WITH THE PRESIDENT OF THE COUNCIL OF THE CENTRAL BANK OF MONTENEGRO
November 3, 2003
We have a small but healthy banking system in Montenegro – The outflow of euros is bigger than the inflow due to the increase in deposits – The dinar is a foreign currency
Two eminent Montenegrin bankers have tried several times to prove that the current policy of the government is not capable of preserving the euro as a currency that Montenegro introduced as the only legal tender almost two years ago. They also claimed that the promoters of the euro did not provide sustainable arguments in favor of this currency, and these two bankers tried to warn the Montenegrin public that there was a scenario for the return of the dinar as legal tender in Montenegro. Mr Ljubisa Krgovic, President of the Council of the Central Bank of Montenegro speaks about those and other current issues to the “Ekonomist”.
€: These days the Central Bank of Montenegro is expressing its satisfaction over deposits in bank accounts to the amount of around EUR 220 million. However, some of bankers claim that the October figures will be much worse. Namely, during the conversion of DEM to EUR, beyond all expectations, we found out that the money supply amounted to almost EUR 500 million. Where is that money if it is not in the accounts?
Ljubisa Krgovic: Bankers` prognoses are not made for the system as a whole, so they should consider the state of affairs in their banks and discuss it with their shareholders. It is a fact that there are certain regular seasonal anomalies in the system, but in the first days of September we had the biggest level of deposits since the introduction of the Deutsch Mark: it amounted to over EUR 200 million. Part of the money is in legal circulation as cash, as legal tender, and as transaction money. Therefore, the sum that represents deposits with banks should increase for the part that serves for payments.
€: Do people still keep their money under mattresses?
Ljubisa Krgovic: People probably keep a significant amount of money at home. I think that the amount of money that is out of payment operations channels will very soon correspond to the level of the gray economy. I also think that some estimates are easily made, as a question like: Where is the money when our savings are so high?
(The savings amounted to EUR 23 million without current accounts. A comment by D.L.)
The money in bank accounts is placed as deposited money. Cash covers that money and it is located in the banks` vaults or in the vaults of the Central Bank or abroad. Slowly, but safely, this money enters the banking flows and the implementation of VAT significantly contributed to this. Four years ago the amount of deposited money was ten times lower.
€: There is a thesis that the euro is a good currency, but that there is not enough of it in circulation. One of the ways of outflow of euros from Montenegro is a huge foreign trade deficit, around USD 500 million, which means that there is an outflow of this currency, and allegedly there is no inflow of this currency due to a low level of export. What are your comments on this?
Ljubisa Krgovic: It is true that we do not have a very good balance of payments record. We have prepared a draft law on foreign payment operations that will serve as a basis for recording these flows. We already have better customs entries. The increase of deposits is the very evidence that one should not be afraid of the outflow of euros. We cannot spend more than we have. So how would our deposits increase if we did not have bigger outflows than inflows? Once the above-mentioned law is passed, the record on payment operations of capital transactions with abroad will also improve.
€: If, as you say, the record is not so good, does that mean that the foreign trade deficit does not amount to that much?
Ljubisa Krgovic: Here, the difference between foreign trade deficit and balance of payments deficit is often not clearly made. We run a big trade deficit that is covered by inflow from services. If we observe a payment operations deficit in the last few years, it is obvious that it has been decreasing. All economic activities in the field of services are developing, and as far as visible trade is concerned, Montenegro prefers an open market since it is a small country and it is not a big market for itself, and it should not be. This means that services and other transfers cover that visible trade deficit. In addition, part of the flows with Serbia and Kosovo is still recorded as our deficit.
€: Data from the Chief Economist`s Report of the Central Bank of Monetnegro released recently show that the stated amount of credits at the end of August was EUR 268 million. Is that an optimum or is there a danger of creating new bad quality assets, - in other words are those placements safe?
Ljubisa Krgovic: Those who give such credits, i.e. the management of commercial banks should take account of that. The Central Bank does no have any influence on decisions regarding how many credits they give, or who to. However, the Central Bank influences the methods these banks should use for giving credits, and that is achieved through supervision of the banks. In that sense, when our supervision department finds that a borrower is not good enough, the Central Bank requires reserves for probable credit losses which are in accordance with the Basel standards.
