October - December, 2009. BUllETin XViiiFunDs In Montenegro - Ms. Nataša Kovačević, Deputy Minister, - Ms. Bojana Poček, Independent Advisor III IPa thIrD anD Forth coMPonent PreParatIon

Ministry of Finance of Montenegro

BUllETin XViiiOctober - December, 2009.

Ministry of finance of Montengro

BULLetin XViiioctoBer - DeceMBer 2009

aDMinistration

taX aDMinistration: www.poreskaUpraVa.goV.Me

cUstoM aDMinistrations: www.UpraVacarina.goV.Me

Directorate for anti-corrUption initiatiVe: www.antikorUp.goV.Me

aDMinistration for the preVention of the Money LonDery: www.aspn.goV.Me

reaL estates Directorate: www.nekretnine.co.Me

pUBLic procUreMent Directorate: www.Djn.goV.Me

www.mf.gov.me

g Bulletin of the Ministry of Finance of Montenegro g October - December 2009

Table of contentsIntroductIon- Igor Luksic PhD, Deputy Prime Minister and Minister of Finance

In the focus: Montenegro In antechaMber oF WorLD econoMy- Ms. Ana Ivanović, Independent Advisor I

crIses anD econoMIc PoLIcy For 2010- Mr. Borislav Ratković, Deputy Minister for Economic Policy and Development

custoMs concessIons- Mr. Mitar Bajčeta, Independent Advisor I

creDIt ratIng agencIes - country rIsk assessMent- Ms. Jelena Vojinović, Independent Advisor III

MacroeconoMIc anD FIscaL trenDs anaLysIs- Mr. Radovan Živković, Independent Advisor I, Mr. Vladislav Karadžić, Independent Advisor I, Ms. Iva Vuković, Senior Advisor

LaW on aDMInIsterIng teMPorarILy anD PerManentLy seIzeD ProPerty- Ms. Milanka Otović, Independent Adviser III

gaP assessMent In the Process oF the estabLIsheMent oF the DecentraLIzeD IMPLeMentatIon systeM For the ManageMent oF the Pre-accessIon FunDs- Ms. Nataša Kovačević, Deputy Minister, Ms. Bojana Poček, Independent Advisor III

cItIzens’ ForeIgn exchange currency savIngs- Ms. Marina Popović, Independent Advisor I

reguLatory IMPact assessMent (rIa)- Ms. Bojana Bošković, Independent Advisor I

actIvItIes oF the DePuty PrIMe MInIster anD FInance MInIster In the period from 1st october to 31st December 2009- Ms. Gordana Jovanović, Spokesperson, Ms. Ivona Mihajlović, Assistant to Spokesperson

InFo/Web of the Ministry of Finance for the Period from 1st october to 31st December 2009- Ms. Gordana Jovanović, Spokesperson, Ms. Ivona Mihajlović, Assistant to Spokesperson

sePa - sIngLe euro PayMents’ area anD the roLe oF the PubLIc sector - Ms. Marija Popović, Senior Advisor II

accountIng anD auDItIng reguLatory FraMeWork In the regIon - aPPLIcatIon oF stanDarDs- Ms. Ana Krsmanović, M.Sc., Independent Advisor I, Ms. Aleksandra Popović, Independent advisor II

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g October - December 2009 g Bulletin of the Ministry of Finance of Montenegro

Bulletin of the Ministry of Finance

October - December, 2009

NUMBER:18

PUBLISHED:quartely

PUBLISHER:Ministry of Finance

FOR PUBLISHER:Igor Lukšić, Ph.D.

EDITOR-IN-CHIEF:Gordana Jovanović

EDITORIAL BOARD:MA Milorad KatnićMila Barjaktarović

Nemanja PavličićBiljana ŠćekićPeriša Perović

Borislav RatkovićNataša Kovačević

Boris Bušković

DESIGN:Adil Tuzović

Tehnical ASSISTANT:Ivona Mihajlović

CONTACT:PR Office of the

Ministry of FinanceTEL:

+382 20 224 581FAX:

+382 20 224 450E-MAIL:

[email protected]:

www.mf.gov.meADDRESS:

Stanka Dragojevića br 2, Podgorica

MonItorIng anD evaLuatIon oF IPa PrograMMes - Ms. Katarina Živković, Independent Advisor II

InternaL auDIt - PIFc coMPonent- Ms. Maja Bašić, M.Sc., Authorized Officer I- Ms. Valentina Perović, Authorized Officer II

commentary: sIngaPore DoIng busIness eFFIcIency- Mr. Ivan Radulović, Independent Advisor III

DeFInItIon anD rePortIng IrreguLarItIes In Projects FInanceD through the IPa FunDs- Mr. Žarko Krcunović, Independent Employee III

tWInnIng Project: „strengthenIng the reguLatory anD suPervIsory caPacIty oF the FInancIaL reguLators”- Ms. Nina Vukotić, Advisor

InstructIon on cLosure oF the annuaL treasury generaL LeDger accounts oF sPenDIng unIts For 2009 - Ms. Stanimirka Mijović, Independent Advisor I - Ms. Dušanka Rudović, Independent Advisor I - Ms. Marija Popović, Senior Advisor II

LaW on saLarIes oF cIvIL servants anD state eMPLoyees - Ms. Bosa Pavićević, Authorized Officer- Ms. Olga Uskoković, Independent Advisor I

buDget oF Montenegro For 2010- Mr. Radovan Živković, Independent Advisor I- Mr. Vladislav Karadžić, Independent Advisor - Ms. Iva Vuković, Senior Advisor

reaLIzatIon oF PubLIc exPenDIture on LocaL seLF - govern-Ment LeveL january - sePteMber 2009- Ms. Gordana Radović, Independent advisor I in the Sector for Tax and customs system- Ms. Snezana Mugosa, Independent Advisor I, Budget Department

FInancIaL rePortIng InsPectIon suPervIsIon- Ms. Aleksandra Popović, Independent Advisor II- Ms. Ana Krsmanović, Independent Advisor I- Ms. Danko Dragović, Independent Advisor III

the IMPortance oF estabLIshIng the auDIt authorIty WIthIn the DecentraLIzeD ManageMent oF Pre-accessIon FunDs In Montenegro- Ms. Nataša Kovačević, Deputy Minister, - Ms. Bojana Poček, Independent Advisor III

IPa thIrD anD Forth coMPonent PreParatIon For structuraL anD cohesIon FunDs- Ms. Bojana Kaluđerović, Independent Advisor I- sector for Finance and contracting of the eu assistance Funds

LeasIng Market In Montenegro - rePort For the PerIoD 1 january to 30 sePteMber 2009 -- Ms. Bojana Bošković, Independent Advisor I,- Ms. Jelena Vojinović, Independent Advisor III

resuLts oF the suMMer tourIst season oF 2009- tax administration

Ministry of Finance of Montenegro

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con tact:phone: +382 20 242-835fax: +382 20 224-450e-mail: [email protected]: www.mf.gov.me

Dear readers,

Expectations for 2010 are, to say the least, mod-est, which should not be surprising, bearing in mind the crisis year of 2009, and the consequences caused by it. The need to adjust the economy to new circum-stances is logic and necessary. Short-term adjust-ment relates to the implemented measures to reduce public spending, as well as further amendments to some elements of the tax policy. In reducing the pub-lic spending, it was necessary to revise all items and find a room for maximizing possible savings. The in-tention for such a budget envelope is to be a credible one, i.e. to be a platform for long-term responsible re-lationship towards the budget potential. On the other hand, the need to support the economy is primarily reflected in a significant level of capital expenditures, primarily those reflected to the improvement of infra-structure. The entire budget deficit can be practically treated as discretionary, and bearing in mind that it is possible to finance it mostly by state deposits it will not represent additional pressure on the public debt. It is also not correct that the total level of wealth is re-

duced due to the previous sale of shares; on the con-trary, by doing so it is not only converted into another form of social wealth, but it is also increased.

As far as public debt and servicing of all obli-gations that the State has are concerned, all obli-gations will be fulfilled on a regular basis, with no doubt. There are several options, out of which two options are obvious. One option is to enter into ar-rangement with IMF, and the other option is to is-sue euro bonds; both possibilities are mostly used by all European countries. The option to enter into arrangement with IMF means to consider the budget envelop on one side, and the condition of the finan-cial system, on the other side.

We believe that with the adopted budget, as well as with the set of tax measures, with amendments to the Law on Civil Servants and State Employees that regulates the issue of wages, as well as by the adoption of the regulations governing the transforma-tion of the Development Fund into a new investment-development fund, and by the establishment of the

Introduction

5


Deputy Prime Minister and Mi nis ter of FInance Igor Luk šić PhD

Labour Fund, we are on the path to implement a very consistent set of measures and policies directed to mitigate the consequences of the crisis. It should also be borne in mind that the tax environment has not worsened, and it has become, through the recent amendments to regulations, one of the most competi-tive systems in Europe.

However, without long-term efforts to reform the state administration, educational system and health system, our system will not be competitive enough. Good preconditions have been created for such ac-tivities, and intensifying of the efforts in implementa-tion of structural reforms should be expected during 2010.

