OFFSHORE - SHORTCUT TO PARADISE

Montenegro - Opening Roads to Economic Independence

New law on privatization and turning Montenegro into a tax and customs paradise are announced as the most important steps towards its further economic independence

AIM Podgorica, June 21, 1996

Montenegrin authorities are obviously in a hurry to make a capital out of the political deal concerning removal of Dragoslav Avramovic from office, so the session of the republican parliament is announced for the first days of July. New draft laws on privatization (with a model of vouchers) and transformation of Montenegro into an international business centre will be on the agenda of this session.

New federal laws on enterprises, foreign investments and privatization outlined the federal legislative ambience which leaves enough room for Montenegro to start dreaming independently its long dreamt Cyprian dream - to begin the project of Montenegro as a free economic space. The new federal law on transformation of socially-owned capital reduces federal competences to zero and gives freedom to the republics to deal with things each one on its own. This law, therefore, neither slows down the Montenegrin rhythm in privatization, nor forces Serbia to accelerate this process. The new law on enterprises will enable registration and servicing foreign companies which deal with the third countries, in other words offshore business deals, while the federal law on foreign investments will enable granting of concessions in the sphere of telecommunications, and, as something very important for Montenegro, it will hand over registration of foreign investments into the competence of the republics.

These laws have already been "scraped through" the Chamber of the Republics of the federal parliament, and all that is left to do is to have them adopted by the Chamber of Citizens. And the Montenegrin Government, convinced that the Chamber chaired by Radoman Bozovic will also vote in favour of anything proposed by the ruling coalition - Serbian Socialist Party (SPS) and the Montenegrin Democratic Party of Socialists (DPS) - has already adopted draft law on offshore business operation, and formulation of a new draft republican law on privatization is scheduled for this week.

The new draft law on privatizatiion in the economy will be adopted by the Government in the course of this week. The most significant novelties in relation to the former law on ownership and management transformation (adopted in January 1992 and amended in 1994) are introduction of vouchers - the law calls them privatization coupons and acceleration of the privatization process of the part of socially-owned capital which was pursuant the current law transferred to funds. In other words, employees of the public sector, i.e. in non-economic activities (with at least three years of experience) and pensioners get privatization coupons worth (at the most) three thousand ecus, and the unemployed 1,500 ecus each. In view of the fact that Serbia is just announcing adoption of a "program of accelerated economic development" and that no details about the program of privatization have been publicized yet, even these differences between the two republics provide sufficient foundation for well-known rumours about a single state with two economic systems. Along with it, goes the assessment to what extent this will affect economic independence of Montenegro, or rather, to what extent this is in fact opening the doors to full political independence of the smaller republic.

Along these lines is the Assembly recommendation on restoration of cooperation with international economic, financial and other organizations, which was unanimously adopted at the last session of the Montenegrin parliament at the proposal of two deputies members of the Liberal Alliance. The text of the recommendation is very short, but quite clearly testifies of the efforts of Montenegro to join the IMF on its own, if that should prove to be a shorter way than through the FRY, which is, of course, not mentioned in the recommendation at all. The Recommendation reads as follows: "In order to connect the Republic of Montenegro with international economic, financial and other organizations, the Assembly of the Republic of Montenegro recommends the Government of Montenegro, within its competences prescribed by the Constitution and laws, to continue activities aimed at restoration, establishment and normalization of economic and other relations with all relevant international organizations, which is a necessary precondition for overcoming the difficult economic situation and creation of necessary conditions for developemnt of the Republic of Montenegro."

The just completed talks in Geneva, as reliable sources inform, testify that the federal authorities have after all adopted Avramovic's concept of the country's joining the world financial institutions, but that they are insisting on separation of the political issue of continuity from the "technical" issue of membership of the FRY in the International Monetary Fund (IMF). The missed opportunity of the FRY to join the IMF like the rest of former Yugoslav republics according to the so-called summary procedure, would initiate the procedure of new membership, but it would also open numerous political issues: cooperativeness of the FRY in implementation of the Dayton agreement, resistance of the Muslim states, status of the country in the OUN, reduction of quotas due to drop of economic potentials... all of which means that the procedure of joining the IMF could last forever. All this could give much more serious dimensions to the current far-fetched story about economic independence of Montenegro.

