observes in the work of JMC. small and and prevention evaluation Joint Steering Committee-JSC, carries out evaluation of medium-sized of natural and the project proposals submitted by the JMC in its report, in enterprises technological risks the form of project list, ranked in accordance with previously Measure 1.3 - Measure 2.3 – Measure 3.3 – set criteria. In conduct of operation, prescribed by the article Social, health Energy saving and Communication 110. IPA IR, JSC is using the support of the JTS. As already and labor renewable energy network mentioned, project evaluation is carried out on the basis of networks sources determined criteria that may be presented in the following Measure 1.4 – Measure 2.4 – manner: objectivity, transparency, professionalism, analysis Institutional Sustainable and review of information submitted in the application. cooperation tourism The selection and appointing of the members of the JSC is done by the JMC. However, JSC may be composed of the JMC IPA Adriatic programme management structures members, with the help of external experts, if necessary. Joint Technical Secretariat-JTS, with the place of busi­ In the IPA Adriatic programme, following bodies have the ness in Aquila, was established by the MA, with the agreement leading role: Managing Authority - MA, Certifying Authority – of the countries participating the programme. Its main task is CA and Audit Authority - AA. These bodies, established on the to provide the support to other bodies in the programme, in basis of the requirements set forth in the IPA Implementing conduct of operations for its area of competence. Regulation (hereinafter referred to as: the “IPA IR“), are funct­ ioning on the principle of segregation of functions and they Financial Plan are haven’t hierarchal links in implementation of activities. The following Table indicates the Financial Plan, showing Apart from aforementioned bodies, having segregated the allocation of funds available up to 200, according to prio­ functions there are following structures in the programme: rities: Joint Monitoring Committee - JMC, Joint Steering Committee – JSC and Joint Technical Secretariat - JTS, carrying out activities Table 2. Financial allocation and funding sources accor­ on the different accountability level under the coordination of ding to priorities (2007-2009)1 Managing Authority. Community Managing Authority- MA is responsible for the programme National financing Priority contribution Total financing (15%) management and implementation, while the Certifying (85%) Authority –CA is responsible for approval of implementation I 27.132.341 4.788.060 31.920.401,33 expenses and payments. Certifying Authority is responsible for receiving funds by the European Commission and further II 27.132.341 4.788.060 31.920.401,33 transfer to end users, through the lead partner. The Audit III 27.132.341 4.788.060 31.920.401,33 Authority – AA, is responsible for the functioning of the IV 9.044.114 1.596.020 10.640.134,00 management and control system. The place of business of Ukupno 106.401.338

45 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

The contribution of the European Union for financing of legal solutions, strategic projects are divided into strategic each project within the first three priorities, will amount to projects selected on the basis of the call for the submission of 85% of total value of the project, while the amount of 15% bids and projects described in the article 95, IPA IR, providing will be covered from national public funds, win relation to the possibility for finding joint activities for funding, regardless the member states, or by beneficiary in relation to the candidate/ call for the submission of bids. potential candidate countries. The exception to the rule is the forth priority related to the Beneficiaries, partnerships and expenditure accepta­ technical assistance to the structures performing programme bility implementation and programme monitoring. For this priority should provide 15% of co-financing, originating exclusively In order to be eligible for the funds prescribed by the Adr­ fro­m public funds, excluding the possibility of private sources ia­tic programme, potential beneficiaries must have the legal co-financing. status of public or private entity. Apart from aforementioned, it is necessary that they have signed partnership agree­ Preparation, selection and project implementation ment, to appoint project leaders, as well as to have registered office on acceptable territory of the programme, Acceptable projects in the Adriatic programme are consi­ during the whole duration of the programme. Apart from dered projects which include at least one partner from the aforementioned, potential beneficiaries must fullfil conditions member state and at least one partner from the candidate on the absebnce of conflict of interest, the absence of country, or potential candidate country. The programme is criminal proceedings against them, that they are not charged imple­mented through two types of projects, i.e. common and of submitting incorrect or uncompleted information required strategic projects. by the European Co­mmission, etc. Common projects, represent the most important type In order to accept the partnership, each project must have for cooperation implementation. Each common project re­ at least one partner form the candidate country, or potential la­ted to strictly defined measure within a priority. Unlike candidate country, and one partner from the member state, strategic projects where the amount of funds is significantly the exception to this rule is the cooperation between Greece higher, common projects are allocated with lower amounts. and Albania and Slovenia and Croatia which are covered by The value of common projects usually ranges from 0.5 to 5 other cooperation programmes. million €, whereas the longest implementation period may Ob the basis of the rules set forth in the IPA IR, acceptable be 36. when using allocated funds, beneficiaries must bear revenues are revenues paid between 1st January 2007 and in mind that the maximum amount for which they are entitled 31st December of the third year following the last budgetary to, is in the amount of 60% of the total value of the project, liability, for activities or part of activities implemented in the while the minimum amount which can be available amounts member states, which were realized following the signing of to 100.000 €. Financial Agreement for activities or part of activities imple­ Strategic projects differ form common ones, because mented in beneficiary countries. they can cover several measures and priorities, this type of As already mentioned in the introduction part of the projects are featured by the high level of co-financing and the document, the IPA Adriatic programme is a continuation of the intention to upgrade and generate the networks of participants New Adriatic Neighboring programme INTERREG IIIA, through conducting activities of general interest, long implementation which Montenegro completed 11 projects. deadline with active participation of highly – qualitative part­ Development of instruction for potential beneficiaries ners. The value of strategic projects, ranges from 5 to 12,5 within the IPA Adriatic programme 2007-2013 is under imp­ million €. However, in order to provide adequate funds for le­mentation, and the publication of the first call for the su­ realization of certain project, maximum value for strategic bmission of proposals of common projects is planned by the projects may increase on the basis of the Decision adopted end of July of the current year. Following the development of by the Joint Monitoring Committee. aforementioned instruction, potential beneficiaries on the te­ As for common projects, Managing Authority is publishing rritory of Montenegro, will have more information and gui­del­ the call for the submission of financial bids. The call for the ines for their project proposals and selection of partners. submission of proposals for common projects is done on the basis of priorities and comprises higher number of boxes related to one or several measures. Following the gathering Mr. Milorad Samardžić, of project proposals, on the basis of evaluation results, the Independent Advisor III ranking list is generated on the basis of which projects will be financed up to allocating total amounts of funds distributed Ms. Katarina Živković, for concrete call. Independent Advisor II The procedure of selecting strategic partner is somewhat different. On the basis of the programme and appropriate CFCU

1 - EC Regulation No. 1085/2006 as of 17th July 2006.

46 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

Draft Budget Final Account of Montenegro for 2008

Public expenditure policy in 2008, was focused on in- creasing source revenues of the Budget of Montenegro and local self-governments budgets, increase in public sector earnings, increase in capital expenditures for infrastructure financing and purchase of equipment, deepening of reforms in the area of public administration, judiciary and education, stable functioning of budgetary users and decrease in public debt.

The Ministry of finance – state Treasury, in accordance with the provisions of articles 49 and 54, of the Budget Law (“Official Gazette of the RoM ″, No. 40/01, 71/05 and “Of- ficial Gazette of Montenegro ″, No. 12/07 ), is obliged to pre- pare the Draft Budget Final Account and to submit it to the Government by 1 June. Stanimirka Mijović In accordance with aforementioned provisions of the Law, the Ministry of finance – State Treasury, on 29th May 2009, submitted the Draft Budget Final Account for 2008, to the Government. consumption structure is favorable and recovering against The Government on its session held on 18th June 2009, infrastructure-related investments. adopted the Draft Law on Budget Account of Montenegro for In 2008, implementation of the capital budget pro- 2008, which is to be submitted to the Parliament by 31st June cess continues, whose objective is clearer defining of Gov- 2009 (Article 50, of the Law). ernments activities related to the realization of strategic Draft Budget Final Account of Montenegro for 2009, projects accounted for in the capital budget and projects can be found on the website of the Ministry of finance: www. financial sources, more efficient control over project real- mf.gov.me, and the following text is providing the basic con- ization and activities, as well as continuity of information tent of the document: on implementation phases and per years. Capital budget In 2008, Montenegrin economy marked dynamic growth. is implemented through centralized system, i.e. preparation Estimated GDP in 2008, amounts to 3.338,00 million €. and implementation of capital projects is done through two Nominal GDP growth rate was 18,88%, and the real GDP is institutions: Directorate of public works and Directorate of 8,10%, inflation rate was higher than projected amounting to traffic. In 2008, for realization of capital projects was spent 6,90%, total amount of public debt amounted only 26,80% the total of 73,37 million €, whereas 39 projects were im- GDP, while unemployment rate was low amounting 10,80%. plemented through the Directorate of public works and 7 Total consolidated public consumption in 2008, amou­ projects thorough the Directorate of traffic. It is important to nts to 1.556,55 mil €, or 46,63 % GDP. emphasize that compared with the previous year, the level Following consolidation of contributions charged to of capital expenditures in 2008, is higher by 80,13%, or em­plo­yers, public expenditure (second consolidation level) 4,45 % GDP. amounts to 1.510,64 million €, or 45,26% GDP. Programme budget implementation continued, with the Current public consumption (consolidated public con- objective of more efficient development of the strategy for sumption reduced by total capital expenditures) amounts to realization of governments objectives. In 2008, programme 1245,66 million €, or 37,32 % GDP, implying that the public budget was implemented in 16 spending units.

47 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

In accordance with the Budget Law for 2008, state- Benefits Other revenues owned funds represent the integral part of the Budget of 3% i i i d Fees 4% Receipts from Montenegro and the Final Account, improving public finance 2% repayment management and increasing rationality and transparency of of loans the public finance. Contribution 26% Total receipts of the Budget of Montenegro in 2008, were realized in the amount of 1.353,84 mil €, which is by 0,74 % higher than planned. Out of stated amount, receipts of the Budget of Montenegro, excluding state-owned funds taxes 64% amount to 831,66 million €, and state-owned funds receipts amount to 522,18 mil €. Total expenditures of the Budget of Montenegro for 2008, amounts to 1.423,94 million €, or by 7,74% higher than planned, being the result of higher debt repayment, liabil­it­­ies state-owned from previous period, interests, rights from the area of pension funds receipts and disability insurance, health protection and health insur- 39% ance rights, transfers to public institutions (i.e. Public health institutions), borrowings and loans to financial institutions. Expenditures of the Budget of Montenegro, excluding state-owned funds, consist of 901,79 million € (current bud- get 828,42 million € and capital budget 73,37 million €), and receipts of expenditures of state-owned fund 522,15 mil €. the Budget

excluding expenditures of state-owned state-owned fund funds 37%

Consolidated current revenues with receipts of repay- ment of loans of the Budget of Montenegro in 2008, amount- ed to 1.287,20 million €, or 38,56% GDP, which is by 2,44% higher than planned. expenditures of the Budget excluding The consolidated current revenues structure is as fol- state-owned funds lows: 63% - Tax revenues in the amount of 827,98 million €, or 97,76 % of planned amount, representing 64,32 % of current Consolidated expenditures of the Budget of Montenegro revenues; for 2008, amounts to 1.272,08 million €, for 3,41% higher - Revenues from contributions in the amount of 339,91 than planned amount. Consolidated expenditures of the Bud- million €, higher by 15,10 % than planed, representing 26,41 get of Montenegro represent 38,11 % GDP. % of current revenues; - Revenues from duties in the amount of 26,59 million Consolidated expenditures structure is as follows: €, or 99,45% of planned amount, representing 2,06% of cur- - Gross earnings and contributions charged to employ- rent revenues; ers - 21,59% or 274,70 million €; - Revenues from fees in the amount of 38,24 million €, - Social protection transfers - 27,24% or 346,54 million €; or 88,43% of planned amount; - Transfers to institutions, individuals, NGO’s and public - Other revenues in the amount of 45,48 million €, higher sector -16,80% or 213,71 million €, by 39,97% than planned, consisting from capital revenues in - Capital expenditures - 11,68% or 148,54 million €; the amount of 13,80 million €, revenues from fines and divest- - Expenditures for material and services - 8,99% or ed material benefit in the amount of 9,43 million €, revenues 114,43 million €; from activity of state bodies in the amount of 5,38 million € - Borrowings and loans - 4,91% or 62,54 million €, and other revenues in the amount of 16,88 million €; - Current maintenance - 1,74% or 22,15 million€; - Receipts from repayment of loans in the amount of - Interests - 1,77% or 22,53 million €; 9,00 million €, consisting from repayment of loans approved - Subsidies - 1.46% or 18,59 million €; by the state Budget for financial support to companies from - Other personal income - 1,71% or 21,75 million €; the previous period, self-employment loans realized through - Expenditures for reserves - 0,98% or 12,44 million €; the Employment Fund and loans for development projects re- - Rent - 0,66% or 8,36 million €, and alized through the Development Fund. - Other expenditures - 0,45% or 5,74 million €.

48 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

Surplus of the Budget of Montenegro in 2008, amounts Current Other Expenditures to 15,12 million €. Surplus consists of: privatization revenues maintenance personal for reserves 2% income 1% Other in the amount of 24,82 million € and deposits transferred

Subsidies Interests 2% expenditures 1% from previous year in the amount of 70,10 million €, net re- 2% Rent 0% Expenditures 1% payment of debt on the basis of lending and loans to resi- for material Gross earnings and services and contribu - dents in the amount of 40,72 million €, old foreign exchange 9% tions charged to savings in the amount of 8,23 million €, restitution in the employers Borrowings 22% amount of 6,79 million €, other liabilities from previous years and loans in the amount of 42,76 million € and net repayment of debt 5% Social on the basis of foreign loan in the amount of 11,54 million €. Transfers to protection It is important to emphasize that the Government of Monte- institutions, transfers negro, with the objective of supporting banking sector, in ac- Capital individuals, 26% expenditures NGO’s and cordance with the article 4, paragraph 1 of the Law on Bank- 12% public sector 17% ing Sector Safeguards (»Official Gazette of Montenegro«, No. 64/08), made early redemption of debt of budgetary users to the banks and assumed debt of the Railways of Montenegro Current budget consumption (current budget consump- in the amount of 41,81 million €. Assumed debt of Railways tion decreased by total capital expenditures) amounts to of Montenegro is converted in share capital of the state in 1.123,54 €, or 33,66 % GDP. this Joint Stock Company.

In accordance with functional classification, expendi- State debt as of 31st December 2008, amounts to 894,7 tures of the Budget of Montenegro in 2008, are as follows: mil €, out of which external debt amounts to 481,7 million €, - General and public services in the amount of 278,88 consisting of engaged (disbursed) credit funds, and internal million € or 15,59% total expenditures, debt amounts to 413,00 € million €. Guarantees of Monte- - Defense in the amount of 47,25 million € or 3,32%, negro for loans of state-owned enterprises amount to about - Public order and safety in the amount of 157,73 mil- 62,6 million €, which is 7,00% of total state debt. State debt lion € or 11,08%, represents of around 79,3% in 2007, and in 2008, 69,51% - Economic affairs in the amount of 174,00 million € or of total expenditures with receipts from the repayment of 12,22%, loan of the Budget of Montenegro. - Environmental protection in the amount of 6,21 million € or 0,44 %, Compared to the end of 2007, the external debt in- - Housing and community affairs in the amount of 6,62 creased by 19,6 million €, due to engagements from current million € or 0,46%, loans in the amount of 36,40 million € (International Develop- - Health in the amount of 187,56 million € or 13,17%, ment Agency - IDA, Credit development Bank KfW, European - Sports, culture and religion in the amount of 23,44 Bank for Reconstruction and Development - EBRD, Hungar- million € or 1,65%, ian commodity loan, Polish loan, Societe Generale Bank loan - Education in the amount of 147,22 million € or 10,34%, and on-landed commodity loan of the French Government for and EPCG), decreased on the basis of regular repayment of prin- - Social protection in the amount of 395,01 million € or cipal in the amount of 16,80 million €. 27,74%.] The internal debt growth in the amount of 137,91 million €, is a result of adoption of the Law on compensation of users of right to pension and disability insurance setting forth the General payment of overdue pensions in the amount of 105,00 million Social and public €, the Law on payment of foreign exchange currency savings protection services deposited with authorized banks headquartered outside Mon- 27.70% 19.60% tenegro increasing the debt for 27,6 million €, and the start Defense 3.30% Education of the project realization of the Directorate of traffic with the 10.30% objective of resolving the problem of bottle necks in traffic. Public order and Outstanding liabilities of the Budget of Montenegro as Sports, safety Environ- of 31st December 2008, amount to 88,86 million €, relating culture mental 11.10% and Housing protection to the liabilities of the Budget excluding state-owned funds

religion Healt o and 0.40% in the amount of 24,52 million € and state-owned funds li- 1.60% 13.20% community Economic affairs affairs abilities in the amount of 64,34 million €. It should be em- 0.50% 12 20% phasized that these are gross outstanding liabilities, and that mutual liabilities amount to 21,74 million €. The amount of

49

outstanding liabilities comprises the pension in December in the amount of 24,57 million €, which by the Law is paid backwards, or following the expiration of a month, and 3,48 million € for the social protection, although during 2008, 12 monthly amounts were paid on this grounds.

Deposits of the Budget of Montenegro, as of 31.12.2008, amount to 96,58 million € and 38.477,69 ounces of gold, which market price amounts to 23,61 million €, unblocked by the Bank for International Settlements (BIS), which gross amount is 120,19 million €.

The Government deposits grew in period 2004-2007, while in 2008, was recorder the decline in deposits due to applica- tion of measures for the support of the banking sector (early debt redemption and credit support to the banking sector). During 2008, two state-owned funds (Employment Fun and Compensation Fun) were fully integrated into the Treasury system, thus the deposit balance was recorded as the deposit balanceof consolidated Treasury account.

The trend of Governments deposits in the period 2004 – 200, by users (excluding gold), is as follows: (in thousands €) Description 2004. 2005. 2006. 2007. 2008. 1 2 3 4 5 6 Budget of Montenegro with the state-owned funds 13.374,05 50.976,78 58.311,14 91.103,16 30.441,66 fully integrated into the Treasury system Republic Fund PIO 13.837,00 14.832,00 23.398,00 38.108,34 38.687,98 Republic Fund for health insurance 3.568,00 2.842,57 2.322,89 4.043,81 9.846,68 Employment Fund of Montenegro 164,00 4.785,00 860,00 2.789,47 Development fund of Montenegro 3.249,00 35.766,00 29.009,00 26.228,15 17.607,96 Compensation fund 4.419,69 5.844,97 4.409,60 T o t a l: 34.192,05 113.622,04 119.746,00 166.682,55 96.581,29

Ms. Stanimirka Mijović, Independent Advisor I

50 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

Commentary Impact of Global Economic Crises to Labor Market

As it was expected, the global economic crises affected ing period is followed by the changes in the commercial ac- Montenegrin economy. However, unlike most economies, for- tivity, i.e. employment rate decrease in the industrial sector, mal labor market is recording positive trends, i.e. increase in while it increased in agricultural and services sector. Hence, employment vs. unemployment. the average employment rate decreased in the following sec- tors: in the industry sector to 6.5%, in the mining sector to In the countries of the Euro zone (EU-16), unemploy- 10.5%, in the processing industry to 6.4% and in the electricity ment rate increased to 9.6% in May 2009, from 7.4% as it generation sector to 4.7%. In the sector of services, the high- was in June 2008. In EU-27, unemployment rate increased est increase is recorded in construction by 22.5%, hotels and from 6.9% in June 2008, to 8.9% as it was in May 2009. restaurants by 20.2% and real estate operations by 18%.

Recorded employment in Montenegro, for the first five The question whether the crises really affected the la- months in 2009, increased by 5.4% compared to the same bor marker will be answered only after publishing the results period last year, while compared with the figures in January of the Manpower Survey conducted for the first two quarters. 2008, recorder unemployment declined by 14% as it was However, it is that the biggest impact of the crises will be on in June 2009, Unemployment rate declined from 10.9% to seasonal employment and employment of foreigners. 10.2% in June 2009. Results of the Public survey on man- power conducted in 2008, indicated similar trend, since the Graph 2: Unemployment rate and the real GDP growth rate unemployment rate declined from 18% in the first quarter to 25.0%

16.5% in the forth quarter, provided that the rate in the forth 22 7% 22 4% 212% 20 7% quarter against the third quarter increased by 0.3%. 20.0% 18 5 %

15.0% 14 5 % Graph 1 : Formal employment rate in Montenegro 126% 109% 10.0% 10 7 % 7 0% 8 6% 8 1%

6 0% 5 7% 5.0% 4 4% 4 2% 5 40% 5 2 % 2 5% 5 0% 4 9% 1 9 % 4 50% 0.0% 0 2% 4 0% 2001 2002 2003 2004 2005 2006 2007 2008

3 0% 2 9% -5.0%

1 8 % 2 2% 2 0% 2 0% 1 9 % 1 7 % Unemployment rate the real GDP growth rate 1 4 % 1 1% 1 0 % 0 9% 0 2% 0 4% Source: MONSTAT, Employment Bureau 0 0% 0 1%

1 0 % 0 4% 0 6% 1 0 %

2 0% Despite positive trends in registered employment, there 2 5% 2 5% is aggravated trend in registered unemployment since the 3 0% number­ of users of unemployment fee increases, since per- Source: MONSTAT sons having at least 6 months of working experience are en- titled to it. In January 2008, the number of the users of the In the first five months of 2009, average number of em- unemployment fee was 9, 222, while in March this number ployees was 171.270. Employment swaps trend in the observ- increased to 12.294.