At the same time, one of the key problems that the economic system is faced with is lack of liquid-ity and increase of mutual debts, especially in the area of negative increase of credits during 2009. Of course, it is unrealistic to expect that crediting ac-tivities would recover to their level of the pre-crisis period, but after all implemented measures it is real-istic to expect a slight recovery of crediting activities – with the emphasis on the quality of business plans suggested.

Also, the adoption of new regulations in the area of financial and banking system will have a positive im-pact on the overall credibility of the banking sector.

It is reasonable to expect the stagnation of the economy during this year and more concrete recovery during 2011, especially if this year is used for initiat-ing a set of investment projects in the area of energy and tourism. Potentials of the agricultural sector that recorded good results during 2009, which also has a significant share in GDP, should not be forgotten. In addition to the aforementioned, optimization of larger systems will contribute to the completion of restruc-turing of the economy, in compliance with the eco-nomic justifiability principle. However, there is still a huge unused opportunity for private initiative in many areas, which represents the highest quality segment of economy in the long run.

Respectfully yours,Igor Luksic PhD,

Deputy Prime Minister and Minister of Finance

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established 1st january 1995

headquarters geneva

Members 153

Official Language english, French and spanish

Director general Pascal Lamy

budget 189 mil. swiss Franc (approx. 182 mil. $) for 2009

employees 625

Web site www.wto.int

this story similar to the establishment of the International Monetary Fund and World Bank Group, the roots of idea of the World Trade Organization (hereinafter re-ferred to as: the “WTO”) are placed in the small town in the States, which unofficial slogan is ‘’Live free or Die’’, breton Woods, new hampshire. Maybe this symbolic cor-responded to the aspirations of the global post-war political and economic reconstruc-tion expressed in the conclusions of the United Nations Conference on the need for free and supranational regulation of monetary and financial issues at the end of the World War II, abolishing the ideology of isolated national economies.

Monetary and fiscal issues, through aforementioned organizations, are being shaped in the international institutional frame-work. The potential ’’pillar of economic cooperation’’, the wording expressed in the spirit of the European integration, was launch under the title International Trade Organization, which would represent the best indicator of achieved balance of payments in war weakened countries and the lever of development projects, setting the rules of fair and liberal international economic play, thanks to the U.S. Congress was never approved. The creators of the Marshall Plan, thought that this international organization would be “too curious” as from the aspect of the internal economic system. thus, the general agreement on tariffs and trade (hereinafter referred to as: the gatt), adopted at the un conference in geneva on trade and employment in 1947, represents the contract in respect of legal nature, and in fact it was quasi international organization, will function on the basis of the mission statement for reduction of barriers to trade, through application of the system of reducing customs tariffs, quantitative limitations and subsidies up to the establishment of the Wto.

as a promising emerging system, the gatt was based on the principle of ’’Most – Favored - nation’’, implying that the condi-tions in force for the most – favored – nation (nation with the least number of trade limitations) were applied to all signatories. each new round of trade negotiations (see the chart 1), of total eight rounds, is incorporating new additional contracts, which in principle related to the decrease in tariffs for certain types of products and modifications applicable to individual stets.

Montenegro in Antechamber of World Economy

Ana Ivanović

In the focus

7


the history of the gatt is featured by three main phases:

• period from 1947 to Torquay round (Great Britain), establishing the range of products entering the contractual circle and freezing of existing rates;

• period from 1959 to 1979, was focused on decline in customs rates;• period covering only Uruguay round of negotiations, 1986-1994, expanding the competence of the GATT to the areas of

intellectual property rights, services, agriculture and capital, marking the official founding of the WTO-a.

Chart 1. Genesis of the GATT and WTO negotiations1

being qualitatively strengthen by introducing new areas and being established both legally and institutionally, the Wto by definition represents the international organization established on the basis of the Marrakesh Agreement signed on 1st january 1995, focusing on supervision and liberalization of international trade.

Its corpus juris incorporates the set of agreements (on establishments, on goods, on services, intellectual property, additional agreements and annexes, etc.), while the membership reaches the number of 153 states representing creators of over 95% of the world trade and 30 observers, potential candidates. the Ministerial conference of the Wto is the topmost decision making body (which meets every two years), the general council implementing policies on a daily basis (it also meets as the trade Policy review body and the Dispute settlement body) competent for the council for trade in goods, services and intellectual property, as well as the Director general appointed by the general conference.

the basic Wto principles are as follows:

• Trade without discrimination – this principle incorporates the most-favored-nation treatment rule and the national treat-ment rule (imported and locally produced goods have equal treatment)

• Reciprocity;• Adhering to binding and enforceable commitments; • Transparency;• Controlled limitations (safety valves). There are three types of provisions allowing the countries to use safety valves: to

achieve noneconomic measures, to ensure fair trade and provisions allowing for interventions in trade due to economic rea-sons.

1 - Data: http://en.wikipedia.org/wiki/General_Agreement_on_Tariffs_and_Trade#Torquay_Round_-_1951

8

For Montenegro is the most important potential membership in the Wto. Following the submission of the formal application for membership on 23rd December 2004, at the session of the general council was established the working group with the task to consider the application, pursuant to the article xII, of the Marrakesh agreement. the head of the negotiating team was ap-pointed Ms. Gordana Đurović, the Minister of European Integration. In the forthcoming period, negotiations will be conducted on multilateral, bilateral and plurilateral level2.

Multilateral negotiations represent the breakdown of national legislation with the review of reforms required for adopting and implementing standards and the Wto procedures, which in the form of the Final report are being submitted to the Working group. Pursuant to the structure of the report the biggest part of compliance procedure related to individual areas of economic policy (privatization activity, pricing policy3), framework for establishing and implementing policy (segregation of competences of institutions in the light of trade regulations applications), as well as its most extensive part of policy in the area of trade in goods (trade rights, other customs and duties, duties and fees for provided services, quantitative limitations to import, customs valu-ation, anti - damping, compensation and protection measures, industrial policy including subsidies, technical barriers to trade, standards, certificates, sanitary and phytosanitary measures and free zones). Following the successful implementation of refo-rms, the Final report was amended to include the changes and sent to 153 addressed (on 12th December 2008).

Plurilateral negotiations were conducted in the area of local support in agriculture and export subsidies.

bilateral negotiations, in essence represent the economic right and the freedom of the member country to accede to special nego tiations on exemptions related to the access to the market of goods and services. Montenegro signed bilateral negotiations with the European Union (April 2008), China (September 2008), Switzerland, Brazil, Norway (November 2008), Canada, Japan and the u.s. (january 2009).

2 - Source: Summary and Data on negotiation results are based on the Information on negotiation status with the WTO member states of the Ministry of European Integration, Government of Montenegro, December 2009;3 - In Montenegro there is currently the pricing control only for some medicaments, oil, fuels and coal.

9


Ukraine, the penultimate WTO member and the country with fifteen years of its negotiating experience, at the very end of Monte negrin accession process, on 19th september 2008, submitted electronically the request for opening bilateral negotiations with Montenegro with regard to goods and services. In calendar terms, the request of the ukrainian Mission to geneva, will be posted only twenty days prior to closing the final verification procedure of our accession package. It is interesting to note a sudden interest of this country for trade exchange with Montenegro, which share in our overall trade amounts to 0.02%, while registered import from Ukraine in Montenegro amounts to 0.2% of total Montenegrin import. Sometimes figures speak louder than written lines.

1. Any State or separate customs territory possessing full autonomy in the conduct of its external commercial relations and of the other matters provided for in this agreement and the Multilateral trade agreements may accede to this agreement, on terms to be agreed between it and the Wto. such accession shall apply to this agreement and the Multilateral trade agreements an-nexed thereto.

2. Decisions on accession shall be taken by the Ministerial conference. the Ministerial conference shall approve the agree-ment on the terms of accession by a two-thirds majority of the Members of the Wto.

3. accession to a Plurilateral trade agreement shall be governed by the provisions of that agreement. Following the date of the submission of the request, four bilateral negotiation rounds took place (geneva, kiev, vienna and

geneva). out from the initial number none of the request was retreated, but the number from the period from December 2008 – september 2009, have continuously increased. the efforts of Montenegrin administration to go in line with changed circum-stances will result in seven revised offer for goods and four revised offers for services submitted up to september 2009, while the used efforts and energy of Montenegrin negotiating team are showing the unilateral definition of bilateral cooperation, the official opinion is pending its scheduling in the agenda of the Wto Director general.

In closing, the statement of the Professor Gordane Đurović, PhD, the chief negotiator for the accession of Montenegro to the Wto at the conference held in geneva on 2nd December 2009, on the occasion of addressing the official position of Montenegro, have stated: ’’In reality, some bilateral negotiations are problematic, aggravating the final closure of the process. In the light of the above, I would like to ask you to reconsider the possibility of strengthening the ombudsman’s role for acceding countries. therefore it is necessary to review the development of a new document setting the clear accession rules focusing not only on rules, but also on the content of negotiations.

Montenegro expects understanding and support of the WTO members. This is not request for the “third country patronage”, but for raising a problem in the Wto accession process, which is not only a bilateral issue, but a systemic one. Montenegro has already paid the price being at least one year in this “limbo” status of the accession.

today, this is only a problem of Montenegro. however, tomorrow it would become the problem of other acceding countries too.

Please bear it in mind. It is our common responsibility.