€: Is that the reason why the Central Bank did not license the Vojvodjanska bank affiliate in Podgorica, i.e. due to the disputed credit approved to “Merkur”, that company from Budva?
Ljubisa Krgovic: It is a fact that the Vojvodjanska bank subsidiary approved some low quality credits, i.e. it approved very few A and B category credits, but it approved some C and D category credits. As far as “Merkur” is concerned, the credit that was approved to this company is of the same category, no matter if Vojvodjanska, Hipotekarna, or any other bank approved it. As I have already said, it is a fact that a number of credits that the former Vojvodjanska bank subsidiary in Podgorica approved were of a lower category (C and D). Therefore, we had to enforce our decision. They did not meet the basic conditions for obtaining a license, that is, they did not give sustainable evidence and valid documentation for preserving the prescribed capital in order to operate properly. Even if we had licensed them despite this fact, we would have closed them the very next day due to improper working conditions. We were very tolerant concerning the deadlines and we had prescribed the minimal conditions for licensing, which they did not meet.
€: Banks work in a severe regime of financial discipline and now we are faced with a situation that the banks are liquid and the economy is illiquid. How big a problem is it to banks that there are a lot of insolvent borrowers?
Ljubisa Krgovic: So far, banks have used short-range logical thinking concerning crediting short-term illiquidity of the budget, trade and expenditure, especially of permanent consumer goods. I expect that competition will force them to start thinking in the long-range so that they will start creating a market for new credits by investing in long-term business operations and prospective small and medium enterprises by offering acceptable interest rates and spreading of risks.
€: Bankers have brought up the question of the Montenegrin currency again. Word has it in some business circles in Serbia that the dinar will return to Montenegro. Are those rumors well founded?
Ljubisa Krgovic: No, they aren’t. You heard at the meeting of the Board of Directors of the Association of Banks that we were all unanimous on the decision that the dinar should be legal tender in Serbia and the euro should be legal tender in Montenegro. Our viewpoint is that the euro and the dinar should be equal currencies in mutual payments, but it should not be an obstacle for more efficient and cheaper payment operations between Serbia and Montenegro.
€: The government of Montenegro and the Central Bank of Montenegro took the firm position that the euro should remain as legal tender in Montenegro. Why do you think that it is the best solution?
Ljubisa Krgovic: One cannot have a large or significantly larger amount of domestic currency in circulation than foreign currency reserves, especially in such a small country in transition as Montenegro. Therefore, we now have only losses from what should have been yield on transaction money within Montenegro. This is an insignificant amount compared to the risks that a domestic currency would bring about only for the sake of national pride or something similar. The key argument is that the substitution of a currency is an irreversible process. Besides, I do not know why we should take that step backwards if our aim in the short or long term is accession to the European Union.
€: Bankers claim that a lot in the financial field was regulated properly, but the problems in the real sector would be solved more easily with a domestic currency?
Ljubisa Krgovic: The time of selective monetary policy is gone. I do not see any possibility in our conditions for stronger support in solving the problems in the real sector, but sharing these problems in order to bear the burden of adjustment in the transitional period, and eventually with a certain exchange rate policy and much higher risks, would stimulate exports. The only possibility that could prove to be right is for the state to get into short-term debt with the Central Bank to overcome the budgetary liquidity in the short term, but the question is whether this is good for the whole system. I say this because it is obvious that Montenegro has to reduce government consumption and the budgetary deficit.
€: Is it a better solution for a state, when it already has problems, to finance itself by issuing securities?
Ljubisa Krgovic: That is a better solution and that mechanism should be improved, especially when we come to a situation that a state issues long-dated securities as well.
€: These days in some Montenegrin media the issue of the Activity Report of the Central Bank of Montenegro submitted by the Central Bank of Montenegro every year that was removed from the agenda of the parliament has been raised to the level of a scandal. You allegedly “hid” EUR 40 million.