51 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

Overview of unemployment trends in other countries

If we analyze the data on the amount of unemployment rate in the countries of European Union, it is evident that the highest growth of this rate was registered in Baltic countries and Ireland (Graph 3). Thus, according to the Eurostat data, in the period from June 2008 to May 2009, unemployment rate in Estonia increased by 11%, in Ireland by 5,8, Latvia by 9,9 and Lithuania by 9,2%.

Graph 3 : Unemployment rate trends in selected EU countries

18.0 15.6 16.3 16.0 14.3 14.0 11.7 12.0 8.9 9.0 10.0 8.0 6.9 7.0 5.9 6.4 5.1 6.0 4.6 4.0 2.0 0.0 EU-27 EU-25 Estonija Irska Latvja Litvanja

Jun-08 Maj-09

Source: EUROSTAT

If we observe data on registered unemployment, in the period from March 2008 to March 2009, highest increase in unem- ployment was also registered in Baltic countries. In Estonia, the number of unemployed persons tripled, in Latvia and Lithuania this number doubled, while in Turkey increased by 60%. At the same time, registered unemployment declined in Belarus, Bosnia and Herzegovina, Montenegro, Macedonia, Serbia and Tajikistan.

Graph 4: Registered unemployment growth rate in Europe and Central Asia (ECA) in the period from March 2008 to March 2009.

Source: Labor Market Monitoring in Europe and Central Asia Countries: Recent Trends, World bank.

Changes in registered unemployment are followed by other negative trends. The number of vacancies offered by Employ- ment Agencies suffered significant decline, as well as the ratio between those who are looking for job vs. a vacancy. This ratio in Kosovo is 500 people vs. a vacancy, in Bosnia and Herzegovina is more than 200 people, and in Armenia, Latvia and Turkey of around 100 people. The exception is Belarus, where the number of vacancies at the beginning of 2009, was higher than the number of people who are looking for job.

52 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

Which groups will be mostly affected by the crises? Ex- 8. incentives and investments in the energy efficient perience from the previous period is indicating that young, technology for “green jobs”; older, unqualified workers women and migrating workers are 9. social dialogue development. the most vulnerable groups in the situation of general decline in economic activity. At the same time, in crises, chances are lowered for inexperienced workers, graduates or those who * * * are unemployed for long period of time. Since the crisis is global, measures undertaken on lo- Up to now, on the basis of data obtained from Europe cal level cannot resolve all problems. Development of the and Central Asia region, it cannot be concluded which groups situation in the following period will mostly depend on the of citizens will be most affected by the crises. EU-10 data situation in world economy, which will influence the econo- had shown that the unemployment of young people almost my of Montenegro (tourist season, way of overcoming the tripled in Baltic counties, while it declined in Slovenia. Gen- crises in the processing industry, privatization in the energy der disparity is not the same in all countries, e.g. increase sector). in unemployment of men occurred in Lithuania, especially in construction and production sector, while the employment of If we take into consideration the recommendations of women in Bulgaria and Slovakia declined in the period March the International Labor Organization, we can conclude that 2008 – March 2009. these recommendations are already under implementation in Montenegro. The Employment Bureau starter with the However, it is obvious that the most vulnerable group realization of the special programme for improving employ- will be migrating workers. The World Bank data on amounts ment on the northern part of the country whereas special of transfers from abroad are showing that in the period from incentive measures are designed for employment of persons 2000 – 2007, in the ECA region, these amounts reached fol- having employment difficulties, fees for unemployed elderly lowing levels: over 36% in Tajikistan, 35% in Moldova and persons are significantly increased (so called minimum pen- 18% in Armenia. In the situation of decline in commercial sions for elderly unemployed persons). Support to the small activity, countries featured by the high number of migrating and medium-sized enterprises through the provision of credit workers are declaring redundant migrating workers due to lines from European Investment Bank (EIB) and KfW, in co- the crises. Being without a job, migrating workers are return- operation with commercial banks in Montenegro. Initiation ing to their countries of residence, making pressure on their of the works on construction of highway was planned for the national labor marker. At the same time, migrating workers second half of the year, while problems in the processing in- are the first ones who are discharged from the service due to dustry sector will be resolved by restructuring and support their concentration in the most vulnerable sectors (tourism, to most important companies in the sector, while the project construction), usually being employed on a temporary basis, of crediting energy efficient programmes is already under so called “unregistered work “. implementation.

International Labor Organization Recommendations

International Labor Organization (ILO) Recommenda- tions are aimed for national policies, with the objective of de- creasing unemployment and global economic crises effects1 are as follows:

1. appropriate mix of measures of labor market active and passive policy; 2. adjusting social protection and pension transfers, with the objective of avoiding its devaluation; 3. support to companies, especially small and medium- sized enterprises for overcoming liquidity problems and ob- taining loans; 4. public investments in infrastructure; Ms. Ana Krsmanović, 5. directed assistance to vulnerable groups; Independent Advisor, 6. company restructuring in socially responsible manner; 7. strengthening institutions providing services to unem- Ms. Bojana Bošković, ployed persons; Independent Advisor I

1 - José Manuel Salazar-Xirinachs, Executive Director, Employment Sector, ILO

53 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

Procedures in Printing and Issuing Excise Tax Stamps

The Law on Excise Tax (“Official Gazette of the RoM”, No. - In blue – for tobacco products produced in the country 65/01 and 76/05, and “Official Gazette of Montenegro”, No. (mark D), 76/08), sets forth the obligation of marking excise products, - In yellow – for imported tobacco products (mark U), tobacco products and alcohol beverages (excluding beer and - In green - for tobacco products for sale in free customs table wine), with the excise tax stamps. Last amendments to shops („for export only“), the Excise Tax Law which were made at the end of 2008, pre- - In red – for export of tobacco products for which the for- scribe the use of special (recording) excise stamps for mark- eign supplier did not provide the excise tax stamp (mark E). ing of tobacco products and alcohol beverages being sold in Moreover, cigarettes being sold in free customs shops free customs shops are made. are marked with the special excise tax stamp, measures 50x25 mm being glued over a box of cigarettes. The form and content of an excise tax stamp, manner and procedure of approving, printing and issuing, and the The size of the excise tax stamp for marking of alcohol manner of keeping records on issued, used and unused ex- beverages is 90x19 mm and it is being printed in special col- cise tax stamps are regulated in details by the Decree on ors, such as the following: marking tobacco products and alcohol beverages with the - In orange – for alcohol beverages produced in the control excise tax stamps (“Official Gazette of the RoM”, No. country (mark D), 82/05 and “Official Gazette of Montenegro”, No. 22/09). - In blue - for imported alcohol beverages (mark U), - In green - for alcohol beverages for sale in free customs The excise tax stamp for marking of tobacco products shops („for export only“), and alcohol beverages in accordance with the provisions - In red – for export of alcohol beverages for which the for- of aforementioned Decree includes the letter mark, coat of eign supplier did not provide the excise tax stamp (mark E). arms of Montenegro and the title “Montenegro – Ministry of finance“, serial mark and serial number of the excise tax The Decree on amendments to the Decree on marking stamp for marking of tobacco products. The size of the excise tobacco products and alcohol beverages with the control excise tax stamp for marking of tobacco products is 45x19 mm and tax stamps (“Official Gazette of Montenegro”, No. No. 22/09), it is being printed in special colors, such as the following: sets forth the obligation to mark retail price on the excise tax

54 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

stamp for tobacco products which are being put into free circu- lation on the customs territory of Montenegro. The objective of this legal solution which application will start from 1st January 2010,is to protect consumers from increase in prices of tobac- co products that are not being sold at old prices.

In accordance with the provisions of aforementioned Decree, the excise tax stamp for marking of tobacco prod- ucts must be glued on the packing under cellophane or any other wrapper, in order to make it visible and irremovable not damaging the packing. The excise tax stamp for marking of alcohol beverages, is glued over the bottle cap or any other packing, so that the bottle may not be open without damag- ing the stamp. Jovica Petričević Aforementioned solutions provide for more efficient con- trol over calculating and paying out the excise tax being con- nected to the moment of taking over the excise stamps from the Tax Administration. Apart from aforementioned, the Decree sets forth the obligation for producers, or importers of tobacco products The request for the issuance of the excise tax stamp is and alcohol beverages to return damaged, or unused excise submitted monthly to the Tax Administration in the period tax stamps to the Tax Administration within 15 days following from 1st to 15th day of the current month for the subsequent the expiry of three month. Moreover, damaged or complete- month, and if the excise tax stamps are printed out for the fist ly ruined or unused excise tax stamps are destroyed by the time or printed in quantities higher than usually requested Commission established by the Ministry of finance. in previous months, the deadline is at least 30 days prior to withdrawing the excise tax stamps. Aforementioned request submitted by producers and importers comprise the data on quantity of excise tax stamps, technical elements for its de- velopment, letter mark, serial number and type.

Along with the request for the issuance of excise tax stamp, producers and importers are submitting following documents: - Extract from the Central registry of the Commercial Court, - Extract that importer or producer is registered with the Registry on types of tobacco products of the Tobacco Agency, - Extract from the Registry of excise taxpayers of the Tax Administration (for producers). Ms. Ružica Bajčeta, Producers, or importers of tobacco products and alcohol Independent Advisor II, beverages are withdrawing excise tax stamps within 10 days Sector for Tax and Customs System after the Tax Administration issues the information that the excise tax stamps are printed out. They are obliged to submit Mr. Jovica Petričević, the payment guarantee (banking guarantee payable on first Independent Advisor I, call), in the amount of calculated excise tax. Sector for Tax and Customs System

55 International Cooperation

International Cooperation of the Finance Ministry - International Financial Institutions Meetings

Annual Assembly of the EBRD Board of Governors was the main topic on the Agenda. Apart from its impacts to economies of the countries, financial crises also negatively The European Bank for Reconstruction and Development affected the operations of international financial institutions, (EBRD) was founded in 1991, with the objective of accelerating as well as the EBRD, which for the first time in last 10 years and strengthening market reform and transition process in suffered loss in the amount of 620 million Euros. However, Central and Eastern European Countries, creating conditions all attendees of the Assembly have expressed their general for efficient functioning of open market economies. The satisfaction with the measures undertaken by the EBRD Bank is owned by governments of 60 countries and two aimed at mitigating the consequences of the world economic intergovernmental organizations. The EBRD, with its capital crises and estimated that aforementioned measures, adopted is the largest single investor in the region. in December 2008, were prompt and efficient. Moreover, the meeting was the opportunity to emphasize the successful The bank is using its close cooperation with the regional cooperation of financial institutions with the objective of governments, in order of creating more effective and efficient overcoming financial crises, as well as the readiness to business environment. The operational rule of EBRD is coo­ extend the operations of the Bank, if necessary. peration only with countries which are committed to demo­­ cratic principles. At the same time, Governors expressed their opinion on the current economic crises and have presented measures Among other things, the EBRD is providing financing adopted by governments, as well as proposal of measures of projects in the banking and commercial area, through that EBRD might consider with the objective of mitigating fin­a­ncing new initiatives, as well as financing of existing the consequences of the crises. Apart from attending regular companies. Moreover, the Bank financially supports privatiza­ sessions, the delegation of the Ministry of finance had several tion and restructuring process of state-owned enterprises and bilateral meetings with the representatives of international projects aimed at improving services at municipal level. As financial institutions: Credit Suisse, Moodys, European Inve­ such, the Bank has extreme influence in Central and Eastern st­emnt Bank (EIB), Japanees International Cooperation Age­ European countries. ncy (JICA), as well as with the EBRD high representatives, Mr. Tomas Mirow. Eighteenth EBRD’s Annual Assembly, with the particip­ ation of high representatives of government, states, leading The aforementioned representatives expressed satis­ financial corporations, entrepreneurs of small, medium-sized faction with the results achieved by Montenegrin economy and large companies of the region, as well as civil society in the previous period. Moreover, they were interested in the representatives, took place on 15 – 16 May 2009, in London. current situation, with regard to the most important economy The EBRD Annual Assembly was attended by the delegation issues, as well as with regard to our projections of main of the Ministry of finance, led by the Deputy Prime Minister economic indicators in Montenegro. It was jointly concluded, and Finance Minister Mr. Igor Lukšić, PhD. that as in the most countries, the impact of economic crises had slower the finalization of the transition process. With Current financial and economic situation in the world the objective of easier overcoming of created situation and

56 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

finalization of the transition process, Montenegro is under­ taking all necessary measures related to restructuring and modernization of state-owned enterprises, further develo­ pment of infrastructure, as well as the establishment of mo­ dern governance standards.

During the meeting were discussed future capital proje­ cts, as well as planned budget rebalance of Montenegro. As one of the prerequisite for the future development are inve­ stments in the tourism sector and energy, while as most important project is the construction of the highway Bar – Boljare, construction of the Power Plant on the river Mor­aca, as well as restructuring of some companies, such as Alu­ minum Plant Podgorica and Steelworks Niksic. Dragan Darmanović Financial institutions had shown their readiness for con­ ­tinuation of cooperation and inclusion in realization of aforementioned capital projects, which would be very impo­ rtant for successful realization.

Following Annual Assembly of the EBRD Board of Gove­ rnors, cooperation with aforementioned financial institutions continued, with the objective of concreting aforementioned projects. As a result of successful negotiations in London, with the objective of realizing credit funds earmarked for the small and medium-sized enterprises, the Ministry of finance have signed on 2nd July 2009, the Guarantee Contract with the EIB, worth 91 million €. It is expected, that commercial banks in Montenegro will soon sign the Guarantee Contracts Marko Vukašević with the EIB for one part of the credit. Aforementioned funds, along with provided funds in cooperation with the German Development Bank (KfW) in the amount of 50 million Euros, The Constituency gathers countries cooperating with will represent a significant support not only for the projects the IMF and the World Bank. The member countries of aimed for small and medium-sized enterprises in Montenegro, Nethe­rlands Constituency are as follows: Netherlands, but for the overall economy, due to positive effects of the Bosnia and Herzegovina, Cyprus, Georgia, Moldova, Ma­ inflow of cash in domestic cash flows. ce­donia, Rumania,­ Ukraine, Armenia, Bulgaria, Israel, Croatia­ and Monte­negro being the youngest member of Constituency. Netherlands Constituency Meetings Netherlands constituency, has well established dia­ Netherlands Constituency Meeting is organized eve­ l­­ogue between its thirteen member countries, pro­vi­d­ ry year in some of the member country. The purpose of ing adequate representation and protection of interests the meeting is to discuss issues that are important for of each country individually. Netherlands is co­mmitted economies of member countries. Aforementioned meeting, to intensifying dialogue between the member countries, also represents a chance for ministries of finance and providing significant technical support on all levels of public governors of central banks being members of Constituency, administration, covering different ar­eas that are important to exchange opinions on current economic issues, on which for member countries. the Constituency should form joint opinion on meetings of executive directors of International Monetary Fund (MMF) This year’s Constituency was organized in Bečići, in and the World Bank. The number of votes of each member the period 14 – 16 June. The meeting was organized in coo­ state depends on the amount of its the quote. The quote of peration of the Ministry of finance and the Central Bank of Montenegro in the IMF amounts to 27,5 million of Special Montenegro (CBCG). Drawing Rights (SDR), or 0,02% share in total capital of the Fund. The World Bank is organized in a manner that the The President of the Government of Montenegro, member countries represent shareholders. The number of Mr. Milo Đukanović and the Deputy Prime Minister and shares, or country’s share is based on the size of its eco­ the Finance Minister, Mr. Igor Lukšić welcomed the par­ nomy. ticipants.

57 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

The meeting represented the opportunity to express negative effects of the crises. Moreover, Montenegrin repre­ ­ opinions on the current global economic crises and its sentatives presented projects planned in the following period, impact on the world economy. Moreover, the crises effects which are of great importance for the continuation of the to individual states were presented, as well as the measures progress of Montenegrin economy. Participants expressed undertaken by the governments and central banks with the their satisfaction with achieved results in the transition pro­ objective of overcoming the crises. High representatives of cess and inclusion in international economic flows and ex­ the World Bank and the IMF had several presentations which pressed hope that by joint forces will be designed a model for raised the interest of representatives of the Netherlands overcoming the current situation in the world economy. Constituency. Moreover, apart from official part of the meeting, gu­est Apart from regular sessions, delegation of member cou­ were provided with a good entertainment programme related ntries of the Netherlands Constituency had the opportunity to to the visit to cultural heritage and with beauties of Mont­ participate to bilateral meetings with the representatives of enegrin coast. Netherlands Constituency as well as with the representatives of the World Bank and the IMF. Joint assessment of participant was that Montenegro, although being the youngest member of Constituency, was Montenegrin delegation, composed by highest repre­ an excellent host of this very important event, and that it sentatives of the Ministry of finance and the Central Bank should organize future events - congress. of Montenegro, held several bilateral meetings. The Finance Minister, Mr Igor Lukšić, PhD, with his assistants and representatives of the Central Bank of Montenegro, met with Mr. Age Bakker, the IMF executive director and Mr. Rudolf Trefers, the World Bank executive director and Netherlands Finance Minister, Mr. Nut Velink. Apart from aforementioned meetings, Minister Lukšić held meetings with the Minister of Finance of Georgia, Mr, Kahom Baindurašvili and with Ukrainian Deputy Finance Minister, Mr. Andrija Kravec. Mr. Dragan Darmanović, Meetings were the opportunity to discuss current world International Cooperation Division Head economic crises and measures which the Government of Montenegro implemented in cooperation with the Central Mr. Marko Vukašević, Bank of Montenegro, with the objective of overcoming the Advisor in the International Cooperation Division

58 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

Elections for the European Parliament

From 4 to 7 June 2009, the seventh elections for the European Parliament (hereinafter referred to as: the EP) were held simultaneously in 27 member states of the Euro- pean Union (hereinafter referred to as: the EU). The results of multi-party elections (see Table 1), which were described in the media as the victory of the center-right, are characterized by the triumph of the European People’s Party (it was sup- ported by around 2/5 of the voters) over its major political opponent, the Party of European Socialists. It is interesting to note that in time of the global eco- nomic crisis, increasing unemployment, uncertainty over the future of the Lisbon Treaty, the turnout of 43.01% in the elec- tions for the European Parliament was the minimum or mod- est one. Although, generally speaking, political parties and Ana Ivanović voters’ turnout show a drop (except for the Greens that show the increase of 2%), much greater surprise for political elites around Europe represents a sudden growth of right-oriented parties (majority of 36% of members) and bad results of so- cio-democratic parties («La stampa»).

Table 1.1

E lection Results: Towards the New E uropean Parliament (Composition of the EP- the total number of MEPs is 736)

30 28 55 35 265 Nina Vukotić

184

84 55 The members who obtained the greatest support are Silvio Berlusconi (2.7 million votes) and Indrek Tarand (Estonia) European People’s Party who won 25.8% of votes. Eight former Prime Ministers will Group of the Progressive Alliance of Socialists and Democrats of Europe replace their cabinets with MEP bench, among which there is Group of the Greens/European Free Alliance Alojz Peterle (Slovenia). Party of European Socialists Confederal Group of the European United Left - Nordic Green Left Although this is a single directly elected body by the citi­z­ European Conservatives and Reformists Group ens of the EU, which adopts almost 2/3 of the European reg- Europe of Freedom and Democracy Group ulations, approves the budget of 133.8 billion €2, approves Other parties the members of the European Commission and the European Central Bank, and controls the executive power, it seems that The youngest member of the newly elected EP is 25-year even the voters do not recognize its impact on everyday life of old Emilie Turen from Denmark, whereas the oldest member a European family, starting from the climate changes to mo- is 85-year old Ciriano de Mita (Italy). The share of women in bile telephony tariffs – or maybe the results reflect the apathy the new EP is 35.3%, whereas the share of men is 64.6%. at the national level, regardless of the left or right wing.