Ms. ana IVANOVIć, Independent Advisor I

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Last year was featured by strong im-pacts of economic and financial crisis on Montenegrin economy. the analysis of achieved movements in the economy had shown, that in the conditions of an open economic system and its exposure to external impacts, the recession syn-drome caused decline or jeopardized banking sector liquidity, which accompa-nied by all complexities of multiple con-nections in a number of debtor - creditor relations, had inevitably overflow into the real sector. reduced credit support pos-sibilities to economy, along with reduced possibilities of companies to regularly repay loans, have practically jeopardized reproductive flows and halt the realiza-tion of development projects. these circumstances, led to the weakening of economic activity environment drasti-cally downgrading some basic macro-economic indicators.

starting from aforementioned it is assessed that late crises effects, com-pared to developed system, will continue during the next year, shaping the char-acter and profile of the Economic Policy of Montenegro for 2010. the economic Policy environment and framework will be limited by narrowed budgetary frame-work for 2010, with cost - saving and rationalization measures, representing the objective limit to stronger budgetary support aimed at development. one of positive features is the preservation of fiscal policy principles and orientation, focusing on creation of conditions for reducing business barriers to entrepre-neurial initiatives and new investments, aimed at strengthening aggregate de-mand elements of the commercial and households sector. the credit support, particularly in the sector of small and medium-sized enterprises, being one of the most important conditions for initia-tion of the process for restoring economic

activity, will be strengthen by introducing special measures to strengthen the en-vironment and safeguarding measures for investments in order to direct bank-ing business policies to programmes and projects in the economy. Realization of capital infrastructure construction projects, featured by the limited capital budget framework, will be directed to the private - public partnership projects and other joint – venture modalities.

Planned possible arrangements wi-th the international financial institutions aimed at stabilizing the public finance, will determine new proportions and pa-rameters representing important seg-ment of the overall macroeconomic fra-mework in 2010.

the initial assumption framework for the development of the economic Policy for 2010, consists of commitments set forth in strategic development docu-ments. the economic Policy of Monte-negro is in compliance with the com-

mitments and objective set forth in the following documents:

- economic and Fiscal Programme of Montenegro 2009 - 2012;

- national Programme for Integration of Montenegro into the EU 2008-2012;

- spatial plan of Montenegro up to 2020;

- national sustainable Development Strategy;

- strategy for the Development of In-formation Society up to 2013;

- strategy for the Development of Small and Medium – Sized Enterprises 2007-2010;

- sectoral Development strategy.

therefore, even during the crises, the implementation of the strategic de-velopment commitments and economy transformation process should contin-ue. Within such framework, underlying achieved results and providing the long term development vision, the initial ori-entation of the economic Policy for 2010 is as follows:

- achieved negative effect and impac-ts of the crisis stopping the economic growth along with the fall in the eco-nomic activity, reduced liquidity and in-adequate credit support to development plans and projects and the analysis of aforementioned problems in 2010;

- Preserved transformation process of economic and social system in accor-dance with the economy market orien-tation, openness and strengthening of economic freedoms;

- sound dynamics of meeting the obligations from the Interim agree-ment on trade and related matters and progress in joining the eu, with expectations of a positive attitude to-wards the Questionnaire for obtaining positive opinion of the european com-mission on the application for the eu membership;

Crises and Economic Policy for 2010

Borislav Ratković

11


- Realized and anticipated structural changes of the economy to strengthen the private sector, private entrepreneur-ial initiative and businesses within the small and medium - sized enterprises in the sphere of social activity, along with finding optimum and possible solutions for the functioning of large systems in changed conditions;

- Possibility to activate respectable resources in the north of Montenegro, being a precondition for the implemen-tation of the policy for balanced regional development, along with defining state policy to support balanced regional de-velopment through the regional Devel-opment strategy of Montenegro and the Law on regional Development of Monte-negro.;

- strengthening the role of knowledge and application of It achievements spur-ring development and modern technol-ogy integration.

What are the basic treats and risks of the Economic Policy for?

It is assessed that certain effects of the crises will transfer to 2010 with re-duced intensity, with extensive effects on the overall economic environment and growth performance, reducing external negative recession impact, creating con-ditions for the stabilization of economic trends and restoration of economic ac-tivity. In such circumstances, the objec-tive threats and risks will consist of:

- Prolonged effect of the crises and subsequently, the influence of narrow general material framework on the living standard;

- cautious activity of the banks in terms of investments security as well as the limit of credit support to the econ-omy;

- Insufficient level of aggregate de-mand being the limit of the development cycle;

- Limited capital budget framework for stronger support to investments;

- Optimization of the number of em-ployees in large companies and systems with uncertain perspective influencing unemployment growth;

- necessary funds for the revival of activity in the real sector.

Which circumstances may produce positive results?

In the process of defining the Econo-mic Policy commitments, following po-ssibilities were considered:

- Decrease in impact of external fac-tors created by the economic and finan-cial crises;

- strengthening possibilities and prefer-ences to travelling in situation of fina lized recession process, impacting the strength-ening of the foreign tourist demand;

- stability with respect to the level of inflation relieved from inflationary expec-tations;

- More favorable conditions for pos-sible arrangements for the financial sup-port of international financial institutions;

- support and positive attitude to pro-gress in the process of joining the eu.

Given the circumstances, what is the essence of the development concept for 2010?

the concept of the economic Policy of Montenegro for 2010 is aimed at sta-bilizing the general conditions in repro-ductive trends and raising the level of economic activity, which should provide for the real economic growth. one of the features of the development scenario, regardless its implementation in a nar-row framework, assumes fiscal policy orientation focused on supporting en-trepreneurship in the sector of small and medium - sized businesses, and provision of special incentive measures through the banking sector for the re-alization of profitable projects providing increased sales, volume of services, pro-duction and new employment. Fiscal pol-icy will be directed to achieving the fol-lowing: maintaining the macroeconomic stability, provision of sustainable public finance system, transparency improve-ment and control over public resources consumption, attracting foreign direct investments, creating conditions for fur-ther reform of public administration and extending the tax base, adhering to de-termined tax policy principles.

construction works of the highway, road risan-zabljak, regional water sup-

ply system and attracting potential in-vestors for the realization of projects in the energy sector, tourism, etc., as well as the realization of local infrastructure - related projects within the capital bud-get limits along with the use of loans from international financial institutions, aimed at maintaining the investment interest in this area, creating conditions for more intensive investment activity in the forthcoming years.

Provision of liquidity of the system, represents the top priority in the process of restoring economic activity. Incen-tives to credit activities of banks and measures aimed at reprogramming out-standing liabilities on the basis of loans in the economy and households sector, will create conditions for aggregate de-mand strengthening.

In the light of the above, inflation in the absence of inflationary expecta-tions, is projected at the annual level of 2.0%. Support to the programmes for the strengthening of competitiveness and export, should create conditions for gradual recovery of volume and struc-ture of economic relations with abroad, providing positive effects to relations within the current account balance.

In some enterprises will be resolved the problem of employees proclaimed redundant, slowing the employment gro wth rate trend and generating the in-crease in unemployment rate.

strategic orientation is focused on co ntinuation of the process of joining the eu and the euro-atlantic integration. co nsistent application of obligations set forth in the Interim agreement on trade and trade - related Matters and the national Programme for Integration of Montenegro into the eu, with the co-operation within the framework of joint working bodies with the eu, will provide the improvement of the level and quality system solutions compatibility with the EU standards. Expected positive attitude regarding the Questionnaire for obtain-ing the opinion of the european commis-sion’s request for the eu membership should open the possibility for acquiring

12


candidate status and prospects of ac-cession negotiations on membership.

comprehensive review of general conditions and opportunities which will affect development possibilities in 2010, indicating that the basic goal of the eco-nomic Policy for 2010 is as follows:

Creation of conditions for stabilizing and generating economic growth, where-as the priority is to ensure liquidity and to strengthen competitiveness.

the system of individual goals gen-erating interaction of basic objective of economic policy is essentially based on the orientation to support entrepreneur-ship and entrepreneurial initiative within the small and medium – sized enterprises providing for the new investments gener-ating development potentials in 2010. It is accounted for that the measures set forth in the action Plan aimed at reducing busi-ness barriers will significantly affect the creation of the doing business environ-ment. consequently, the individual eco-nomic Policy objectives are focused on:

1. Decline in public consumption and the business environment improvement;

2. creation of conditions for the imple-mentation of new Greenfield investments in tourism and energy sector potentials;

3. Development of less developed re-gions and rural areas;

4. continued provision of incentives to entrepreneurship, along with the im-plementation of activities for the optimi-zation of industrial systems, particularly small and medium – sized enterprises.

Macroeconomic indicators prospec-tus for 2010 represents integral quantita-tive dimension of the concept of the eco-nomic Policy of Montenegro for 2010.

basic macroeconomic trends esti-mates are based on transferred effects of economic and financial crisis and its reduction during the second half of the year, with the creation of conditions for the revival of economic activity, suggest-ing that 2010 will represent the year of recovery with objectively possible and real growth in gross domestic product

at a rate of 0.5%.. In accordance with the economic and Fiscal Programme of Montenegro 2009 – 2012, the devel-oped concept of the economic Policy of Montenegro is envisaging the model with rigid option and the real decline in GDP at rate of -2,0 % .

