Interview of the Minister of Finance, Milorad Katnić, for Portal Analitika

In order to reach common consensus over the Labor Law, social partners must acknowledge the economic reality of Montenegro, as well as the role of the investments encouraging development and employment. Any exaggerated protectionism of the work post would be ultimately harmful for the majority of workers because if at the time of crises companies fail in both decreasing the number of employees and the production rationalization they will face dissolution and subsequently their employees will be left without employment, said Katnić.

The Finance Minister, Milorad Katnić PhD., announced to an interview to Portal Analitika that the state guarantees in future will be limited to supporting strategic projects encompassing the development component.

- The fiscal space borrowing capacity is limited and the policy for the next period will be focused on decreasing both the public debt and state guarantees, aimed at improving the economic stability and competitiveness. This means that the support will be limited to the large infrastructure – related projects; the state will issue guarantees for the projects of strategic importance for the development of the country not allowing for to incite private investors, said Katnić, emphasizing that the budgetary stability requires high quality foreign direct investments.

- Our economy values every euro of investments, and the dynamic development requires far more than EUR 330 million. The investment structure and quality is far more important than its amount. The state must pursue in creating the system preconditions enabling new investments, which means the improvement of the overall investments environment, explained Katnić, emphasizing that saying that all society segments must join forces in improving the business environment.

- The Government is the most responsible, yet other segment of the society should also be partners in the process including the Trade Unions, NGO’s, Media. This is a joint goal and the failure would not only heart the Government but it would diminish future prospects of all citizens, said the Finance Minister to an interview to Portal Analitika.

ANALITIKA: The State issued guarantees to Montenegrin companies worth above EUR 300 million, out of which EUR 131 million to KAP and EUR 26 million to Steel Mill. Do you think that this is jeopardizing the state budget stability, especially in case of guarantees activation?

KATNIĆ: Issued guarantees envisage both the fiscal risk and the potential costs. Prior to the escalation of the world’s financial crisis, the state guaranteed the credit arrangements for the implementation of the infrastructure – related projects. The economic crisis counteracting implied the economic system stabilization, production and work posts preservation, thus based on this instrument the state has supported the survival and restructuring of large companies. Furthermore, the state issued guarantees for the loan arrangements entered with the European Investment Bank and the KfW, supporting cost - effective and long – term funding sources earmarked to small and medium – sized enterprises. Pursuant to the aforementioned policy, industrial, banking and the entire economic system received a support in a short run.

ANALITIKA: Are KAP and Steel Mill regularly servicing their liabilities?

KATNIĆ: Yes, guarantees are being regularly serviced and loans end – users are fulfilling their obligations in a timely manner pursuant to entered loan arrangement. In the Ministry of Finance we are carefully monitoring and analyzing this issue. Analysis and estimates are indicating that the guarantees issued so far may not jeopardize the fiscal system stability.

ANALITIKA: However, the state continues borrowing. Is this new indebtedness based on the issuance of Eurobonds worth EUR 180 million lead to debt bondage?

KATNIĆ: You see, the budget deficit must be financed either through the property sale or borrowing, if the state pursues servicing its liabilities in a timely manner. Moreover, the state credibility implies that both all the debts and the international liabilities are regularly services. In order to adhere to the Budget Law and all obligations deriving from it, the Ministry of Finance has issued Eurobonds in the amount of EUR 180 million. The biggest amount of funds will be used for debt servicing – above EUR 120 million. Thus, the total debt based on the issue will increase by less than 2 percent of the net GDP amount. Despite this increase, the state debt of Montenegro at the end of this year will be less than 45 percent of GDP. This is far below the Maastricht criteria (60% determined limit). The public debt indicators – the share of debt in the GDP, debt to revenue and the share of debt servicing to GDP indicate that Montenegro is the country with the lowest debt both in the region and the EU.

ANALITIKA: Do you have concrete EU member states indebtedness figures?

KATNIĆ: Of course we do, we are carefully monitoring and analyzing trends. The average indebtedness level of the euro zone counties is at around 84 % of GDP, and at the level of 27 EU member states is at around 79% of GDP! The Ministry of Finance fully understands the public concern in reference to the increase in the indebtedness level, being aware that the small and open economy exposed to external shocks, requires prudent and conservative fiscal and public debt policy. However, we cannot speak about the debt bondage and these arguments are neither economic nor professional, I would say that they have political background and different goal.