Ljubisa Krgovic: Foreign exchange reserves in the Central Bank of Montenegro are run in accordance with the best international practice and are kept with first-class world banks. As a rule, no central bank makes public the information where its reserves are kept. In the course of making the report we applied International Accounting Standards (IAS). An international auditor, whose findings are acknowledged by the World Bank, verified the report and he had no objections. All commercial operations of the Central Bank of Montenegro are in accordance with the Law on Public Procurement. The writings in the yellow press are an attempt at politicizing of the issue which is an affirmation of the Central Bank’s operations and institutional development of Montenegro.
€: Why was the report removed from the agenda of the parliament?
Ljubisa Krgovic: I was at the assembly meeting and I was prepared to explain the activity report to the members of the parliament. This report is open to the public and it is on our web site. As far as I know, it was a matter of an incomplete rule book of the Assembly. It is up to the Assembly of Montenegro to change the rule book or to define the method of debating on Activity Reports of the Central Bank of Montenegro.
€: If we include the announced privatization of the Podgoricka bank, then the banking sector has been privatized to a large extent. What is the benefit of that?
Ljubisa Krgovic: The privatization of the Podgoricka bank has just been announced. We hope that it will bring in a significant strategic partner as was the case with Montenegrobank. That is the way to reach a high level of competitiveness, introduce new banking products, diversify the activities of banks and significantly increase credit activities, decrease interest rates, and attract foreign strategic investors.
€: Payment operations were transferred to banks in all municipalities except in Podgorica. How does it function?
Ljubisa Krgovic: There have been no serious problems so far, but we expect a more sensitive phase after acquisition of new information technology and taking over responsibility for part of the operations by the Treasury and Directorate of Public Income. There is an ongoing tender procedure for Podgorica that will end the first phase of the payment operations transfer to banks. We have invited tenders for acquisition of information technology for the new payment system.
€: What is the situation regarding the establishment of payment operations with Serbia?
Ljubisa Krgovic: Unfortunately, we could not reach an agreement with the former management of the National Bank of Serbia. I hope that we will come to a mutually agreeable solution in the near future without unnecessary politicization of the issue.
We have a small but healthy banking system in Montenegro – The outflow of euros is bigger than the inflow due to the increase in deposits – The dinar is a foreign currency
Two eminent Montenegrin bankers have tried several times to prove that the current policy of the government is not capable of preserving the euro as a currency that Montenegro introduced as the only legal tender almost two years ago. They also claimed that the promoters of the euro did not provide sustainable arguments in favor of this currency, and these two bankers tried to warn the Montenegrin public that there was a scenario for the return of the dinar as legal tender in Montenegro. Mr Ljubisa Krgovic, President of the Council of the Central Bank of Montenegro speaks about those and other current issues to the “Ekonomist”.
€: These days the Central Bank of Montenegro is expressing its satisfaction over deposits in bank accounts to the amount of around EUR 220 million. However, some of bankers claim that the October figures will be much worse. Namely, during the conversion of DEM to EUR, beyond all expectations, we found out that the money supply amounted to almost EUR 500 million. Where is that money if it is not in the accounts?
Ljubisa Krgovic: Bankers` prognoses are not made for the system as a whole, so they should consider the state of affairs in their banks and discuss it with their shareholders. It is a fact that there are certain regular seasonal anomalies in the system, but in the first days of September we had the biggest level of deposits since the introduction of the Deutsch Mark: it amounted to over EUR 200 million. Part of the money is in legal circulation as cash, as legal tender, and as transaction money. Therefore, the sum that represents deposits with banks should increase for the part that serves for payments.
€: Do people still keep their money under mattresses?
Ljubisa Krgovic: People probably keep a significant amount of money at home. I think that the amount of money that is out of payment operations channels will very soon correspond to the level of the gray economy. I also think that some estimates are easily made, as a question like: Where is the money when our savings are so high?
(The savings amounted to EUR 23 million without current accounts. A comment by D.L.)
The money in bank accounts is placed as deposited money. Cash covers that money and it is located in the banks` vaults or in the vaults of the Central Bank or abroad. Slowly, but safely, this money enters the banking flows and the implementation of VAT significantly contributed to this. Four years ago the amount of deposited money was ten times lower.
€: There is a thesis that the euro is a good currency, but that there is not enough of it in circulation. One of the ways of outflow of euros from Montenegro is a huge foreign trade deficit, around USD 500 million, which means that there is an outflow of this currency, and allegedly there is no inflow of this currency due to a low level of export. What are your comments on this?