Decelerated recovery of aggregate demand in conditions of low levels of eco-nomic exchange with abroad and limited external influence in terms of overcoming recession trends, will condition the main-taining of inflation at a level of 2.0% with the absence of inputs that could gener-ate inflationary expectations.

solving the problem of employees proclaimed redundant in various com-panies, among other things, will condi-tion the growth of unemployed persons (1.0%), and subsequently it will slower the employment growth (0.3%).

Investment works on initiated capital infrastructure – related projects (roads, water supply, etc.), infrastructure proj-ects for the treatment of waste and wastewater on local and regional level, within limited capital budget framework, with the use of loans from international financial institutions will provide for the maintenance of investment activity. sta-bile and improved business and invest-ment environment will be used to create conditions for activation of investment projects, valorization of resources in

energy and tourism. Foreign direct in-vestments are projected at the level of around 400 million €.

Required balancing of public finance stability and budgetary consumption will dictate the stock of external debt of 856, 2 million € representing 26, 7 % of esti-mated gDP.

What determined macroeconomic framework and supporting implemen-tation instruments represents for chal-lenges imposed by the crises?

the development concept of the eco-nomic Policy for 2010, focused on stabili-zation of general conditions and creation of conditions for the revival of economic activity, with required measures aimed at budgetary savings and rationalization measures, decrease in public expendi-tures and active support to small and medium – sized enterprises and new investments projects, are set with the objective of preserving achieved results of economic system transformation dur-ing the crises. In such circumstances, it may be concluded that the document is not only a valid answer to the challenges imposed by the crises, but the required and rational choice towards definite de-velopment perspectives.

Mr. borislav RATKOVIć, Deputy Minister for

Economic Policy and Development

13


With the objective of regulating cer-tain needs implying economic, social, hu-man, courtesy (diplomats) features, the modern customs legislation regulates the institute of customs concessions. In our legal system, this institute is regulat-ed by the Customs Law (“Official Gazette of the roM “, no. 07/02…66/06 and the “Official Gazette of Montenegro “, No. 21/08) and the Decree on the procedure for exercising the right to exemption from customs duties (“official Gazette of the roM “, no. 22/03).

Exemption from Customs Duties

Provisions of the article 184, of the customs Law, enumerate types and the purpose of goods subject to the exemp-tion from customs duties, relating to the following:

- for goods specified by an interna-tional agreement which is binding for Montenegro;

- for goods of non-commercial nature which are brought in by travelers from abroad, and which are of prescribed kind, value and quantity;

- for goods satisfying basic human necessities, such as food, medications, clothes, bed linen, toiletries, and simi-lar, which are imported by registered humanitarian organizations for the pur-pose of their distribution free of charge to the vulnerable categories of people and victims of natural and other catas-trophes;

- to humanitarian organizations, as-sociations of blind and deaf or hearing-impaired persons, persons suffering from muscular or neuromuscular disorders and their members that import, specific aids, devices, instruments, spare parts and consumable material for needs of

these persons;- for goods which are brought in as

an investment by a foreign party in ac-cordance with a special law,

- for equipment imported by the pub-lic authorities for the purpose of perform-ing their activities which is not produced in Montenegro,

- goods being sold in duty free sho-ps.

goods released for free circulations which have been granted an exemption may not be sold, lent, given for use to other persons or used except for the purposes on the basis of which it was exempted. These goods may not be pledged, rented, or provided as a secu-rity for other obligations without prior no-tification to the Customs Office and pay-ment of customs duty, before the expiry of three year period from the day when they were released for free circulation.

treatment of goods in any of the aforementioned manners will entail pay-ment of customs duty at the rate appli-cable on the day of the treatment of the goods of such nature and customs value as that determined or accepted by the Customs Office on that day.

Following products are exempted from customs duty: sea fishing and other products extracted from the sea outside the territorial waters of Montenegro, the vessels which are registered or entered in the registry of Montenegro, sailing un-der the flag of Montenegro, as well as products obtained from aforementioned products, on ships - factories.

although this issue is not directly covered, it should be considered that do-mestic goods exported from the customs territory and which within two years re-turned to the customs area and released in free circulation is subject to exemption from customs duty at the request of the applicant.

The procedure for Exercising Rights

The procedure for exercising rights to exemption from customs duties is regulated by the Decree on procedure for exercising rights to exemption from customs duty. the procedure is initiated by submitting the request to a customs office in charge (being communicated orally or in writing). Following the sub-mission of the request, the customs authority is passing the decision, if not otherwise prescribed by the Decree. If an oral customs declaration is being approved, the customs authority may decide to exempt goods from customs duty by entering the note in another customs document submitted for the

Customs Concessions

Mitar Bajčeta

14

purpose of obtaining the right to exemp-tions from customs duty.

In accordance with the Decree, it is necessary to submit the certificate of a competent authority the certificate will be annulled if its issuance period certifi-cate is exceeding six months.

Apart from the procedure for exercis-ing the right to exemption from customs duty, the Decree prescribes authorities in charge of issuing required certificates for exercising of this right. Moreover, the Decree prescribes the value of goods1, i.e. stipulating types and quantities of goods subject to customs relief.

Other Exemptions

Apart from exemptions prescribed by the Law on customs, in accordance with the Article 41, of the Law on Scientific Research Activities (“official Gazette of the roM “, no. 71/05) the equipment for scientific – research activity being donat-ed from abroad or purchased in abroad is exempted from customs duties.

Moreover, in accordance with the provisions of the Law on Free zones (“of-ficial Gazette of the RoM “, No. 42/04 and the “Official Gazette of Montenegro, no. 11/07 and 76/08), customs duty is not charged to goods entering the free

zone, used or exploited in accordance with this Law, regardless the type of imported goods and its purpose in the free zone, including the goods which an operator and a user is importing for the purpose of constructing and maintaining a facility, infrastructure and equipment in the zone or a warehouse and used in general for the purpose of creating con-ditions for the work and development of the zone and the warehouse.

Mr. Mitar BAJčETA, Independent Advisor I

1 - Apart from goods in the personal luggage being brought in by the traveler for personal needs imported for noncommercial purposes, national travelers are exempted from custom duties for personal objects imported from abroad up to the total value of 150 . Aforementioned exemption do not include tobacco products, alcohol bev-erages and perfumes if such products are entered in quantities prescribed by the Convention on Customs Privileges in Tourism, and if such products are not earmarked for further sale (See the Article 9 and 11, of the Decree).

15


Interface

In addition to legal entities, the states that act, on the financial instrument mar-ket, as independent entities, either as creditors or debtors, have also credibility in international business. International financial institutions, as well as the man-agement of the world’s biggest banks, are very familiar with the risk of corpora-tions, but due to a number of “painful” experiences, they become more focused on their client’s risk - the sovereign risk. In international debtor/creditor relation, the opinion on the stability of a state in debtor structure with regard to the bank-ruptcy default is no longer so strongly supported as it was the case in years before the crisis. In fact, numerous crisis and aggravated situation of debt servic-ing of states resulted in the bankruptcy of giant banks, requiring immediate ac-tions of both the banks and the investors to find the way to set the lending limits to countries. country risk – country risk as-sessment is of extreme importance for foreign investors in years of expansive capital movements. country risk assess-ment is based on political and economic features of a certain country. Political circumstances may cause uncertainty in capability to service debts, while the eco-nomic situation of a country is affecting the timely debt servicing. the objective of the country risk assessment is to es-tablish all determinants that may default servicing of liabilities to a creditor, both the principal and interest of debt.

Credit Rating Agencies

by taking into consideration the im-portance of reliable information on po-

litical and economic circumstances in a country, many institutions are offering, among other services, the country risk assessment. the most important and most recognized institutions globally are: standard and Poor’s, Moody’s Investor service and Fitch ratings. all aforemen-tioned organizations are headquartered in new york with numerous branch of-fices worldwide and analysts performing the country risk assessment based on the arrangement and at the invitation of a government.

With 150 years of business experi-ence, standard and Poor’s is perform-ing credit rating assessment of 123 countries, and national governments. In comparison with other institutions, this agency covers the biggest number of countries in our region. as of 1909, the

credit rating agency Moody’s performs the credit rating assessment aimed at protecting financial market players by providing information to investors. Fitch agency is also one of the most important institutions with a long history of moni-toring the risk of all international finan-cial market players, thus the risk of more than 100 countries worldwide.

aforementioned credit rating agen-cies are performing assessment of gov-ernment’s macroeconomic framework, and at least twice a year are perform-ing audit assessment based on country missions and numerous meetings with representatives of government bodies, independent regulators and private com-panies. grades provided on the basis of unbiased approach represent a reflec-tion of political and economic situation in a country coinciding with all important factors of sustainable management of fiscal and monetary policies, economic growth and the state of play in key eco-nomic sectors. When performing as-sessment, the following parameters are taken into account: the stability of public finance, the stock of public debt, foreign trade exchange, banking sector stabil-ity, vulnerability of the overall economy to turbulent movements. In developing countries, which realized high economic growth rates, risk assessment is inter-relates with the basic features of eco-nomic environment, foreign investments amount, implementation of structural adjustments and political situation and the overall stability of the region.