ANALITIKA: Yet the stock of state debt in early March, excluding the Eurobonds, amounted to EUR 1,258 billion. In the light of the above, is there a space for the state to further borrow for some infrastructure – related projects such as the construction of hydropower plants, highway…

KATNIĆ: The state should neither borrow nor issue guarantees for high quality projects eligible for commercial support! This rule should apply to large infrastructure – related projects. The fiscal space borrowing capacity is limited and the policy for the next period will be focused on decreasing both the public debt and state guarantees, aimed at improving the economic stability and competitiveness. This means that the support is limited to the large infrastructure – related projects, yet on the other hand the state will borrow or issue guarantees only to the projects of strategic importance boosting the development of the country not allowing for inciting private investors, or creditors.

ANALITIKA: We are the witnesses of the sharp basic provisions upturn jeopardizing the living standard of our citizens. You have announced preparation of a package of measures for the most vulnerable categories of citizens; what do you mean by this, and which criteria will be applied?

KATNIĆ: In light of the latest increase in prices affecting the living standard of citizens, especially the most vulnerable categories, the Government required the Ministry of Labor and Social Care and the Ministry of Finance to prepare the proposal of assistance to the most vulnerable categories.

We are currently reviewing the amount and the assistance model. It is important that the assistance is well targeted, because any type of assistance encompasses expense. I will remind that the Government during this year, through different models, helped the citizens being severely affected by the negative economic trends. In January, the Government adopted a decision on increasing the social benefits by 5 %, whereas the personal disability fee increased by above 30%. The decrease in the electricity prices for households, effective from April, should to a certain extent additionally decrease the financial pressure on the increase in basic provisions for households and citizens.

ANALITIKA: The living standard is exposed to the fuel prices being the highest in the region. Can the Ministry of Finance do something in order to stabilize the maximum retail fuel prices, or to change them on a quarterly basis?

KATNIĆ: The quarterly setting of the fuel price may represent an administrative measure, but it will fail in resolving the problem if the oil prices on the international market have an upward trend. We are analyzing the policy in this area, yet the measures ought to be carefully formulated with the objective of avoiding possible fuel deficit and non - observed economy. The current price adjustment method applied every two weeks represents a type of a corrective factor for the market. For example, it the oil prices quoted on the stock exchange increases by less than 5 % - our market is not applying the fuel price adjustment, and the fuels purchased at higher prices is sold at old prices.

ANALITIKA: Let’s come back to the budget sustainability. Montenegro requires a minimum of EUR 330 million worth FDO for the financial stability and we are the witnesses of a campaign against investors in Montenegro. Can the state prevent the negative effects of these campaigns?

KATNIĆ: Our economy values every euro of investments, and the dynamic development requires far more than EUR 330 million. The investments structure and quality is far more important than its amount. The state must pursue in creating the system preconditions enabling new investments, which means the improvement of the overall institutional environment. The rule of law, clear and nondiscretionary laws, stable fiscal and financial system, competitive tax policy and spatial plans are just some of the important prerequisites.

The aforementioned represents a key to success: decrease in the number of procedures, counters and waiting time, along with the change in minds and state administration approach represents also a part of the answer. Only private investments have the potential to bring development, and everything else is redistribution. For this reason, we must be additionally responsible in our work and our words if our goal is the economic progress, new employment and increase in the living standard. The Government is the most responsible, yet other segment of the society should also be partners in the process including the Trade Unions, NGO’s, Media. This is a joint goal and the failure would not only heart the Government but it would diminish future prospects of all citizens, said the Finance Minister to an interview to Portal Analitika. 

ANALITIKA: The Labor Law stirred passions of Montenegrin socio – political scene, since Trade Union’s organizations have announced riots. Can the consensus of social partners Government, Trade Unions and Employers resolve this situation?

KATNIĆ: If there is a tripartite will – of course it can. In order to reach a consensus, all parties must be aware of the economic reality in Montenegro, as well as the importance of investment for the future development and increase in employment. It is important to redirect the focus from the work post to the employment security, i.e., not to secure that someone will be working on one job position or for one employer, but, in case of loosing a job, to be able to find new employment. Any exaggerated protectionism of the work post would be ultimately harmful for the majority of workers because if at the time of crises companies fail in both decreasing the number of employees and the production rationalization they will face dissolution and subsequently their employees will be left without employment.

The Labor Law and the public attention is not just Montenegrin case. I will remind that in 2007, the European Commission launched the Green Book on Labor Market Reforms being accused by the Trade Union organizations for violating and making senseless the social dialogue.

The Ministry of Finance will for sure represent the opinion that will generate new investments and new development, which is in the best interest of new employment and all employees in Montenegro.

Journalist: Predrag ZEČEVIĆ

You may find the interview on: http://www.portalanalitika.me/ekonomija/tema/24251-garancije-samo-za-strateke-projekte.html