Ljubisa Krgovic: It is true that we do not have a very good balance of payments record. We have prepared a draft law on foreign payment operations that will serve as a basis for recording these flows. We already have better customs entries. The increase of deposits is the very evidence that one should not be afraid of the outflow of euros. We cannot spend more than we have. So how would our deposits increase if we did not have bigger outflows than inflows? Once the above-mentioned law is passed, the record on payment operations of capital transactions with abroad will also improve.
€: If, as you say, the record is not so good, does that mean that the foreign trade deficit does not amount to that much?
Ljubisa Krgovic: Here, the difference between foreign trade deficit and balance of payments deficit is often not clearly made. We run a big trade deficit that is covered by inflow from services. If we observe a payment operations deficit in the last few years, it is obvious that it has been decreasing. All economic activities in the field of services are developing, and as far as visible trade is concerned, Montenegro prefers an open market since it is a small country and it is not a big market for itself, and it should not be. This means that services and other transfers cover that visible trade deficit. In addition, part of the flows with Serbia and Kosovo is still recorded as our deficit.
€: Data from the Chief Economist`s Report of the Central Bank of Monetnegro released recently show that the stated amount of credits at the end of August was EUR 268 million. Is that an optimum or is there a danger of creating new bad quality assets, - in other words are those placements safe?
Ljubisa Krgovic: Those who give such credits, i.e. the management of commercial banks should take account of that. The Central Bank does no have any influence on decisions regarding how many credits they give, or who to. However, the Central Bank influences the methods these banks should use for giving credits, and that is achieved through supervision of the banks. In that sense, when our supervision department finds that a borrower is not good enough, the Central Bank requires reserves for probable credit losses which are in accordance with the Basel standards.
€: Is that the reason why the Central Bank did not license the Vojvodjanska bank affiliate in Podgorica, i.e. due to the disputed credit approved to “Merkur”, that company from Budva?
Ljubisa Krgovic: It is a fact that the Vojvodjanska bank subsidiary approved some low quality credits, i.e. it approved very few A and B category credits, but it approved some C and D category credits. As far as “Merkur” is concerned, the credit that was approved to this company is of the same category, no matter if Vojvodjanska, Hipotekarna, or any other bank approved it. As I have already said, it is a fact that a number of credits that the former Vojvodjanska bank subsidiary in Podgorica approved were of a lower category (C and D). Therefore, we had to enforce our decision. They did not meet the basic conditions for obtaining a license, that is, they did not give sustainable evidence and valid documentation for preserving the prescribed capital in order to operate properly. Even if we had licensed them despite this fact, we would have closed them the very next day due to improper working conditions. We were very tolerant concerning the deadlines and we had prescribed the minimal conditions for licensing, which they did not meet.
€: Banks work in a severe regime of financial discipline and now we are faced with a situation that the banks are liquid and the economy is illiquid. How big a problem is it to banks that there are a lot of insolvent borrowers?
Ljubisa Krgovic: So far, banks have used short-range logical thinking concerning crediting short-term illiquidity of the budget, trade and expenditure, especially of permanent consumer goods. I expect that competition will force them to start thinking in the long-range so that they will start creating a market for new credits by investing in long-term business operations and prospective small and medium enterprises by offering acceptable interest rates and spreading of risks.
€: Bankers have brought up the question of the Montenegrin currency again. Word has it in some business circles in Serbia that the dinar will return to Montenegro. Are those rumors well founded?
Ljubisa Krgovic: No, they aren’t. You heard at the meeting of the Board of Directors of the Association of Banks that we were all unanimous on the decision that the dinar should be legal tender in Serbia and the euro should be legal tender in Montenegro. Our viewpoint is that the euro and the dinar should be equal currencies in mutual payments, but it should not be an obstacle for more efficient and cheaper payment operations between Serbia and Montenegro.
€: The government of Montenegro and the Central Bank of Montenegro took the firm position that the euro should remain as legal tender in Montenegro. Why do you think that it is the best solution?