These organizations are providing ass essment in observed countries, but their assessments are incomparable

Credit Rating Agencies - Country Risk Assessment

Jelena Vojinović

16


and essentially represent almost the same vision of economic and political circumstances. Qualitative long – term assessments ranges from aaa (being the highest credit quality rating symbol) to c (high default risk – unreliable country for investments) i.e. D the rating symbol of Fitch Agency reflecting the high investment risk and high insolvency in observed country.

the table below indicates possible grades of credit rating agencies and their meaning.

table 1: rating symbols of credit rating agencies

Investment – grade ratings standard and Poor’s Moody’s Fitch

stab

leco

untri

es

highest Quality grade (most reliable for investments) aaa aaa aaa

high Quality grade (very high investment reliability)aa+ aa1 aa+aa aa2 aaaa- aa3 aa-

upper – Medium grade (high investments reliability)a+ a1 a+a a2 aa- a3 a-

Medium gradebbb+ baa1 bbb+bbb baa2 bbbbbb- baa3 bbb-

vuln

erab

le

coun

tries

Lower – Medium grade (possible speculative risks)bb+ ba1 bb+bb ba2 bbbb- ba3 bb-

Law grade (speculative)b+ b1 b+b b2 bb- b3 b-

unce

rtai

n co

untri

es

very poor quality grade (uncertainty for investments due to frequent speculations)

ccc+ caa1 ccc+ccc caa2 cccccc- caa3 ccc-cc ca ccc c c

complete uncertainty for investmentssD DDDD DD

D

on the basis of the methodology of standard and Poor’s agency it is possible to review economic and political stability of a country, while taking into consideration the overall circumstances that might affect the macroeconomic environment of observed country.

grade AAA indicates extreme reliability of a country, high economic environment stability, as well as the country without the credit risk (e.g. united States of America, Singapore, Luxemburg);

grade AA indicates strong reliability of a country, being considered stable and secure for investments, with the low invest-ments risk (i.e. slovenia, japan, Ireland).

grade A indicates good reliability of a country, being considered reliable for investments, with the exception of unpredictable events that might affect the overall economy or some of its industries (i.e. Estonia, Czech, Slovakia)

grade BBB indicates fair reliability of a country of moderate investments security, with possible problems arising due to dete-riorations in economic circumstances (e.g. Croatia, Hungary, Bulgaria);

grade BB indicates reliable country. Financial stability may be appropriate, but the capability to service debt depends on the long - term policy stability. a country being graded by this rating symbol is vulnerable to economic and political circumstances and it is very difficult to predict or forecast the future economic development (e.g. Macedonia, Rumania, and Turkey);

grade B indicates low investments reliability. In these countries, is realistic to expect deteriorations in economic situation. Moreover, the capability to service debts is highly dependant on economic and other circumstances in the country (e.g. bosnia and Herzegovina, Belarus, Georgia).

grade C indicates extremely risky country, due to insolvency, these countries are exposed to the high level of bankruptcy risk, with very uncertain situation relating to the capability to service debt, with the exception of more favorable economic situation occurrence;

17


grades D indicates certain bankruptcy or payment default of a country.grades may have symbols plus (+) or minus (-), indicating certain differences with regard to the stability range of a country.

by taking into consideration the importance of credit rating agencies in providing reliable information for investors, these institutions are facing with criticism. Current financial crisis revealed the vulnerability of the global market, by identifying a num-ber of risks being hidden behind different types of investments. these investment opportunities in years before the crisis were considered or assessed stable, unrisky and reliable, thus numerous capital owners suffered great losses. speculative activities and unreliable risk assessment have caused painful consequences to financial players putting in question the credibility of rating agencies. The question of reducing the inability to predict speculative intentions of many financial market players to the minimum will be answered in years to come bringing new challenges and risks in focus. The confidence in the Credit Rating Agencies de-pends on reliability of their assessment, unbiased data analysis and prevention of all forms of lobbying and conflict of interest. In order to avoid painful consequences of unreliable information, as well as to protect investors, credit rating agencies will have to assume the responsibility for their published data and bear the consequences of their assessments trustfulness.

Country Risk Assessment for the countries in the Region

Credit Rating Agency’s assessments reflect the stability of countries in our region with regard to investments risks, and risk of external debt servicing. Having in mind the historical background, suggesting to instability of this region, the risk assessment for investors is not only reflecting economic stability, but more importantly the political situation of the Western Balkans. These assessments are used by financial institutions, private banks and other creditors in international market and represent a reliable source of information when investing in countries of our region. Long-term credit rating indicates the risk of negative economic trends, primarily the risk of suspended economic growth, reduced inflow of foreign investments and the existence of a large ex-ternal deficit. The following Table indicates the country risk assessment for Montenegro and the region, published by institutions in the last analysis.

table 2: credit rating of Western balkan countriescountry s&P Moody’s Fitchcroatia bbb baa3 bbb-Montenegro bb+ ba3Macedonia bb+ bb+serbia bb bb-albania b1Bosnia and Herzegovina b+ b2

* * *

By considering unstable current economic situation, all countries of the world are exposed to increased investments risk, particularly existing in transitional economies. Countries react differently to assessments of credit rating institutions, but the fact that the rating is conducted at the invitation of a national government is indicating the unbiased approach. It is possible that some governments do not approve or recognize this assessment considering them unreasonable or strict, while in international relations, these assessments is for sure a passport of a country to enter the international financial market. Moreover, the as-sessment represents a personal record on the basis of a country is being dictated the rules of the play, both in terms of access and conditions for the provision of foreign funding sources. county risk assessments provided by these institutions, are the most common source of information for shareholders selecting countries for investments while rotating the world globe in their office located on the top of some of the most beautiful multi-floored buildings. It is not necessary to cross continents and make own risk assessment of a selected country or to determine geographical coordinates, assess political organization of a country, and study the political system of a government, as well as to study the quality of relations with the neighboring countries, the country risk assessment will consolidate all important and required factors for investor to invest billions into the unknown country, sleeping peacefully next night.

Ms. jelena VOJINOVIć, Independent Advisor III

18


resume

• Estimated nominal decline of Montenegrin economy for the first nine months of 2009, amounts to - 4,7 %. The downturn recorder in the first three quarters of 2009, was primarily caused by the significant decline in bank confidence, resulting in the withdrawal of deposits and the halt of bank loans at the end of 2008 and at the beginning of 2009, as well as the fall in the sector of manufacturing by 31 % and retail trade by 9,4 %;

• Current budgetary and state-owned funds revenues for the first eleven months of 2009, amounted to 96% against the budget rebalance plan being lower by 44.5 million €. In September and October, the collection of source revenues significantly improved due to recapitalization and privatization of EPCG, resulting in increase in the liquidity of the economy. In November, the revenue collection was somewhat lower than planned, however being higher than the revenue collection generated in the same month last year, thus the source budgetary revenues of Montenegro will be lower by around 89 million €, than the amount planned by the budget rebalance;

• Inflation rate measured by the customer price index, for the first eleven months amounts to 1,4 %, while the annual inflation rate amounts to 3,6 %;

• The unemployment rate by the end of December amounted to 11,25%;• Estimated real decline of Montenegrin economy in 2009, will amount to 5,3 %, while a mild recovery is envisaged in 2010,

which will depend on meeting the following assumptions:- Banking system stabilization – banking sector balance consolidation, decrease in the percentage of claims, increase in the

level of deposits and restoration of issuing loans to the households and in commercial sector. For example, outstanding tax liabilities of the real sector at the end of December 2009, amounted to of around 85 million €, and this indicator trend is still uncertain in the next year, which may negatively affect the collection of source budget revenues;

- The continuation of the positive trend of foreign direct investments inflow;- Recovery of major economic indicators from mid 2009;• When projecting macroeconomic and fiscal indicators for the next period, the following limiting factors, which in 2010 might

lead into recession should be considered:- Decline in public consumption in 2009 and 2010, with the objective of providing public finance sustainability, will generate

additional economy contractions deteriorating macroeconomic indicators;- Uncertainty of the level of earnings movement and employment, falling behind other economic activity indicators. The fall in

earnings and increase in unemployment is expected to occur in next year.

Macroeconomic and Fiscal Trends Analysis

Vladislav Karadžić Radovan Živković Iva Vuković

19


Macroeconomic Trends

Apart from positive effects of the summer tourist season, expected recovery of the banking sector, as well as recapitalization and partial privatization of EPCG, negative macroeconomic and fiscal trends from the first half of the year continued. The decline in manufacturing continues, recording significant decrease in imports and exports, stagnation in the trading sector and high real sector insolvency. Decline in commercial activity continued generating mild effects being the result of the certain slower down of the economic growth in the forth quarter of 2008, and during 2009 manufacturing suffered a significant decrease, and the financial sector and trade suffered stagnation and decline in activity. On the other hand, the further growth in sectors that have recorded a mild growth is uncertain (agriculture, transport).

