Interview of the Deputy Prime Minister and Minister of Finance for Montenegro Business Outlook

Published date: 23.01.2009 11:35 | Author: Intervjui

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<MBO:
How do you assess the Montenegrin economy in light of the current global crisis?

Over the last few weeks we have held a series of meetings with representatives from the economic sector, trade unions and the banking sector. Following our discussions, and in line with comments made, we have tried to tailor our existing analysis of needs and activities to meet the needs of the forthcoming period of time. We are aware of the problems being encountered by our economy at the present time and would like to try to help by approving new requests from customers who have successfully completed previous investments, by initiating new ones, by improving credit and liquidity facilities, paying in services etc. It is equally important that businessmen also undertake certain measures, especially in areas related to reducing costs, liquidity enhancement
and building reserves. Of course, this situation has affected businessmen the most, in particular those who, during previous years, made their investments based on the premise of moving from one credit to another. This was, indeed, our recommendation in the past and it has been proved to be justifiable advice However, we hope that the new fiscal policy measures that we, the government, have predicted for 2009, along with our commitment to ensure long-term loans with international institutions, will help our economy to remain stable under conditions of economic and financial crises.

MBO:
Does the Montenegrin economy differ from others in SouthEastern Europe? If there are differences, to what extent could these differences influence the way that the current crisis is impacting on Montenegro? Could it also result in different consequences in Montenegro in comparison with other countries in the region?

All the countries in the region are small economies which have been developed through
the same development matrix. The thing that distinguishes us is the specific policy which we are carrying out. Through the economic policy that has been carried out over recent previous years, we have created an economy that is founded on solid ground, and is flexible and able to adjust even to this extreme external situation. We have sought to create a favorable ambience for institutions and te payment of taxes in order to develop entrepreneurial initiatives, to eliminate barriers and to stimulate the start up of small and medium sized enterprises. Even now during the financial crisis, we have continued to implement certain tax and other measures. Such policy has placed us in the position of being one of the fastest growing economies and in the position of being one of the most competitive countries in the region. The fact that makes our economy different from surrounding ones is the stability of the currency. This is the one thing that other countries cannot be proud of. We have recently repeated on a number of occasions that the fact that Montenegro is a small and open economy can be as much of an advantage as a problem in such a situation. This is because, as a small state, we are more exposed to external influences.

MBO:
According to you, what is the role of the state in such a situation of crisis?

The state is not the driving force for economic processes, but rather someone who envisages and creates a good institutional framework. In a situation of economic crisis, its role remains the same. Any responsible state must be one step ahead during a situation of economic crisis, monitoring world trends, listening to the needs of the economy, the banking sector and the overall society. We, the state, have during recent times shown responsibility and have taken the situation very seriously. We have prepared packages, including fiscal, monetary and socio-economic measures, which we hope will mitigate the consequences of the economic crisis in respect of the Montenegrin economy. This represents about 10% of the GDP, which is more than all European contributions put together. In such situations of financial crisis, governments are expected to do a great deal. The economy, investors and citizens all expect that the government can solve the problems they are encountering. We are aware that we cannot isolate and save our economy from this global virus, but we have tried to predict the situation where possible and have put forward measures which should reduce the consequences and keep economic growth at the same level as in previous years. More developed countries have also been unable to find an answer about how to survive the crisis with minimum consequences. We hope that by continuing tax reforms, by starting investments, by decreasing consumption and by strengthening capital, by subsidizing electricity for households and businesses, and by developing programs for entrepreneurship, we will succeed in achieving positive balances at the end of next year. However, during this situation of economic crisis, we are ready to adopt alternative scenarios and adjust our solutions on a month by month basis, by monitoring world developments.

MBO
What, in your opinion, is the most significant advantage of Montenegro? How can that advantage be used, but not endangered, at the same time?

Montenegro is small and attractive tourism destination which, on the road to EU accession, has shown its political maturity which has also been reflected by economic development. During recent times, as a result of following a policy to preserve stability, a huge inflow of direct foreign investments and a low tax policy, Montenegro has been included in the list of the most competitive countries in Europe. Additionally, the strategic commitment of the Government, which in its economic policy defined tourism, the energy sector and agriculture as both its strategic and priority fields of economy development, made us into an interesting and attractive proposition for investment.

MBO:
What are your expectations for 2009? What trends can be expected in the banking sector, in capital or in the real estate market? How do you expect the private sector to react to market challenges?

Although it is very hard to make prognoses for 2009 in the current situation of economic crisis, where the situation is changing almost daily, we expect that economic growth will continue. In previous years, share prices on stock markets have been unreasonably high, just as they are now unreasonably low, due to mistrust in the stock market. I believe that a domestic stock recovery would be reliant on the recovery of international stock markets. Similarly, over the last few years, we saw an explosion of real estate prices and now find ourselves in the situation where construction prices are falling. Therefore, I predict that we will definitely see prices stagnate in the real estate market over following months. Our banking sector is currently stable. We, the Government, have undertaken all necessary measures in order to protect deposits made by citizens and by the economy as well as trying to ensure the protection of the entire system. What we expect, for sure, is continued credit activity, a mild increase in interest rates in accordance with growth in the international banking market. Regarding the private sector, I think that the situation there is also stable and that our economy is well prepared for this crisis. However, I do not believe that this is the case for those entities which were the most exposed to the crisis, but this is a situation that we share with the rest of the world. As the Government, we have undertaken all possible fiscal policy measures in order to make this situation more bearable.

MBO:
CEED and the Montenegro Business Alliance (MBA), amongst others, have participated in research and in working groups to draft some of the current commercial laws, They are also responsible for carrying out research for the international institutions who define the level of economic freedom and business management expenses. Do you think that the Government of Montenegro and your ministry have benefited from such research and analysis? What is your level of cooperation with other national and foreign institutions?

Certainly, the Government has often used research and documents prepared by non-government sector organizations, and these have, indeed, later been used to prepare regulations, strategies and other strategic documents, due to their objectivity in analyzing current developments. As is the case with international analysis, analysis conducted by local experts can be equally very useful in eliminating business barriers, in improving institutional environments etc. The Ministry of Finance has, so far, had very positive experience in its work with national and foreign institutions. I believe that a view from another perspective is always valuable as it helps to ensure that actions are executed in the best way.

MBO:
Do you find international comparisons and analyses, such as economic freedom and credit ratings, important for Montenegro? Do they influence your decisions?

International comparisons and analyses are recognized as a good guide and compass for countries and their investors. States use such analyses to detect weaknesses in their economic policies and to identify business barriers, as well as for finding weaknesses in their social and economic systems. Where investors are concerned, they have used this research in order to assess investment risks. The Ministry of Finance follows these analyses, and has, in accordance with international recommendations, worked on indicator improvement to increase their ranking both on their own records and also with investors.
We expect that, during the coming period, we will continue to improve our rating in various economic freedom and business environment studies.

MBO:
In your opinion, which institutions have played the most important role in Montenegrin reform process so far?

It is hard to exclude anyone from the process that is both behind and in front of us. In all ways, all institutions involved in the process of accession to the European Union have shown great involvement in the areas of tax, financial, legal and monetary reforms. Also, coupled with the Government, the Trade Union and the Union of Employers have proved to be an excellent model for any responsible government. Thus, in a situation where the entire world is facing global economic shocks, this is the only way to overcome the crisis.