MONET MONTENEGRO ECONOMIC TRENDS July 2001 ISSP - CEPS ABOUT ISSP ABOUT CEPS ISSP (Institute for Strategic Studies and CEPS was established in 1983. It performs Prognoses) is the first independent institute in independent analyses and critics on European Montenegro. It was established in 1999 with the economic policy and politics, as well as on support of USAID. Professor Veselin Vukotic European institutions and security. It disseminates wishes to thank Mr. Keith Sherper (USAID), Ms. its findings through a regular flow of publications, Zorica Mihajlovic and his collegue Mr. Petar public events and electronic commentary. Ivanovic for their assistance during ISSP creation. CEPS is an independent membership-driven Mission: organization with more than 100 corporate To perform researches that will contribute to the members and a large number of central banks, development of a new economic system and new diplomatic missions and international business Montenegrin economic thinking organizations in its constituency. Major projects: ABOUT MONET o Macroeconomic reforms in Montenegro o Privatization MONET (www.monetonline.com) is the result of a) Monetary Reform the joint work of ISSP in Podgorica and CEPS in b) Capital Market Development Belgium. It is financed by the Foundation Open c) Fiscal Reform Society Institute (FOSI). d) Reform of the Pension System e) Introduction of the SNA system MONET team o Macroeconomic Indicators in Montenegro o Economic Education -ISSP- President: ISSP experts: Professor Veselin Vukotic, Ph.D. Professor Veselin Vukotic, Executive Director: Petar Ivanovic, Petar Ivanovic, Ms. Sci. Vesna Karadzic Research Director: Researchers: Vesna Karadzic, Ph.D. Jadranka Kaludjerovic, Milorad Katnic, Nina Advisory Board Chairman: Labovic, Biljana Vujosevic, Maja Bacovic, Ana Professor Miroljub Labus, Ph.D. Delibasic, Tijana Lekovic, Milica Vukotic, Tanja Boskovic CONTACTS Lay out and web site: ISSP Boris Buskovic Address: Vuka Karadica 2/II, 81000 Podgorica, -CEPS- Montenegro, Yugoslavia Tel/Fax: (381) 81 244-479 CEPS experts: Email: [email protected] Daniel Gros, Gérard Duchêne CEPS Juliette Dierick, Address: Place du Congres 1, 1000 Brussels, Boris Najman, Belgium Franziska Schobert Tel: (32) 2 229 39 11 MONET resident coordinator: Fax: (32) 2 229 39 71 Juliette Dierick Website: www.ceps.be CEPS associate experts: Email: [email protected] Wolfgang Hager, Nicholas Whyte Project Associates Zeljko Brkovic, Milan Dabovic, Miloica Dakic, Mirjana Djuranovic, Danijela Vukajlovic Grba, Jovanka Knezevic, Darinka Micanovic, Draginja Milatovic, Dejan Miljkovic, Dragica Pekovic, Milan Perovic, Natasa Radunovic, Vesna Samardzic, Zdravka Savic, Ljubinka Sekulic, Marina Vukanovic, Bosa Vukicevic, Farid Matuk ISSP - CEPS Table of content Events 2 Executive Summary 4 Part 1 Chapter 1. Output 7 Chapter 2. Employment 10 Chapter 3. Wages 14 Chapter 4. Prices 18 Chapter 5. Budget 22 Chapter 6. Monetary issues 32 Chapter 7. Trade 34 Part 2 Humour: Welcome to Montenegro 37 Comment 1. Is the legal framework in Montenegro promoting the development of small businesses? 39 Comment 2. Banks in Montenegro 44 Dangerous liquidity management of Montenegrin banks 46 VAT-value added tax 49 Euro is coming 54 Comment 3. Foreign investment in Montenegro 58 Tourism in Montenegro: what prospects? 66 Comment 4. Mass Voucher Privatization and batch sale 71 Comment 5. Montenegro off shore zone 76 Comment 6. Current pension system in Montenegro 79 ISSP - CEPS Montenegro Economic Trends Events April 2001. 01. EU decree on the enlargement of special trade conditions. Almost 95% of the goods produced in Serbia and Montenegro received the preferential status. These goods may be without restrictions exported to EU countries, without paying customs duties or bearing quantitative barriers. However specific products such as fish and wine that may have an export potential on these markets are excluded from the measures. 12. Master plan for Montenegrin tourism development. According to the forecast of tourism development up to 2020 by the German company DEG, revenues from tourism as soon as 2010 should reach one billion DEM. 17. Mass Voucher Privatization. Some 450 thousand citizens over 18 years old received vouchers and shall receive the list of the 225 companies presented for the mass voucher privatization. 20. Enforcement of a decree of Republic of Serbia on temporary conditions for the sale of specific goods. The decree forbids companies from Serbia to sell flour, wheat, corn, sugar, oil, pasteurized milk, ethyl alcohol, and cattle food to clients in Montenegro, Republic Srpska and Kosovo without prior approval from the Ministry of Trade. 20. Contract for the construction of tunnel Sozina. This contract is the largest since 10 years. The companies "Slovenia ceste" from Slovenia and "Rudnik Boksit" from Niksic Montenegro shall build the tunnel. The project shall last 3 years. 20. 73 % of the shares of the black coal mine in Berane sold. The new owner is a slovak- yugoslav company "HBP Gradeks" that shall invest more than 19 million DEM in the next 5 years. 