A significant recovery of the economy is not expected to occur in 2010, due to the weak diversification of the economy and in the absence of an economic basis that would lead to accelerated sustainable economic growth, and subsequently to the collec-tion of budgetary revenues. gDP projections for 2009 – 2010, presented in the following tables, represent quarterly projections of the nominal and the real GDP by production and expenditure compared to the same quarter last year:

GDP by Production

2008 2009 2010 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4% 2008 % Growth Q/Q

Preliminary data ProjectiongDP by production 29.6 25.5 22.5 9.3 -1.7 -3.8 -7.7 1.5 1.2 1.6 3.9 3.1 agriculture 7.0 -1.0 1.3 2.2 2.8 1.7 0.5 -1.6 0.9 0.3 0.3 0.4 0.5 Manufacturing 10.4 5.7 1.4 2.7 -3.1 -1.4 -2.6 -5.3 0.0 0.5 0.2 0.2 0.4 construction 3.8 0.9 1.7 1.0 0.8 -0.2 -0.9 -0.8 -0.5 0.1 0.1 0.1 0.1 trade 12.0 4.6 3.6 3.1 0.4 0.1 -1.6 -1.6 -0.6 0.4 0.3 0.6 0.5 tourism 3.2 0.3 0.7 1.1 0.2 -0.1 0.0 1.0 0.0 0.0 0.1 1.0 0.0 transport 13.0 7.9 8.9 3.8 3.6 -0.2 3.1 4.2 1.3 0.9 1.1 1.3 1.1 Finance+real estate 16.1 3.9 3.4 2.7 3.0 0.6 0.5 0.4 0.5 0.6 0.5 0.8 0.8 Public administration 16.3 3.0 2.6 2.1 2.3 1.1 0.8 0.7 0.8 -2.0 -1.8 -1.3 -1.4 Taxes-subsidies 18.6 4.3 2.0 3.7 -0.5 -3.2 -3.7 -4.7 -0.9 0.5 0.7 0.9 1.0

.

GDP by Expenditure

Expenditures components 2008 2009 2010 2008 2009 2010

% 2007 sectoral nominal growth % Growth gDP assessment 100.0 18.9 -3.2 2.5

households 76.8 18.1 -8.7 4.7 13.9 -6.7 3.4 Investments 28.0 20.7 -48.4 23.8 5.8 -13.8 3.6 government 27.6 18.0 6.0 -10.0 5.0 1.6 -3.0 Net export -32.5 18.0 -48.3 8.4 -5.8 15.6 -1.4 Import 46.5 -1.7 -24.0 10.4 -0.8 -9.2 3.1 Export -79.0 6.4 -35.1 9.7 -5.1 24.8 -4.6

As it may be noted from the Tables, the GDP by production and the GDP by expenditure, participates with 75% in the total GDP figure. It is estimated that the decline in nominal GDP in the first three quarters amounted to 4.7%, being mainly a result of a significant decline in manufacturing and mining (in the first 9 months the decline amounted to 24% compared to the same period last year) and sector of services. At the level of the entire 2009, it is estimated that the nominal GDP will fall by 3.2%, while the real decline of Montenegrin economy will amount to 5.3%.

20


As for the GDP by expenditure, the surge in aggregate demand in Montenegrin economy, which began in 2007 continued dur-ing the biggest part of 2008, and it halt in the last quarter of 2008, primarily due to the stagnation in bank credits and negative expectations for the future period. This trend continued in 2009, with recorded decline in the first three quarters but the stabi-lization is expected at the end of the current year being the result of generated positive effects of the tourist season and EPCG privatization. Aggregate domestic demand in 2009 was by about 16% lower than the year earlier.

In 2010, it is realistic to expect the economic growth in the manufacturing sector (aluminum and steel) participating with 60% in production, and on the basis of the Budget for 2010, subsidies are provided for electricity and state guarantees for the continuation of production. a positive signal for the recovery of this sector is the increase in aluminum price (at the end of De-cember the price of aluminum is at the highest level since the outbreak of the crisis). however, the production growth is linked to manpower surplus which will decrease budgetary revenues at the same time increasing expenditures related to the issue of employees proclaimed redundant.

Economic Activity Indicators

The Ministry of Finance has identified several key indicators of economic activity, which to a considerable extent are indicating the economic activity trends, which may be monitored on a regular basis or with small delay. these are: implemented payment operations, retail trade, activity indicators in the banking sector, employment commodity exchange and the level of foreign direct investments.

i i

i e y In 2010 it s rea istic o expec he economic growth in he manufact and stee ) par ic pating ith 60% in p od c i n, nd the as s

roduction A positiv sig for the covery of this sector is the nc e

(at t e end Dec m t pric nu is t t h g est leve the isis However the p oduction rowth is inked to m npow

ec as budg ta y re enu s at the same time ncreasing x endit r

y

The M nistry of inance has ident fied seve al key indicato s of econ

600

800

1000

1200

1400

1600

1800

2000

2200

2400

Jan-05

Aug-05

Mar-06

Oct-06

May-07

Dec-07

Jul-08

Feb-09

Sep-09

Payment Operations – is based on the analysis of adjusted seasonalised time series, the payment operations represent one of the most important indicator of the economic activity. In the period from 2005 - 2009, the average level of realized payment operations has shown extremely high correlation with the GDP level, proceeded by one of two quarters. The Graph to the left is indicating the fall in payment operations in mid 2008 (simultaneously with the fall in retail trade), significantly earlier than the decline in economic activity and GDP fall. In the third quarter of 2009, is recorded the significant increase in this indicator, while the date for the forth quarter are indicating expected seasonal fall. The value of generated payment operations in the country for the period from January to November is lower by around 19 %, compared to the same period last year indicating the fall in economic activity. The internal payment operations, representing 60 % of total payment operations, has fallen by 22 %, and inter-banking by 18 %. In the third quarter of 2009, the payment operations intensified, primarily due to recapitalization and partly privatization of EPCG.

Banking sector – sudden fall in aggregate demand was a result of a sudden outflow of private sector deposits from the bank-ing system, around 600 million € of deposits were withdrawn from the banks, causing stagnation in bank credits in the real sector and households. It is unknown what was the amount of deposits used for consumption, which stimulated the growth of the ag-gregate demand during this year, and subsequently the economic growth, as well as unused deposits amount with the possibility of return into the banking sector.

Payment operations – seasonally adjusted trend (in million €)

Payment Operations

21

g October - December 2009 g Bu etin of the Ministry of Finance of Montenegro

It should be emphasized that the level of issued credits already reached an extremely high level, thus it is certain that the stag-nation would have occurred even in absence of the crises impacts and fall in the level of deposits. The level of deposits stabilized in May 2009, and since then, it is indicating stagnation or mild recovery. This outflow was to a considerable extent compensated by increased lending of the banking sector from abroad (loans from mother banks, recapitalization) and interbank funding, but the stagnation of credit activity of domestic banks continues. this situation represents a potential threat to the rea sector be-cause the banking sector was one of the two main generators of economic growth in the period of economic boom (investment in the third quarter of 2008, in comparison with the third quarter of 2006, are about four times higher). the structure of bank credits in the period 2006 – 2008 indicates that financial sectors were in essence the generators of the cyclic revenues (trade, construction, real estate).

nce then i s indicating s ag a on mild rec

credit act vity o domesti banks continues his si uation epresent the re l sector because the an ing ector as one of the tw econ mic g wt i th pe i d o ec n i boom i v t en i e i compar son w h the thi d quarte of 006 are abou fou times hi bank red ts in he per o 006 2008 ndicates th t fin nci sector g n ators of e yclic e ues ( ade c nst u tion, al stat ).

Monetarni Agregati (u mil €)

Privatni krediti

Privatni

Kom. Banke NSA (-)

-500

0

500

1,000

1,500

2,000

2,500

3,000

2005 2006 2007 2008 2009

The halt in the fall bank deposits, relaxing the policy of compulsory reserves by the Central Banks, activating state guarantees with EIB and KfW, EPCG privatization and recapitalization, we may expect improved banking sector liquidity and mild recovery in credit activity, with the exception of outbreak of the new crises in the banking sector.

In this moment it is very hard to envisage a possible recovery of the credit activity, because apart from relatively high current liquidity, banks are consolidating balances. apart form aforementioned, banks are cautious in approving new credit lines due to the assessment of high level of risk reflected by the interest rates policy. The continuation of this process will significantly depend on the percentage of outstanding claims which after the sudden growth in the first half of the year have stabilized in the second half of the year. Most European economies are facing with the same problem, trying to resolve it by imposing more relaxed mon-etary policy and expansive fiscal policy.

comparative data on credit indebtedness of the economy and households are indicating the decline indebtedness trend in relation to 2008. As of October 2009, the real sector indebtedness amounted to 1459.35 million € which is by 8.4% less than at the end of 2008, while the indebtedness level of physical persons amounted to 956.47 million €, which is by 7.3% less than at the end of 2008. average indebtedness level per capita at the end of october amounted to 1.515 €, and per employee capita amounted to 5.560 €. these data are indicating that in 2009, that the return of credit is greater than approved credits.

Goods Trade - negative impact of the global economic crisis, through the decrease in world prices of primary products and the decline of the world demand, especially reflected to the movements in foreign goods trade. The total goods trade with foreign countries for the first nine months of 2009, is lower by 39.2% in comparison to the same period last year. Exports for the nine months decreased by 39.3%, while the imports for the nine months decreased by 39.1%. According to the Monstat’s data and special trading system, Montenegro in the period january-september 2009 achieved total goods trade with foreign countries in the amount of 1247.30 million Euros, out of which exports amounted to 208.28 million Euros, while imports amounted to 1205.03 million Euros. The balancing of goods trade with the exports amounted to 17.3%. The fall in exports of about 135 million € is mainly the consequence of the decline in export of iron, steel and aluminum. Recently this indicator is indicating the lower correlation with the gDP trends, due to the change in the revenue structure, thus the retail trade is more reliable indicator.

