RESOLUTE REFORMS TOWARDS NEW CHALLENGES

Every our citizen is well aware that external shock, economic activity downturn, high budget deficit, public debt growth, and illiquidity increase were the main economic characteristics of 2009. Furthermore, we know that the year of 2010 can be described as the year of reaching stability and significant changes in the economic system.

The economic activity was stabilized in the first half of 2010, whereas it recorded the growth over the last two quarters. Public spending and budget deficit were reduced. The public debt, although increased, was maintained at the sustainable level. The Budget serviced regularly all obligations, and there was no need to make budget rebalance. For the first time, Montenegro issued Eurobonds, whereby investors showed the trust in our financial system. It happened in the year of great instabilities on the European financial market, and the crises in certain countries of the Eurozone, which make these results a success.

All of the challenges that our economy was faced with called for resolute reforms and fast decision-making. Extra-budgetary funds were consolidated in the unique Treasury system, thus increasing transparency of disposition and spending of taxpayers’ money. By amending tax laws, the basis has been formed for long-term stable financing of municipalities and limiting of discretionary taxes and quasi taxes that punish taxpayers and cause instability of the economic system. The business environment has been improved, by reducing the number of procedures, time and costs of registration of companies and taxes. Omnibus law has eliminated many barriers that used to encumber and disrupt business activity in Montenegro.

In 2010, the regulations governing the banking sector have been completed, which contributes to strengthening of the independence of the regulator and its role with respect to supervision, as well as to further stability of the financial system. In the field of the structural reforms, difficult and unpopular decisions were made, which primarily represent the responsibility shown to future generations. It is especially important to emphasize the parameter adjustments of the pension system, by gradually extending retirement age and changing the formula for pension adjustment.

All activities implemented during 2010 have made the economic system more stable and safer. At the same time, the basis for the sustainable long-term growth has been created. We expect that the growth for 2011 would reach the envisaged level of 2.5%, which will enable further consolidation of public finances. In order to reach in the following mid-term the potential growth rates, at the annual level of over 4%, it is necessary to continue with the macro-economic stabilization of the economy and to intensify the structural reforms, especially those in the area of social welfare, health and educational system.

We have shown that we are ready to make difficult and unpopular decisions when they are for the benefit of long-term stability and progress. It is the responsible policy towards the existing and future generations, which means that the problems are not being ignored and delayed, but dealt with and transformed into a challenge and a chance. We must continue likewise.

By continuing the regulatory reform and optimizing the state administration, we are not only saving taxpayers’ money, but we are increasing transparency and quality of public services. The reforms of the health and educational systems should improve the efficacy of the healthcare, and provide for more competitive knowledge through high quality (lifelong) education that represents the basis for the progress. The best way to boost the economy is to have better infrastructure and better education. It is furthermore necessary to have the further and faster improvement of the business environment, and to create conditions for new investments.

There are certain worrying phenomena. Investors are being easily and severely criticized, no matter whether they are local or foreign, whether they come from the EU or other most developed countries of the world, or whether they are high-profile investors highly welcome in the countries having the highest (investment) rating. Not only do we need to change the regulations to reduce the costs, procedures and time for investments, but we also need to create the environment of mutual trust and respect with the investment community. Therefore, it is necessary to build the system of values wherein investors are welcome, where profit and wealth, created through the legal and regular business activities, are not to be condemned but to be respected. The improvement of the business environment and investment climate will be the task of the Ministry of Finance that we will be especially committed to.

At the same time, the overall state administration, including also the Ministry of Finance, should become the service to the citizens and the economy, and the procedure must be transparent and efficient. We must change the dominant attitude reflected through “not possible”, “not ok”, “come another time”, “not my job”, and we all have to do our best together for the state administration to assume the responsibility for cases and decisions, and not to postpone them, which means they have to be resolved and made, respectively, immediately or as soon as possible.

In 2011, the Ministry of Finance will be faced with completely new challenges. The acquisition of the candidate country status in December last year is the encouragement, but also an additional challenge for the administration of Montenegro. The Ministry has defined the creation of institutional and human resources’ conditions necessary for the successful negotiations about the EU membership, as one of the main priorities for 2011. To that end, a special attention will be devoted to the formation of the structures necessary for the efficient transposition of the EU legal order to Montenegro in the areas within the direct competency of the Ministry of Finance, as well as to the establishment of the decentralized system for IPA funds management. These are not technical but essential issues, which will show whether we have the knowledge and skills to embrace the European values, rules and procedures. Currently, the average annual amount of IPA funds available for Montenegro is around 30 million euro. In the following years, this amount will be increased, but amount to be actually used will depend on our skills and efficiency. Financial benefits of our EU accession depend thereon, which will have the direct impact also on the standard of living of the citizens of Montenegro.

Within the regular cooperation activities with the EU, at the end of January 2011, Montenegro proposed to the European Commission its most recent Economic and Fiscal Programme (EFP). The document is translated and uploaded to the website of the Ministry (http://www.mf.gov.me/organizacija/medjunarodna_saradnja_i_evropske_integracije/102867/EKONOMSKI-I-FISKALNI-PROGRAM.html), which reflects the policy of openness and transparency in the course of our operations.

This year’s EFP is the last document of such a kind. Now, when Montenegro is officially the candidate for joining the EU, we are obliged to prepare a new, more demanding type of the document entitled “Pre-accession Economic Programme”. We have started with the preliminary activities, and there is no doubt that we will fulfill such additional obligations and meet such additional requirements of the European Commission.

Dear all, challenges that our economy is faced with call for resolute reforms and fast decision-making. We must assume the responsibility and do what we believe is right. Opportunities and chances for the progress are great, but their realization depends on our work, knowledge and dedication. The fulfillment of all of the aforementioned tasks and priorities is the sole way for comparative advantages to become competitive ones, to be used to improve prosperity for us, our families and our country.

Respectfully yours,
Milorad Katnić PhD
MINISTER OF FINANCE