Economic Relations of Montenegro and Serbia After the Elections

Is There Any Future for the YU Economy?

Just as it is difficult to regain political trust between Montenegro and Serbia, it will be equally difficult and complicated to re-establish severed economic ties.

AIM Podgorica, October 15, 2000

The first result of the new federal state's economic logic is at the same time, perhaps, the most important one. After all, the swing-gate at Kolovrat - the infamous border crossing between Serbia and Montenegro, has been lifted. True: later than announced by Miroljub Labus - the unofficial acting federal prime minister. The swing-gate was removed only partly, because the imported goods are still subject to strict control.

This was interpreted in Montenegro as the first sign of the improvement of practically frozen economic relations between the two quarrelled republics. However, since one swallow doesn't make a summer, this break through customs and police border barriers doesn't mean that the roads of mutual economic cooperation between Montenegrin and Serbian economy are fully open.

Numerous problems are still present. Perhaps the most important one is the monetary problem. Namely, the dinar was the first to feel the consequences of the political turmoil in Serbia. According to economic experts, at the time of the demonstrations everyone wanted to get rid of it, which is why its value registered a drastic drop in relation to the German mark. After this, DOS took over the control of monetary institutions, after which NBY Governor Dusan Vlatkovic promised to stop the uncovered dinar issue, suspend the practice of approving loans under extremely favourable terms to suitable firms (at the official exchange rate of six dinars for one German mark) and dinar slowly started to recover.

Consequently, the official exchange rate in Montenegro first dropped to 33 dinars for one German mark and then again went up to 36 dinars with announcements that it would remain stable at that level. However, this pointed once again to all the complexity of relations between the Montenegrin economy and the Yugoslav monetary system. This is probably why the Monetary Board recently concluded that German mark should be defined as the sole means of payment in Montenegro. Incidentally, that is envisaged by the Law on the Central Bank of Montenegro, which should be adopted at the Parliament's session scheduled for October 18. The Law on the Central Bank and the Law on Banking System stipulate special authorities of the central bank in the fields of economic policy, external foreign exchange relations, as well as competences in the control of commercial banking in Montenegro.

According to this law the Montenegrin Central Bank will be in charge of the macro-economic statistics, i.e. will follow not only price fluctuations, but also Government finances, republican budget and the development of Montenegro's external financial relations.

Return to the Serbian market would mean very much to the Montenegrin economic organism which has feet of clay. The greatest Montenegrin enterprises are also the greatest loss-making enterprises. Many of them are still paying for the loss of the Serbian market. According to the data of the Montenegrin Chamber of the Economy, in the fist half of this year eight strongest enterprises, namely: "Elektroprivreda" (Power Generation & Distribution Industry), KAP, Jugooceanija, Jugopetrol, Niksic Steelworks, Pljevlja Coal Mines, "Obod" from Cetinje and "Budvanska rivijera" (the Budva Coast Hotel and Catering Industry), which account for over 70 percent of the overall Montenegrin economy, have registered losses in the amount of DM 179.6 million, which is 79 percent more than last year.

In the first eight months of this year, the overall Montenegrin industrial production increased only 0.3 percent compared to the last year. The majority of enterprises still have liquidity problems so that the wages are low, irregular, frequently one year late! Real wages in the Montenegrin economy are 11.7 percent lower than last year.

That is why the economist say that everything possible should be done for the re-establishment of the severed links between Serbian and Montenegrin markets. Recently, Montenegrin Trade Minister Ramo Bralic stated that commodity exchange between Serbia and Montenegro visibly increased immediately after the introduction of political changes. But, at the same time, he added a warning: "The Government will do everything to protect its present monetary system and prevent all speculations on the market. Traders from Serbia will have the same status as those from other countries and will enjoy no privileges" said Bralic emphasising that the Accounting and Payment Service will continue to keep business operations with Serbia under close supervision.

How can economic ties with Serbia be restored when mutual payment modes have not been determined yet? According to Bralic, the most favourable mode of payment with Serbia would be the introduction of foreign exchange clearing. Slavko Drljevic, Director of the Podgorica Mortgage Bank, also thinks that Montenegro should not accept dinars because every deal paid in dinars actually represents a speculation.

"I think that dinar has no future in Montenegro, and bankers cannot carry out payment transactions between Montenegro and Serbia until the method of their functioning is established" said Drljevic. He thinks that despite intensified commodity exchange between Serbia and Montenegro dinar cannot be the means of payment in Montenegro.

"We should do everything possible to re-establish links between Serbian and Montenegrin markets, but we must not accept dinars. The best solution would be clearing. The trade exchange differential would be calculated once every three months in German marks. According to Drljevic, the return of the dinar would mean the definite end of all reforms.

Clearing payment implies adding the value of goods traded between states and final settling of accounts in German marks. Former SFRY had ample experience with such method of payment primarily with former socialist states. For example, thanks to clearing the USSSR owed Yugoslavia some two billion dollars. However, it seems that the economists consider such complicated relations a lesser evil than dinar payments.

According to Dimitrije Vesovic, Director of the Accounting and Payment Service, the increase of commodity exchange with Serbia will not result in the increase of the dinar money supply in Montenegro. According to official data, some 20 million dinars in cash and the same amount on bank accounts are currently in circulation in Montenegro.

According to the Vice-Governor of the National Bank of Montenegro, Milojica Dakic, the restoration of payment operations between Serbia and Montenegro would bring more harm than good to Montenegro. "If German marks account for 99 percent of funds on bank accounts, and 97 percent of the total money supply, it would be illogical to return to the old currency. The re-establishment of payment operations with Serbia could at this moment cause a significant inflow of dinars. Although the decision on the re-introduction of payment operations is brought by the highest state officials, I think that this would not be justified at this moment. It would be much wiser for the entire Yugoslav space to choose hard foreign currency", claims Dakic.

As if disregarding changes in Serbia, or perhaps precisely because of them, the Montenegrin Chamber of the Economy also stated its position recently. It proposed to the Government that Montenegro should apply for membership in the World Trade Organisation.

The reason: further development and privatisation of the economic and banking sectors, as well as the implementation of reforms make it necessary for Montenegro to join international financial flows. According to sources in the Chamber of the Economy, independence and sovereignty of the state are not preconditions for membership in the World Trade Organisation, but autonomy in the sphere of foreign-trade operations and customs.

In other words: nothing new on the Yugoslav West. The level of achieved economic independence cannot be allowed to slip out of hands. Moreover, the intention to develop it even further is evident. On the other hand, citizens of both republics were glad to hear of the liberalisation of bureaucratic economic model of Serbia. The Serbian police no longer confiscates vehicles with Montenegrin registration plates which have not be cleared by the customs.

Dragan DjURIC

(AIM)