Monetary aggregates (in million €)

Citizens Loans

Citizens Deposits

22


e

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

jan.01

avg.01

mar.02

okt.02

maj.03

dec.03

jul.04

feb.05

sep.05

apr.06

nov.06

jun.07

jan.08

avg.08

mar.09

okt.09

mil. €

Retail Trade Turnover – represents very important indicator of economic activity presented in a monthly retail trade turnover level. In the period from 2005 - 2009, the average retail trade turnover (see the graph) started to fall sharply from august 2008. In June 2009, the fall in turnover halts. In November 2009, occurred expected seasonal decline in turnover, but the seasonally adjusted trend indicates stabilization, which is indicating the stabilization of economic activity in the last quarter of 2009. The indebtedness level of this sector is of around 600 million €, which may represent a burden to a potential growth, as well as a source of instability if macroeconomic indicators deteriorate.

Foreign Direct Investments - Net inflow of foreign direct investments, is the second economic growth generator in the boom period, in the period from january to october 2009, according to preliminary data of the central bank, FDI amounted to about 800 million Euros. The total inflow of foreign direct investments in Montenegro in the observing period amounted to 541.6 million Euros. The FDI inflow structure has significantly changed in comparison to previous years when investments in real estate were dominant. Investments in domestic companies and banks have increased which in the first eight months of this year amounted to 330 million Euros, being by 62.6% higher than in the same period last year, and the biggest amount was generated from the sale of shares of EPCG and recapitalization of banks. In 2010, it is planned to invest in several projects (highway Bar Boljari, Lustica, Port of bar, Port of Montenegro, mini-hydro power plants), whose effects will be visible only in the medium term.

Employment - the employment level is one of the most important indicators of economic activity in all countries, if not the most important, especially in those countries having the high share of private consumption in gDP, as is the case with our economy. at the end of September 2009, Montenegro was officially employing the total of 174,418 persons, which compared to the same period last year represents the increase of 5.5%. It should be noted that the amendments to labor regulations in 2009, have equalized rights and obligations of nonresidents with the domestic manpower. since the beginning of 2009, nearly 17,000 working permits for non-residents were issued, which significantly influenced the employment growth in the sectors of construction, tourism and retail trade, while at the same time the sectors of industry and mining have recorded the decline by around 12%. It is extremely important to emphasize that the unemployment rate falls behind other indicators of economic activity (the unemployment rate shows the growth tendency since the end of August). Having in mind aforementioned, in next year is expected the increase in unemployment, which will negatively affect aggregate demand and generate increase in overdue loans in the banking sector.

Fiscal Trends

Current budgetary and state - owned funds revenues for the first eleven months of 2009, were generated by 96% in relation to the plan on the basis of the budget rebalance, and are lower by 44.5 million €, compared to the plan. generated revenues in september and October due to improving liquidity of the budget and economy overcame expectations, while in November generated revenues fail to meet the plan. achieved revenue level in this year corresponds to the level of structural revenues of Montenegrin economy at this stage of development. Due to the crises and subsequent liquidity problem, revenue collection is lower by about 50 million €, against evaluated collectable revenues, thus source revenues in 2010 may not overcome projected amounts in 2009. the Ministry of Finance assumed that the budgetary revenues of Montenegro for 2009 will be generated in the amount of around 1.16 billion €.

We can expect the growth in structural revenues only after the implementation of major greenfield investments, primarily in tourism and energy sector, providing additional incentives for the development of small and medium – sized businesses that will certainly trigger the development of our economy. the following table indicates the projection of source revenues of the budget of Montenegro and state – owned funds for 2010, compared with the planned budget rebalance for 2009:

Retail Trade Turnover

23


source revenues of the budget of Montenegro and state – owned Funds 2010/2009

Descriptionrebalance 2009 Projection 2010 Deviations 010/09

Mil. € % GDP Mil. € % GDP Mil. € % GDP

source revenues 1253.62 38.67 1164.89 36.39 -88.72 -2.77

Taxes 768.18 23.69 746.27 23.31 -21.91 -0.68

contributions 337.33 10.41 323.93 10.12 -13.4 -0.42Duties 22.05 0.68 22.04 0.69 -0.01 0.00Fees 33.62 1.04 32.45 1.01 -1.17 -0.04other revenues 44.03 1.36 33.36 1.04 -10.67 -0.33receipts from the repayment of loans 48.41 1.49 6.84 0.21 -41.57 -1.30

We can notice from the table that the decline in source revenues compared to the planned revenues on the basis of the budget rebalance is by 88.7 million € or by 2.8% of GDP. In relation to the originally planned Budget of Montenegro for 2009, the decline in source revenues amounts to 316 million €, or 9.75% of GDP. It is important to point out that in 2009, the structure of source revenues changed compared to the last year. Namely, increase in direct taxes (income tax and contributions) in total income is evident, simul-taneously reducing the share of indirect taxes. In 2009, the growth in earnings continued and increase in employment, which led to the increase in direct taxes, while, mostly due to the decrease in imports of almost 40%, there was a reduction in revenues on the basis of the VAT on imported goods and taxes on international trade and transactions. In previous years, due to the high percentage of vat on imported goods, the structure of total collected vat was 75:25 - vat on imported goods: vat in internal sales, while in this year, primarily due to the reduction of vat on imported goods, this ratio have changed to 63:37.

Macroeconomic and Fiscal Projections in Other Countries

According to the assessments of the International Monetary Fund for 2009, a fall in the European Union countries is expected by 4.2%, while the following countries will have the biggest decline: Croatia by 5.2%, Slovenia by 4.7%, Serbia by 4.0%, Bosnia and Herzegovina by 3.0% Macedonia by 2.5% of GDP. The European Union recorded growth in unemployment rate by 9.7%, for the first nine months of 2009, while in the Euro zone countries the unemployment rate amounted to 9.2%. Further growth in unemploy-ment rate was recorded in the countries in the region, thus in Croatia recorded 15%, while Slovenia in September recorded 9.4% of the unemployment rate.

It is assessed that the budgetary deficit in 2009 in the EU member states will amount to 6.9% of GDP, while the biggest deficit in the countries in the region will have: Slovenia 5.9% of GDP, Bosnia and Herzegovina 4.7% of GDP, Serbia 4.5% of GDP, Croatia 3.5% of GDP, and Macedonia 2.8% of GDP.

The following Table indicates the projection of basic macroeconomic and fiscal indicators for 2009, according to the EBRD:

InDIcators Montenegro croatia estonia Latvia slovenia albania b&h Macedonia serbiaaverage of transitional countries

real gDP growth -4,1 -5,4 -13,2 -6,5 -7,8 3,0 -3,1 -1,6 -4,0 -6,2Inflation 1,8 2,5 0,3 3,6 1,8 1,7 3,0 -0,4 8,3 3,5Surplus/Deficit -3,0 -3,3 -3,0 -10,0 -5,5 -6,3 -4,0 -2,8 -4,5 -4,2current account Deficit -22,8 -8,5 2,7 -3,0 -2,4 -14,5 -9,6 -11,9 -12,9 -4,9

net sDI (in million U.S. $) 638 2731 -50 300 -250 650 600 300 1.400 50.249

Mr. radovan ŽIVKOVIć, Independent Advisor I,

Mr. vladislav KARADŽIć, Independent Advisor I,

Ms. Iva VUKOVIć, Senior Advisor

24


at a session held on 29 july 2008, the Parliament of Montenegro adopted the Law on administering temporarily and Permanently Seized Property that was published in the Official Gazette of the republic of Montenegro, no. 49/08. the aforementioned Law has come into force on 1 january 2009.

this Law regulates the manner of ad-ministering and managing temporarily or permanently seized property in criminal or administrative offence procedure. In ac-cordance with this Law, the property con-sists of money, movable property, immov-able property, valuables (gold, precious metals, gems, pearls and other articles of value), other property rights, securities in accordance with law, other documents proving the ownership right on property and other material gain acquired by crimi-nal or administrative offence.

administering the property, in ac-cordance with the Law on administer-ing Temporarily and Permanently Seized Property, includes appraisal of seized property, keeping of seized property, returning and selling of seized property, depositing monetary funds acquired by the sale of the seized property, keeping records on the seized property and other activities in accordance with law. these activities are performed by the adminis-tration body in charge of management of the state property, i.e. Property adminis-tration formed in accordance with the Law on state Property, article 20, which was published in the Official Gazette of Montenegro, no. 21/09.

this body is in charge of keeping unified records and registry of the state

property; ensuring the intended-use of the state property; attending to the prop-erty which becomes the state property by operation of law; providing for affairs of entry into cadastre, allotment, delin-eation, exchange, preparation of draft contracts and monitoring implementa-tion thereof; collection of rent and other affairs with regard to the state property; providing for conditions for the protection of the property, performing other affairs as well, as instructed by the government and the Ministry of Finance.