59 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

From the first Parliamentary elections held in 1979, lion eligible voters in 2009. The Parliament has been directly when the EP reflected the initial enthusiasm as far as the elected every five years by universal suffrage since 1979, in voters’ turnout is concerned (the record high 61.99%), each accordance with the national regulations on elections. Elec- following elections mark a drop in the public’s interest (see tions for the European Parliament are held in each member Table 2). However, regardless of the past events, the Euro- state separately, irrespective of national or local elections pean founders are moving into opposite direction. With each (although they are sometimes organized at the same time). new contract, i.e. with each new change of the foundation The Parliament consists of representatives of several large agreements, the power of the EP is continuously growing, European political groups, as well as of the most important Thus, from the initial, more consulting role, which should political parties of the member states. Each member state have served as introduction and weighting out of cohesion elects a number of members determined in advance, which forces of the future EU, today if a certain legal document is established in accordance with the number of citizens. The needs to be adopted by the European Community (such a total number of members of the European Parliament should situation applies to majority of policies of the first pillar of be 732; however, from 1 January 2007, there are 785 mem- the EU – author’s comment), it must be adopted in identi- bers, which is the consequence of the accession of Romania cal text by the EP and the Council of the European Union. and Bulgaria, since the allocation of the number of members The aforementioned procedure known as “co-deciding” actu- per member state does not take into account the states that ally represents the right of veto by the Parliament, and in the have accessed the EU between the two elections. In accor- conditions of its limited legislative competency, the strongest dance with the applicable regulations, the number should be legal instrument. reduced to 732 after the elections, but the compromise was made and the number will be 736. Table 23. The Parliament and Council are essentially two cham- Turnout in the Parliamentary elections covering the period bers in the bicameral legislative branch of the European 1979 – 2009 (in %) Union, with legislative power being officially distributed equally between both chambers. However there are some differences from national legislatures; for example, neither the Parliament nor the Council have the power of legislative initiative (except for the fact that the Council has the power in some intergovernmental matters). In Community matters, this is a power uniquely reserved for the European Com- mission (the executive). Meaning that while Parliament can amend and reject legislation, to make a proposal for legisla- tion, it needs the Commission to draft a bill before anything can become law. The Parliament does have the right to ask Historically speaking, the EP had its first session on 10 the Commission to draft such legislation4. September 1952. One of the oldest common institutions, it It is useful to note a few facts regarding the importance began as the “Common Assembly” of the European Coal and and scope of the European parliamentary power. The Parlia- Steel Community (ECSC). It was a consultative assembly of ment, with its headquarters in Strasbourg, sessions in Brus- 78 parliamentarians drawn from the national parliaments sels, and the Secretariat in Luxemburg, has the budget of of member states, having no legislative powers. Its develop- 1.53 billion euro, and it costs, on the average, three euro ment since its foundation is testament to the evolution of the per citizen of the European Union. An MEP has a salary of Union’s structures without one clear “master plan”. The Eu- almost €6.000, and he/she receives €4.000 each month ropean Economic Community and Euratom were established in the name of costs. In the European Parliament, one can in 1958 by the Treaties of Rome. The Common Assembly was speak and write in EU’s 23 official languages, and almost shared by all three communities (which had separate execu- 1/3 of employees are working on translations. tives), and it renamed itself the “European Parliamentary The conclusion is a logical one: today, at the time of hold- Assembly”. The three communities merged in 1967 in ac- ing the elections, we have the institution with de iure greatest cordance with the Merger Treaty, and the body was renamed power since it has been constituted, and with de facto the to the current “European Parliament” in 1962. weakest support of those who are giving it the legal power. The Parliament consists of 785 members of the Euro- pean Parliament, who serve the second largest democratic electorate in the world (after Indis) and the largest trans- Ana Ivanović, Independent Advisor national democratic electorate in the history, with 342 mil- Nina Vukotić, Advisor

1 - Preliminary results, until the inaugural session on 14 July 2009, are taken from the EU official site: http://www.elections2009-results.eu/en/new_parliament_en.html 2 - Amount for 2009 3 - Preliminary results, until the inaugural session on 14 July 2009, are taken from the EU official site: http://www.elections2009-results.eu/en/turnout_en.html 4 - Data taken from the following site: http://sh.wikipedia.org/wiki/Evropski_parlament

60 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

TRIM MNE FINAL CONFERENCE ROUND TABLE WITHIN THE COMPONENT: State Aid „State Aid - New Challenges or Obstacles for Montenegro and Entrepreneurs”

The round table panelists were as follows: Mr. Dace Ber­ kolde, TRIM, short term expert (STE) and Assistant Minister of Finance of Latvia, Ms. Daiga Lagzdina, TRIM STE and the Head of the State Aid department in the Ministry of Finance of Latvia, Ms. Sonja Bećović, Assistant Minister of Finance of Montenegro and Mr. Darko Konjević, MBA representative (Montenegro Business Alliance).

Within the issue of accepting the EU discipline in the field of state aid in the next couple of years, represent very challenging task for Montenegro. Possibilities and con­ sequences of the state, being one of the instruments for economic development of Montenegro, were discussed, as well as whether the country is adequately supporting com­ Sonja Bećović panies representing support priority and which are most used state aid instruments.

Challenges in introducing and applying the state aid system in Montenegro originate from the fact that the state aid represent a complex issue and a novelty in regulating the state aid in general. The EU requirements to Montenegro, and general re- quirements relating to the state aid area are as follows: full application of the rules regulating the state aid area, estab- lishment of independent body, granting or restricting the state aid programme and individual state aid funds, provi- sion of return of any illegally distributed state aid, provision of transparency in the state aid area (generation of annual reports), development of comprehensive list of all state aid Šefika Kurtagić programmes. In the light of the above, with the objective of implement- ing the Stabilization and Association Act (SAA), Montenegro and aid (“Official Gazette of Montenegro “, No. 13/08), the fulfilled following obligations: the Law on control of the state Decree on the manner and procedure for submitting and the assistance and aid was passed (“Official Gazette of the Re- content of necessary documentation for ex-ante and ex-post public of Montenegro “, No. 26/07); subordinate legislations control of the state assistance and aid (“Official Gazette of were passed: the Decree on more detailed criteria, purpose Montenegro “, No. 13/08), the Rulebook on the content of and requirements for the provision of the state assistance the annual report on control of the state assistance and aid.

61

On the basis of the aforementioned Law on control of are intensified investments in the development of small and the state assistance and aid, and on the basis of the Deci- medium-sized enterprises, which final effect is the increase sion of the Government from 8th November 2007, the Com- in employment and introduction of new technologies. In the mission for the control of the state assistance and aid was transition countries, the practice had shown the direct link established, composed from seven members. The tasks of between activities of the small and medium – sized enter- the Commission are focuses on control of distribution and prises being the most dynamic element of the economy itself issue, granting, monitoring and return of the state assistance and productivity growth. and aid. Moreover, active measures in the employment policy In accordance with legal obligations, the Division for the have created the possibility for new employment, education preparation of the state aid prepared Annual Report on con- and training. trol of the state assistance and aid in Montenegro for 2007. Basic indicator of achieved higher degree of develop- The Report was done on the basis of data submitted by the ment will be foreseen in allocation of public funds in the state aid provider, and in accordance with the methodology following areas: research and development, environmental prescribed by the European Commission in the reporting protection progamme, energy saving and increase in use of area of the state aid, first report of that type in Montenegro. alternative and renewable energy sources. Moreover, the Division prepared the list of the state aid, State aid instruments, the most used in the previous so called Inventory. analytic comparison period in 2007, are as follows: The objective of the state aid is the support to the strat- A2 – tax relief and social benefits, than A1 – subsidies, egy of the Government of Montenegro focused on increase of donations, debt writing-off and increased amounts in com- the commercial growth, implementation of the structural re- pulsory compositions; C1 – lending under more favorable forms and better public finance governance, especially in the conditions and lending to companies in difficulties; B1 – part covering expenditures. The state aid structure, on the state and financial transfers in the form of share in capital; basis of the Annual Report for 2007, has positive trend – in- C2 – other measures (reservations, general or accelerated crease in share of horizontal state aid in the overall allocated amortization, etc.); and D- guarantees. state aid. Since this category of the state aid is minimally According to available data from Annual Report for producing malfunctioning the market competition, generat- 2008, the biggest proportion is in the following instruments: ing multiple effects, in the next period (from 2008 to 2009) A1 – subsidies, interests, donations, debt writing - off and

62 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

decreased amounts in compulsory composition procedures limitations: the money may be granted without any limita- and C1 – lending under more favorable conditions and lend- tions, provided that the state has allocated funds. However, if ing to companies in difficulties. the state opts to support certain industry, region or a compa- As to the instruments in use, although state subsidies ny, than this measure must be harmonized with the special are more attractive for entrepreneurs, the practice had rules prior to granting any funds. shown that the more efficient are favorable lending or guar- At the same time, it should be emphasized that the state antees, because the state is engaging less funds to several is not to obliged to provide any kind of funding. Off course, companies. the state may opt for it creating the state aid policy, only if the state provided adequate funds to meet this objective. One of the problems with which the Division and the There are two different things – state aid policy and Commission faced with in work and implementation of state aid control. This means that line ministries are deciding regulations is inadequate or incomplete information on all what is the area and which projects will be supported, which procedural measures for the use of state assistance. sectors have priority, whereas the Commission for the control of state aid is establishing the framework in which the public In that light, the EU experts organized a series of semi- grants may be granted. In creating the policy that would fos- nars aimed at full education of public administration bodies, ter economic development of the country, companies should companies, public services and judiciary bodies. cooperate with public institutions and with business associa- Second problem with which the Commission for the con- tions. trol of state assistance and aid and the Division for the prep- State aid positive effects are multiple, starting from the aration of the state aid face with cooperating with the public effect in the creation of economic policy with the objective of administration is the insufficient time for the processing of attracting foreign investments, rational budget planning and notification of the state assistance and aid and its comple- implementing appropriate regional development policy. tion in the sense of legal grounds and all necessary elements Montenegrin tax policy is very stimulative and designed of the state aid programmes such as justified expenses, in- in accordance with the SAA rules, and may be very attractive tensity, accumulation, etc. to investors in a sense that tax relief are considered invest- ments. Comprehensive tax reforms in Montenegro are mak- What is the meaning of the state aid and which instru­ ing this area one of the main trumps in creating more favor- ments may be used in granting the state aid, what is the able framework for dynamic growth of our economy. difference between general measures as such and state aid measures; as well as the difference between the state Apart from economy and investors, citizens are hav­ aid policy and the state aid control policy? ing benefits from the state aid.

“Save as otherwise provided in this Treaty, any aid grant- There is a great number of good examples where citi- ed by a Member State or through State resources in any form zens have benefits from the state aid. One of the example whatsoever which distorts or threatens to distort competition is in the case of the supports to the bank. This is an impor- by favoring certain undertakings or the production of certain tant segment of aid, especially in last months. By support- goods shall, in so far as it affects trade between Member ing banks, the benefit is distributed, also to the citizens by States, be incompatible with the common market”. (Article securing deposits held with the banks. Moreover, benefit is 87, of the Treaty Establishing the European Community). provided to the citizens having loans with the banks – by pro- In order for a measure to be classified as the state aid, viding additional guarantees to the banks, the state is impos- it should correspond with the criteria that should be fulfilled ing additional requirements to the banks – that they cannot at the same time: change loan requirements, e.g. increase in interest rate. • The measure should be financed from state funds Montenegro is adequately implementing the state – aid and granted or directly by the state or indirectly by a body control system, being in compliance with the international authorized by the state; rules regulating this area. Achievements of Montenegro in • Measure should represent the economic advantage this field, have significant positive effects to the European which certain company would not obtain under normal op- integration process of Montenegro. erational conditions; • The measure should be “selective”, i.e. relates only to certain companies, or certain commercial sectors or parts of the territory of some member state; • The aid must have the effect of jeopardizing market competition and operations within the European economic Ms. Sonja Bećović, area. Advisor of the Minister The simplest way is to explain the essence of the state aid is to divide general from special measures. In case of Ms. Šefika Kurtagić, general measures the subject is not the state aid and special Senior Advisor III

63 Bulletin of the Ministry of Finance of Montenegro / April - June 2009 Payment of Converted Foreign Exchange Savings Bonds

The Law on settling obligations and claims regarding the foreign debt and citizens’ foreign exchange savings and the Law on payment of foreign exchange currency savings deposited with authorized banks headquartered outside Montenegro, pre- scribes the payment of converted foreign exchange savings start- ing from 1st July 2009. The Law on settling obligations and claims regarding the foreign debt and citizens’ foreign exchange savings, sets forth the conditions, manner and deadlines in the payment of foreign exchange currency savings with authorized banks on the terri- tory of Montenegro (regardless the residence of the owner of sav- ings), and the payment is made from 1st July 2004 to 2017. In 2009, is planned to make the payment for 66 thousand owners of converted foreign exchange savings bonds, who are en- titled to payment. The payment will be made through commercial banks and the Central Bank of Montenegro – regional centers. Marina Popović Moreover, owners who failed to withdraw the first installment and do not have the certificate of concerted foreign exchange cur- rency savings in bonds, need to address to the Bank in which they held deposits (Banks in Podgorica - Societe General Group Therefore, in the period from 20th March to 30th May 2009, – for former holders of deposits of Podgorička Banka, Atlasmont Crnogorska komercijalna Banka received 524 payment requests Banka – for former owners of deposits of Beranska Banka and and paid first installment (380,00€) in total amount of 171,5 thou- Pljevaljska Banka and Prva Banka Montenegro – former owners sand € and second installment (530,00€) in the total amount of of deposits of Nikšićka banka). 188,7 thousand €, which is in total 360,2 thousand €. Up to now, the amount of bonds that was paid and bought- Up to now, the amount of paid and bought – out bonds is out is 48,5 million €, and the amount of debt is 137,2 million €. 3,8 million €, and the amount of debt is 34,1 million €. The Law on payment of foreign exchange savings deposited Distribution of funds for the payment and redemption of for- with authorized banks headquartered outside Montenegro, pre- eign exchange savings bonds of citizens is done on the basis of scribes conditions, manner and deadlines in payment of foreign the Budget of Montenegro for 2009, in the amount of 20,1million exchange savings deposited with authorized banks headquarter €, for the following: outside Montenegro. The payment is made from 1 July 2007, - payment of sixth installment deposited with authorized through commercial branch units of Crnogorska komercijalna banks on the territory of Montenegro - 7,5million €; Bank. However, certain number of citizens – owners of foreign ex- - for the payment of third installment deposited with autho- change currency savings outside Montenegro had failed to exer- rized banks headquartered outside Montenegro - 2,6 million € cise their right to payment of the foreign exchange savings in pre- - for redemption of foreign exchange currency savings bo­ scribed deadline (up to 6th January 2008), and they addressed to nds - 10,0 mil. €. the Ministry of finance. Bearing in mind aforementioned reasons, the Government of Montenegro on the basis of amendments to Moreover, the bonds may be used prior to maturity date for the Law on payment of foreign exchange currency savings depos- the purchase of shares of state owned companies and compa- ited with authorized banks headquartered outside Montenegro nies owned by the Funds which are in privatization process, pur- (“Official Gazette of Montenegro”, No. 20/09), have created the chase of apartments, residential premises, business premised, legal framework and extended the deadline for the payment of land or other property in state ownership for which Montenegro foreign exchange currency savings up to 30th May 2009. determined that may be purchased with the bonds that are not The amendments to the Law provided the citizens to submit within maturity, payment of tax liabilities which maturity date is the request who do not have the final judgment on inheritance in a year in which tax liabilities are due and may be sold on the of foreign exchange currency savings by submitting the evidence stock exchange through authorized persons on the securities on initiating legacy procedure before the competent court. We market (brokers). are emphasizing, that the payment of foreign exchange currency savings to this citizens will be made following the submission of Ms. Marina Popović, the final judgment on inheritance. Independent Advisor I

64 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

Issuing, Withdrawing or Suspension of Accreditation for Decentralized Management of the European Union Funds

1. Accrediting

Definitions of accreditation and conferral of -manage ment powers over the European Union funds, are defined by legislative framework for application of the pre-acces- sion assistant instruments (IPA), such as: IPA Implementing Regulation (hereinafter referred to as: “IPA IR“), as well as Framework Agreement1, signed by every beneficiary country with the European Community Commission. In this way, the Framework Agreement becomes binding document for all signing countries and accepts prescribed criteria for accred- iting by the European Commission (hereinafter referred to as: “Commission “).

Article 11, IPA IR – General Requirements – subsec- tion 1, define that the Commission is making sure that the Nataša Kovačević country concerned meets the conditions referred to in Article 56(2) of Regulation (EC, Euratom) No 1605/2002 (hereinaf- ter referred to as: the “Financial Regulation”), in particular as the beneficiary country shall enable such persons to exercise regards the management and control systems established, the duties associated with that responsibility, including in and that the accreditations. Article 56, of the Financial Regu- cases where there is no hierarchical link between them and lation sets forth that the audit, accounting and procurement the bodies participating in that activity. The beneficiary coun- systems of beneficiary country is equivalent to the rules es- try is in particular providing those persons with the authority tablished in the European Union countries, i.e. in accordance to establish, through formal working arrangements between with the rules and legislation of the European Community, them and the bodies concerned: as well with due account for internationally accepted stan- dards.2 Apart from aforementioned requirements, it is neces- (a) an appropriate system for the exchange of informa- sary to have accreditations in force of the National Fund, the tion, including the power to require information and a right of NAO and operational structures. In that manner, in compli- access to documents and staff on the spot if necessary; ance with defined requirements, management and control (b) the standards to be met; systems established within beneficiary country are providing (c) the procedures to be followed. efficient controls in the following areas: where the control is carried out (as to establishment of organization and its man- The Competent Accrediting Officer (or Competent Au- agement), risk planning and management, control activities, thorizing Officer as being defined in Montenegro - CAO3), is monitoring and communication. responsible for the accreditation of the National authorizing officer (NAO)4, both as the head of the National Fund, since IPA IR Regulation sets forth that where specific persons the NAO is managing this unit. Prior to accrediting the NAO, have been given responsibility for an activity in relation to the the CAO is making sure that the applicable requirements set management, implementation and control of programmes, out in Article 56(2) of the Financial Regulation are fulfilled, as

65 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

well as criteria set forth in the Annex IPA IR (Accrediting Cri- tional Accreditation, when key players in accrediting process, teria). Aforementioned must be supported by an audit opin- i.e. the CAO and the NAO are assured that upon appointed ion drawn up by an external auditor functionally independent bodies, designed procedures and established control and from all actors in the management and control systems. The management system, there is a justified ground by nation- audit opinion is based on examinations conducted according al authorities to submit the application for the next phase, to internationally accepted auditing. which is conferral of management powers5 by the Commis- sion, representing accrediting by the Commission. The CAO is informing the Commission of the accredi- tation of the NAO, not later than the notification of the ac- Thus, prior to conferral of management powers, the creditation of the first operating structure. Moreover, the Commission is reviewing accreditations for the NAO, the Na- NAO is obliged to provide all relevant supporting information tional Fund and Operating structures (CAO is submitting the required by the Commission. The CAO immediately informs application to the Commission for decentralized management the Commission of any changes concerning the NAO or the for the National fund, while NAO is submitting for relevant National Fund, where a change affects the NAO or the Na- operating structures). At the same time, the Commission is tional Fund in relation to financial management, therefore reviewing procedures and structures of all relevant bodies accreditation validity. Where such a change is significant, the or institutions in the beneficiary country, which may include CAO shall also notify the Commission of his decision concern- on – spot –verifications by its services or subcontracted to ing the accreditation. an audit firm.