However, the most important part of the story on economic independence of Montenegro refers to the project "Montenegro - Free economic Space". Work on this project, promoted by parties of Montenegrin political orientation, has been going on for some time. The official anouncement of its realization was publicized at the second annual conference of the Centre of Mediterranean Studies which was held last November in Kotor under the title "The Mediterranean at the Threshold of the 21st Century". Now it seems that the DPS has assessed that the right moment has come for continuation of the story on Montenegro as the new Monte Carlo. Montenegrin Government is just polishing its European image, Prime Minister Djukanovic had his photo taken with Bill Clinton, President of the Republic, Momir Bulatovic is also packing his bags to go to the USA, elections are approaching, all things considered, it is time to open the attractive issue of economic independence. Wisely measured story about tax paradise as a rule linked to the experience of Cyprus which has, thanks to it, very quickly reached national income of almost 13 thousand dollars per capita, appears to half starved and hopeless subjects as a kind of a shortcut to paradise.

Hardly anyone knows that this idea is not at all new for Montenegro. Even King Nikola in the beginning of the century offered to the Americans to open "customs free zone" between Bar and Ulcinj, and there was also the project of turning the region of Skadarsko lake into a second Monte Carlo. Towards the end of 1994, a specialized enterprise was founded for introduction, promotion and realization of the project of Montenegro as an international business and financial centre "Montenegro Offshore", with master of sciences Dragan Rosandic, coordinator of the project, at its head. For the time being, in cooperation with foreign lawyers (from Cyprus and Great Britain), a special law was prepared and a survey was drawn up on economic justification of development of Montenegro as an international offshore centre. The name of the draft law is very "simple": Special Law on Introduction of Tax Reliefs and Exemptions for Qualified Legal and Physical Persons Registered or Having Residence in Montenegro.

Pursuant to this law, offshore companies would pay only three per cent tax on their profit. In Cyprus, for example, this tax is 4.25 per cent. By the way, Cyprus is the host of almost ten thousand offshore companies among which 500 are from FRY. There are about 1,500 free zones in the world in more than 80 states and over ten per cent of the total world export goes through them. Apart from Cyprus and Liechtenstein, the best known offshore centres in the world are Luxemburg, Malta, Ireland, Liberia, Seychelles, Hong Kong, Bermudas, Barbados and others.

Although Montenegro is already quite seriously preparing to become a tax paradise, there are still no public, either favourable or unfavourable responses from Serbia to the announcements of transforming Montenegro into an international offshore centre. The original idea of the Liberals incorporates this segment into the independence of the state of Montenegro. The DPS, however, advocates the possibility of development of offshore business in Montenegro in the conditions of its operating as a federal unit in the two-member federal state.

In order to deny imputations for separatism (economic independence is the first condition for political independence), experts of the DPS madee an effort to select a number of examples of other offshore centres around the world which are organized in various forms of state systems. There is, for instance, a small island state called St. Kitts and Nevis in the Carrebeans, 1,800 km south of Florida, which is a two-member federation where the island of Nevis, as the smaller republic within the joint state, conducts offshore business. Madeira, the autonomous province in Portugal (an island in the Atlantic) also operates as a tax paradise. British colony of Gibraltar also operates in the similar way, and even dominions, islands of Guernsey and Jersey in the Channel, have the status of special zones of open business operation. Even in a multi-member federation such as the United States of America, there are federal units which conduct offshore business - in this specific case it is the smallest American state of Delaware.

Due to all that, the project appears to some interlocutors as the one on Montenegro the ecological state, or the one about the Montenegrin air line company: a project is given a lot of publicity, it is given all kinds of political connotations, and then it ends up in the hands of incompetent people, the elections pass and this is usually the end of it. There are interpretations among the opposition that the finishing touch on this attractive election story on economic independence and development of Montenegro will be put by the federal Constitutional Court. According to the already established custom, this institution can proclaim any decision reached by Montenegro to be contrary to the Constitution. The project of turning Montenegro into a new international offshore centre, the bombastically announced as the shortcut to paradise could turn out to be just a shortcut to December elections.

Dragan DJURIC AIM Podgorica