SHORTCUT TO HEAVEN

Montenegro - Free Economic Space

October 21, 1995

After several years of preparations far from the eyes of the public, Montenegro's intention to carry out a project of creation of a new international business and financial centre should soon be publicized. This was announced at a recent press conference held in Podgorica by Montenegrin Prime Minister, Milo Djukanovic.

• Montenegro is making intensive preparations to join international economic trends, he said. - A global project called "Montenegro - Free Economic Space" is almost completed and it is realistic to expect that this will open the doors to world capital and intensify cooperation with foreign partners. A series of development and commercial projects are being elaborated, which are expected to be well received by international financial institutions and they have already aroused interest in the Russian and the English market.

What is this all about? The issue in question is the Montenegrin road to a "tax and tariff paradise", that is, to a development program which will "create possibilities for Montenegro to activate, evaluate and promote its natural, geographic and productive potentials in the quickest possible way". Obviously, the Cyprian dream is being dreamt here. The experience of Cyprus which has in just a short time achieved a fantastic growth of its national income to as much as 12 thousand dollars per capita by applying special regimes of economic operation (primarily by opening its doors to "off-shore" companies) served as the foundation for speculations about turning Montenegro into a new tax and tariff paradise.

Few people know that this idea is no novelty for Montenegro. Even Montenegrin King Nikola, in the beginning of this century, offered the Americans to open a "tariff free zone" between Bar and Ulcinj, and there was also a project for turning the region of the Skadarsko Lake into a new Monte Carlo. Political parties of the so-called Montenegrin block promoted this idea in the course of the last election campaign, and the ruling party took it from them and, in the end of 1992, the Government issued an order to the Republican Agency for Economy Restructuring and Foreign Investments to coordinate preparations of the project. Therefore, towards the end of December last year, a specialized enterprise was founded for introduction, promotion and realization of the project of Montenegro as an international business and financial centre called "Montenegro Off-Shore", headed by Dragan Rosandic, coordinator of the whole project. In cooperation with experts from abroad (domestic experts simply did not have good enough references for this project, he says), a special Draft Law on foreign companies and individuals has already been prepared together with an accompanying Project Report on economic justification of development of Montenegro as an international off-shore centre.

This Draft Law, Rosandic explains, prescribes even certain solutions which have never been implemented yet in the existing off-shore centres, and the Project Report contains main objectives of the project, a review of operation of the existing off-shore centres in the world, an analysis of comparative advantages of Montenegro to carry out such a project, a study of former bilateral commercial contracts signed by former Yugoslavia, and interpretation of the provisions of this specialized Law.

The road to the goal will not at all be smooth, of course. Dr Vladislav Popovic, Director of the Belgrade firm CISIM and one of the consultants in implementation of the project of turning Montenegro into an interntional business and financial centre, warns that the world off-shore association stipulates six conditions which must be fulfilled in order to begin off-shore operation.

• The first is political stability of the country, then comes legal security in it, developed communications and banking system, high level of professional accountancy services, legal profession in compliance with the world standards, qualified personnel and protection of identity, which is - as Popovic explains, in fact the right to keep the identity of the owner of an off-shore company secret.

There are many forms and modes of special regimes of economic operation in the world nowadays. Apart from off-shore firms (this term actually means that these, "off-shore" firms cannot operate on the territory of the state they have been registered in, because they enjoy special customs and tariff reliefs), there are flags of free navigation, free warehouses, ports, airports, touristic free zones, etc. It is believed that these regimes of operation have significantly contributed to economic revival of many countries in the world. Taiwan, Korea, Thailand, Hong Kong, Singapore are most commonly mentioned, and among European countries, Cyprus, Malta, Liechtenstein and Switzerland developed off-shore business a long time ago. A few years ago, Albania also announced that it would start on its road to the shortest possible way out of isolation and communism by means of off-shore business, but as Dragan Rosandic says, it has not moved much further since. According to his words, Hungary is a more serious rival to Montenegro, since it has recently started with such business deals hoping to make Budapest a Central-European business centre. Mr Rosandic wittily sees this project of tax paradise, which is a specific shortcut in economic development, as turning Montenegro into Cyprus, Switzerland and Monte Carlo - all together at the same time and in the same place.