Regardless the IPA component, the NAO is responsible It may be the case that the Commission sets further for the accreditation of the operating structure. Prior to ac- conditions, with a view to ensuring that the requirements re- crediting an operating structure, the NAO is making sure that ferred to in Article 11, of the IPA IR are met. These further the requirements set out in Article 11, of the IPA IR, are ful- conditions must be fulfilled within a fixed period determined filled by the operating structure Concerned, being identical by the Commission for the conferral of management powers situation as in accrediting the NAO and the National Fund. to remain effective. The Commission Decision on the con- This means that the NAO must assure that all requirements ferral of management powers should contain the list of the prescribed by the article 56(2) of aforementioned Financial ex-ante controls, if any, to be performed by the Commission Regulation, as well as all criteria set forth in the Annex. Both on the tendering of contracts, launch of calls for proposals in case of accrediting operating structures as in the case of and the award of contracts and grants. This list may vary with accrediting the National Fund and the NAO, the assurance the component or the programme. The ex ante controls shall has to be supported by an audit opinion drawn up by an ex- apply, depending on the component or programme, until the ternal auditor functionally independent from all actors in the Commission allows for decentralized management without management and control systems. Moreover, the audit opin- ex ante controls, so called EDIS, i.e. expanded DIS. Moreover, ion shall be based on examinations conducted according to the Commission may define the suspension or withdrawal of internationally accepted auditing standards. the conferral of management powers in relation to specific bodies or authorities. It is necessary to emphasize that the NAO is the person who should inform the Commission of the accreditation of 2. Withdrawal or suspension of the accreditation operating structures, as well as to provide all relevant sup- porting information required by the Commission, including a Regardless the Commission Decision on the conferral description of the management and control systems. of management powers, CAO is responsible for monitoring the continuing fulfillment of all the requirements for accredi- It is necessary to make the difference between the Na- tation to be maintained and shall inform the Commission

1 - Framework Agreement between the Government of Montenegro and the European Community Commission, on rules for cooperation related to the financial assistance of the European Community to Montenegro within implementing IPA (“Official Gazette of Montenegro, No. 01/08 – International Treates) and the Regulation of the Commission (EC), No. 718/2007 as of 12th June 2007, implementing Framework Regulation IPA- IPA IR – Chapter II – Management and control systems, Articles 11-17. -Commission Regulation (EC) No 718/2007 of 12 June 2007 implementing Council Regulation (EC) No 1085/2006 establishing an instrument for pre-accession assistance (IPA) 2 - See Article 56(2) (EC,EURATOM) -Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities 3 - CAO – Mr. Igor Luksic, PhD, Finance Minister is the Competent Authorizing Officer. 4 - NAO – Mr. Dušan Perović, Assistant Minister for Treasury Operations, is the National Authorizing Officer. 5 - Conferral of management represents the last phase in so called DIS Road Map, or the first step in independent management of the EU funds, when the European Commission is passing the Decision on decentralized system. 6 - See Article 50, IPA IR: 1. The NAO, who bears in the first instance the responsibility for investigating irregularities, shall make the financial adjustments where irregularities or negli- gence are detected in operations or operational programmes, by cancelling all or part of the Community contribution to the operations or the operational programmes concerned. The national authorising officer shall take into account the nature and gravity of the irregularities and the financial loss to the Community contribution. In case of an irregularity, the national authorising officer shall recover the Community contribution paid to the beneficiary in accordance with national recovery procedures.

66 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

of any significant change related thereto. If any of theap- plicable requirements set out in Article 11 are not, or are no longer, fulfilled, the CAO is obliged to either suspend or withdraw the accreditation of the NAO, and immediately in- form the Commission of his decision and of the reasons for his decision. This assurance is to be supported by an audit opinion. During the period when the accredita- tion is not in force, all the euro accounts or the euro accounts for the components concerned shall be blocked, because the accreditation refers to the work of the National Fund or NAO.

With regard to accrediting operating struc- tures, after the conferral of management powers by the Commission, the NAO is responsible for monitoring the continuing fulfillment of all the re- quirements for this accreditation to be maintained and is informing the Commission and the CAO of any significant change related thereto. If any of the requirements set out in Article 11, IPA IR are not, or are no longer, fulfilled, the NAO will either suspend or withdraw the accreditation of the operating structure con- cerned, and immediately inform the Commission and the CAP of his decision and of the reasons for his decision. Before re- storing the accreditation to operating structure, the NAO will assure himself that those requirements are again fulfilled. This assurance is supported by an audit opinion. Where the accreditation of an operating structure is withdrawn or sus- pended by the NAO, the Commission is not making transfers to the beneficiary country of funds relating to programmes or operations implemented by the operating structure con- cerned while its accreditation is suspended or withdrawn. If the beneficiary country of funds failed to comply with the of the requirements mentioned in Article 11, IPA IR are not, requirements and conditions related to the conferral of man- or no longer, fulfilled. The Commission shall cease to make agement powers, the Commission may make financial cor- transfers of funds to the beneficiary country. In case of mis- rections, which means that in accordance with the Articles use, the Commission may make financial corrections, which 49-56, IPA IR, the beneficiary country of funds is obliged to means that in accordance with the Articles 49-56 of the IPA return the funds to the European Community.6 IR, the beneficiary country is obliged to return funds to the European Community. The Commission may lay down other No new legal commitments made by the operating consequences of such a suspension or withdrawal in a spe- structure concerned shall be considered eligible during the cific Commission Decision. period when the accreditation is not in force. The NAO shall be responsible for taking any appropriate safeguard mea- sures regarding payments made or contracts signed by the operating structure concerned.

3. Withdrawal or suspension of conferral of manage­ ment powers

Irrespective of the decision by the CAO to maintain, suspend or withdraw the accreditation of the NAO, or of the decision by the NAO officer to maintain, suspend or with- draw the accreditation of the operating structure, the Com- mission is continuously monitoring issued accreditation and Ms. Nataša Kovačević, therefore may withdraw or suspend the conferral of manage- Assistant Minister, ment powers at any time, in particular in the event that any CFCU

67

Return of Pension and Disability Insurance Contributions

The Law on compulsory social insurance contributio­ solutions related to the obligors, basis and deadlines in pay­ ns sets forth the obligation of payment of compulsory social ment of insurance. insurance contributions (“Official Gazette of Montenegro“, No.13/07 and 79/08), which entered into force on 1st The obligors of compulsory social insurance contribu­ January 2008. tions are the insurers (employees and self-employed per­ sons), employers (legal entities and entrepreneurs employing­ The adoption of aforementioned Law on compulsory workers) and other persons (farmers, etc.), who are socially social­ insurance contributions establishes unified financing insured in accordance with special laws regulating certain system of compulsory social insurance in Montenegro. types of compulsory social insurance. Apa­rt from aforementioned, the Law unified all three types of contributions (pension and disability insurance, health The new Law on contributions regulates the institute of insurance and unemployment insurance) and aligned basic the highest annual basis for the payment of contributions

68 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

for compulsory pension and disability insurance and return of contributions. The Article 14, of the Law prescribes that if an insurer is realizing revenues on the basis of several different grounds (employment, etc.), compulsory pension and disability insurance is calculated and paid on the basis of those grounds up to the amount of the highest annual co­ ntribution basis. Following the expiry of the calendar year, the amount of the highest annual basis is aligned with the growth rate of minimum wage in Montenegro obtained in previous calendar year in accordance with the data obtained from the statistical authority (MONSTAT). The Ministry of fi­nance has the authority to adopt subordinate regulation on alignment of the highest annual basis.

The highest annual basis for payment of contributions for the Pension Insurance Fund in 2007 - amounted 20.885,14 Tatjana Bošković €, and in 2008 - amounted 23.976,14 €, in accordance with the Rulebook on alignment of amounts of the highest annual­ basis for the payment of contributions for pension contributions and paid contributions on all grounds, or the and disability insurance (“Official Gazette of Montenegro“, report of the payer of personal income and other income No.15/08). and certificated of authorized tax body (for revenues from independent activity). On the basis of the Rulebook on alignment of amounts of the highest annual basis for the payment of contributions for For example, if a physical person in 2008, realized reve­ pension and disability insurance for 2009 (“Official Gazette nues on two grounds (employment and membership in the of Montenegro“, No.9/09) this basis for 2009 amounts managing board) and total basis for calculation and pay­ 29.370,80 €. Namely, the amount of the highest annual basis ment of contributions for pension and disability insurance for the payment of contributions for pension and disability is exceeding the amount of 23.976,14 €, than the person is insurance for 2009, compared to the highest basis in 2008, entitled to return of exceeded amount of paid pension and is higher for 22,5% (representing the increase in average disability insurance contributions. salary in Montenegro in 2008 compared with 2007). Competent tax body is deciding on submitted request for In accordance with the provisions of the Article 22, of the return of pension and disability insurance contributions the aforementioned Law on contributions, the obligor who and final decisions are submitted to the applicant and the paid contributions for pension and disability insurance, or on payer of personal income and other income, and return of whose behalf was paid the contributions on the basis of the paid contributions is made within 30 days following the sub­ basis for calculation of contributions exceeding the amount mission of the final decision on return of contributions. of the highest basis for the calendar year, will be entitled to return of overpaid contributions.

More detailed procedure and the manner of returning exceeded amount of paid contributions is prescribed by the Rulebook on the procedure and the manner of returning exceeded amount of contributions for pension and disability insurance (“Official Gazette of Montenegro“, No. 38/08 and 27/09), adopted by the Ministry of finance.

Obligor of contributions (physical person) will return overpaid contributions following the expiry of the calendar year. The request is submitted to authorized tax authority in Form „ZPD” (Request for the Return of Contributions) containing data on the grounds for paid contributions (i.e. employment, independent activity, contracted feed, membership in board of directors, managing board, etc.).

Along with the aforementioned request, the obligor must MSc. Independent Advisor in the submit proofs on the amount of the basis for calculation of Sector for Tax and Customs System

69 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

Fuel Consumption Assessment Based on Collected Excise as the Economic Activity Indicator

The understanding of real economy trends is the con- By applying inverse method we are obtaining the data ditio sine qua non concerning decisions on: creating eco- on quantity of fuels on which the excise is collected, i.e. nomic environment (Economic policy), selecting appro- data on consumption through the following: priate fiscal policy instruments and possible changes in these areas. One of the occurrence indicators in the real sector showing the level of economic activity is the miner- 1 al oils consumption (fuels) . It is necessary to emphasize Ap *kl / k g Ap K = or K = where: that the significant advantage of this indicator is that it is t A l A allowing the assessment on the basis of very short period l l 2 of time . The fuel excise tax, represents the convenient K l = fuel quantity (volume) indicator of fuel consumption because of being paid on quantity providing independence from fluctuation in im- K t = fuel quantity (weight) ported prices, having huge oscillations in last year3. The A = collected excise analysis is suggesting that though collected excise which p is proportional to the quantity of mineral oil (mineral oils k l /k g = ratio for converting the fuel from liter to kg consumption) we may have one of the leading indicators of the level of economic activity on the economy of Mon- A l =Excise per liter tenegro. As already known, the transportation represents an important segment in the economy. because it perme- The value of the converter ratio is indicated in the ates all industry, whereas the fuel consumption directly following Table: implies. The analysis is not providing the division of con- sumption into a part related to individual needs and the Type of Fuel kl/kg Al part related to the renewal of the different economic ac- Unleaded fuel 95 0.772 0.364 tivities, although we are aware of the fact that these two Diesel D2 0.85 0.27 segments of consumption imply different elasticity.4 Leaded fuel 98 0.755 0.369

5 In order to calculate fuel consumption by types, we It is commonly accepted that the fuel consumption took into consideration the following data:

is accounted for in liters, thus Kl is fully illustrating the 1. data on collected excise for certain types of fuels, measured consumption (fuel quantity on which the excise such as unleaded fuel 95, diesel fuel D2 and bio – diesel is collected) applying 45 days, because on the basis of the and leaded fuel 98, for the period 2006-2009. (data on deferred payment regime the excise holders are entitled receipt accounts - Eko code, Treasury); to deferred payment, i.e. collected excise for this moth re- 2. Data on excise amount for certain types of fuel lates to consumption in previous 45 days. Due to easier (Law on excise tax); calculation, 60 days were accounted for as deferred pay- 3. data on conversion of fuel volume to weight equiva- ment. This concretely means that the equivalent to col- lent (Decree on calculating maximum retail price of fuel); lected excise in the first two months of 2009, represent 4. “The Regime of deferred payment of excise“ (the the consumption in last two months of 2008, because we Law on excise tax). are taking into consideration aforementioned deferred payment regime.

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Since the values in the upper table are constant the results are as follows:

In liters In kilograms

Kl (D2 and Eco-diesel)= Ap * 3,703704 Kt = (D2 and Eco-diesel)= Ap * 3,148148

6 7 Kl (fuel 95) = Ap * 2,747253 (2,785515 ) Kt (fuel 95)= Ap * 2,120879 (2,150148)

Kl ( fuel 98) = Ap * 2,747253 Kt (fuel 98)) = Ap * 2,07416

Quantity of fuels on which the excise is collected 30.0

25.0

20.0

15.0

10.0

5.0

0.0 I IIIIIIV V VI VIIVIIIIX X XI XII 2008 2007 2006 2009

Obtained results are given in the graph to the right. The graph indicated the total mineral oils consumption by months for the period 2006 -2009, as well as on the basis of the fuel types8.

71 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

1. The mineral oils consumption in 2006, amounted approximately 176 million liters, and in 2007 the con- sumption was higher for 18% or for 207 million liters, while in 2008 was higher for 28% and amounted 265 million liters. In 2009 was recorded a moderate decline in fuel consumption (4 %) which corresponds to more moderate economy activity. Monstat’s data on trends of the trans- port of goods in the period from January to April 2009 are in accordance with this conclusion. ( 98.3 )

2. The mineral oils consumption in u 2006 and 2007 has a significant seasonal pattern. The consumption is highest in summer season, which clearly corresponds to the peak of tourist and construction season. In 2008, this monthly pattern is to certain extend jeopardized in the last quarter which may be explained by the settling of Vladislav Karadžić commercial activity. Moderate decline in consumption is viable in the first quarter of 2009, and similar trend may be expected by the end of the year. In this manner was calculated the fuel consumption for the first quarter of 2009, compared to the same figure in the last year period it shows the decline of 4 %.

Conclusions and proposals

1. Considering the importance of transport in econo- my, as well as aforementioned fact on availability of data on collected excise, it can be treated as one of the leading indicators of the commercial activity level. Radovan Živković 2 If we take into consideration the facy yjay the three values in upper equation are constant (excluding collect- ed excise), it may be concluded that the fuel consumption – fuel quantity on which the excise is collected – is propor- tional to collected excise, thus it is easy to calculate pos- sible financial effects of increase or decrease in excise. Mr. Vladislav Karadžić, Independent Advisor I 3. Considering the nature of collected excise (on qua­ ntity) it may be used as one of the instruments of control Mr. Radovan Živković, in sales of fuel (comparing quantity and collected excise). Independent Advisor I

1 - Robert Peston, the BBC’s business editor expressed similar idea in his blog on economic and business topics treating the electricity consumption and a leading indicator of commercial activity. - http://www.bbc.co.uk/blogs/thereporters/robertpeston/2009/06/corus_jobs_and_electricity_usa.html 2 - Data on collected excise are available on a daily basis. 3 - The oil price ranged from 150$ /barrel in July – and 40$/barrel in December 2008, 37 $/barrel in March 2009, 72 $ in June 2009). 4 - Individual consumption is inelastic in the situation of moderate fluctuation of prices, while consumption connected to commercial activity has high elasticity ratio. 5 - We must emphasize that more precise term is the quantity of mineral oils on which the excise is paid, but for this analysis was made on the assumption that these categories coincide. 6 - From 1st January 2009, the excise on unleaded fuel was reduced from 364 to 359 €/1000 liters. 7 - Same as with 5. 8 - Due to limited space, data on total consumption for certain types of fuels on the basis of years and months had not been indicated.

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World Bank Project - REPARIS

1. Basic Information Main objectives of the regional REPARIS are focused on optimization of economic volume, elimination of double effo­ Road to Europe: Program of Accounting Reporting and rts and facilitation of exchange of knowledge and experience Institutional Strengthening (The Road to Europe: Program between the countries in the Region. Key regional activities of Accounting Reform and Institutional Strengthening) – of the REPARIS Program include the following: REPARIS is a regional program aimed at creating a transp­ ­ Academic education – development of the model for arent policy environment and effective institutional frame­ curriculum­ in the area of accounting and auditing; work for corporate reporting within South Central and South IFRS Courses – design of the standard set of courses in East Europe. Participating countries/entities include Albania, International Financial Reporting Standards (IFRS) focused on Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo (UNSCR different target groups – including academics, accountants, 1244), the former Yugoslav Republic of Macedonia, Romania, auditors, regulators, taxpayers, etc.; and Serbia, Montenegro. Moldova, Turkey and Ukraine are Setting of accounting and auditing standards – develo­ also participating in certain regional activities. pment of patterns for defining accountability, obligations and

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competency of the body responsible for setting of standards harmonized with the best international practice; Strengthening professional auditing bodies – provision of funds to professional auditing bodies for improving the qu­ ality of the audit. Professional education, experience and testing of knowle­ dge – establishing the model in accordance with the requi­re­ ments of the 8. EU Directive in the area of commercial law. Strengthening institutional capacity for implementation of regulations – provision of authority and mechanisms to the regulatory and supervisory bodies in the area of the banking sector, insurance and capital market in implementation and application of the sound accounting and audition in accor­ dance with the acquis communautaire. Application of coordination application activities – esta­ blishment of the platform for coordination of regulatory Aleksandra Popović and supervisory bodies in the area of the banking system, insurance and capital marker, as well as the system of public auditors supervision in each country. Public supervision – development of patterns for defining accountability,­ and competency of the supervisory board 5. Financing – Austrian development corporation and which is in accordance with the acquis communautaire. the Government of Luxemburg Quality assurance – establishment of the international experts pool that would be providing asvisory services on Participation of Montenegro proposals for the provision of quality. Twinning and Secondment – Twinning and secondment Up to present four workshops were organized within REPA­ represent the tools for the strengthening and development RIS Project attended by the representatives of Montenegro. of professional and regulatory bodies. The first workshop was organized in March 2009 in European and international organizations – adoption of Vienna for senior officials of the Ministry of finance whicih the European and international practice in professional and objective was the launching of the REPARIS program. The regulatory bodies through the transfer of skills and participa­ representatives of the Ministry of finance participated in the tion in meetings, seminars, workshops, as well as the cour­ work of this workshop. ses provided by the relevant European and international org­ The second workshop was organized in April 2009 and anizations. it was intended for the educational process in the area of Public access to financial information – developing the accounting and auditing and it was organized in Vienna in April model for complying with the requirement 1 of the EU Directive 2009. The workshop was attended by the representatives of in the area of commercial law and the EU transparency the Ministry of finance, Institute of certified accountants and Directive. the Faculty of Economics. At the end of June 2009, additional two workshops were 2. Achieved objectives organized, out of which the first one was dedicated to the exchange of experience, finding the solution to the current • Diagnosis – ROSC assessment for each country – problems in the accounting and auditing area, education, while completed; the second one will be dedicated to education and exchange • Raising awareness, information and creating the of experience between the senior officials of the Ministry of momentum for reforms – initiated; finance, as well ad to the preparation of ministerial conference • Local action plans – initiated; that should take place by the end of October 2009. • Implementation of local action plans – initiated; Regional capacity building, technical assistance and training – initiated. Ms. Ana Krsmanović, Independent Advisor I 3. Initial phase in 2009. Ms. Aleksandra Popović, 4. Implementation phase – from 2010 - 2014. Independent Advisor II

74 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

Leasing Market in Montenegro - Report for First Quarter of 2009 and Comparative Analysis of Leasing Market Trends in the Region

Introduction In the first quarter of 2009, the leasing market in Montenegro registered decelerating trend of the business activity. In accordance with the data obtained from the leasing companies, they are indicating the decline in operating volume, primarily due to the general fall of economic activity. Apart from the data on Montenegrin market, the document is providing data overview on leasing markets in neighboring countries, with the reference to the leasing market legislative.

Market Participants At the end of the first quarter of 2009, as it was in the previous one, there are six leasing services providers out of which four leasing companies with the legal entity status and two banks, which within their area of operation have special departments dealing with the leasing operations, such as: Hypo Alpe Adria Leasing, S-Lesing, Porsche Leasing, NLB Leasing and Opportunity Bank and Prva banka Crne Gore established in 1901 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

Financial and operational leasing services are provided by the following leasing companies: Hypo Alpe Adria leasing, S- leasing, NLB leasing and Porsche leasing, while other leasing providers deal with financial leasing. Three leasing companies are dealing with the real estate leasing - Hypo Alpe Adria Leasing, NLB leasing and Opportunity Bank, while the remaining three leas­ ing companies are dealing with the provision of leasing services of the immovable property.

All leasing companied are directly or indirectly in foreign ownership, with the exception of the Prva banka Crne Gore which is in dominant domestic ownership.

Investment Structure

Leasing recipients

In the first quarter of 2009, the total number of concluded leasing contracts amounted to 275, which is by 60.77% less than realized in the same period last year.