22. Extraordinary parliamentary elections in Montenegro. 22. The privatization Council launches international tenders for the sale of 15 companies through batch sale privatization. May 2001. 05. Final results of the elections. On the 77 mandates, the coalition "Victory to Montenegro/Democratic coalition Milo Djukanovic" received 36 mandates, the coalition "Together for Yugoslavia" collected 33 mandates, the "Liberal Party Liberals or nothing" received 6 mandates, the Albanian party received 1 mandate. 08. The Government of Montenegro approved the project laws for Budget Law and Law on public purchase. Besides the Government approved the project law on companies and bankruptcy. 16. International conference on investments in tourism in Montenegro. The conference shall last 3 days from May 16 to May 18. 26. Electricity cut. The board of the electricity company announced power cuts in the republic and presented the restrictions program. 28. Signature of an agreement by which the Liberal party LSCG shall back the DPS SDP coalition. 29. Filip Vujanović shall establish the new government. The President of the Republic of Montenegro Milo Djukanovic asked Filip Vujanovic the current Prime Minister to create the new government. 2 ISSP - CEPS July 2001 June 2001. 02. The coalition Together for Yugoslavia and DOS discussed on the platform for a fourth Yugoslavia. 07. Vesna Perović elected as President of the Montenegrin Parliament. The members of Parliament elected Vesna Perovic as President of the Parliament. Mrs Perovic is a member of Parliament and porte parole of the Liberals. 08. End of electricity restrictions. The decision has been taken as electricity imports have been made possible. 11. Interest only for Gorica and Niksic Mill. The tender commission for batch sale opened the offers. The Niksic mill "Muharem Asovic" and the construction company "Gorica" from Podgorica are the only companies for which investors expressed an interest. The time limit for the other 13 companies shall prolonged. 12. Montenegro shall take part to the International Donators Conference within the Yugoslav delegation. The conference that shall take place in Brussels on June 29 will analyze projects presented by the Government of Montenegro. 13. The Federal Air Control authorities rejected the landing of a plane of the Czech company Fisher on Tivat airport. Instead the plane had to land on Dubrovnik airport. 13. IMF granted Yugoslavia a stand by arrangement for the value of 249 million dollars 18. Tender for the sale of Telekom. The Government of Montenegro and the Privatization Council launched the tender procedure for the sale of 51% of the shares of the telecommunication company, Telekom Crna Gora. Deadline for preliminary offers September 14, 2001. 18. Second phase of Mass Voucher Privatization. During this phase, voucher owners may transfer their vouchers to a family member or to a privatization fund. 29. Yugoslavia received 1,280 billion dollars at the International Donators Conference in Brussels. Montenegro should receive some 10% of this amount. July 2001. 02. Goverment of Montenegro has been elected. ISSP - CEPS 3 Montenegro Economic Trends Executive Summary This issue of MONET is divided into two sections. The first one provides key statistical figures and comments on these figures, the second one consists in analyses. First section In Chapter 1 industrial output does not show signs of recovery. For the first five months industrial output is on the same trend as in the same period last year, therefore low. Chapter 2 employment provides an estimate of the real number of employees (formal or not) and their sector of activity. Some 70% of the employees are working in the service sector. In chapter 3 wages one may observe a stabilization of wages and pensions in Montenegro as the minimum salary has been kept the same together with a decrease of real wages. MONET comments a survey on households revenues and expenditures carried out by OCHA, average revenues per adult having revenues amount only to 310 DEM in May 2000. In chapter 4 prices, inflation that reaches already 15% as compared to 2000 is expected to reach 23% by the end of the year. The main cause comes from the gradual necessary increase of controlled prices. Besides some seasonal price increases and residual inflation keep prices up. In chapter 5 budget, if the revenues of the main budget seem to be on line with the budget and with 2000, the expenditures unfortunately seem to be out of control. The current cash deficit at the end of May 2001 reaches already 62 million DEM, whereas 80 were planned for the whole year. Deficit financing is unexplained and raises questions. The main budget is in an extremely severe situation. Adequate emergency measures should be considered. In chapter 6 money, MONET presents banks deposits and own accounts. The regulation preventing banks to lend without reserves or long term deposits of the same maturity remains into force though banks are asking for its removal. In chapter 7 trade, MONET explains that unfortunately trade relations between Serbia and Montenegro are still not optimal.