You have already made strong headway with the adoption of the DM. Could you tell our readers more about that experience and the preparations for the adoption of the Euro next year?
During a long period we had to face hyperinflation, which was the result of the economic and monetary policy of Belgrade. We were unable to influence it. After the break up of Mr. Avramovic's program, and the open conflict with Mr. Milosevic, Montenegro was hampered again by hyperinflation. In a short period of time the Dinar lost its value almost 3 times and Montenegro was completely ousted from the decision making process as well as from the system of the Central Bank. In order to protect ourselves, the government decided to adopt the DM, and in doing that, to take over the supervision of our own monetary system. We protected our country in accordance with our constitution. This measure turned out to be very efficient.
By the time we adopted this law there were only a small amount of Dinars in the amount of approximately 3 million DM left in our national reserves which meant that the Dinar was definitely not an option.
In the late 90s Montenegro lost approximately 200 million DM because the only way to obtain Dinars was either by selling goods or hard currency. After this period we introduced the Central Bank Law and the Law on Banks and introduced a stable monetary system with a hard currency to begin the reform process of the banking system. With the help of USAID we have adopted laws that have created a healthy banking system in Montenegro. Our aim is to win the trust of the people, to bring their savings into the banks again. Our companies should also benefit from the possibilities that our banks can offer, like they did before, which would also help us to proceed with further reforms of the banking sector.
The privatization has already started and we have several projects such as: reform of the taxation system as well as new currency and foreign trade regulations. The elaboration and full adoption of some of these regulations is still in process. We have to be certain that the institutions will be able to use them optimally. The adoption of the DM was the necessary impulse for the reforms to begin.
The Central Bank is in charge of reforms in the banking sector, according to the Law on the Central Bank adopted in October last year, and it is now final that the DM will remain the only legal tender in the territory of the republic until the introduction of the EURO. The Central Bank has no emission function, it can not give credits, it is only responsible for the creation of a healthy banking system and an efficient system of payments. The Central Bank is also the fiscal agent and the depository agent of the government.
What are the reforms that you are planning to introduce to make the banking system more effective, especially the state banks, for example Montenegro Banka that was bailed out by the Central Bank?
The Council of the Central Bank was elected in March and since then we adopted a complete system of legal regulations and sub regulations in accordance with international banking standards. They paid special attention to the standards of supervision in the Balkans and to the matter of supervision of banks.
Regarding the problem of Montenegro Banka, which was technically insolvent last year, the Central Bank, together with the Government, decided to solve this problem without any donations. First of all we introduced certain rules that the bank did not fulfill in their entirety. We appointed then a new director for crisis management, who was able to stop the further degradation of the bank and to protect the interests of its clients. To further improve the situation some credits were collected, and those that could not be paid back in time were re-programmed and the same was done with some loans. It is our goal that after these measures are completed the balance of the bank be in accordance with the international banking standards and those parts of the bank that were not affected by the crisis can work again. We are preparing a complete program, with foreign consultancy help, containing a marketing plan, in which we will offer the "healthy" parts of the bank for foreign investors.
That means that the Central Bank will be also involved in the search for foreign partners?
The Central Bank will create a marketing plan that will be carried out by the Acting Director of the bank offered for privatization. The Acting Director is an employee of the Central Bank, and the bank belongs to the Government. After receiving all the offers and ending the procedure, the Central Bank will decide which offer will be accepted.
There are a few banks of local importance that are supposed to fulfill strict regulations regarding the concentration of their credits as well as the structure of the active and passive funds. Those banks that will not be able to follow up these requests will have to find another solution, or perhaps to merge with other banks. Otherwise if they do not fulfill the regulations until the end of this year, their license will be taken away.
The law on clearing houses and their subsequent liberalization has become an important issue…
We have put certain provisions about that in the Law on the Central Bank. How payments will be regulated and organized in Montenegro is now legally resolved. We have also adopted a plan which imposes certain deadlines regarding tax collection as well as the functions of the ZOP (the central clearing house) and those related to the government, tax statistics and payment of taxes.
Tax collection is our primary task and we have a specialized institution carrying out this task instead of the ZOP. The system of real time gross settlement payments remains among the functions of the Central Bank, just like in every other country. For those payments it is necessary to have certain funds on the accounts as guarantee. That is why that part of the ZOP will be kept among the duties of the Central Bank. Our banks can buy or organize to buy that part of the system of low tax payment, or payments for certain periods of time until the end of the year.