Table 1: The number of concluded contracts by leasing recipients I Quarter 2008 I Quarter 2009 Ratio Number of Number of Leasing Recipients % % % Contracts Contracts Legal entities 75.18 527 50.91 140 -73.43 Physical entities 24.68 173 47.27 130 -24.86 Entrepreneurs 0.14 1 1.82 5 400.00 Total 701 100.00 275 -60.77

Out of the total number of concluded contracts, total of 140 or 50.91%, relates to the contracts concluded with legal entities, while 130 or 47% relates to the contracts concluded with physical entities. If we compare available data on the share of the contracts concluded with physical entities against the total number of contracts, it is obvious that this share is higher than the same period last year. This fact is indication that the leasing companies in Montenegro are earmarking their business strategies on physical entities aimed at risk diversification insuring optimum client’s structure.

The Value and the Number of Concluded Contracts as to the Leasing Type

As it was the case in previous years, in the first quarter of 2009, financial leasing operations had significant share in the total number of operations, as well as the value of concluded contracts.

Table 2.: The value and the number of concluded contracts as to the type of leasing Growth Growth Rate 31st March 2008 31st March 2009 Rate (No.) (value) (3)/ (1) (4)/(2) Number of Value of concluded Value of Value of Leasing type concluded % contracts % concluded % concluded % % % contracts (1) (2) contracts (3) contracts (4) Operational 70 9.99 3,927,373.63 9.34 19 6.91 271,453.11 3.10 -72.86 -93.09 leasing Financial 631 90.01 38,114,022.23 90.66 256 93.09 8,493,298.85 96.90 -59.43 -77.72 Leasing T O T A L: 701 100 42,041,395.86 100 275 100 8,764,751.96 100 -60.77 -79.15

In the first quarter of 2009, the value of concluded contracts amounts to 8.764 million Euros, representing decline of around 79.15%, compared to the amount reached last year. Out of the total number of concluded contracts, over 93% or 8.493 million Euros, related to the financial leasing, and the rest to operational leasing.

Leasing Subject

If we take into consideration the structure of the total number of concluded contracts, based on the leasing subject, it is obv­ious that passengers’ cars have the biggest share of 89%, in the total amount of leasing investments.

76 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

Table 3: Comparative review of the value of concluded contracts based on the subject of leasing

Number of Daily Contracts 31st March 2008 Leasing 31st March 2008 Leasing 31st March 2008 Leasing Subject (1) Subject (1) Subject (1) Passengers cars 466 66.48 219 79.64 -53.00 Commercial vehicles (trucks, 137 19.54 30 10.91 -78.10 buses and delivery cars) Constructing machinery and 78 11.13 13 4.73 -83.33 equipment Ships 1 0.14 1 0.36 0.00 Real-estate 19 2.71 12 4.36 -36.84 Other Total: 701 100.00 275 100.00 -60.77

The share of commercial vehicles in the total number of concluded contracts is of around 11%, while the share of constructing machinery and equipment is in the amount of 4.73%, and the real estate leasing amounts to 4.36%. Compared to the same period last year, the leasing market recorded the decline in share of commercial vehicles and constructing machinery and equipment, while the share of other categories is recording the increase in share in the total number of conclude contracts.

Table 4: Comparative review of the value of concluded contracts based on the subject of leasing

Number of Daily Contracts 31st March 2008 31st March 2009 Growth rate Leasing Subject % % (1) (2) (2)/(1) Passengers cars 9,365,194.08 22.28 3,853,838.01 43.97 -58.85 Commercial vehicles (trucks, 7,335,957.97 17.45 803,341.59 9.17 -89.05 buses and delivery cars) Constructing machinery and 6,672,398.38 15.87 996,170.17 11.37 -85.07 equipment Ships 18,750.60 0.04 70,000.00 0.80 273.32 Real-estate 18,649,094.83 44.36 3,041,402.19 34.70 -83.69 Other Total: 42,041,395.86 100.00 8,764,751.96 100.00 -79.15

The passengers cars has the biggest share in the total value of concluded contracts in the amount of approximately 44%, while the real estate leasing amounts to approximately 35%, the commercial vehicles amounts to approximately 10%, and the leasing of constructing machinery amounts to approximately 12%. The text below provides an overview of the leasing market trends in the first quarter of 2009, in the neighboring countries, along with the information on legislation regulating leasing market.

CROATIA

Twenty-nine companies are operating on the Croatian leasing market, which operation is regulated on the basis of the Leasing Law, adopted on 7th December 2006, and supervised by the Croatian Financial Services Supervisory Agency (HANFA). The Agency is supervising the operation of the leasing companies, follows up their establishment, operation and the cease in work of the leasing companies, prescribing accounting framework (Chart of accounts) for financial reporting and maintenance of the business books. Aforementioned means that a leasing company needs to provide an approval for the conduct of leasing operations, as well as to submit regular business reports to the Agency. The Agency is maintaining the Registry of Leasing subject (objects), where in accordance with the Law the registry of leasing companies is mandatory. The Registry, apart from basic data on provider and user of contract, contains and regulates in details the leasing subject, the value of the leasing subject, the amount of a certain fee and the contract duration. In the first quarter of 2009, is registered the decline of business activities compared to the same period last year, the number of newly concluded contracts in the first quarter this year is by 44,9%, less than the same period last year, while the

1 - Calculated on the basis of the exchange rate: 1 Euro - 7.329 Kunas as of 7th July 2009. 2 - Calculated on the basis of the exchange rate 1Euro - 92.922 Dinars as of 8th July 2009.

77 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

value of newly concluded contracts fell for 38.8%. As of 31st As for the leasing subject structure, the highest share March 2009, the number of active contracts on the leasing in total claims have vehicles, buses and mini-buses with the market amounted to 174,657, which total value amounts to share of 39.6%, than machinery and equipment (production 6,495,896,772.27 Euros1, representing the growth of 6.2% machinery, constructing machinery and agricultural machi­ or 14.8%, based on the value of contracts compared to the nery and equipment) with the share of 26.2%, passenger realization from 31st March 2008. cars with the share of 22.6%, railroad devices, ships and ai­ The portfolio structure of newly concluded contracts rcrafts with the share of 1.1%. according the leasing subjects, generated decline both in the With regard to the leasing recipient structure, the hig­ number and the value of concluded contracts for all leasing hest shares in total amount of claims have legal entities with subjects compared to the first quarter of 2008. The biggest 86.4%, physical entities with 6.3%, and entrepreneurs with decline is in the value of newly concluded contracts by 78,39 4.6% and farmers with 1.1%. million Euros or 43,2% compared to the first quarter of In the first quarter of 2009, the leasing market realized 2008, and it relates to passengers cars, while the real estate positive net result in the amount of 9732.04 Euros. The to­ is recording the decline in the value of newly concluded tal assets of all leasing providers as of 31st March 2009, contracts by 61,26 million Euros or 65,2%. amounted to 1.37 billion Euros, while in the same period last By analyzing operating financial results on the leasing year this amount was 1.11 billion Euros, representing the in­ market in the first quarter of 2009, there is a loss after crease­ of 24.31%, compared to the same period last year. taxation of 6.56 million Euros, out of which 11 companies realized profit in the amount of 5.28 million Euros, while SLOVENIA 14 companies underwent a loss of 11.84million Euros. For comparison purposes, in the same period last year, the profit The National Bank of Slovenia is monitoring the leasing was realized in the amount of 2,072,883.97 Euros. operation and generates annual reports on the basis of data Total value of assets of leasing market participants submitted by the leasing companies. Leasing operations in in the period from 1st January to 31st March amount to Slovenia are not regulated by the special law, but this area 4,845,539,687.59 Euros, while the amount in the same is regulated through the set of Banking Law and Law on con­ period last year was 4,329,450,068.5 Euros, indicating the sumer credit. increase of 11.92%. In accordance with the Bank’s Association Report, seve­ nteen companies are conducting the leasing operations. Si­ SERBIA nce the leasing companies, within regular activities, are ent­ itles to approve consumer credit, in order to perform these Seventeen leasing companies are operating in Serbia, operation they need to obtain the license from the Office for whereas the supervision is performed by the National Bank Consumer Credit. of Serbia, in accordance with the provisions of the Law on In accordance with the Analysis of the Bank’s Association financial leasing, enacted on 1st January 2004. The National of Slovenia, on the Slovenian leasing market in the first Bank is issuing licenses for the conduct of financial leasing quarter of 2009, the total of 12,212 leasing contracts were operations, providing consents on appointing of managing concluded, as well as 13,316 contracts on consumer credit, body of leasing providers and undertakes corrective mea­ the value of concluded contracts amounts to 367.53 million sures towards leasing providers, in cases when on the Euros, out of which the value of leasing operation amounts to basis of supervision is determined an illegally or irregularly 295.00 million Euros. Out from the total number of contracts, conduct of operations. The Law sets forth the content and the financial leasing includes 10.000 contracts, which value the form of the Leasing Contract, as well as all requirements amounts to 208.97 million Euros, while the operational in relation to the Registry whose maintaining is delegated to leasing operation amounts to 2.212 of concluded contracts, the Commercial Registries Agency. Moreover, the National worth 86.03 million Euros. Bank may prescribe the obligation to the leasing companies to hold reserves on a special account, the amount of fund, BOSNIA AND HERZEGOVINA the rate of distribution of those funds, a swell as the manner and conditions for their use. Leasing operations in Bosnia and Herzegovina are regul­ On the Serbian leasing market, as of 31st March ated by the Leasing Law, enacted at the end of 2008. The Law 2009, total claims of all leasing companies amount to prescribes requirements for establishment, operation and 1.038.501.105,73 Euros.2. Concluded contracts of leasing cease in work of the leasing companies, contract on leas­ing, companies, concluded in the period from 1st January to rights and obligations of the entities in leasing operations, 31st March 2009, resulted in new claims in the amount of registration of ownership and other rights related to the 12.658.591 Euros, while in the same period last year total leasing subject, risk management, financial reporting and claims amounted to 44,448,834.91 Euros. Aforementioned surveillance over the operation of the leasing companies. is indicating the fall in the amount of newly created claims Similar to the legal solutions of Croatia, Serbia and Macedonia, by 71,52% in the first quarter of 2009, compared to the first for carrying out leasing operations, the company must obtain quarter of 2008. the working license, in this case issued by the Banking Agency

78 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

of Bosnia and Herzegovina Federation. Unlike other countries neighboring countries, by this Law, Bosnia and Herzegovina are regulating the operational leasing. During 2008, seven leasing companies concluded cont­ racts­ worth 351,7 million Euros, which is by 10% less than in previous year, according to the Report of the Association of the leasing companies of Bosnia and Herzegovina. At the same time, the number of contracts amounted to 7.218, which is approximately by 11% less than in 2007. In the leasing structure, with regard to the value of contracts, the biggest number of contracts was concluded for cars and real estate in the amount of 39%, or more precisely 38,4%, for equipment in the amount of 22,3%, and on other arrangements 0,2%. With regard to the number of contracts the share of contracts on cars leasing is 81,9%, in the total Bojana Bošković number of contracts.

MACEDONIA

Eight leasing companies are operating in Macedonia, licensed by the Ministry of finance. In accordance with the Leasing­ Law, which last amendments were made in 2008, leasing operations of leasing companies are controlled by the Ministry of finance of Macedonia. Leasing companies are submitting reports on operations, financial reports enabling the Ministry of finance as regulatory authority to perform surveillance. Moreover, the Law defines conditions related to the contract on leasing and registration of the leasing subject in the Central registry. Jelena Vojinović According to the data of the Ministry of finance of Macedonia, during 2008, new contracts were concluded in the total amount of 3.268, worth 65,409,381.31 Euros, while creating the possibility to invest it in further development. as of 31st December 2008, the number of active contracts By presenting leasing market trends in the neighboring amounted to 9.434, which total worth is 165,192,749.057€. countries, where comparative data are available, the fall of the business activity is evident, which is generally a conse­ *** quence of declined commercial activity. The problem with which all leasing companies in the region are facing with is in The current burning issue for both small and large difficult in aggravated collection of receivables, requests for companies struggling for their market position, in the time reprogramming of liabilities or return of leasing subject. of global economic crises, is what is the most adequate type of funding. According to many authors, the leasing Data for the first quarter of 2009, both in Montenegro is the best funding solution for small and medium-sized and in other countries in the region are indicating declining enterprises to finance their business in the time of crises, trend. However, having in mind that the first quarter was not having in mind easier procedure; it is easier to purchase a affected by the crises and that they are featured by lower fixed asset through the leasing, then to require bank loan. activities level, it is not unrealistic to expect the stabilization Moreover, the leasing is not overburdening the balance sheet of the market trends by the end of the year. of the company. In addition to this, as a special advantage of this type of funding, the purchase of car is allegedly one of the most frequent tax evasion, because in tax terms, the payment of the leasing installments represents the expense, or justified expenditure. Moreover, another advantage is that business organizations are not investing their own funds, the payment is adjusted to the needs and possibilities of users Ms. Bojana Bošković, and companies are allowed to change or to swap the leasing Independent Advisor I subject quickly. In other words, both operational and financial leasing is enabling business organizations lower financial Ms. Jelena Vojinović, burden and more flexible management of funds, therefore Independent Advisor III

79 Bulletin of the Ministry of Finance of Montenegro / April - June 2009 Medium - Term Expenditure Framework 2010-2012

The Medium-term expenditure framework comprises planning and budgeting process for the period of three to five years, and it is used as a basis for the preparation of the annual budget. The key component of the medium – term expenditure framework relates to the precise assessment of expenditures deriving from the medium – term strategic policies. The tot­al available fiscal funds in the medium – term period are deter­ mined on the basis of macroeconomic projections. Therefore, the budget expenditures plan for a certain fiscal year must be leveraged with the macroeconomic framework. The Government of Montenegro opted for introducing the medium - term expenditure framework starting from 2009, due to the advantages of this model which can be seen from the following facts:

• Harmonization of the budget planning with the intern­ Tamara Gačević ational standards, • Establishment of the macro fiscal discipline and stability, • Possibility to control and manage public expenditu­ res, • Determining and completing priorities of the Gover­ nment in the long run, • Avoiding the crises in the public finance and • Providing support to economic growth and stability.

The medium – term expenditure framework is prepared on the basis of the principal «top - down » introducing financial limits (ceilings) for budgetary users i.e. spending units in the multi-annual period. The implementation implies the setting Slobodanka Mila Popović of limits in the cumulative amounts based on economic classi­fication and budgetary users, while detailed expenses breakdown is given in precise amounts on the basis of annual 5. Initiation of the construction of the highway Bar-Bolja­ budget laws. The key advantage of introducing the medium re requires the allocation of significant funds being a part of – term expenditure framework is in improved possibility of commitments, the Government to distribute funds within the programes 6. Paying - off external and internal debt, and organizational unit in accordance with adopted policy 7. Social program for the protection of most affected and priorities. Budget consumption in the next period must citizens by the consequences of global economic crises. account for decline in collection of budget revenues, as well as several additional factors: Having in mind aforementioned, it is necessary to conti­ nu­ously analyze the medium – term fiscal sustainability. De­ 1. Budget deficit must be within the limits of the Maas­ fi­ning the medium – term objective of the budget policy will tricht criteria - 3% help in harmonizing concrete needs for budgetary funds. 2. Up to 2012, gradual budget balancing is planned, Economic and fiscal policy, in this period will be focused on 3. Decreased possibility of indepbtedning, mitigating the economic crises effects, both on real economic 4. Process of joining the EU requires the allocation of sector and the citizens sector. Hence, the objective of Mon­ significant funds for this purpose, although Montenegro is tenegro, as a potential candidate country for joining EU, is to relying on the use of pre-accession assistance funds (IPA), strengthen institutional and administrative capacities, to align

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its regulations with the European Unions regulations, focus on development of the civil society, and improve regional and cross- border cooperation. In the medium – term expenditure framework 2010-2012, following budgetary policies will be implemented:

• Public Finance Sustainability Decrease in budget revenues, in the first quarter of 2009 is calling for corrections in the revenue plan by the end of this year, representing at the same time the basis for revenue planning in the following years. Decreased revenues, are driven by the expenditure level in the following period. Current budgetary consumption will continue to grow in accordance with projected inflation rate (3, 3% average annual inflation rate) and will gradually decline against GDP. The imperative is to provide regular payments of personal income, pensions, social contributions and the repayment of debt.

• The continuation of the implementation of the medium – term expenditure framework The reform of budgeting and budget planning process, introduction of the financial limits (ceilings) for budgetary users in multi- annual period was the assumption in creating and applying the medium – term expenditure framework. Budget appropriations for a multi-annual period will be based on strategic document of the Government and individual line ministries in accordance with the fiscal framework of the overall public consumption. In that manner “top - down” method will be introduced in the process of budget preparation and planning (unlike the current “bottom - up” method). The implementation implies the setting of limits in the medium – term period in cumulative amount by budgetary users, on the basis of economic classification and budgetary users, while the detailed breakdown of expenditures would be provided in annual budget laws. The key advantage of introducing the medium – term expenditure framework is the creation of stable and sustainable fiscal policy, extended capacity for regulating future budget effects / results and in improved possibility of the Government to perform the allocation of resources within the programmes and organizational units in accordance with the adopted policy and priorities.

• The continuation of the implementation of the Capital Budget of Montenegro The continuation of the implementation of the capital budget of Montenegro at the level of 3, 5% GDP annually in the period from 2010-2012. The development of the data basis on all project is planned which will be linked with the budget. This would provide for adequate analysis of the fiscal risks and improve the processes of decision making in selecting the priorities. The adoption of the new law on concessions and private public partnership will represent a significant regulatory framework for managing one part of investments.

• The continuation of the programme budgeting implementation The implementation of the programme budgeting in Montenegro implies the model of the budget programme representing the main activity (programme) or group of activities (subprograms) achieved by the spending units. Two level of application in implementation of the programme budgeting were introduced, which disclosed through the programmes and subprogram’s. The reform of the programme budgeting envisages the application of the logic programme classification for the overall budget, as well as the preparation of the IT system for budget monitoring and execution on the basis of the progamme structure. Gradual conversion from linear to the programme budgeting is in implementation process since 2005. Full implementation of the programme budgeting, including indicators and full application of the “top – down” method in the budget preparation and planning process is planned to be developed in medium - term.

• Debt management strategy The projection of the internal debt trend in the period from 2010 to 2012, is based on the precondition that the debt on the basis of the restitution will reach the legal limit of around 10 % GDP (in 2009 it will reach mentioned level, which is unrealistic to expect, but the prerequisite is that these requirements will be fulfilled), while the payment of liabilities will amount to approximately 0, 5% GDP. The amount of payment of liabilities on the basis of due pensions will be 34, 0 mil. € annually and it will be fully paid off up to 2011. The planned indebtedness level in 2009 will amount to 103, 0 million € and it will be used for financing the projects of the Directorate of traffic for resolving the problem of bottle-necks. The assumption is that the indebtedness level of

81 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

local self-government units will remain the same. The payment of liabilities on the basis of foreign currency savings deposit will amount to approximately 14, 0 mil. € Annually. The redemption of old foreign currency savings bonds is not accounted for OB16 and OB17 and DO16 and DO7, or the redemption of restitution bonds. The budget for 2009 provides the redemption in total amount of approximately 20, 0 million €.

