A Month of Parallel Currency in Montenegro
THE HUNTING SEASON ON MONEYCHANGERS AND FOREIGN CURRENCY
AIM Podgorica, December 7, 1999
Every traveller coming to Podgorica and Tivat Airport from Belgrade immediately after getting off the plane goes through special X-ray control together with his luggage so that the Montenegrin police can check whether he carries with him larger sums of Yugoslav dinars. Passengers on other crossings between the smaller and larger FRY Federation members, face similar problems.
Namely, according to regulations adopted in Podgorica after the legalisation of the two-currency system in Montenegro (in addition to the Yugoslav dinar, last month the German mark has become legal means of payment), anyone coming from Serbia can bring into Montenegro three thousand dinars at the most. On the other hand, when going out of Montenegro to Serbia, a person can take with him foreign currency in the amount of DEM 200!
This is just one consequence of the Belgrade authorities decision to terminate all monetary operations and commodity exchange between Serbia and Montenegro. The following data speak tellingly of the confusion in the federal monetary system that has existed for a long time now: according to the official rate of exchange applied by the Federal and Serbian Government, the mentioned three thousand dinars are worth exactly DEM 500 (DEM 1 = 6 dinars). In Montenegro, according to the rate of exchange determined by the Republican Monetary Council, that same amount is worth DEM 172 (DEM 1 = 17.5 dinars). However, in order to change these three thousand dinars, or for that matter, any other sum into any stable foreign currency you have to go out into the street and buy the currency from moneychangers. And they will give you only DEM 154 in Podgorica (1:19.5) and DEM 150 in Belgrade (1:20).
"It is true that some business banks have continued with the previous practice of exchanging dinar to foreign currency on the black foreign exchange market, but no matter how destructive, these activities cannot endanger our monetary project", confirmed Filip Vujanovic, Montenegrin Prime Minister.
The triple difference between the Belgrade official and market exchange rates does not surprise anyone - the NBY has long ago lost any credibility of an independent creator of the FRY monetary policy. However, the problem in Montenegro is much more serious. Just as it has embarked on the announced monetary reform, the project has been brought into question. Because, although the authorities claim the opposite, all of the proclaimed are far from their fulfilment.
There is no "monetary sovereignty" of Montenegro. Caught between the Montenegrin debtors' lobby, which is represented by politically prominent directors of large state enterprises - e.g. the Niksic Steelworks - on the one hand, and the additional unbacked money issue for the Belgrade authorities, on the other, has put the Montenegrin Monetary Council to the test. And instead of setting the official dinar exchange rate to German mark according to exclusively market principles, for the time being, members of this body have decided to keep the dinar overvalued in relation to other foreign currencies. Thus, they are, at least on the surface, doing a favour to a greater part of impoverished, jobless and hopeless inhabitants of Montenegro
- by creating an illusion that the dinar survival allowance which, one way or the other, the state provides to every other Montenegrin, is worth more than its actual value.
But, on the other hand, the street and gyro foreign exchange black markets are functioning perfectly. Major part of the Republic's economic life is still being realised in the sphere of grey (illegal) economy, without any indications of change under the present circumstances. Moreover, since the Monetary Council was unprepared to accept and legalise the constant decline of the dinar value on the free market, the citizens of Montenegro are faced with a phenomena which could be simply called - the foreign exchange inflation. And that can mean anything but not the "creation of a stable macro-economic environment and protection of the standard of living of citizens" as promised by the Montenegrin Government.
In simple terms, what cost seven DEM last month, now costs DEM 10, and instead of DEM 10-12 it costs DEM 20-25, etc. And while Vice-President of the Montenegrin Government, Asim Telacevic claims that the prices in German marks are stable, his colleague the Finance Minister, Miroslav Ivanisevic, explains that there were two reasons for the price rise: "As a result of the monetary shock and instability of the exchange rate which happened just before the start of the Montenegrin monetary project, and for psychological reasons"!
After returning a three German marks as a change for DEM 25 paid for goods which had a price tag DEM 25, the owner of a small private shop best explained where the problem really lies:
"I do not want to rob my customers. The goods you are buying cost DEM 22, but I also want to get DEM 22 for the money my customers give me. Since all of us with shops are obliged to post our prices in German marks and calculate the value of goods in dinars according to the official rate of exchange, we are forced to do the following: we multiply the actual price of the X product (let us say DEM 10) by the real (street) dinar value. We divide the resulting 195 dinars by the official dinar rate of exchange (17.5) and get 11.2. That could be the posted price expressed in German marks. But, it still isn't. Most of us will round off the price of X product to DEM 12. First, to avoid possible sudden exchange rate fluctuations, and second, to circumvent any problems with smaller denominations. They say that the Payment Operations Services has enough smaller banknotes, but the procedure for changing large units is too complicated. At the same time, no bank here is authorised to do that..."
In other words, observed from the customer's angle it turns out that the greatest achievement of the Montenegrin monetary reform so far is that those who pay for goods and services in German marks have to pay more than they should have to. It is, therefore, quite understandable that the Federation of Independent Trade Unions of Montenegro (SSS CG) has requested the increase of the minimal wages in the Republic from the present DEM 50 to DEM
- "Anyway, it was so much last March", remind the SSS CG officials.
Nevertheless, according to the data of the Montenegrin Payment Operations Service, almost one half of the legal (registered) payment operations in the Republic are carried out in German marks. And that makes the authors of this project hope for the success on condition that, to put it politically "the observed deficiencies are rectified along the way". And among those deficiencies are certainly the mentioned "devaluation" of the German mark and the noticeable dissatisfaction it caused in the public.
But, in the long-term it seems that the Montenegrin authorities are even more concerned by the realisation that in this way, without additional (non)economic measures, the money which is still in the sphere of grey economy cannot be included into the legal monetary flows. According to estimates presented by the Montenegrin President, Milo Djukanovic, it amounts to some DEM 200 million. The importance of that sum can be realised if it is known that the real value of money used in legal monetary transactions in Montenegro is around DEM 45 million.
That is why late last week, a month after the introduction of the German mark as the official payment instrument in Montenegro, the local government announced an open "season" on street money-changers. At the same time, the "appeal" was sent to local banks to "stop the practice of taking the dinar to the black market" and "without delay" make it possible for the citizens and the enterprise sector to carry out foreign exchange transactions legally and in banks. As a sort of "payoff", business banks were offered a possibility to establish an inter-banking foreign exchange market at which foreign exchange parity would be established on the basis of supply and demand.
Dimitrije Vesovic, member of the Monetary Council specified that "the inter-banking market would be one of parameters on the basis of which the Monetary Council would determine the exchange rate. Apart from that, price fluctuations, dinar - German mark ratio in the other federal unit, and similar factors would also influence the parity to be announced by this institution".
It remains to be seen whether the carrot and stick policy will produce the expected (positive) effects. Now, let's go back to the beginning of this story. It seems that the fear of the inflow of dinars from Serbia is justified. The local economy, but also the ruling establishment, are screaming for healthy money they need to cover the growing import needs. And, pressed by the sanctions, the only place they can get it from is Montenegro. And since payment operations are not functioning and the passengers are rigorously controlled, according to Montenegrin officials the money is transferred by military choppers from Serbia to Montenegro!
In the meantime, just as the text was finished an information arrived that the Monetary Council of Montenegro has decided to set the value of DEM 1 at 20 dinars as of Monday. At the same time, the moneychangers in Bijelo Polje are paying 20.5 dinars for DEM 1, and selling it for 21 dinars. In other words, the game goes on.
Zoran RADULOVIC
(AIM)
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