Dynamics of realization of the whole project will primarily depend on lifting of the sanctions imposed on the FRY. But, the absolutely indispensable approval of the project by relevant political subjects within the country must not be disregarded either. "You wish to make Montenegro a great big duty-free shop, and the people will not accept that", Novak Kilibarda, President of the pro-Serb oriented National Party, used to say during the last election campaign. It has already become customary that two factions are formed around any autonomous and authentic Montenegrin economic project. One of them immediately proclaims it a concealed Montenegrin separatism, and the other recognizes in such projects models for painless realization of the only true aim - state sovereignty. Montenegrin authorities chose the option which claimed that realization of this project was possible within the existing federal state, and that this would contribute to development not only of Montenegro, but Serbia as well, and even the entire region. Opinions vary concerning realism of such a judgement, so there is a significant dose of scepticism concerning implementation of the project under the conditions in which each and every misunderstanding between the two republics initiates a story about Montenegro suffering from the syndrome of Slovenia.

Therefore, the question of political consensus for carrying out this project became one of the most significant ones, but any public discussion concerning it is carefully avoided. It is symptomatic that the Montenegrin Government has made the entire preparations of the project almost in complete silence. Because, even if, all things considered, it might seem that it will not be difficult to reach a general professional, and even social and political consensus concerning this project inside Montenegro itself, it does not mean that the task will thereby be completed. It is necessary to acquire the approval of "the other eye in the head", as well.

• Consultations with the Federal Government have already been planned, Dragan Rosandic says. - This is necessary, among other, because a part of the solutions fall under its competences. Such are the issues of foreign currency control, and exemption from customs and foreign currency dues. We do not expect problems there. It would be normal for the Federal Government to regulate this issue through a decree or an amendment of the Federal Law on Enterprises, that is, to use solutions prescribed for duty free zones - Mr Rosandic believes.

In contribution to the idea that it is possible to turn Montenegro into a tax paradise even in the conditions of its operation as a federal unit in the two-member federal state, Rosandic states examples of other off-shore centres around the world. For example, a small island state in the Caribbean Sea, St. Kitts and Nevis, about 1800 km to the South of Florida, is a two-member federation in which thr island of Nevis, as the smaller republic, implements various forms of off-shore bussines. Rosandic also gives the example of Portugal, whose automous province of Madeira (an island in the Atlantic Ocean) operates as a tax paradise. British colony Gibraltar also operates similarly, and even some dominions, such as the islands of Jersey and Guernsey in the English Channel have the status of special zones of free business operation. Even in a multi-member federation, Rosandic stresses, such as the United States of America, there are federal units which practice off-shore business - in this specific case, it is the smallest American state Delaware.

In order to convince those who are doubtful, many examples are offered in order to show how it is possible to for Montenegro to realize such a project even within the existing relations of the new federation. Domestic economy under the sanctions has been devastated, there can be no development without fresh foreign capital, and during the past three or four years, the entire Eastern European system has already done a lot to be to the extent possible integrated in the world market. Yugoslav economic facilities, therefore, as an economist wittily observed, resemble an old maid who has taken a long time to choose, and now has no choice at all. What foreign capital can this economy count on, if it does not offer any new, more attractive conditions? Rosandic presents highly convincing arguments. "Montenegro cannot move its economy from the standstill after lifting of the sanctions without foreign capital. It is quite clear that it is not possible to provide this capital as before - by taking expensive loans. It is necessary to create such an attractive social and economic environment which will be ready at the very moment the sanctions are lifted and in which foreign capital will recognize its interest. By using different regimes of operation within this project, Montenegro may become an attractive region for inflow of foreign capital which will generate domestic resources and introduce new products, programs, transfer of technology and know-how, world standards, which would provide a rise of competativeness of the local economy and its necessary changes in organizational, managerial and informative sense. Of course, this will all contribute to a significant foreign exchange inflow and employment of a large number of domestic manpower."

But, in spite of all these economic arguments and explanations, the question of political approval remains open. Namely, although the political leadership in Serbia has been acquainted with the conception of development of Montenegro as a new off-shore centre, there have been neither positive nor negative reactions yet. The threatening silence is in the air, and the Montenegrin authorities are pretending that they have not noticed it.

Dragan DjURIC