Ljubisa Krgovic: One cannot have a large or significantly larger amount of domestic currency in circulation than foreign currency reserves, especially in such a small country in transition as Montenegro. Therefore, we now have only losses from what should have been yield on transaction money within Montenegro. This is an insignificant amount compared to the risks that a domestic currency would bring about only for the sake of national pride or something similar. The key argument is that the substitution of a currency is an irreversible process. Besides, I do not know why we should take that step backwards if our aim in the short or long term is accession to the European Union.
€: Bankers claim that a lot in the financial field was regulated properly, but the problems in the real sector would be solved more easily with a domestic currency?
Ljubisa Krgovic: The time of selective monetary policy is gone. I do not see any possibility in our conditions for stronger support in solving the problems in the real sector, but sharing these problems in order to bear the burden of adjustment in the transitional period, and eventually with a certain exchange rate policy and much higher risks, would stimulate exports. The only possibility that could prove to be right is for the state to get into short-term debt with the Central Bank to overcome the budgetary liquidity in the short term, but the question is whether this is good for the whole system. I say this because it is obvious that Montenegro has to reduce government consumption and the budgetary deficit.
€: Is it a better solution for a state, when it already has problems, to finance itself by issuing securities?
Ljubisa Krgovic: That is a better solution and that mechanism should be improved, especially when we come to a situation that a state issues long-dated securities as well.
€: These days in some Montenegrin media the issue of the Activity Report of the Central Bank of Montenegro submitted by the Central Bank of Montenegro every year that was removed from the agenda of the parliament has been raised to the level of a scandal. You allegedly “hid” EUR 40 million.
Ljubisa Krgovic: Foreign exchange reserves in the Central Bank of Montenegro are run in accordance with the best international practice and are kept with first-class world banks. As a rule, no central bank makes public the information where its reserves are kept. In the course of making the report we applied International Accounting Standards (IAS). An international auditor, whose findings are acknowledged by the World Bank, verified the report and he had no objections. All commercial operations of the Central Bank of Montenegro are in accordance with the Law on Public Procurement. The writings in the yellow press are an attempt at politicizing of the issue which is an affirmation of the Central Bank’s operations and institutional development of Montenegro.
€: Why was the report removed from the agenda of the parliament?
Ljubisa Krgovic: I was at the assembly meeting and I was prepared to explain the activity report to the members of the parliament. This report is open to the public and it is on our web site. As far as I know, it was a matter of an incomplete rule book of the Assembly. It is up to the Assembly of Montenegro to change the rule book or to define the method of debating on Activity Reports of the Central Bank of Montenegro.
€: If we include the announced privatization of the Podgoricka bank, then the banking sector has been privatized to a large extent. What is the benefit of that?
Ljubisa Krgovic: The privatization of the Podgoricka bank has just been announced. We hope that it will bring in a significant strategic partner as was the case with Montenegrobank. That is the way to reach a high level of competitiveness, introduce new banking products, diversify the activities of banks and significantly increase credit activities, decrease interest rates, and attract foreign strategic investors.
€: Payment operations were transferred to banks in all municipalities except in Podgorica. How does it function?
Ljubisa Krgovic: There have been no serious problems so far, but we expect a more sensitive phase after acquisition of new information technology and taking over responsibility for part of the operations by the Treasury and Directorate of Public Income. There is an ongoing tender procedure for Podgorica that will end the first phase of the payment operations transfer to banks. We have invited tenders for acquisition of information technology for the new payment system.
€: What is the situation regarding the establishment of payment operations with Serbia?
Ljubisa Krgovic: Unfortunately, we could not reach an agreement with the former management of the National Bank of Serbia. I hope that we will come to a mutually agreeable solution in the near future without unnecessary politicization of the issue.
1. The Central Bank of Montenegro (CBM) now operates for more than a year. It has stepped out of the phase of its own institutional molding and has also completed some important duties. How can this institution prove that it is really a Montenegrin central bank, what is its main role now, and how does it perform the monetary power?
The role and functions of the Central Bank, as an independent monetary authority in Montenegro, are clearly defined by law. It is responsible for monetary policy, the maintenance of sound banking system and efficiency of the payment system. In addition, the CBM is a fiscal agent for, banker adviser and depository of the Government of the Republic of Montenegro and other agencies and organizations of the Republic. The monetary policy is based on the euro as a monetary unit, legal tender and currency of the reserve.
