Could you give us a brief overview of the fiscal situation in Montenegro, now that the currency deficit is under control and that you are in the middle of budgetary reforms?
When discussing the fiscal situation in Montenegro, it is important to preface this with our conversion to the Deutch Mark (DM) and our desire to change the national situation, which was devastating previous to these reforms. The total economic situation in Montenegro should therefore be regarded with a long-term view, considering the very complex environment in which the economy existed.
We must take into consideration the conflicts in the region during the past 10 years, the great number of refugees, as well as sanctions by the international community, destruction and sanctions imposed by Milosevic's regime and NATO bombing. Regional conflicts and everything related to that have managed to weaken the economy of Montenegro and postpone the reforms which Montenegro intended to perform.
During that period, it was typical that state companies, wishing to maximize salaries on account of profits, produce losses and deficits which were later on covered by the subsidies of the state and Government. It was not a way to solve the problem, and the problem was further exacerbated through the printing of money, which dragged the country into an inflationary spiral and transferred the negative effects to our citizens.
Montenegro resolved to stop this downfall trend, especially after Mr. Milosevic completely took over the monetary policy function and the possibility of uncontrolled printing of money. Therefore, our radical changes began with monetary changes, with a very brave move which was the introduction of DM as parallel tender along with the Dinar. When I say that it was a brave move, I am pointing to the fact that a part of the international community was not in favor of such an initiative, only to state afterwards that the introduction of DM in Montenegro was a positive move, and that the DM proved to be a successful process in Montenegro.
Macroeconomic and monetary stability was the precondition for the sustainability of all other reforms in the field of public finances, banking system, foreign trade and customs regulations.
Although the introduction of DM has revealed weaknesses of budgets and funds of Montenegrin economy, this was done deliberately in order to acknowledge the existence of budgetary problems, and to start solving them. In that way we demonstrated our readiness to solve it. The budget deficit of Montenegro was revealed during the implementation of reforms, so we established conservative monetary policy and then went on with other reforms aimed at revenue generation such as tax reforms and other necessary changes.
We are seriously and intensively engaged in the reform of the tax system, and it was necessary in the meantime that the international community support Montenegro's budget by covering the deficit with its donations. And that was exactly what happened.
We introduced DM in 1999. In the year of 2000, the international community covered the budget deficit. As you have noticed, Montenegro has a deficit but it also has a plan to reduce that deficit in the following period - we have possibilities to reduce budget expenses and to increase budget revenues.
Therefore the situation regarding budget deficit in Montenegro is under control. Our plan is to reduce the budget deficit even further by the end of this year, and we have taken some concrete steps on this issue. We have limited personal and investment expenses, kept minimal wages, and stopped the growth of salaries in the civil sector. We have reduced our investments in order to decrease our expenditures.
On the other hand, we are increasing our revenues by means of our program for reduction of the gray economy.
There are three important areas where you are focusing to increase income. The first would be the tax reform. Will it work?
By all means, we have completed work versions of six tax laws, which will be sent to public discussion, for suggestions and opinion both to the foreign and local public. The international addresses are the International Monetary Fund and World Bank and local addresses are NGOs, the Chamber of Commerce and Trade Unions.
We expect to receive those suggestions by the 20th September in order to submit them to Government procedure by the end of September, with a plan to adopt them by the end of the year.
Essentially, Montenegro is small country with small population, with internal market limitations for the financing of large state infrastructure development projects. Because of this, it is very important for Montenegro to have good communication with the international community, since only foreign capital can help Montenegro to develop its infrastructure and large-scale projects. That is the reason why we want to be open and reduce our taxes; to widen the tax base to a larger number of subjects and to take care of employment through the tax policy, since unemployment is one of the biggest problems of Montenegro.
You have mentioned the international investments. The second aspect in the process of revenue increase is going to be the privatization process. What is going to be the importance of the revenue base from privatization?