The following Table provides consolidated budget balance and state owned funds balance for the period 2010-2012.godine: Projection 2010 Projection 2011 Projection 2012 Description mil € % GDP mil € % GDP mil € % GDP Source revenues 1280,03 34,46 1353,03 34,52 1449,05 35,05 Taxes 812,58 21,87 860,21 21,95 917,62 22,19 Contributions 356,40 9,59 376,22 9,60 404,41 9,78 Duties 24,96 0,67 26,21 0,67 27,65 0,67 Fees 33,50 0,90 35,18 0,90 37,11 0,90 Other revenues 40,14 1,08 42,15 1,08 47,46 1,15 Receipts from the payment of loans 12,45 0,34 13,07 0,33 14,79 0,36 Consolidated expenditures 1343,28 36,16 1393,59 35,56 1449,05 35,05 Current budget consumption 1160,34 31,23 1205,96 30,77 1252,26 30,29 Current expenditures 478,44 12,88 495,19 12,63 514,52 12,44 Gross earnings and contributions charged to employer 270,75 7,29 280,22 7,15 292,03 7,06 Other personal earnings 25,85 0,70 26,75 0,68 27,69 0,67 Expenditures for material and services 121,34 3,27 125,59 3,20 129,99 3,14 Current maintenance 6,79 0,18 7,03 0,18 7,27 0,18 Interests 24,34 0,66 25,20 0,64 26,08 0,63 Rents 10,31 0,28 10,67 0,27 11,05 0,27 Subsidies 12,70 0,34 13,15 0,34 13,61 0,33 Other expenses 6,35 0,17 6,57 0,17 6,80 0,16 Capital expenditures of the current budget and state – owned 48,61 1,31 50,31 1,28 52,07 1,26 funds Transfers for social protection 424,46 11,43 442,32 11,29 459,90 11,12 Transfers to institutions, individuals and NGO’s 213,27 5,74 222,73 5,68 230,53 5,58 Capital budget of Montenegro 134,33 3,62 137,33 3,50 144,72 3,50 Loans and borrowings 30,46 0,82 31,52 0,80 32,63 0,79 Reserves 13,71 0,37 14,19 0,36 14,69 0,36 SURPLUS / DEFICIT -63,25 -1,70 -40,56 -1,03 0,00 0,00 FINANCING 63,25 1,70 40,56 1,03 0,00 0,00 Domestic financing -79,80 -2,15 -67,07 -1,71 -71,83 -1,74 Borrowings and loans form domestic sources 20,00 0,54 20,00 0,51 8,50 0,21 Payment of debts to residents 26,28 0,71 26,56 0,68 26,84 0,65 Payment of principal 23,39 0,63 24,39 0,62 24,39 0,59 Payment of guarantees 2,89 0,08 2,16 0,06 2,45 0,06 Payment of liabilities from previous years 73,51 1,98 60,51 1,54 53,48 1,29 Foreign financing 80,23 2,16 58,69 1,50 37,82 0,91 Borrowings and loans from foreign sources 93,48 2,52 71,80 1,83 51,06 1,23 Payment of debt to nonresidents 21,76 0,59 21,76 0,56 21,75 0,53 Donations 8,51 0,23 8,65 0,22 8,51 0,21 Privatization revenues or deposits 49,60 1,34 35,27 0,90 34,01 0,82 Increase/Decrease in Deposits -13,21 -0,36 -13,67 -0,35 0,00 0,00

The Ministry of finance is estimating that the consolidated budget consumption (with state – owned funds) will gradually decrease from 36,16% GDP in 2010 to 35,56% GDP in 2011, while in 2012 it will decrease to 35,05% GDP. Moreover, it is planned that the budget consumption will gradually decrease from 31, 23% GDP in 2010 to 30, 29% GDP in 2012. The state budget and state – owned funds deficit in 2010 is planned in the amount of 63, 25 million €, or 1, 70% GDP. On the basis of the Medium-term expenditure framework it is planned to reach the balance of the budget and finds up to 2012. The framework for the development of the Economic policy in 2010 is driven by extraordinary conditions created by the economic and financial crises which occurred during 2009, and which will continue in 2010, affecting projected macroeconomic indicators. The basis for the development in 2010 is driven by the deepening of risks facing Montenegrin economy in the real, fiscal and financial sector. Because of newly created situation the reality of planned indicators for 2009 was revises, thus the growth of the GDP in 2009 will be 0%, representing the basis for reviewing the growth possibility in 2010.

82 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

Starting from the new estimates for 2009, basic macroeconomic indicators for the period 2010-2012 dictate the following growth rates: • Nominal growth rate of the GDP for 2010, from 5,0%, for 2011 6,5% and for 2012 7,5%, • Real growth rate of the GDP for 2010 from 2,0%, for 2011 from 3,0% and for 2012 for 4,0%, • Inflation rate for 2010 for 3, 0%, for 2011 from 3, 5 % and for 2012 for 3, 5%.

Projection 2010 Projection 2011 Projection 2012 Budget (Current + Funds) 1.242.902.134,69 1.284.846.950,35 1.329.699.943,61 41 Current expenditures 478.430.000,34 495.175.050,35 512.506.177,12 411 Gross salaries and contributions charged to employer 270.750.000,34 280.226.250,35 290.034.169,12 412 Other personal income 25.850.000,00 26.754.750,00 27.691.166,25 413 Expenditures for supplies and services 121.340.000,00 125.586.900,00 129.982.441,50 414 Current Maintenances 6.790.000,00 7.027.650,00 7.273.617,75 415 Interests 24.340.000,00 25.191.900,00 26.073.616,50 416 Rent 10.310.000,00 10.670.850,00 11.044.329,75 417 Subsidies 12.700.000,00 13.144.500,00 13.604.557,50 418 Other expenditures 6.350.000,00 6.572.250,00 6.802.278,75 42 Transfers for social protection 456.450.000,00 471.305.750,00 487.681.451,25 421 Rights in the social protection areas 50.900.000,00 52.681.500,00 54.525.352,50 422 Funds for severance pay 13.460.000,00 13.931.100,00 14.418.688,50 423 Rights in the area of pension and disability insurance 375.860.000,00 387.895.100,00 401.351.428,50 424 Other social protection rights 10.900.000,00 11.281.500,00 11.676.352,50 425 Other health insurance rights 5.330.000,00 5.516.550,00 5.709.629,25 43 Transfers to institutions, individuals, NGOs and public sector 214.820.000,00 222.338.700,00 230.120.554,50 431 Transfers to institutions, individuals, NGOs and public sector 214.820.000,00 222.338.700,00 230.120.554,50 44 Capital expenditures 48.610.000,00 50.311.350,00 52.072.247,25 441 Capital expenditures 48.610.000,00 50.311.350,00 52.072.247,25 45 Loans and borrowings 30.460.000,00 31.526.100,00 32.629.513,50 451 Loans and borrowings 30.460.000,00 31.526.100,00 32.629.513,50 47 Reserves 14.132.134,35 14.190.000,00 14.690.000,00 471 Current budget reserve 12.932.134,35 12.990.000,00 13.490.000,00 472 Permanent budget reserve 1.000.000,00 1.000.000,00 1.000.000,00 473 Other reserve - deposits 200.000,00 200.000,00 200.000,00

The following Table provides the overview of the state budget related to the current budget and state-owned funds budget for the period 2010 – 2012, on the basis of economic classification. The following Table provides the overview of current budget expenditures for the period 2010 – 2012, on the basis of economic classification. Projection 2010 Projection 2011 Projection 2012 Current Budget 641.225.582,88 663.238.719,23 686.462.424,40 41 Current expenditures 459.961.823,00 476.060.486,81 492.722.603,84 411 Gross salaries and contributions charged to employer 261.170.053,34 270.311.005,21 279.771.890,39 412 Other personal income 24.388.167,11 25.241.752,96 26.125.214,31 413 Expenditures for supplies and services 115.623.302,50 119.670.118,09 123.858.572,23 414 Current Maintenances 6.381.670,99 6.605.029,47 6.836.205,50 415 Interests 23.429.075,84 24.249.093,49 25.097.811,76 416 Rent 10.230.027,37 10.588.078,33 10.958.661,07 417 Subsidies 12.700.000,00 13.144.500,00 13.604.557,50 418 Other expenditures 6.039.525,84 6.250.909,25 6.469.691,07 42 Transfers for social protection 53.616.104,51 55.492.668,16 57.434.911,55 421 Rights in the social protection areas 50.900.000,00 52.681.500,00 54.525.352,50 422 Funds for severance pay 2.697.304,07 2.791.709,71 2.889.419,55 423 Rights in the area of pension and disability insurance 18.800,44 19.458,45 20.139,50 424 Other social protection rights 0,00 0,00 0,00 425 Other health insurance rights 0,00 0,00 0,00

83 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

43 Transfers to institutions, individuals, NGOs and public sector 58.082.644,38 60.115.536,93 62.219.580,72 Transfers to institutions, individuals, NGOs and public 431 58.082.644,38 60.115.536,93 62.219.580,72 sector 44 Capital expenditures 46.219.055,48 47.836.722,42 49.511.007,71 441 Capital expenditures 46.219.055,48 47.836.722,42 49.511.007,71 45 Loans and borrowings 9.413.821,16 9.743.304,90 10.084.320,58 451 Loans and borrowings 9.413.821,16 9.743.304,90 10.084.320,58 47 Reserves 13.932.134,35 13.990.000,00 14.490.000,00 471 Current budget reserve 12.932.134,35 12.990.000,00 13.490.000,00 472 Permanent budget reserve 1.000.000,00 1.000.000,00 1.000.000,00 473 Other reserve - deposits 0,00 0,00 0,00

The following Table provides the overview of the state-owned funds expenditures for the period 2010 – 2012, on the basis of economic classification. Projection 2010 Projection 2011 Projection 2012 Budget of State-owned Funds 601.676.551,81 621.608.231,12 643.237.519,21 Current expenditures 18.468.177,34 19.114.563,55 19.783.573,27 Gross salaries and contributions charged to 411 9.579.947,00 9.915.245,14 10.262.278,72 employer 412 Other personal income 1.461.832,89 1.512.997,04 1.565.951,94 413 Expenditures for supplies and services 5.716.697,50 5.916.781,91 6.123.869,27 414 Current Maintenances 408.329,01 422.620,53 437.412,25 415 Interests 910.924,16 942.806,51 975.804,74 416 Rent 79.972,63 82.771,67 85.668,68 417 Subsidies 0,00 0,00 0,00 418 Other expenditures 310.474,16 321.340,75 332.587,68 Transfers for social protection 402.833.895,49 415.813.081,84 430.246.539,70 421 Rights in the social protection areas 0,00 0,00 0,00 422 Funds for severance pay 10.762.695,93 11.139.390,29 11.529.268,95 Rights in the area of pension and disability 423 375.841.199,56 387.875.641,55 401.331.289,00 insurance 424 Other social protection rights 10.900.000,00 11.281.500,00 11.676.352,50 425 Other health insurance rights 5.330.000,00 5.516.550,00 5.709.629,25 Transfers to institutions, individuals, NGOs and public 156.737.355,62 162.223.163,07 167.900.973,78 sector Transfers to institutions, individuals, NGOs and 431 156.737.355,62 162.223.163,07 167.900.973,78 public sector Capital expenditures 2.390.944,52 2.474.627,58 2.561.239,54 441 Capital expenditures 2.390.944,52 2.474.627,58 2.561.239,54 Loans and borrowings 21.046.178,83 21.782.795,09 22.545.192,92 451 Loans and borrowings 21.046.178,83 21.782.795,09 22.545.192,92 Reserves 200.000,00 200.000,00 200.000,00

1. STATE BUDGET – Current Budget and Budget of State-owned Funds

The State Budget in this period is manifesting the external tendency growth, thus the growth rate in 2011 compared to 2010 amounts to 3,4%, for 2012 compared to 2011, amounts to 3,5%, while the budget in 2010, amounts to 1.242,9 million € and is less that the planned budget in 2009, for 33,9 million €. The structure of funds of the State budget for the period 2010-2012, and allocations for the current budget and state – owned funds budget are given in the following table and chart review:

BUDGET Projection 2010 Projection 2011 Projection 2012 TOTAL ( I+II) 1.242.902.134,69 1.284.846.950,35 1.329.699.943,61 I Current Budget 641.225.582,88 663.238.719,23 686.462.424,40 II Funds 601.676.551,81 621.608.231,12 643.237.519,21

84 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

2. Budget of Montenegro for 2010

The Budget of Montenegro for 2010, amounts 1.242,9 million € and it represents 97, 3% of estimated budget for 2009. Current budget, within the Budget of Montenegro participates with 51, 59% and amounts 641, 2 million € and it is less than projected current budget for 2009, for 45, 8 million €. The structure of funds of the current budget for 2010, on the basis of the type of expenses is given in the following table and chart overview.

Budget Projection 2010 I Current Budget 641.225.582,88 4 Expenses 641.225.582,88 41 Current expenses (earnings, material and services, current maintenance, subsidies, etc.) 459.961.823,00 42 Transfers for social protection 53.616.104,51 43 Transfers to institutions, individuals, NGO’s and public sector 58.082.644,38 44 Capital expenditures 46.219.055,48 45 Loans and borrowings 9.413.821,16 46 Payment of debt 0,00 47 Reserves 13.932.134,35

The biggest appropriation from the current budget is 71,7 % and it refers to the current expenditures.

Current expenditures comprise gross earnings and contributions charged to employer, other personal earnings, expenditures for supplies and services, current maintenances, interests, rent subsidies and other expenditures. The biggest part of these funds of 62,0% relates to the gross earnings and other personal earnings in the amount of 285,5 million €. Transfers for social protection participate with 8,4% in the current budget in the amount of 53,6 million €, and they relate to the transfers for social protection and severance pay. The biggest amount of these funds of 95% relates to the transfers for social protection in the amount of 50,9 million €, and 5 % relate to the severance pay. Transfers to institutions, individuals, NGO’s and public sector participate with 9,1% in the current budget and they amount to 58,1 million €. Capital expenditures participate with 7,2 % in the current budget and they amount to 46,2 million €. Residual funds relate to reserves which in the current budget participate with 2,2% and borrowings and loans with 1,5%. Funds budget participate with 48,41 % and amount 601,7 million €. Funds budget for 2010 is higher for 11,9 million € than projected budget of the funds for 2009.

3. Budget of Montenegro for 2011

The budget of Montenegro for 2011, amounts 1.284,8 million € and it is higher than projected budget for 2010 for 41,9 million €. Current budget, within the budget of Montenegro participates with the highest percentage of 51,62% and amounts to 663,2 million €, and it is higher than projected current budget for 2010, for 3,4%. The structure of the current budget funds for 2011, on the basis of the type of expenditures is given in the following table and chart overview:

BUDGET Projection 2011 I Current budget 663.238.719,23 4 Expenditures 663.238.719,23 41 Current expenses (earnings, material and services, current maintenance, subsidies, etc..) 476.060.486,81 42 Transfers for social protection 55.492.668,16 43 Transfers to institutions, individuals, NGO’s and public sector 60.115.536,93 44 Capital expenditures 47.836.722,42 45 Loans and borrowings 9.743.304,90 46 Payment of debt 0,00 47 Reserves 13.990.000,00

85 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

The Budget of Funds participates with 48,38% and it amounts to 621,6 million €. The budget of funds for 2011, is higher for 3,3% than projected budget of funds for 2010.

4. Budget of Montenegro for 2012

The Budget of Montenegro for 2012, amounts to 1.329,7 million € and it is higher than planned budget for 2011, for 3,5%. Current budget, within the budget of Montenegro participates with the highest percentage of 51,63% and amounts to 686,5 million € and it is higher than projected current budget for 2011, for 3,5%. The structure of funds of the current budget for 2012, on the basis of the types of expenditures is given in the following table and chart overview.

BUDGET Projection 2012 I Current budget 686.462.424,40 4 Expenditures 686.462.424,40 41 Current expenses (earnings, material and services, current maintenance, subsidies, etc..) 492.722.603,84 42 Transfers for social protection 57.434.911,55 43 Transfers to institutions, individuals, NGO’s and public sector 62.219.580,72 44 Capital expenditures 49.511.007,71 45 Loans and borrowings 10.084.320,58 46 Payment of debt 0,00 47 Reserves 14.490.000,00

The Budget of Funds participates with 48,7% in the total state budget and it amounts to 643,2 million €. The Budget of Funds for 2012, is higher for 3,5%, than projected one for 2011. The current budget for 2010, amounts to 641,2 million € and biggest appropriation of 92,3% relate to the financing of executive authorities, judicial authorities 4,0%, and remaining 3,7% relates to the financing of expenditures for activities of the President, legislative authorities and special bodies. The structure of the current budget funds for 2010 is given in the following table and chart overview.

No. TITLE Projection 2010 1 PRESIDENT 704.727,89 2 LEGISLATIVE AUTHORITIES 9.460.457,05 3 JUDICIARY AUTHORITIES 25.776.026,13 4 EXECUTIVE AUTHORITIES 591.800.525,31 5 SPECIAL AUTHORITIES 13.483.846,51 Current budget (1 to 5): 641.225.582,88

The current budget for 2011, amounts to 663,2 million € and biggest appropriation of 92,3% relate to the financing of executive authorities, judicial authorities 4,0%, and remaining 3,7% relates to the financing of expenditures for activities of the President, legislative authorities and special bodies. The structure of the current budget funds for 2011 is given in the following table and chart overview.

No. TITLE Projection 2011 1 PRESIDENT 729.393,36 2 LEGISLATIVE AUTHORITIES 9.791.573,04 3 JUDICIARY AUTHORITIES 26.678.187,05 4 EXECUTIVE AUTHORITIES 612.083.784,64 5 SPECIAL AUTHORITIES 13.955.781,13 Current budget (1 to 5): 663.238.719,23

The current budget for 2012, amounts to 686,5 million € and biggest appropriation of 92,3% relate to the financing of executive authorities, judicial authorities 4,0%, and remaining 3,7% relates to the financing of expenditures for activities of the President, legislative authorities and special bodies. The structure of the current budget funds for 2012 is given in the following table and chart overview.

86 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

No. TITLE Projection 2012 1 PRESIDENT 754.922,13 2 LEGISLATIVE AUTHORITIES 10.134.278,10 3 JUDICIARY AUTHORITIES 27.611.923,59 4 EXECUTIVE AUTHORITIES 633.517.067,10 5 SPECIAL AUTHORITIES 14.444.233,47 Current budget (1 to 5): 686.462.424,40

Funds budget for 2010, amounts to 601,7 million € and highest appropriation of 63,6% relate to the financing of expenditures of the Pension and Disability Insurance Fun, than the Health Insurance Fund 26,5%, Employment Fund 5,9%, Development Fund 43,9% and Compensation Fund 0,1%. The structure of the funds budget for 2010, is given in the following table and chart overview.

No. TITLE Projection 2010 1 Pension and Disability Insurance Fund 382.807.062,72 2 Health Insurance Fund 159.356.654,03 3 Employment Fund 35.435.759,56 4 Development Fund 23.710.794,17 5 Compensation Fund 366.281,33 FUNDS (1 to 5): 601.676.551,81

Funds budget for 2011, amounts to 621,6 million € and highest appropriation of 63,6% relate to the financing of expenditures of the Pension and Disability Insurance Fun, than the Health Insurance Fund 26,5%, Employment Fund 5,9%, Development Fund 3,9% and Compensation Fund 0,1%. The structure of the funds budget for 2011, is given in the following table and chart overview.

No. TITLE Projection 2011 1 Pension and Disability Insurance Fund 395.078.309,91 2 Health Insurance Fund 164.934.136,92 3 Employment Fund 36.676.011,14 4 Development Fund 24.540.671,97 5 Compensation Fund 379.101,18 FUNDS (1 to 5): 621.608.231,12

Funds budget for 2012, amounts to 643,2 million € and highest appropriation of 63,6% relate to the financing of expenditures of the Pension and Disability Insurance Fun, than the Health Insurance Fund 26,5%, Employment Fund 5,9%, Development Fund 3,9% and Compensation Fund 0,1%. The structure of the funds budget for 2012, is given in the following table and chart overview.

