Speech by the President of the Council of the Central Bank of Montenegro at the EX-IM Bank's Southeast & Central Europe Regional Finance Conference, October 15-17 2003, Bled, Slovenia







Ladies and Gentlemen, dear participants,


During the last decade, a significant number of problems and situations influenced the quality and quantity of Montenegrin economy.  

Compared with 1992, the index of real growth of GDP in 2002 was 101.3%. This indicates that we have just reached the level from 1992, but still not the level from the years before 1992; 

The inflation rate decreased from 20293.0% to 9.4% in 2002 and this is the first time after 1976 that the inflation rate was under 10%. If we neglect the influence of electricity price increase and the introduction of VAT in April this year, the estimated inflation rate (8.5%) in 2003 would be even lower (3%-4%);  

Although it decreased from 23.6% to 23.25% the unemployment rate is still high in Montenegro; 

Exports (goods and services) increased by 318%, imports (goods and services) by 298%, while the foreign trade deficit increased by 271%  as a result of the country opening up and the increase in the volume of transactions. The Surplus created in transfer sector, which indicates a growth tendency as well, is being used to finance the trade deficit. 

The budget deficit, with the exception of this year due to the costs of financing the state union, has decreased constantly.

Montenegro is creating a stable macroeconomic framework through a set of reforms based on the following key principles: 

1.      Private property in all areas and protection of property rights

2.      Open economy

3.      Foreign investors are given the same status as national ones

4.      Transparency  


These principles are applied through the development of institutions, which resulted in the following reforms of sectors: 

  1. Monetary Reform – in 1999 the DEM was introduced as legal currency, and from 2002, the EURO is the only legal tender. The role of the CMB is to provide a stable financial system and bank supervision.


  1. Fiscal Reform – the Value Added Tax has been introduced (the flat tax rate is 17%); as well as a personal income tax (progressive tax rate in range 17-25%); corporate income tax – 20%. Fiscal reduction through downsizing of the public sector is on track.


  1. Liberalization –over 98% of all prices are liberalized and formed on the market; more than 98% of goods are on a free trade regime.


  1. Privatization – more than 60% of state-owned capital has been privatized and over 90% of all companies. There are no restrictions on direct investments in Montenegro. A non-resident can invest into companies and other entities for profit purposes. Non-resident investments enjoy tax and customs relief. Non-residents may transfer abroad all financial and other assets relating to investments (profit, the proceeds from sales of shares, etc.).

Key privatization models were: internal privatization, coupons (vouchers) privatization, and international tenders. Strategic investors that have come to Montenegro are from Belgium, Greece, Norway, USA, Japan, Germany, Italy, Slovenia, etc.


  1. Banking sector - In the last three years, most essential legislation which regulates the banking sector (Law on the Central Bank of Montenegro, Law on Banks and Law on Bankruptcy and Liquidation of Banks and subordinate regulations) has been adopted.


The laws adopted were based on :  

·        International banking practice

·        Basels principles of effective supervision

·        Risk assessment according to CAMELS methodology

·        Introduction of international accounting standards (IAS)

·        Foreign shareholders made equal to domestic ones

·        No limitations for foreign capital in the banks


Effects of Legislative Implementation :  

·        Ten banks operate in Montenegro, of which three are 100% foreign banks (Montenegro Bank, Euromarket Bank and Opportunity Bank) Strategic investors EBRD, FMO, DEG and KFW present as shareholders

·        Bank supervision highly reconciled with core Basel principles and banking sector free of nonsolid and insolvent banks

·        High level of competitiveness, introduction of new expanded banking industry products

·        Diversification and permanent significant growth of activities of the banks

·        Transfer of payment operations to commercial banks  


Total results of banking sector  reforms : 

·        Increasing liquidity of the banking sector

·        Aggregate solvency quotient 41%

·        Deposits with banks sufficient to support the increasing credit activities

·        Structure of deposits estimated as stable in light of the further increase of term deposits

·        Recapitalization of the banking sector (EUR 41.5 million)

·        Increase of long term source funds ( EUR 13.5 million)   


Future plans in this sector are oriented toward further : 

·        Privatization of the rest state owned capital in banks

·        Regulation of short term securities

·        Improvement of the system of internal control and auditing of banks  (market risk base)

·        Completion of the payment operations reform

·        Stimulation of mechanisms of banking sector self-regulation

·        Decrease of reserve requirements

·        Development of the primary and the secondary market: development of bond market and securitization

·        Intensified cooperation with other regulatory bodies



6.   Capital Market – The capital market in Montenegro is operating. The volume of transactions is still low although all capital market institutions exist. Shares are registered in the central register of the Central Depositary Agency. The Securities Commission regulates activities in this area. There are two stock exchanges, five brokerage houses, and six privatization funds in Montenegro. There is a regional informational connection of stock exchanges (Ljubljana, Varaždin, Banja Luka, Sarajevo, Podgorica, Belgrade and Skopje). The Montenegrin capital market still suffers from transition diseases. It needs time to be developed.


7.   Other areas – changes and reforms have started in, more or less, each area (education, health care, state administration...)  

The overall task is to create an environment for private investment.  

The reforms that are now under way, together with the liberalization of capital flows, which now develop without the risk of exchange rate, should be an attractive climate for private investments. The aim is to replace the debiting policy with private investments.    

Reforms in Montenegro continue according to the Economic Reforms Agenda 2002-2006. 

The basic objectives of this comprehensive document, which should modernize economic life in Montenegro, are: 

1.      Increase economic freedom

2.      Protect property rights

3.      Promote the transparency principle and reduce corruption

4.      Reform public administration  


 As of 2004 the implementation of the Agenda  should result in:

significant growth of GDP ;

inflation decrease below 5%

further more significant decrease of the unemployment rate

elimination of the current account deficit

more significant growth of direct investment

reduction of the grey economy to a normal level