Having established and accomplished these functions in a very short period of time, the CBM has partly achieved it legal mission targeted for this stage (for which the CBM Council obtained a 6-year mandate from the Parliament of Montenegro). After ten year, we have got full control over the banking system and separated the healthy (licensed banks) from the sick tissue (Yugobank, Bank for Development and a bad part of Montenegrobank) of the banking system in Montenegro, we have started the reform and migration of the payment operations to the commercial banks, and all that in compliance with best international banking practices. The third important role that we have as the only monetary authority in the Republic has been reached through the issuance of government securities, establishing and maintaining government account, participation in the establishment, regulation and development of relationships with international financial organizations etc. These are all the attributes of monetary power that is not performed by anybody from Belgrade any more, but by us in Montenegro. By enforcing the legal responsibilities through the policies determined by the Council, the CBM is performing the monetary power in the Republic. All the activities done in the previous year led to the completion of the basic reform of the banking system and, at the same time, to the establishment of the monetary power in Montenegro. We are now entering the phase of improvement and further development of the properly founded banking system in the Republic and its synchronization with other elements of the economic system in the Republic, as well as defining the international position of the CBM in accordance with Agreement on the Arrangement of Relations between Serbia and Montenegro.
2. There is an impression that the role of the CBM has however lost in strength, and even in its public »image«, after the transition from dinar to DEM and the changeover to the euro as a single currency in Montenegro, and particularly after the adoption of the agreement on rearranging the relations between Montenegro and Serbia. Is the current name »Central Bank of Montenegro« still appropriate in such a context?
It is a fact that we have been less present in the media after the intensive public campaign on the changeover to the euro from the DEM. But it may be the result of the wrong idea that the monetary authority must be included and engaged in the daily politics, as it is the case in Belgrade, which is not usual and natural for the institutions of this type.
The agreement on rearranging the relations between Serbia and Montenegro is the international confirmation of the monetary sovereignty of Montenegro and its monetary authority embodied by the Central Bank of Montenegro. It should not be allowed to modify this through the implementation of the Agreement.
3. There are suggestions indicating that the National Bank of Yugoslavia attempts to impose itself as the central monetary authority again, not only in Serbia, but also in Montenegro. It seems that the expectations that the NBY will be transformed into the National Bank of Serbia will come to nothing. Is that correct?
I think that you are right, especially about the former. It may be the last attempt of carrying out the territorial claims towards the monetary area of Montenegro. Certain political forces in Serbia and Montenegro want to modify the Belgrade Agreement through its implementation, by lobbying for it among other EU structures that are not homogenous. Even this part of the Agreement that is absolutely clear. It is probably done because of the fear of recomposing the monetary power in Serbia, that is, transforming the NBY into the National Bank of Serbia, and the intention to avoid any distribution of assets in addition to that of the liabilities (foreign debt) between Serbia and Montenegro that will inevitably and naturally follow. THE motive may also be the intention to escape or prolong the agreement about the distribution of addresses in international financial institutions in the IMF, IBRD, EBRD, EIB, and SWIFT. So, all this is not in the least naive and benevolent, as it might seem at first glance.
4. What are the current relations between CBM and NBY like, is there any communication between these institutions and of what nature? What is the cooperation with the monetary authority in Serbia?
I must say that these relations practically do not exist, while there are no objective reasons for such a situation. They are mostly reduced to joint meeting organized by IMF, professor Labus and some international commissioners. Milosevic's Constitution that tried to reduce Montenegro to the level of a county in Serbia cannot be an excuse for that. Initiatives for cooperation repeatedly presented by the CBM remained without response. The reasons should be sought among my answers to your previous question and some personal restrictions that usually do not characterize the representatives of monetary power in other countries. How else can you explain the fact that you want to force the dinar upon somebody and at the same time you do not want to maintain even the most elementary and civilized communication and cooperation.
5. There seem to exist many signs showing that the Yugoslav dinar is in front of our doors, if not inside the house already, in a certain sense. The NBY governor is simply pushing the dinar into Montenegro, and the international community seems to act as a kind of his lobby. Is there a possibility (and danger) that the euro might be pushed out of Montenegro and replaced by the dinar again?
