News Releases - October 2002







An IMF mission, that is visiting Serbia and Montenegro to review the results of the economic program within the Extended Agreement with the IMF, visited Podgorica today. 

The subjects discussed included:

The hosts informed the IMF delegation about the positive macroeconomic developments – a 5% production growth relative to the comparable period in the previous year (electricity not included), inflation decrease – 8.7% from January to September, export increase with import kept at the same level, trade balance deficit reduction by 36.4% and payment balance deficit fall by 45%, significant growth in personal deposits and savings held at banks, strengthening confidence in the banking system, as well as specific activities in Montenegrin banks, in which the IMF has shown particular interest.  

IMF welcomed a significant progress in transparency in fiscal and budget areas, and in banking industry reform during the last two years. 

After the completed election and stabilization of political circumstances in Montenegro, conditions have been created for full focus on economic development. Implementation of further reforms, privatization, fiscal policy measures... offer a good foundation for the development.  Privatization of Jugopetrol will facilitate investments in the development of production, primarily small and medium businesses, and social sector, while part of the funds will be allocated to the repayment of frozen foreign exchange deposits and environmental projects.  

It is expected that an updated Memorandum on Economic Policies will be drawn at the end of the mission. 

The Montenegrin delegation in the negotiations was led by Miroslav Ivanišević, minister of finance in the Government of Montenegro, and Ljubiša Krgović, president of the CBM Council, while the IMF delegation leader was Emanuel Zervoudakis, chief of the IMF Mission to Yugoslavia.




At the meeting held on October 11, 2002, the CBM Council chaired by Ljubiša Krgović made the decision on further reduction of the reserve requirement rate for banks by 10% so that it is now 50%.  The legal reserve requirement, that was as high as 100% at the beginning of the year, was reduced in accordance with the long-term plan of reduction of the reserve requirement and with full observance of macroeconomic indicators. 

This will significantly relax the credit potential of commercial banks and open room for more intensive lending from their deposit potential.  

The Council also adopted a set of decisions of transition nature regulating payment services until their full migration to the counters of commercial banks, by the middle of the next year. 

The Council considered and adopted a number of other decisions and documents from within its jurisdiction. 




Instigated by various articles, we feed the need to clarify: what the Treasury bills are, how they are issued, what rate of return they earn, who issues them and who pays the interest. 

Treasury bills are short-term securities issued by the Budget of the Republic for purposes of liquidity management.  They are issued for a short term of 28 or 56 days and that primarily denotes their purpose.  As they are short-term, they cannot serve to cover the Budget deficit - i.e. for Budget financing, but to bridge the liquidity gap.  To serve for Budget deficit financing, they would need to have the maturity of over 1 year.   

T-bills are issued as discount securities, which means that the nominal amount, i.e., the amount indicated on a T-bill, shall be paid by the Budget to the bearer upon expiry of the maturity period - 28 or 56 days.  The buyer pays the discount price, i.e., the price lower than nominal by the interest amount. 

The interests on T-bills range from 6 to 7.5% per year and are currently the lowest interest rates in Montenegro.  The rates vary for each auction but do not exceed 7.5% per year.  It means that the buyer of T-bills gives the Budget EUR 99.43 today and receives EUR 100 from it in 28 days.  The claims that the rate of 15.5% is being paid are therefore not correct.  As a rule, interest rates on government securities are the lowest of all everywhere in the world because it is a most secure investment.  The interest rate is determined by the market, i.e., by those who bid for the purchase of T-bills. 

At the auction itself, the bids are opened and the weighted interest is determined as an average of various offered interest rates and the required number of T-bills. 

The Central Bank, as the government’s fiscal agent, organizes the auction process for T-bills and undertakes all necessary actions for security registration, bid verification, provision of coverage on accounts, tenders, interest calculation etc.  The Central Bank does not pay any interest.  All obligations are paid by the Budget, which takes the money and therefore also returns it to the T-bill buyers, together with interest. 

The auctions of T-bills are new to the Montenegrin financial market and are very useful for the Budget.  By organizing auctions of T-bills, the Central Bank has spared the Budget a lot of money because the Budget got funds under the interest rates that are significantly lower than for loans.  We believe that there is no need to involve politics into and compromise a job so important and useful for the state by giving incorrect information.  




During his visit to the Bank of Slovenia, president of the Council of the Central Bank of Montenegro Ljubiša Krgović met the governor of the Bank of Slovenia Mitja Gaspari

The main question discussed was further improvement of the already good cooperation between the Bank of Slovenia and the CBM.  They particularly focused on the cooperation in the field of bank supervision, training of the CBM staff in the Bank of Slovenia, Slovenian experience in the banking system reform and migration of payment operation services to commercial banks, as well as the preparatory stages within the Bank of Slovenia in connection to integration in the EU and EU monetary system.  

The first men of the central banks of Slovenia and Montenegro expressed their satisfaction with the cooperation achieved so far in the monetary and banking sector.  It is planned to sign an agreement on cooperation in the field of supervision on the basis of the Basle principles. 

The chief of the Republic of Montenegro Mission to Slovenia Branko Perović attended the meeting.