Montenegro After Lifting of Sanctions

Slackening the Grip

The initial analyses show that the smaller Republic of the Federation has not much reason to rejoice: lifting of the sanctions will not bring about quick recovery of Montenegrin economy

AIM Podgorica, 10 September, 1999

Montenegrin authorities were relieved when it was stated that the Council of Ministers of the European Union on 6 September finally officially decided to lift the embargo on import of oil and air transportation for Montenegro and Kosovo. State media immediately "triumphantly" reported: lifting of the sanctions is an expresion of support to Montenegrin president Milo Djukanovic and the "program of political and economic reforms" in Montenegro.

But, what effects the EU Council expects to accomplish with this measure it has not been made quite clear. Implementation and coming into force of the decision of European ministers is not expected to take place before the middle of September, after the ministerial meeting in Brussels. The actual system of control according to which the decision will be implemented should be defined by then. However, some Montenegrin officials assess that implementation of this decision will facilitate resolution of problems of Montenegrin economy with power supply and communication with foreign partners. It will possibly also be the basis of a new Montenegrin "economic miracle".

European ministers were not the only ones who felt full complexity of the selective approach to sanctions as it was stated prior to the meeting in Finland. Long queues in front of the gas stations all around Montenegro hint that its implications for the economy and behavior of "entrepreneurs" could be different from what has been expected so far with optimism.

There are already speculations with the possibility that apart from imposing strict control of oil turnover in Montenegro, Western officials might decide where oil will be bought and not leave this decision to market logic and the buyer.

Judging by the decision of EU, in the future Montenegro will have to give up re-exporting oil. And this announced limitation is frustrating at the very first sight, because re-export is one of the main sources of finances for the Montenegrin state. And while the market in Serbia was accessible for it, oil import into Montenegro was profitable in itself and it was the source of considerable income. Prevention of re-export - despite lifting of the embargo - limits the possibilities to improve Montenegrin foreign currency balance.

The situation, with no doubt, is alarming. In the first seven months of this year, by exportation, Montenegrin enterprises managed to cover just one third of import. Besides, the bad state of Montenegrin economy, inability of the electric power industry of Montenegro to ensure stable power supply in the long run, with a possible rise of the prices of energy sources, reminds of the years of galloping inflation. Or - if by adequate measures it is avoided - of the gloomy and poverty-stricken life of an enormous majority of the inhabitants of Montenegro which would not essentially differ from the life under sanctions.

Nevertheless, ministries of the economy and transportation are sending optimistic messages to the public. Vojin Djukanovic, minister of the economy, claims that the decision of the European Union will contribute to "stabilisation of the market and lowering of expenses of supplying oil, so that Montenegrin enterprises will have it in sufficient amounts". This would, therefore, have to contribute to the general revival of economic activities. To a certain extent, the atmosphere in Jugopetrol in Kotor, Montenegrin oil importer, is also optimistic. This optimism is understandable; it starts from the stubborn Balkan logic: things cannot get worse than they are now.

But, what is the conviction that things will get better founded on?

According to the Republican power balance sheet, monthly needs of Montenegro amount to about 32 ton of oil and its derivatives, which at the current stock exchange prices cost about three and a half to four million dollars. At the same time, "prices of fuel in Montenegro are lower than anywhere else in the region", claims Branko Kascelan, financial director of Jugopetrol from Kotor. For example, while prices of a litre of "Super" gasoline vary between 1.11 German marks in Macedonia and 1.8 marks in Italy, in Montenegro it is paid 0.85 German marks. Similar is the case of the prices of diesel oil which range between 1.13 marks in Hungary to 1.87 marks in Croatia, while in Montenegro one litre is paid 0.50.

To make things even worse, it is expected that the prices of fuel on the stock exchange will continue to rise! In Jugopetrol they say that the current prices at the stock exchange - about 140 dollars for a ton of "Super" and about 80 dollars for Diesel - are too high and that they are bringing losses. Purchasing expenses have doubled. While in January, a ton of Montenegrin oil cost 120 - 130 dollars depending where it is purchased and on current stock exchange prices, quantities recently purchased in Croatia cost as much as 260 dollars per ton. That is why, as Branko Kascelan says, in this company they expect the government to correct retail prices stressing that they could not be a generator of inflation "since about 75 per cent of oil is used by the economy which is capable of dealing in the foreign currency market".

The electric power industry of Montenegro also has problems with prices, so it is expected that Montenegrin government will soon have to discuss about their increase, too. As it is possible to learn, prices of a kilowatthour paid by the aluminium combine from Podgorica also give rise to discontent in the electric power industry. It is clear that recent aid of the West amounting to 3.8 million dollars used to pay the debt of Montenegrin electric power industry to the Republic of Srpska, is not sufficient. It has obviously just made it possible for the Montenegrin electric power industry to raise new loans in order to somehow make it through the winter.

If recent rise of the already high prices of transportation by Montenegrin airline is added to this, the shaky foundations the present Montenegrin optimism is resting on may easily collapse as soon as, free of the sanctions, it takes its first steps towards the big world.

"We expected quicker and more inclusive assistance to the economy from the West which had so far offered more significant verbal and political than economical support to Montenegro", Mihajlo Banjevic, director of the pension and disability insurance fund, was sincere. "Probably fear that such assistance would flow over into Serbia was the reason for its slowing down. Of course, we do not ask for free aid, but for loans and increased interest of the West for the process of privatisation. I observe the decision of the European Union in this context too. It is just giving Montenegro back the rights it had before NATO campaign", says Banjevic.

In the Ministry of Foreign Affairs, they also speak of urgent concrete assistance. As claimed there, two years ago, this ministry demanded that Montenegro be exempted from export preferences and taxes on aluminium. "Such a decision would be more significant for us", it is assessed in the aluminium combine in Podgorica. Export taxes charged at the rate of 6.2 per cent, according to current prices, cost more than five million dollars a year. "It is the sum of 3.5 gross income of the workers of the combine, or five-month value of bauxite.

.From this point of view, the combine is discontented with the decision of the European Union and through state administration of Montenegro it will demand to be exempted from these duties", say persons in charge of the combine.

The decision of EU Council of Ministers appears rather like slackening of the grip than as actual necessary aid to Montenegro. The latest concession of the international community to Montenegro, viewed from within, may appear as apparent help the aims and results of which are reached far away from its borders.

In any case, there are no indications that western capital will plunge into offering significant assistance by giving loans and investing into the process of privatisation in Montenegro. Although it owes its rating of a "highly risky region" for foreign investments primarily to the disastrous and repressive policy of the federal state and Milosevic's regime, there are no hints of readiness to support its independence. And in the tangle of what Montenegrin authorities did or did not do in the past and the current political instability, Montenegrin economy lies entangled.

And in the state it is in nowadays, everybody agrees, it cannot survive on advices and respect of procedures.

Goran VUJOVIC

(AIM)