When we talk about the payment system in Montenegro, the euro is the only legal tender. Te law is absolutely clear. The Belgrade Agreement does not provide for any other solution. One should be realistic. The dinar is not the euro, the dollar, the pound, the yen nor the Swiss franc, and it will never be; it has a limited tradability and belongs to the lower end in the scale of convertible currencies in the countries in transition, which are led by Slovenia, former Baltic republics, Poland, the Czech Republic and Hungary that will adopt the euro soon. I personally wish that both the Serbian economy and the dinar might skip to the top of this scale as soon as possible. The Montenegrin tourist industry survived when the previous regime campaigned against coming to the Montenegrin coast and even prohibited it, and it will also survive and outlive the public invitations of the Serbian governor not to go to Montenegro for vacation. The introduction of the dinar in the payment operations in Montenegro is not only illegal but also technically impossible, and in such unbelievable case, the NBY would have the seniorage on the account of Montenegro for the amount of dinars that would spill over and stay in Montenegro. Only the Parliament of Montenegro may change its laws, and I think there is no reason for such a thing. This is neither anybody else’s personal decision nor mine.
Those banks in Montenegro that sign an agreement with the NBY may exchange dinars in accordance with the CBM's decision on the exchange operations. WE shall not either force or prohibit the banks. The banks that have such interest and meet the technical conditions will obtain the approval from the CBM without any problem.
6. Are there pressures on Montenegro, and from which source, practical to give up, allegedly in the interest of the March 14 agreement and for the sake of harmonization of economic systems in Montenegro and Serbia, the major elements of its monetary sovereignty achieved in the past two or three years. Does it affect the position on the CBM?
There are pressures and they are probably more evident in other than monetary sphere.
The pressures are generated by certain political groups in Serbia and Montenegro that are not unsatisfied by losing their positions because of the Agreement and are searching for space for themselves by lobbying in some of the EU structures to modify the Agreement. A lot of fuss in the media has been made about the dinar in Montenegro and that is a part of such pressures. This includes overstating and attributing seasonal and other price increases (electricity, fuel) only to the changeover to the euro, presented in the media supporting these political groups. Harmonization in monetary and banking area means that the monetary authorities in Serbia and Montenegro should apply the best international banking practices of Basle standard supervision and EU directives, which we have mostly done, and NBY is supposed to do in this year, in accordance with the agreement with the IMF.
Whether we shall preserve what we have accomplished in the previous period will depend on our ability, desire and intention to recognize our interests in the long run.
7. Some economists, including bankers, deny the expertise and independence of the CBM, also making objections about its insufficient transparency so that allegedly it its not clearly known who does what. Would you please comment on such claims and evaluations? Is it the matter of principled difference in understanding the role and status of the CBM or, perhaps, some personal animosity?
Generally, the whole financial sphere is lacking expertise and we are improving it through international expert assistance, training, trying to attract foreign investors in the banking sector by introducing international banking standards. That level of expertise, especially with respect to the CBM operations, is certainly lower in the banking industry than in the Central Bank, particularly regarding the banks that are autistically trying to avoid foreign investors.
We are fully independent in performing our duties and the executive power is not interfering with our authorities. The autonomy of the CM perhaps has not been completed to the end because of the constitutional restriction with regard to the mechanisms of the election of the Council members and possibility to propose laws in monetary sphere, which will hopefully be corrected in the new constitution of Montenegro. The autonomy of the CBM is clearly reflected in the fact that we made the most painful cuts in the banking sector at the time when we had to do that although it was not propitious to the executive power and the executive power supported us.
The independence and autonomy of the CBM does not mean that we should quarrel and argue through the media. Independence can be achieved through good communication, coordination and cooperation between the monetary and executive power, as it is the case in the market economy countries.
We apply the Public Procurements Law. All the legal regulations and decision have been discussed with the Bankers' Association first. I do not say that we are absolutely flawless, but we are open to all the objections, particularly if they come from banking and professional circles, and I am always ready to discuss the outstanding issue in public with competent experts. The doors of my and my team's offices are always open to banking workers. None of their initiatives or requests has ever remained unanswered, and none of their well grounded objections unaccepted.
Normally, the times when the bank directors could transform individual interests in general rules are behind us. The same standards must apply to all.