The Central Bank has the function of regulation and supervision, and is in charge of the gross payments. It depends on the banks whether they would like to take over these functions. In this period of one and a half years , in other republics of the former Yugoslavia, that process was longer when the banks decided to take over these functions. Until then it is an extensive and monopolistic system, and therefore we need time to find those solutions. Since Autumn, the system of gross payments will be removed from the functions of the Central Bank.
| What is the Central Bank doing to attract the important financial houses into the country and international banks to invest in Montenegro?
The Central Bank is a completely autonomous institution; it is not under the Government, or its influence, and has the same measures towards each bank. We are trying to create a banking system similar to those abroad.
During this period of new regulations, onside and offside control as well as adaptation of our measures, we want to emphasize that we are implementing the highest western standards.
On the other hand we will adopt the EURO. We will have a stable currency, in the banking sector we will try to create conditions to attract the foreign investments in the banking sector. We will try to liberalize further the system of foreign payments.
The European Bank for Investment decided to invest 15 million EUROS into private banks in Montenegro, they are also interested in setting up a fund for privatization. It is a signal for other private investors, or state funds as well. KFW, for example, has already good contacts through our private banks, DGA has also invested into shares of private banks in Montenegro. That is a positive signal.
We expect that the adoption of the EURO, within a well organized process, could be a good chance to bring back the savings of the people into the banks, and it could be invested into the economy of the country.
We have not decided yet, but a certain amount of money , approximately 1,000 DM could be changed without any bank account, but bigger sums of money will require the opening of a bank account. In that way the bank has the chance of attracting new clients. On the other hand, the state will start paying salaries and subventions using the banking system. It is a mechanism that will stimulate the citizens to rely on the banks. Plus the rigorous regulations that the banks have to comply with will create a certain atmosphere of trust.
The custom reform is already over. It has created a stimulative ambient, that could initiate the foreign and private investors to come here. We don't have our own currency, we do not have a risk of inflation, which is a serious issue in every small country. Those countries that have their own currencies are more vulnerable.
Montenegro is a small albeit open country. Are you trying to promote it as a financial center in the Balkans?
Obviously, that is what we are doing now. This is the only chance for Montenegro to survive, with an open economy, with stimulative taxes, law customs, as a transit area for Bosnia, Serbia and Kosovo. This eventually requires the development of infrastructure. Montenegro has an important potential thanks to its orientation.
President Djukanovic compared Montenegro with Luxemburg. Do you agree with this comparison?
Montenegro absolutely has the chances. Though, we have to work very seriously on it. It is very difficult to reach this goal in an unstable political environment, but we are aiming towards it. We are optimistic about our future, because we have survived a very difficult period.
You have been Deputy Prime Minister in the previous Government. What was your biggest success during that period and what have been your most recent successes?
We have managed to adopt the DM. We have liberalized the custom system, and by decision of the government more than 95% of our trade. We have lowered the customs from 15%-13% to below 3%, we have made and adopted the tax system, we will probably adopt 4 more new tax laws. These are only a handful of things that were done while I was in charge of the financial sector. The law on Budget and Purchases was prepared and then adopted in September. We have also created an agency for the incitement of small sized enterprises. All these things have been initiated during the period of 1 year, during which I also had to change my position in the government.
These are the projects in which I have taken part in directly. My colleagues continued working on those projects and they started establishing institutions that will help them to continue with the projects.
Since I have been in the government we have initiated cooperation with the IMF and World Bank, while at the same time they have started to work with Belgrade.
What would be your secret to carry out so many major changes in such a short period of time?
I was in Belgrade for 5 years, delegated from Montenegro, I was the Vice Governor of the Central Bank of Yugoslavia, and I have "survived" 3 Governors. I was there when professor Abramovic was the Governor and later when Mr.Blatkovic. Those were all people with enormous professional experience and knowledge, and somebody who has the chance to learn from those people, and to see the errors they have committed in spite of their professionalism, I think it is the best training ever.
In the last 10 years I have had many different positions, I have also worked on the Economic Faculty of the open Institute of Economic research for 6 years, where I had the chance to cooperate with a lot of famous people from Yugoslavia and from abroad.
We also have a big support from USAID, we could always consult them on different issues, their help is enormous. These are the main factors that help us.
There is a younger generation of Montenegrins growing up, and already working in different positions. They are willing to continue with this process of reforms. I believe that we would always have the amount of people that would be willing and able to carry out these reforms. If we have not had these political turbulences and social problems the process would have been even faster. If we had a political consensus of the authorities and the opposition regarding the process of reforms it would have facilitated our job and we could have had carried them out quickly and "painlessly" for the citizens.
In essence, the reforms of today is securing many new opportunities and positive benefits for our youth and for future generations.
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