The state owns the major part of property in big companies. Therefore, these will be important revenues directed towards development of all small and medium-sized companies, private sector, catering activities, tourism and agriculture. I believe that the process of privatization in Montenegro will be completed by the end of next year. We are aware that there have been many problems during the privatization processes of certain Eastern European countries, which are hoping to avoid by learning from their mistakes. | I am also in contact with international financial organizations, and it is obvious that they want this process to be accelerated. So now is the right time to bring this process to its conclusion. The conditions of transparency are met and I believe that the greater part of the privatization process will be completed in 2001-2002.
The third aspect is financial aid. What is the importance of foreign aid for Montenegro?
Two types of the international aid were of crucial importance for Montenegro - financial and technical aid. We are aware that financial aid by the international community will not be infinite, and that it will decrease from year to year. That is why we are working on reforms so intensively, developing technical assistance as well as direct financial support.
With the assistance of international advisors we are going to create a system which will help Montenegro to be self-sustainable. We are aware of the fact that, in the future, international aid will be differently structured; future aid would be of developmental nature, in the form of credits, for example. Therefore, I consider that Montenegro has justified the international aid it has received.
Montenegro is the country which consumed international aid at fastest rate and in greatest percentage, which confirms the fact that we have the nucleus of administration capable to fulfill international obligations. All money coming to Montenegro is spent according to its purpose, and there have been no objections by international donors that the money was spent for other purposes than intended.
This year we have fewer international donations, in slower dynamics, but Montenegro is very satisfied with the help of the international community. The experts sent here as advisors are very good and I believe that they are satisfied with our work and that they recognized in us people ready for economic reforms.
Is an independent Montenegro ready to be financially autonomous from Serbia?
We are aware that Yugoslavia now has international legitimacy. We have participated together at the Donor Conference, because we think that it is in the best interest of Montenegro not to lose any time. We really think that the economic issues are of real importance for the development of Montenegro.
However, we believe that we can present our needs in a much better manner to the international financial organizations for a very simple reason - the starting position and pace of reforms here and in Serbia are very different, along with the economic structure of our two countries. Serbia wants to develop its industry and agriculture and needs to protect them.
There are countries which very clearly divided donors funds between Montenegro and Serbia, while some of them directed their aid to the Federal Republic of Yugoslavia. We are in good communications with Mr. Labus who is in charge of international cooperation within the Federal Government, and we have established criterias according to which Montenegro will not have any problems in receiving financial aid coming through the federal state. We have agreed to divide donor funds according to population, debt and GDP, for example.
I do not see any problems with regards to this issue and I believe that we have all the mechanisms necessary to protect the interests of Montenegro. The international community has also taken responsibility to provide distribution of financial aid between Montenegro and Serbia.
You began as Minister of Health and now you have been Minister of Finance for two consecutive terms. During this time, what has been your biggest personal success?
I am economist by profession and if it should be estimated that I had important contribution to the implementation of these reform processes in Montenegro it would be the greatest success for me. Together with the team of colleagues working in the Government I have participated in the creation of the two-currency system followed by the introduction of the DM, as well as the creation and adoption of the Law on the Central Bank and the Bank Law. A few days ago I participated in the adoption of The Budget Law and Public Procurements Law. These are the laws that essentially bring Montenegro closer to Europe and are preconditions for the attraction of foreign investments and donations.
If Montenegro manages to complete its economic reforms and am able to contribute to this process, it will be the greatest satisfaction for me.
What would be your final message to the readers of Forbes magazine?
Montenegro is a small state with great resources. It is building a high-quality institutional system and performs reforms in cooperation with the best international experts, in accordance with the highest international standards. I believe that the natural resources of this country and legal infrastructure we are developing is interesting to foreign investors. I would therefore like to bring all these reforms to their attention and promote Montenegro as destination that is worth investing in.
In conclusion, I believe that the economy of Montenegro should not only be regarded with a view to the present, but with a view to the future. Montenegro and its economy certainly has future, and I believe that we will become an important destination for foreign investment.
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