No. TITLE Projection 2012 1 Pension and Disability Insurance Fund 408.779.050,76 2 Health Insurance Fund 170.706.831,71 3 Employment Fund 37.959.671,53 4 Development Fund 25.399.595,49 5 Compensation Fund 392.369,72 FUNDS (1 to 5): 643.237.519,21

Ms. Tamara Gačević, Independent Advisor I

Ms. Slobodanka – Mila Popović, External Advisor

87 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

How to Exit Crises - Possible Scenarios and Repercussions to Montenegrin Economy

“The economy depends about as much on economists similar in all scenarios, while the arguments are over how as the weather does on weather forecasters.” the right half is going to look like. Right half represents the - Jean-Paul Kauffmann forecast of the possible future recovery. Whether it will be a sudden surge (letter V), or gradual recovery (letter U ), or moderate recovery with long term stagnation (the square What is common between the following symbols and cube), long period of instability (W), catastrophic scenario ( L) or less catastrophic symbol of fishhook ( ) the opinion letters: V, U, ,W, L, ? ...... All these symbols rep- of Moody’s. Someone will instantly reply: what is this non- resent the answer, or the selection of economists, on sense on symbols of the crises and who cares”. Is this re- which of these symbols is the best in illustrating the world ally “the glass bead game” or is it senseless. According to economic crises and trend forecasts in the following peri- Stephany Flanders, Economic editor of BBC, the answer to od. Left sides of each of the symbol represents the period this question is worth billions of dollars. The right answer from the start of the crises to present, thus its trend its to this question is the question of investments measured

88 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

in hundreds billion dollars, thousands new job posts or cause the undervaluation of budget revenues and subse- dismissing hundreds thousands employees. The good il- quently the postponing of unplanned budgeting of funds. lustration is the anecdote from nineties – to the question It is certain that increased revenues may be budgeted by addressed to the representative of Jugometal in London, rebalance, but it means the delay in possible capital in- on prognoses of the aluminum price trends on the stock vestments or unnecessary delays in realization of devel- exchange, the obtained answer was: one who knows the opment projects. The selection of excessively optimistic answer can be considered millionaire. scenario means potential undervaluation of budget reve- nues and painful consumption adjustments (rebalance). The most recent Report of OECD is stating that we are slowly, but certainly reaching the point representing rever- Anyway, budgetary consumption in the following pe- sal, but that the recovery will be weak and long. The his- riod must account for decrease in inflow of funds to the tory of the crises is teaching us that the exit from it is slow budget, as well as several additional factors: and long, if generated by the problems in financial sector. The OECD – represented by 30 most developed countries • Budget deficit must be within the limits of Maas- of the world – is forecasting the decline in GDP by 4,1% tricht criteria, up to -3% GDP, with gradual budget balanc- in 2009, while in 2010, they are forecasting recovery of ing in midterm; 0,7%, which is more favorable than the earlier growth • Decreased indebtedness possibility on internation- prognoses of only 0,1%. The fall of the world economy will al money market; amount to 16%, while the most unfavorable forecast is for • The process of joining the EU, requires allocation the growth unemployment rate indicator of 10%. Everyone of significant funds for these purposes with the use of pre- agrees that financial sector will eventually recover, while accession support funds (IPA); the recovery of the real sector will delay. The most sensi- • Initiation of the construction of the highway Bar- tive forecast is that the recovery in labor market will be the Boljare will provide additional impulse to economy, requir- most difficult. In the IMF Report “Regional Economic Pros- ing the allocation of significant funds being a part of com- pects - Europe” forecasts the decline of 4,2 % for 2009, mitments, and 0,1 % for 2010. While projected fall of GDP for Mon- • Regular repayment of external and internal debt, tenegro is 2,7 % for 2009, and 2 % for 2010. These days, in order to retain the confidence of creditors and interna- printing medias are often using the term “green shoots”. tional financial institutions, Everyone is eager to see clear signals beginnings of eco- • Social program for the protection of most affected nomic growth after recession, huge investors, govern- citizens by the consequences of global economic crises. ments, as well as the army of unemployed persons being the victims of this economic tsunami. However, according We will know soon the answer to the recovery ques- to Christina Romer (Chair of the Council of Economic Ad- tion. What is necessary, regardless solution to the trou- visers to the President Obama) in her article published in bles in the economy, as it was suggested by the repre- prominent magazine “Economist” London, is writing that sentatives of international institutions in Montenegro, is the error from 1937, when after incredibly rapid recovery the opting for internal growth generators. This is both the from the Great Depression, economic activities fell caus- priority and the big challenge for our country. ing drastic fall of unemployment, because monetary au- thorities introduced restrictive monetary and fiscal policy At the same time, it is necessary to reach the bal- reckoning that the worst consequences passed. ance between the State as the “most reliable” employer and significant “player” in times of crises, and the State as What is the answer to the selection of symbols as the regulator and guarantor of market mechanisms and well as all aforementioned facts in our economy? free inflow of people, capital, goods and services. In these times, this is the biggest challenge even for most devel- It is clear that the recovery trend of the world econo- oped market economies, being greater for small and open my is directly affecting Montenegro. The recovery means post - transitional economy like Montenegrin one. the strengthening of aluminum and steel process, as well as getting out from the current troubles brought by the crises to these industries, improvements in purchasing power bringing higher revenues in tourism, easier access to more cheaper financing sources with regard to huge infrastructural projects financed by the state, increase in available income and in personal consumption, etc. At Mr. Vladislav Karadžić, the same time, the absence of recovery, clearly implies Independent Advisor I many years of stagnation or even recession. What are the repercussions of this problem to the budget of Montene- Mr. Radovan Živković, gro? The selection of pessimistic recovery scenario may Independent Advisor I

89 Bulletin of the Ministry of Finance of Montenegro / April - June 2009 Realization of Public Expenditure on Local Self Gordana Radović - government Level January

- March 2009 Slobodanka Burić

I - Realized revenues

The total amount of realized revenues of the municipalities budget (21) for the period from January – March 2009, amounted 73,4 mil. € (average monthly amount was 24,5 mil. €), which compared to the same period last year (116,0 mil. €) declined by 36,7%. In the structure of realized revenues, the share of local revenues (taxes, duties, fees and other local revenues) is 38,11%, the share of assigned state revenues (personal income tax, tax from sales of property, concession and other fees for the use of natural resources and the annual fee for the registration of passengers cars) is 7,07%, the share of the Equalization fund funds is 4,77% and the share of other revenues (revenues from sales of property, transferred funds from the previous year, donations, subsidies of budgetary users and other transfers from the central level, borrowings and loans) is 50,05%. In the following Table is given the overview of realized revenues of the municipality’s budget for the period from January – March 2009, on the basis of the revenue sources:

in € Assigned Total No. Municipalities Local revenues Equalization fund Other revenues % revenues (3 to 6) 1 2 3 4 5 6 7 8 1. Andrijevica 66.828 5.933 117.332 86.246 276.339 0,38 2. Bar 1.793.795 482.576 2.807.209 5.083.580 6,92 3. Berane 345.317 85.999 531.068 472.584 1.434.968 1,95 4. Bijelo Polje 493.507 116.990 533.657 1.439.550 2.583.704 3,52 5. Budva 7.434.168 768.373 291.755 8.494.296 11,57 6. Danilovgrad 245.222 79.075 183.254 1.524.930 2.032.481 2,77 7. Žabljak 71.280 30.157 62.717 324.411 488.565 0,67

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8. Kolašin 722.199 30.934 124.090 239.834 1.117.057 1,52 9. Kotor 1.263.171 342.540 5.607.809 7.213.520 9,82 10. Mojkovac 138.564 27.377 190.628 157.228 513.797 0,70 11. Nikšić 1.317.608 290.988 600.680 444.699 2.653.975 3,61 12. Plav 130.568 21.774 238.489 67.169 458.000 0,62 13. Plužine 622.129 39.613 51.429 2.239.284 2.952.455 4,02 14. Pljevlja 1.767.557 158.529 118.872 519.272 2.564.230 3,49 15. Podgorica 7.685.086 1.732.688 18.381.172 27.798.946 37,86 16. Rožaje 202.483 111.410 266.078 3.996 583.967 0,80 17. Tivat 706.968 208.837 1.169.187 2.084.992 2,84 18. Ulcinj 332.159 122.088 145.305 350.650 950.202 1,29 19. Herceg Novi 2.191.077 399.707 16.200 2.606.984 3,55 20. Cetinje 443.461 129.357 170.845 425.631 1.169.294 1,59 21. Šavnik 15.528 3.684 170.091 187.319 376.622 0,51 TOTAL: 27.988.675 5.188.629 3.504.535 36.756.135 73.437.974 100,00 % 38,11 7,07 4,77 50,05 100,00

1. Local revenues of the municipality’s budget

The local revenues of the budget of municipalities for the period January March 2009, amounted 27,99 million €, out of which the share of local fiscal revenues is 84, 91% (taxes, fees and duties) and the share of other local revenues is 15,9% (monetary fines and interest, concession fees for the use of public goods, revenues obtained from the activity of municipality bodies and services) and other revenues 15,9%. The amount of the realized local fiscal revenues of municipalities in this reporting period is23,8 million € (average monthly revenue was 7,9 mil. €). In the revenue structure, the highest share relates to the fee for urban zoning (52,65 %), the share of the fee for the use of construction terrain (7,85 %), representing 71,27% of local fiscal revenues. For this reporting period, municipalities have realized 4,2 million € (average monthly revenue was 1,4 million €) of other local revenues. In the following Table is given the overview of realized revenues of the municipality’s budget in the period from January – March 2009, on the basis of the revenue sources: in € No. Municipality Fiscal revenues Other local revenues Total (2+3) % 1 1 2 3 4 5 1 Andrijevica 64.443 2.385 66.828 0,24 2 Bar 1.427.453 366.342 1.793.795 6,41 3 Berane 315.506 29.811 345.317 1,23 4 Bijelo Polje 389.364 104.143 493.507 1,76 5 Budva 6.485.680 948.488 7.434.168 26,56 6 Danilovgrad 212.218 33.004 245.222 0,88 7 Žabljak 64.794 6.486 71.280 0,25 8 Kolašin 689.129 33.070 722.199 2,58 9 Kotor 943.069 320.102 1.263.171 4,51 10 Mojkovac 116.883 21.681 138.564 0,50 11 Nikšić 1.210.308 107.300 1.317.608 4,71 12 Plav 92.845 37.723 130.568 0,47 13 Plužine 609.550 12.579 622.129 2,22 14 Pljevlja 1.710.309 57.248 1.767.557 6,31 15 Podgorica 6.946.164 738.922 7.685.086 27,46 16 Rožaje 181.030 21.453 202.483 0,72 17 Tivat 662.007 44.961 706.968 2,53 18 Ulcinj 327.681 4.478 332.159 1,19 19 Herceg Novi 1.169.334 1.021.743 2.191.077 7,83 20 Cetinje 135.728 307.733 443.461 1,58 21 Šavnik 10.461 5.067 15.528 0,06 Total 23.763.956 4.224.719 27.988.675 100,00 % 84,91 15,09 100,00

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2. Assigned revenues of the municipality budget

Budgets of municipalities (21) for the period from January - March 2009, on the basis of assigned revenues were assigned 5,2 million € (average monthly 1,7 million €), which compared to the same period last year (8,8 million €), represents decrease of 40,91%. In the assigned revenues structure, personal income tax participates with 4.,96%, real estate tax participates with 40,12 %, concessions and other fees for the use of natural resources participate with 9,33% and annual fee for the registration of passenger cars, tractors and units participates with 6,59%.

In the following Table is given the overview of assigned revenues to municipality’s budgets from the central level, for the period from January – March 2009, on the basis of the revenue sources: in € Personal income Concession fees Annual fees for Real estate Total No Municipality tax of physical for the use of registration of % sales tax (3 do &) persons natural resources passengers cars 1 2 3 4 5 6 7 8 1 Andrijevica 4.561 90 109 1.173 5.933 0,11 2 Bar 118.827 317.774 16.322 29.653 482.576 9,30 3 Berane 47.133 17.617 5.831 15.418 85.999 1,66 4 Bijelo Polje 64.797 9.100 16.533 26.560 116.990 2,26 5 Budva 133.252 615.166 19.955 768.373 14,81 6 Danilovgrad 32.896 31.575 7.059 7.545 79.075 1,52 7 Žabljak 9.359 13.264 6.292 1.242 30.157 0,58 8 Kolašin 19.958 8.252 2.524 200 30.934 0,60 9 Kotor 129.530 181.845 9.984 21.181 342.540 6,60 10 Mojkovac 11.758 901 4.258 10.460 27.377 0,53 11 Nikšić 181.280 24.456 56.995 28.257 290.988 5,61 12 Plav 12.825 1.206 7.743 21.774 0,42 13 Plužine 7.099 337 31.960 217 39.613 0,76 14 Pljevlja 66.829 20.677 54.268 16.755 158.529 3,06 15 Podgorica 1.101.173 348.001 180.078 103.436 1.732.688 33,39 16 Rožaje 21.050 5.055 51.345 33.960 111.410 2,15 17 Tivat 52.314 139.562 8.745 8.216 208.837 4,03 18 Ulcinj 22.974 90.499 298 8.317 122.088 2,35 19 Herceg Novi 135.418 243.206 3.666 17.417 399.707 7,70 20 Cetinje 104.987 12.910 11.460 129.357 2,49 21 Šavnik 3.115 229 340 3.684 0,07 Total 2.281.135 2.081.722 483.965 341.807 5.188.629 100,00 % 43,96 40,12 9,33 6,59 100,00

3. Equalization fund

In the period form January – March 2009, out from the funds from the Equalization fund, municipalities were allocated with 3,5 million € (average monthly allocation of 1,2 mil. €). The highest shares in allocated funds have the following municipalities: Berane, Bijelo Polje, Nikšić, Mojkovac, Danilovgrad and Rozaje.

4. Other revenues

On the basis of other revenues (revenues from sales of real estate, transferred funds from previous years, donations, subsidies and other transfers, borrowings and loans) for the period from January – March 2009, municipalities have realized the total of 36,8 million €. In the share of other revenues, the percentage of the transferred funds from the previous year is 89,39%, the percentage of the borrowings and loans is 5,57%, the percentage of the donations is 2,07%, the percentage of the revenues from sales of real estate is 1,59 %, the percentage of the subsidies and other transfers is 1,38 %. In the following Table is given the overview of realized other revenues of municipalities in the period from January – March 2009, on the basis of the revenue sources:

92 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

in € Revenues Transferred No. Municipality from sales of Donations Borrowings funds from Subsidies Total % property previous years 1 2 3 4 5 6 7 8 9 1. Andrijevica 10.000 76.246 86.246 0,24 2. Bar 2.807.209 2.807.209 7,64 3. Berane 711 170.000 55.851 246.022 472.584 1,29 4. Bijelo Polje 550.000 858.509 31.041 1.439.550 3,92 5. Budva 119.889 50.000 121.866 291.755 0,79 6. Danilovgrad 20.515 1.504.415 1.524.930 4,15 7. Žabljak 138.696 185.715 324.411 0,88 8. Kolašin 5.078 225.000 9.756 239.834 0,65 9. Kotor 11.216 5.343.502 253.091 5.607.809 15,26 10. Mojkovac 5.593 25.000 126.635 157.228 0,43 11. Nikšić 35.457 175.000 70.000 164.242 444.699 1,21 12. Plav 60.607 6.562 67.169 0,18 13. Plužine 2.239.284 2.239.284 6,09 14. Pljevlja 284.000 235.272 519.272 1,41 15. Podgorica 198.805 18.182.367 18.381.172 50,01 16. Rožaje 3.996 3.996 0,01 17. Tivat 24.700 1.144.487 1.169.187 3,18 18. Ulcinj 350.403 247 350.650 0,95 19. Herceg Novi 16.200 16.200 0,04 20. Cetinje 3.085 390.000 32.546 425.631 1,16 21. Šavnik 524 2.000 184.795 187.319 0,51 Total 584.465 762.000 2.047.509 32.856.239 505.922 36.756.135 100,00 % 1,59 2,07 5,57 89,39 1,38 100,00

II - Revenue Execution

Total expenditures of the local self government for the period January – March 2009, have been planned in the amount of 111,08 million €, while total execution of municipal budgets amounted is 52,49 million €, which is 47,26% compared to the planned one for the period from January – March 2009. The highest budget execution is in the municipality Savnik – 77,99%, Kolasin – 76,17%, Tivat – 75,63%, Podgorica – 72,47% compared to the plan. The lowest execution degree compared to the plan for the period January – March 2009 is in the municipality Pluzine – 56.66 %.

Municipal expenditures January – March 2009 Municipality Plan - January – March 2009 Execution - January – March 2009 %Execution Andrijevica 377,059.00 134,525.79 35.68 Bar 10,705,855.20 4,938,829.19 46.13 Berane 2,303,500.00 1,424,140.34 61.83 Bijelo Polje 3,765,000.00 2,498,792.28 66.37 Budva 26,947,000.00 8,222,989.80 30.52 Danilovgrad 1,455,195.00 890,692.81 61.21 Herceg Novi 5,199,600.00 2,276,460.09 43.78 Kolašin 1,463,766.00 1,114,896.24 76.17 Kotor 6,500,155.81 2,677,560.36 41.19 Mojkovac 1,039,846.29 323,891.41 31.15 Nikšić 9,604,853.93 2,634,472.79 27.43 Plav 740,976.75 417,911.51 56.40 Plužine 1,012,800.00 228,744.92 22.59

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Pljevlja 5,575,000.00 2,527,740.02 45.34 Podgorica 24,298,941.60 17,610,304.04 72.47 Rožaje 1,378,749.50 488,537.59 35.43 Tivat 1,976,075.00 1,494,461.85 75.63 Ulcinj 3,892,992.00 887,349.81 22.79 Cetinje 1,910,000.00 1,078,470.00 56.46 Šavnik 197,764.64 154,242.69 77.99 Žabljak 736,360.00 470,484.71 63.89 TOTAL 111,081,490.72 52,495,498.24 47.26

Consolidated expenditures of municipalities for the period January – March 2009, amounted 42,08 million €, which is 1.19% of estimated GDP for 2009. In the expenditure structure, the highest share have the capital expenditures – 20.77 million € or 39.56% of the total amount of expenditures, and current expenditures (gross income, other earnings, expenditures for material and services, interests, rent, subsidies and current maintenance) 13.90 million € or 26.48% of total expenditures for the period January – March 2008. Transfers (transfers for social protection, transfers to institutions, individuals, NGO’s and public sector) amounted 6.00 million € or 11.43% of total expenditures, payment of debts 10.43 million € or 19.82% of total expenditures, while other expenditures amounted 1.42 million € or 2.70% of total expenditures.

The following Table indicates the overview of consolidated and total expenditures for the period January – March 2009, (in million €) by municipalities and types of expenditures:

Consolidated expenditures – January – March 2009 Consoldated. Debt Total Municipality Current Capital Other % GDP Transfers expenditures payment expenditures expenditures expenditures expenditures Andrijevica 0.07 0.01 0.04 0.00 0.12 0.00 0.01 0.13 Bar 0.77 3.34 0.76 0.07 4.93 0.14 0.00 4.93 Berane 0.63 0.30 0.19 0.07 1.19 0.03 0.23 1.42 Bijelo Polje 0.31 1.06 0.40 0.06 1.82 0.05 0.68 2.50 Budva 0.65 0.94 0.24 0.06 1.89 0.05 6.34 8.22 Danilovgrad 0.49 0.06 0.32 0.00 0.87 0.02 0.02 0.89 Herceg Novi 1.13 0.25 0.25 0.08 1.71 0.05 0.27 1.98 Kolašin 0.42 0.29 0.10 0.00 0.81 0.02 0.30 1.11 Kotor 1.28 0.81 0.43 0.05 2.56 0.07 0.11 2.68 Mojkovac 0.19 0.04 0.04 0.02 0.29 0.01 0.03 0.32 Nikšić 1.04 0.09 0.48 0.15 1.77 0.05 0.86 2.63 Plav 0.11 0.04 0.08 0.00 0.23 0.01 0.19 0.42 Plužine 0.11 0.04 0.06 0.00 0.21 0.01 0.02 0.23 Pljevlja 1.33 0.90 0.15 0.04 2.43 0.07 0.10 2.53 Podgorica 3.67 11.57 1.81 0.54 17.58 0.50 0.15 17.73 Rožaje 0.24 0.05 0.14 0.01 0.44 0.01 0.05 0.49 Tivat 0.56 0.69 0.24 0.01 1.49 0.04 0.00 1.49 Ulcinj 0.41 0.05 0.08 0.00 0.54 0.02 0.35 0.89 Cetinje 0.20 0.10 0.11 0.10 0.51 0.01 0.57 1.08 Šavnik 0.11 0.01 0.03 0.06 0.21 0.01 0.01 0.21 Žabljak 0.19 0.14 0.03 0.12 0.48 0.01 0.11 0.59 TOTAL 13.90 20.77 6.00 1.42 42.08 1.19 10.41 52.49 % share 26.48 39.56 11.43 2.70 80.18 19.82 100.00

III - BUDGET INDEBTEDNESS

Total budget indebtedness of the local self government for the period January – March 2009, amounted 25,68 million €, which is 0,73% of estimated GDP for 2009. In the indebtedness structure, domestic debt is 17.62 million €, which is 68.65% of total indebtedness, and foreign debt 8.05 million €, which is 31.35% of total indebtedness. In total indebtedness structure for the period January – March 2009, loans of domestic financial institutions amount 6.90 million €, out of which long term loan amounts 6.51 million € or 25.36% of total credit indebtedness for aforementioned period.

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Foreign loan share is 31.35% out of the total budget indebtedness, out of which long term loans amount to 31.35% of the total budget indebtedness for the period January - March 2008.