When somebody interferes in somebody else's affairs much more than in his own and keeps peeking into somebody else's yard instead of taking care of its own, it might be a sign that he is not doing his own job well. Maybe someone think they could replace us now, when we have finished the most painful and most difficult jobs in the reforms, and hide from the competition winds to which we have exposed the Montenegrin banking area. But, that is ethical rather than professional issue.
8. How do you evaluate the banking transition process in Montenegro so far? A bigger number of banks have been licensed by the CBM, which should mean that they became »new banks«. How much reliable is it? Then, the banks have not resolved yet the creditor-debtor relationships and what is CBM planning to do in that domain?
Evaluation of one of the criticizers Mr. Pajković that the banking industry is the most regulated part of the economic system in the Republic is correct. The new arrangement with the IMF does not contain any significant requirement from the CBM in comparison to those to be met by the NBY. The Austrian Kreditanstalt, half a year ago, assessed in its report that the banking industry in Montenegro is relatively healthy thanking to the established supervision from the CBM. I think that we have come out of this stage of transition in the most rational and least painful way and laid down sound foundations for the banking system in the Republic. The conditions are created for healthy competition. Out of earlier 11 operating banks, six have been licensed to continue their operation (Hipotekarna, Crnogorska Komercijalna, Podgorička, Nikšićka, Pljevaljska and Ekos banks). Out of six branches of Serbian banks, three remained. Two banks went into bankruptcy and liquidation. The largest bank, Montenegrobank, was reorganized and its healthy part remained in existence to be privatized under the international trusteeship. We also have three new banks (Euromarket Bank, Opportunity Bank and Atlasmont Bank). Both the old and new banks adopted and keep adopting the new banking standards under the vigilant eye of the CBM’s on-site and off-site examination teams. The debtor-creditor relations and frozen foreign exchange deposits of private individuals were largely removed from the banking sector through reorganization of Montenegrobank and bankruptcy of Yugobank. These matters will be finalized by the adoption of the Law on Public Debt, which is in the draft version now but its final version should be forwarded to the parliament by the end of June.
9. There are objections that the licensing criteria have been reduced lately. Is that true?
We cannot speak of softer or stricter criteria. The Law and the enabling regulations are clear. None of the banks met the conditions 100%. Some of them removed the deficiencies immediately and others were given a reasonable time limit to do that. Some banks have better and some of them weaker internal rating that helps us in our examination and supervision actions. But it is our obligation to give everybody a chance in the competition game that will eventually produce a true picture of the banking sector in the next stage. The banks that did not meet the material conditions were submitted to our measures – interim administration, bankruptcy or liquidation.
10. Were the Montenegrin commercial banks saved from »pogrom« by the fact that it had happened in Serbia earlier, so that political considerations in Montenegro suggested not to do the same here?
If we do want to make comparisons to Serbia, then we can say that the final outcome was the result of different events and actions in the banking system since 1997.
a) The executive power in Montenegro has never had such a great influence on events in the banking industry, which had been pretty autonomous before, as it has been the case with Serbia, where the banks (especially those that went into bankruptcy) were an extended arm of the regime in power.
b) Since 1997 Montenegro and Montenegrin banks were practically excluded from the NBY’s issuing function, while they mostly observed the financial discipline (did not enter the red zone) so that they did not become the transmission of the NBY’s primary issue into bad investments and social programs, as it happened in Serbia.
c) The introduction of German mark and the decision on making provisions for loans in dinars and automatic conversion of the dinar minus balances into DEM, and the disappearance of the dinar cleaned up the bank balance sheets.
d) The decision on 100% reserve requirement for deposits in DEM prevented bad loans before the banks were placed under full supervision of the CBM.
These are some of the circumstances that saved the Montenegrin banking industry from »pogrom«.
11. Apart from the position that you currently cover, how much are you convinced in the monetary and general sovereignty of Montenegro?
I believe that after the bad experience of almost a whole century we should finally turn to ourselves and take our fate in our own hands. I believe that we are finally grown up enough to be freed of historical illusions. No one else, but us who tied our fate for Montenegro, can improve Montenegro and make life in it better. If I did not believe in the general and monetary sovereignty of Montenegro, I would certainly work something else on a different job.