Montenegro and the New Yugoslav Currency

Stop to Dinars

The old frictions between the monetary authorities of Belgrade and Podgorica have resurfaced after the introduction of a new convertible Dinkic's dinar and caused new misunderstandings in Montenegro.

AIM Podgorica, December 23, 2000

Last week the Governor of the National Bank of Yugoslavia, Mladjan Dinkic, introduced the new convertible Yugoslav dinar. Since the emergence of FRY till today, 41 kind of bills have been issued and 25 types of coins minted. Actually, these last banknotes had been prepared by the old monetary authorities in their preparations for the post-electoral inflation. Also, Article 48 of the valid 1993 Law on NBY stipulates that on the territory of Yugoslavia "the dinar is the only monetary unit which is divided into one hundred paras". Perhaps that is what prompted the young NBY Governor to assume the authority in the territory of Montenegro. Namely, the Federal Accounting and Payment Service (ZOP) announced a public competition for the opening of money-changing agencies in the territory of Montenegro too.

"Interested legal persons and entrepreneurs from Montenegro", says the ZOP's statement "can get acquainted with the specification of the equipment needed for the money-changing and other activities, in the ZOP Prijepolje Branch Office and the Belgrade headquarters of this institution". Naturally, the opening of such exchange offices in Montenegro would practically mean the return of dual-currency system which is why one did not have to wait long for the reactions from Montenegro.

Dimitrije Vesovic, Director of the Montenegrin ZOP said that "there is no chance of anyone opening an exchange agency in Montenegro without the permission of the Central Bank of Montenegro". "NBY representatives know this full well", pointed out Vesovic, and characterised their present behaviour as propaganda and a new form of pressure exerted on the Central Bank. He pointed out that the Central Bank would continue to control the entry of dinar and every other currency into Montenegro, same as it did till now, according to previously adopted regulations.

Although the Montenegrin Parliament has recently adopted the Law on the Central Bank, the new NBY Governor, Mladjan Dinkic was of a different opinion: "Montenegro doesn't have its central bank because it doesn't have its own currency" was how he explained it simply. It was for these reasons that the new Governor of the National Bank of Yugoslavia did not invite Montenegrin representatives to the last week's meeting with representatives of monetary authorities of former Yugoslav Republics dedicated to the division of gold and foreign currency reserves of SFRY. Since the Monetary Council of Montenegro learned of this meeting from the papers, it issued its own statement pointing that with the establishment of the Central Bank of Montenegro, the only legitimate representative of the monetary sovereignty of Montenegro, former National Bank of Yugoslavia has lost its right to exercise the functions of a monetary authority in Montenegro. That was why the Monetary Council of Montenegro considered illegitimate any agreement between representatives of the central banks of the Republics of former SFRY brought without the participation of Montenegrin representatives.

Even Zora Zizic, Prime Minister of the Federal Government, which Montenegro also considers illegitimate, reacted to this by stating that he expected Mladjan Dinkic to invite representatives of the Central Bank of Montenegro to his meeting with Governors of the Central Banks of Slovenia, Croatia, B&H and Macedonia as well as that he expected that Dinkic would call Montenegrin experts, as members of the FRY Delegation, to attend the subsequent meetings on the division of the Bank of Basle gold.

In the meantime, Montenegro is rounding off its monetary sovereignty so that even Securities and Financial Market Commission has been established. Immediately upon its formation it issued work licences to the Montenegro Stock Exchange and first Montenegrin stock exchange brokers, whereby their federal work licences ceased to be valid.

However, the new dinar also provoked conflicts within Montenegro itself. After Velibor Zolak, Director of the Tourist Agency of Montenegro, invited tourists from Serbia to spend the New Year's holidays and winter vacation in Montenegro, promising them that they would be able to cover their expenses with the Yugoslav dinars without any problem, the Director of the Montenegrin ZOP, Dimitrije Vesovic reacted promptly. He rejected any possibility of tourists from Serbia paying for Montenegrin services in dinars and for Zolak's words said that they sounded as if they were said by someone "who had dropped from the moon".

Naturally, Zolak immediately explained what he meant. "A monetary authority of a touristic country, which doesn't allow every foreign guest to change its country's currency - valid, valuable and covered by goods - into the locally valid currency, is a bad monetary authority. It is perfectly the same whether that guest is from England or Italy, Germany or Serbia. If a representative of that monetary authority thinks that tourism implies that a foreign tourist must buy the currency of the country in which he intends to spend his holidays in his native country, then he must have taken leave of his senses (and of the Earth for that matter)! It pleases me to agree that I have dropped from the moon if the country to which I come to spend my currency, hard-earned and fully-covered money, prevents me from doing that. And only because representatives of monetary authorities do not know how to change the currency and what to do with it later" emphasised Zolak.

The unavoidable Nebojsa Medojevic, member of the "Group 17" and Director of the non-governmental organisation "Transition Centre" joined the public discussion on the new dinar in Montenegro. He thought that the Montenegrin authorities should accept the offer of Mladjan Dinkic, NBY Governor.

"Montenegro has no reason to refuse the offer for opening exchange agencies in which the convertible dinar would be exchanged for the German Mark or some other currency in Montenegro. This is a new foreign currency and, since the coverage of that currency was significantly insisted on and financed by international donors, for some time to come this new dinar will be overvalued in real terms in relation to foreign currencies which will make Montenegrin goods, which are calculated in German marks on the Serbian market, cheaper", was Medojevic's opinion. According to him, Montenegro might profit from this. "The Montenegrin enterprises which sell goods on the Serbian market will get convertible dinars which they can exchange for German marks so that there is no reason for Montenegrin Government to reject this offer and treat the new dinar as any other convertible foreign currency", said Medojevic.

In the meantime, in the background of monetary arguments, one can hear the warnings of economists about the disastrous economic situation. One of the founders of the "Group 17", economist Ljubomir Madzar, pointed to the FRY's enormous public debt of USD 21 billion, which is 150 percent of the annual social product. "We have found ourselves in a situation" pointed Madzar "in which vital state functions depend on foreign aid, which can be called charity. Just before the introduction of the dinar convertibility Yugoslavia was swept by a wave of price increase. The October rise in retail prices was shocking: 26.6 percent, while prices of certain foodstuffs went up by 100, 200 and even 300 percent. Naturally, it was inevitable for all this to cause the fall in the retail trade of 26 percent, the October reduction of imports by 15 percent and exports by 13 percent".

At the same time, Montenegro has fallen on hard times too. For a long time now, this Republic is replenishing its budget with foreign donations and now has entered the stage in which it has to liberalise the prices. Thus, the price of a loaf of bread in Montenegro has gone up to 50 pfennings which is the first in a series of unpopular measures that the Government of Montenegro will have to make. The chain of illiquidity in the Montenegrin economy has started braking too, "Montenegro banka" (Montenegro Bank), once the greatest Montenegrin bank and symbol of decade-long economic development, has become penniless since it is unable to collect its outstanding claims from its debtors, which include the largest Montenegrin enterprises. During this year, the prices in Montenegro (expressed in DM) have gone up for 19 percent which will, according to experts of the Podgorica Institute of Strategic Studies and forecasts, result in 24 percent annual rate of inflation.

In other words, either with dinar or German mark, a weak economy leaves behind the same consequences.

Dragan DjURIC

(AIM)