No. Type of Indebtedness TOTAL % share %GDP-a

I Domestic debt 17,629,906.72 68.65 0.50 1 Loans 6,901,159.28 26.87 0.20 a Short term 387,426.33 1.51 0.01 Principal 382,800.98 1.49 0.01 Interest 4,625.35 0.02 0.00 b Long term 6,513,732.95 25.36 0.18 Principal 5,899,984.76 22.97 0.17 Interest 613,748.19 2.39 0.02 2 Bonds 6,384,754.00 24.86 0.18 3 Guarantees 4,343,993.44 16.92 0.12 II Foreign debt 8,050,183.62 31.35 0.23 1 Loans 8,050,183.62 31.35 0.23 a Short term 0.00 0.00 0.00 Principal 0.00 0.00 0.00 Interest 0.00 0.00 0.00 b Long term 8,050,183.62 31.35 0.23 Principal 7,160,980.04 27.89 0.20 Interest 889,203.58 3.46 0.03 I+II Total indebtedness 25,680,090.34 100.00 0.73

IV - Outstanding liabilities

Total outstanding liabilities of the local self government for the period January – March 2009, amounted 30.49 million €. In the outstanding liabilities structure, capital expenditures amount – 13.04 million € which is 42.79 % of total outstanding liabilities. Liabilities for current expenditures amounted 8.18 million €, while liabilities on the basis of borrowings and loans amounted 3.73 million € and payment of debts 3.42 million €.

No. The type of outstanding liability TOTAL % share % GDP 1 2 3* I Liabilities for current expenditures 8,181,415.21 26.83 0.23 Liabilities for gross salaries and contributions charged to employer 5,019,960.32 16.46 0.14 Liabilities for other personal earnings 284,983.09 0.93 0.01 Liabilities for other current expenditures 2,876,471.80 9.43 0.08 II Liabilities on the basis of social protection transfers 2,987.00 0.01 0.00 III Liabilities on the basis of transfers to institutions, individuals and NGO’s 2,059,104.35 6.75 0.06 IV Liabilities for capital expenditures 13,045,924.60 42.79 0.37 V Liabilities on the basis of borrowings and loans 3,733,563.80 12.25 0.11 VI Liabilities on the basis of the repayment of debt 3,427,067.65 11.24 0.10 VII Liabilities from reserves 40,245.33 0.13 0.00 Total outstanding liabilities ( I+II III+IV+V+VI+VII ) 30,490,307.94 0.13 0.86

Ms. Gordana Radović, Independent Advisor I in the Sector for Tax and Customs System

Ms. Slobodanka Burić, Independent Advisor I, Budget Department

95

Consolidated Public Consumption in Montenegro for the Period from I - VI 2009

Consolidated public consumption in the period January-June 2009, has been estimated to the amount of 572,14 million €. The estimated public consumption level was financed from taxes in the amount of 338,26 million €, contributions 133,61 mil €, duties 15,45 million €, fees 49,87 million € and other current revenues in the amount of 26,07 million €, and receipts from the payment of loans in the amount of 23,32 million €. The Ministry of finance estimated the realization of the local self government units for the first six months of 2009, on the basis of the plan of municipalities’ from 2009 and realization of municipal budgets in previous years. Moreover, a consolidation of joint transfers of the Pension and Disability Insurance Fun and the Health Insurance Fun was done. Current public revenues were estimated in the amount of 586,11 million € or 16,58% out of estimated GDP for 2009 (3.538,00 million €). In the public revenues structure the most important revenues are taxes – 9,56% GDP and contributions – 3,78% BDP-a. Consolidated public expenditures for the first quarter of 2009, were estimated in the amount of 16,17 % GDP. Current public consumption (consolidated expenditures decreased by capital expenditures of the current budget, capital budget of Montenegro state owned funds and local governments) in the first quarter amounted 482,76 million € or 13,65 % GDP. Individually by economic classification, the highest item represent the transfers for social protection transfers – 160,15 million €, which is 4.53 % GDP, gross wages – 153,61 million € or 4.34 % GDP and transfers to public institutions – 87.06 million € or 2,46 % GDP, while capital expenditures amounted 89,37 million € or 2,53% GDP.

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The following Table indicates the realization of source public revenues and execution of consolidated public expenditures with financing for the first six months of 2009 in million € and in GDP%:

Consolidated Public Consumption I-VI 2009 D E S C R I P T I O N Plan Realization Realization % realization in million € in million € in % GDP Current revenues 759,00 586,57 77,28 16,58 Taxes 478,71 338,26 70,66 9,56 Personal income tax 63,39 46,58 73,47 1,32 Tax on profits of legal persons 41,73 30,44 72,95 0,86 Property taxes 23,30 8,22 35,27 0,23 Value added tax 228,11 160,17 70,22 4,53 Excise Tax 59,95 51,86 86,51 1,47 Tax on international trade and transactions 38,89 21,31 54,80 0,60 Local Taxes 18,51 15,32 82,77 0,43 Other revenues of the Republic 4,84 4,37 90,32 0,12 Contributions 164,36 133,61 81,29 3,78 Pension and disability insurance contributions 93,16 86,33 92,67 2,44 Health insurance contributions 66,72 43,51 65,22 1,23 Unemployment insurance contributions 4,49 3,69 82,21 0,10 Other contributions 18,20 15,45 84,92 0,44 Duties 59,12 49,87 84,35 1,41 Fees 32,09 26,07 81,24 0,74 Other revenues 6,51 23,32 357,94 0,66 Receipts from the repayment of loans 833,84 572,14 68,61 16,17 CONSOLIDATED EXPENDITURES 650,18 482,76 74,25 13,65 CURENT PUBLIC EXPENDITURES 283,41 223,21 78,76 6,31 Current expenditures 162,49 153,61 94,53 4,34 Gross salaries and contributions charged to employer 13,77 8,12 59,01 0,23 Net salaries 65,05 39,23 60,30 1,11 Tax on salaries 7,16 4,38 61,21 0,12 Contributions on behalf of employee 12,64 6,74 53,33 0,19 Contributions on behalf of employer 6,19 2,86 46,24 0,08 Municipal surtax 12,49 6,08 48,71 0,17 Other personal earnings 3,62 2,19 60,46 0,06 Expenses for supplies and services 203,24 160,15 78,80 4,53 Current maintenance 124,95 87,06 69,68 2,46 Interests 183,66 89,37 48,66 2,53 Rent 20,40 3,87 18,99 0,11 Subsidies 18,18 8,44 46,42 0,24 Other expenditures -74,84 14,43 0,41 Transfers for social protection 74,84 -14,43 -0,41 Rights in the social protection area -71,03 -32,17 45,30 -0,91 Redundancy funds 2,28 43,31 1.896,44 1,22 Rights in the area of health protection 17,04 30,11 176,78 0,85 Other rights in the health insurance area 56,28 45,37 80,62 1,28 Transfers to institutions, individ. NGO’s and public sector 9,20 -6,92 -75,17 -0,20 Transfers to public institutions 16,82 1,49 8,86 0,04 Transfers to NGO’s 12,46 9,80 78,62 0,28 Transfers to public enterprises 4,85 1,39 28,61 0,04 Transfers to individuals 36,01 7,07 19,64 0,20 Total capital expenditures -100,66 -17,59 -0,50

97 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

Budget of Montenegro

Receipts of the Budget of Montenegro and state funds for the period from January – June 2009, amounted 524,99 million €. Source revenues of the Budget for the period from January – June 2009 amounted 501,67 million €, or 14,18% GDP. Revenues on the basis of duties amounted 306,72 million €, or 8,67 GDP. Revenues on the basis of fees amount 1333,67 million €. Revenues on the basis of contributions amounted 133,61 million € or 3,78 % GDP. Other current budget revenues amounted 16,26 million €, while the receipts from the payment of loans amounted 23,32 million €, out of which 22 million € represents the repayment of the first installment by the Prva Banka. Consolidated budget expenditures for the first six months of the current year amounted 482,85 million € or 13,65% GDP.

Consolidated Budget and the State Funds Balance I-VI 2009 D E S C R I P T I O N Plan Realization Realization % realization in million € in million € in % GDP Current revenues 641,39 501,67 78,22 14,18 Taxes 429,69 306,72 71,38 8,67 Personal income tax 48,94 36,02 73,59 1,02 Tax on profits of legal persons 41,73 30,44 72,95 0,86 Property taxes 7,24 2,56 35,33 0,07 Value added tax 228,11 160,17 70,22 4,53 Excise Tax 59,95 51,86 86,51 1,47 Tax on international trade and transactions 38,89 21,31 54,80 0,60 Other revenues of the Republic 4,84 4,37 90,32 0,12 Contributions 164,36 133,61 81,29 3,78 Pension and disability insurance contributions 93,16 86,33 92,67 2,44 Health insurance contributions 66,72 43,51 65,22 1,23 Unemployment insurance contributions 4,49 3,69 82,21 0,10 Duties 11,13 10,18 91,45 0,29 Fees 10,42 11,59 111,28 0,33 Other revenues 19,26 16,26 84,39 0,46 Receipts from the repayment of loans 6,51 23,32 357,94 0,66 CONSOLIDATED EXPENDITURES 713,19 482,85 67,70 13,65 CURENT BUDGET EXPENDITURE 592,12 436,27 73,68 12,33 Current expenditures 247,43 192,07 77,63 5,43 Gross salaries and contributions charged to employer 144,32 136,38 94,50 3,85 Other personal earnings 10,64 5,94 55,89 0,17 Expenses for supplies and services 56,49 32,65 57,79 0,92 Current maintenance 3,77 1,31 34,64 0,04 Interests 11,96 6,17 51,55 0,17 Rent 5,58 2,50 44,71 0,07 Subsidies 11,54 5,39 46,66 0,15 Other expenditures 3,13 1,75 55,83 0,05 Transfers for social protection 201,60 159,32 79,03 4,50 Transfers to institutions, individ.NGO’s and public sector 109,40 75,78 69,27 2,14 Total capital expenditures 121,07 46,57 38,47 1,32 Borrowings and Loans 18,61 3,07 16,48 0,09 Reserves 15,08 6,01 39,82 0,17 DEFICIT/SURPLUS -71,81 18,83 0,53 FINANCING 71,81 -18,83 -0,53 Domestic financing -54,00 -26,41 48,92 -0,75 Borrowings and loans from domestic sources 0,00 38,95 0,00 1,10 Payment of debts to residents 15,64 26,88 171,94 0,76 Payment of liabilities from the previous period 38,36 38,49 100,33 1,09 Foreign financing 6,00 -7,97 -132,91 -0,23 Borrowings and loans from foreign sources 12,62 0,16 1,27 0,00 Payment of debts to nonresidents 10,88 8,96 82,35 0,25 Donacije 4,26 0,83 19,51 0,02 Donations 17,50 0,23 1,29 0,01 Privatization revenues and sales of property -102,31 -15,33 -0,43

98 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

Local Self Government

Estimated consolidated expenditures of the local self government for the first six months of 2009, amounted 89,56 million € or 2,53 % GDP. The consumption was covered from taxes in the amount of 31,54 million €, duties 5,27 million€, fees 38,28 million € and other current revenues in the amount of 9,81 million €. Total amount of current revenues of the local self government in first six months of 2009, are estimated to 84,90 million € or 2,40% GDP.

Consolidated Balance of the Local Self Government in 2009 I-VI 2009 D E S C R I P T I O N Plan Realization Realization % realization In mill. € In mill. € in % BDP-a Current revenues 117,61 84,90 72,18 2,40 Taxes 49,02 31,54 64,33 0,89 Personal income tax 14,45 10,56 73,07 0,30 Real estate tax 16,06 5,66 35,24 0,16 Local taxes 18,51 15,32 82,77 0,43 Duties 7,07 5,27 74,63 0,15 Fees 48,71 38,28 78,59 1,08 Other revenues 12,82 9,81 76,51 0,28 CONSOLIDATED EXPENDITURES 118,89 89,56 75,33 2,53 CURENT PUBLIC EXPENDITURES OF THE LOCAL GOVERNMENT 56,30 46,76 83,05 1,32 Current expenditures 35,98 31,15 86,57 0,88 Gross salaries and contributions charged to employer 18,17 17,23 94,83 0,49 Other personal earnings 3,13 2,18 69,60 0,06 Expenses for supplies and services 8,56 6,58 76,85 0,19 Current maintenance 3,39 3,08 90,70 0,09 Interests 0,68 0,57 84,91 0,02 Rent 0,61 0,37 60,23 0,01 Subsidies 0,95 0,70 73,68 0,02 Other expenditures 0,50 0,44 89,71 0,01 Transfers for social protection 1,64 0,82 50,23 0,02 Transfers to institutions, individuals and NGO’s 16,90 11,55 68,35 0,33 Capital expenditures 62,59 42,80 68,38 1,21 Borrowings and loans 1,79 0,81 45,16 0,02 Reserves 3,10 2,43 78,53 0,07 DEFICIT / SURPLUSS 0,07 -4,40 -0,12 FINANCING -0,07 4,40 0,12 Domestic financing -17,03 -5,76 33,82 -0,16 Borrowings and loans from domestic sources 2,28 4,36 190,71 0,12 Payment of principal 1,40 3,23 230,86 0,09 Payment of liabilities from the previous period 17,92 6,88 38,42 0,19 Foreign financing 2,62 0,49 18,86 0,01 Borrowings and loans from foreign sources 4,20 1,33 31,67 0,04 Payment of debts to nonresidents 1,58 0,84 52,93 0,02 Donations 0,59 0,56 94,58 0,02 Revenues from privatizations and sales of property 18,51 6,84 36,98 0,19 Transfers from the Budget of Montenegro 1,35 0,27 0,00 0,01 Increase/Decrease in Deposits 4,75 -2,26 -0,06

Mr. Stanko Jeknić, Independent Advisor I, Mr. Vladislav Karadžić, Independent Advisor I, Mr. Radovan Živković, Independent Advisor I, Mr. Iva Vuković, Senior Advisor III

99 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

Removing International Double Taxation

On the basis of the Resolution on Proclaiming the Ind­ ependence­ of the Republic of Montenegro (“Official Gaze­ tte of the Republic of Montenegro” No. 36/06), Montenegro assumed the obligation to apply and take over international contracts and agreements which had been concluded and which were entered by the State Community Serbia and Montenegro and which concern Montenegro and are in acco­ rdance with the current legal system.

Introductory remarks

International double taxation represents the barrier in economic and financial relations development between coun­ tries, having dissimulative effects on capital investments and conduct of international commercial activities. It is arising Mitar Bajčeta when the income or property of a resident (physical or legal entity) of one country is taxed by the same or significantly similar tax, both by the country of residence country and by the country where the income is realized, or where the country. In case of Montenegro, the contract is applied to property is located. profit tax, income tax and property tax. Income and property Tax legislation of most of the countries is design with taxes represent all taxes calculated on total income, total the objective of eliminating the problem of international property or parts of income or property, including taxes on double taxation by applying unilateral measures. However, profit for divested immovable or movable property, taxes on these measures did not prove efficient because they are: total amount of earnings paid by companies, as well as taxes - general, unable to fully comply with the specific nature on property yield. of the tax system of other countries; - unstable, because each country may change them Property income wholly or partly or withdraw them; and - not conditioned by reciprocity, i.e. they may have as General rule applied in the Contracts on avoiding a consequence unilateral tax victim, i.e. decrease in tax double­­ taxation is that the profit gained from immovable revenues without the guarantee that other countries will also property (including agricultural or forestry income) is taxed apply appropriate unilateral measures. in the country where the property is located. This solution Contracts on avoiding double taxation with interested does not apply to income realized by direct use of rented the country* represent the most efficient manner of removing property or other way of using immovable property, as well this barrier, because apart from eliminating obstacles, as on income from immovable property used for the conduct foreseen in unequal treatment of taxpayers, legal and fiscal of independent personal activities. Moreover, contracts security is obtained which is one of the prerequisite for regulate that movable business property of the permanent international business activities. branch office which a company of the contracting country holds in other country, to be taxed by that other country. Taxes subject to contract Profit obtained from divesting other property is taxed in the contracting country whose resident is a person who Contracts on avoiding double taxation are applied to divested property. Contracts with the NR China and Ukraine personal income and property tax imposed by the contracting prescribe a solution on the basis of which the capital gain

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from divesting of shares of company which property directly racting county where the headquarters of the company is or indirectly consists of immovable property located in the located. contracting country, to be taxed in that contracting country. Taxation of dividends, interests and authorial fees Operational gain The contracting country has unlimited right to tax divi­ Right to tax the company profit has the contracting co­ dends, interests and authorial fees of its residents, while the untry where the company is located. However, if a company contracting country in which these revenues were realized is performing business in other contracting country through is applying withheld tax. The Contract sets forth beneficiary the permanent branch unit, than the taxation right is divided tax rates for the withheld taxes applied only if nonresident between the country of origin and country of residence, recipient provides evidence that he/she fulfils prescribed whereas the country of residence must recognize the tax paid conditions, i.e. that he/she is the resident of the country whit on profit of permanent branch unit in the country of origin. which the contract is concluded and that he is the real owner of revenues, and not the mediator between the payer and When determining the profit of the permanent branch nonresident recipient. unit, as deduction are recognized operational expenses (including executive and administrative expenses), regardless The contracting country which company is paying out the if th­e expenses derived in the contracting country where the dividend, usually on the basis of the contract withholds the permanent branch unit is located or on any other place. If right to tax this type of revenue based on beneficiary tax rate. commonly accepted in the contracting country, the profit The tax rate usually amounts to 5% of gross dividend amount of the permanent branch unit subject to taxation may be if the owner of this type of revenues is the company which determined on the basis of distribution of total profit of the share in the companies capital amounts 25%. If the share company to individual parts. By rule, this profit should be in capital is less than 25%, that the tax rate amounts 15% regularly determined by applying selected method, except of of total gross dividend amount. However, aforementioned there is a justified reason for not applying the method. does not represent unified rule, thus in certain contracts** prescribe unified tax rate which the country of origin is Taxation of profit from carrying out international tran­ applying to the dividends of nonresidents paid by the resident sport company, regardless the share in capital.

Profit from carrying out international transport by In accordance with the provisions of concluded contracts, marital ship, aircraft or vehicle is taxed only in the co­nt­ unlimited right to tax interests has the resident country,

101 Bulletin of the Ministry of Finance of Montenegro / April - June 2009

while the right of the country of origin is limited to 10% of - exemption method, where the resident country is gross amount of interest. The country of origin is the country excepting from taxation the income or property of its resident which resident is the payer of interest. However, pursuant to that was subject to taxation in other country; and international practice, regardless the contracted rate, the - tax credit method, where the resident country is amount of the tax for foreign residents is 5%*** on gross deducting from its tax on income or property tax the amount amount of interest, because this is prescribed by national which its resident paid in other country. legislation and in this concrete case is more favorable for taxpayer. When applying both methods, contracting country whose resident realized income or property which on the basis of The country whose resident is the recipient of authorial the contract are excepted from taxation in that country, may fees, has the exclusive right to tax these fees. Contracts in when calculating taxes on other income or other property force, prescribe solution in accordance to which authorial of that resident, take into consideration excepted income fees are taxed in Montenegro4, provided however that if a or property in order to provide adequate application of tax real recipient is the resident of other contracting country, progressive rate on income or property if that country is the surtax may not exceed 10% of gross amount of authorial applying progressive taxation of income or property. fees. Contracts with Slovenia, Czech and Leetonia prescribe solution based on which for the fee for the use or right to use author right to literally or scientific works, including cinema movies and movies or tapes for TV or radio (so called intellectual property rights) is applied the withheld tax base of 5% of gross amount of fee.

Taxation of earnings or other income

Earnings, fees and other types of income, realized from labor relations are taxed in the country of residence. However, if the resident is working in the other contracting country than personal income is taxed in that country, except in case when the following three cumulative requirements are fulfilled: - that recipient of personal income does not stay in the other country in the period longer than 183, i.e. tax year, - that personal income is paid by employer who is not the resident of other country, - that personal income is not beard by the permanent branch unit or headquarters owned by employer in other country.

Current Contracts on avoiding double taxation prescribe solution according to which parts of income realized by the resident of the contracting country, not being regulated by any other article of the contract, are taxed only in the country of residence regardless the territory of any contracting party.

Methods of avoiding international double taxation

Contracts prescribe two basic elements for avoiding Mr. Mitar Bajčeta, double taxation, such as: Independent Advisor I

1 - The review of the Contracts on avoiding double taxation applied in Montenegro can be be found on the website of the Ministry of finance (www.mf.gov.me) 2 - E.G. Czech, Italy, China, Cyprus, Rumania. 3 - As of 1st January 2010, withheld tax rate will be applied in the amount of 9%, on interests paid out to nonresident legal entities. (Re. Article 29 and 43a, of the Law on amendments to the Law on corporate profit tax of legal entities (“Official Gazette of Montenegro”, No. 40/08)). 4 - Contracts with France and Sweden set forth the solution according to which the exclusive taxation rights have aforementioned countries

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