In accordance with the Law on admi-nistering temporarily and Permanently Seized Property a court or body in charge of conducting administrative offence pro-cedure is obliged to submit to the Prop-erty Administration a final and binding de-cision on permanent seizure of property

or decision on temporary seizure of prop-erty. the Property administration shall be obliged to guarantee the maximum preservation of the value of the property seized in criminal procedure or adminis-trative offence procedure in a cost-effi-cient manner. also, the Property admin-istration may sell the seized property, in accordance with Law, in order to preserve its value. the Property administration may delegate the management of seized prop-erty to an organization or institution that is registered and that meets the require-ments prescribed by Law for managing that type of property. In this case, rights and obligations are regulated by a con-tract concluded in accordance with Law. In such a case, the Property administra-tion supervises the management of the designated property.

the Property administration trans-fers temporarily seized property that has historical, artistic and scientific value to specialized institutions until the decision becomes final and binding. Permanently seized items of this type are becoming state property and they are given to a specialized institution determined by the Ministry of culture, sports and Media for the purpose of keeping them.

the Property administration trans-fers temporarily seized foreign currency, foreign currency cash, as well as valu-ables to the central bank of Montenegro that will keep them until the decision becomes final and binding. Permanently seized valuables are becoming the state property and they are kept in the man-ner determined by the regulations of the Ministry of Finance. to that end, the Ministry of Finance of Montenegro has

Law on Administering Temporarily and Permanently

Seized Property

Milanka Otović

25

developed a rulebook on the Manner of Keeping Permanently Seized Valuables.

In case of temporarily seized immov-able property, the Property administra-tion is obliged to take measures for its keeping and maintenance. the Property administration bears costs of keeping and maintaining temporarily seized pro-perty until the decision becomes final and binding.

Immovable property that is perma-nently seized by a final and binding court decision shall become the state prop-erty.

the Property administration sells se ized movable property at its market va lue. the sale is done through public auction, and seized movable property cannot be sold below estimated market value determined by a competent body, except when the property is sold by di-rect negotiation.

Management and sale of securities are done in accordance with the law reg-ulating securities.

Provisions of the law regulating enfo-rcement procedure apply to the proce-dure of selling the seized property, unle-ss the Law on administering temporarily and Permanently Seized Property pre-scribes otherwise.

court or body for conducting admin-istrative offence procedure is obliged to submit to a competent body a final and binding decision on the basis of which temporarily or permanently seized prop-erty is returned. If the seized property is sold, the Property administration is obliged to return the proceeds of the sale. Funds obtained by the sale of the permanently seized property, after the satisfaction of costs associated with ap-praisal, storage, keeping and selling of the seized property, are paid into the Bu-dget of Montenegro.

Property that is temporarily or per-manently seized on the basis of a court decision of a foreign state is managed in accordance with regulations governing international legal assistance.

several seminars and workshops we-re organized regarding the application of the Law on administering temporar-ily and Permanently Seized Property in kolasin within the period from 21 octo-ber 2009 to 24 october 2009, whereas regional Workshop regarding this issue was organized in Sofia, Bulgaria.

Even more efficient application of the aforementioned Law is expected in the following period.

Ms. Milanka otovIc, Independent Adviser III

26


In May 2009, the representatives of the European Commission organized a fact-finding mission in Montenegro in relation to the document “road map of the european commission for the De-centralized Management of IPA funds“ (DIs)’’, concluding that Montenegro is currently implementing the stage 0- es-tablishment of the Management and control system. It is worth mentioning, that the beneficiary country of the EU funds, should go through the six stages,1 in order to be eligible to manage the eu funds independently:

stage 0 - establishment of the Man-agement and control system

Stage 1 - Gap Assessment;Stage 2 - Gap plugging;Stage 3 - Compliance Assessment;stage 4 - national accreditation and

submission of application for the confer-ral of management 2

stage 5 – Preparation for the euro-pean commission’s Decision

Following the fact – finding Mission, it was determined that Montenegro has

to formally go through the stage 1 - gap Assessment, which, based on the expe-rience of countries that undergone the DIs stages, averages three months.

the aforementioned stage should de-termine the extent compliance with the

DIs establishment requirements, to fur-ther undertake certain activities in order to have internal control system function-ing efficiently and effectively. Moreover, this stage comprises the verification of defined operating structures and proce-dures, including procedures on public in-

Gap Assessment in the Process of the Establishement

of the Decentralized Implementation System for

the Management of the Pre-accession Funds

1 - Document of the EC Road Map for Decentralized Management of IPA funds”, April 2009;2 - Article 11 IPA IR - Common requirements: before deciding to confer management powers relating to a component, a programme or a measure on the beneficiary country, the Commission shall satisfy itself that the country concerned meets the conditions referred to in Article 56(2) of Regulation (EC, Euratom) No 1605/2002, in particular as regards the management and control systems established, and that the accreditations as laid down in Articles 12 and 13 are in force.

Nataša Kovačević Bojana Poček

27

ternal and financial control, procurement procedures, performed audits as well as the compliance assessment, as well as to asses to which extent the public inter-nal financial control is harmonized with the european union requirements. In the light of the above, the expected results of this phase represents the analysis of deficiences with regard to some docu-mented procedures, additional trainings for employees involved in this process, etc., to be incorporated in the report.

In order to both implement the stage – 1- gap assessment and to have a de-

tailed review of the current state of play and achieved progress in implementing the Stage 0, the beneficiary country or the Delegation of the european commi-ssion is engaging an independent au-diting company through implemented te nder procedure. thus, Montenegro en g aged kPMg auditing company to perform aforementioned activities which commenced in november.

During their Mission in Montenegro, the auditors analyzed the knowledge de gree of employees with their future activities, their understanding of finan-

cial management and control system of the EU funds, as well as the existence of procedures necessary for the estab-lishment of this system. In this way, they were able to determine the gap existing in Montenegro in obtaining the DIs ac-creditation.

as part of the common work method-ology, during their Mission in Montene-gro, the auditors held several individual meetings with all DIs actors, i.e. senior Programming Officers (SPO) in all line ministries, employees of the Project Im-plementation units in line ministries, rep-

3 - Manual of Procedures, Chapter – Human Resources Management;Confidentiality and Impartiality Statement was developed in accordance with the Code of Ethics for Civil Servants and State Employees (“Official Gazette of Mon-tenegro”, No. 81/05), on the basis of which all employees in any IPA body, are assuming teh obligation to perform the job impartially and confidentially during the implementation of the public procurement procedure. The intention is to avoid abuse of the ex - officio and conflict of interest. Analysis of the workload is a document used to estimate the human resources required to for teh fullfilment of certain tasks and functions, referin to the IPA programme.

28


resentatives of the national Fund, repre-sentatives of the Sector for finance and contracting of the eu assistance funds (cFcu), representatives of the Internal audit unit in the Ministry of Finance, as well as with the representatives of the Ministry of european Integration. afore-mentioned institutions were established for the component I and II of the IPa, as a potential candidate country. the main topics discussed during the meetings, referred to the analysis of defined pro-cedures, i.e. the understanding of the Manual of Procedures, the document being defined for all ministries - future beneficiaries of the IPA funds, as well as the knowledge of these procedures by the employees who will directly use the funds, once the state is accredited for the use of the pre-accession funds. Moreover, the auditors analyzed the existence of appointed structures in all IPa bodies, such as the appointment of: SPO’s, Risk Managers, Irregularity Officer and the coordinators for Manuals of Pro-cedures, and It coordinators – informa-tion technology system policy protection. Within the gap assessment stage, it was necessary to determine the existence and clear definition of job descriptions for all employees in aforementioned ministries, as well as the existence of the plan for future training in this area, and the plan for the replacement of em-ployee, in case of absence. since this is a new area requiring the understand-ing and knowledge of new procedures and skills of employees, auditors paid special attention to provided and future trainings to the representatives of Proj-ect Implementation units, and knowl-edge acquired during performed training in order to determine whether there are instruments to ensure the continuity of the process, and thus avoid the risk of personnel outflow.

During the meetings held with Proj-ect Implementation units, the auditors requested the employees to submit their analysis of workload and signed state-ment of confidentiality and impartiality3. It was concluded that during the meet-ings the special emphasis was placed on the evaluation of human resources by the auditors, both those being directly

involved in the process and the manage-ment structures in managing the pre-accession funds, for each DIs institution individually.

After finishing with all scheduled me etings and gathering the necessary documentation, it is expected that the auditors finalize the Gap Assessment report representing the most important document, containing the explanation of all activities performed by the auditors during their mission, as well all identi-fied deficiences. Moreover, it is expected that the auditors, in addition to the criti-cal review of already defined procedures being subject of their analysis, will pro-vide a realistic opinion on all established structures for DIs in terms of the cur-rent compliance with the accreditation criteria. Their findings should clearly point out all procedures that are not in compliance with established criteria for accreditation, as well as recommenda-tions, in order to undertake all neces-sary activities and to remedy identified deficiencies.

In relation to the structure of the re-port, it is expected that the Report will include sections for each institution and appointed structure individually. these are as follows: cao, nao, nIPac, sPo, national Fund, and the operating struc-tures for the IPa components I and II, including the joint Monitoring commit-tee and the joint technical secretariat and the audit authority. a special section in the report should contain auditors conclusions and recommendations be-ing classified by level of importance and deficiences (large, medium and small), including recommendations to improve the existing situation and to achieve progress in these areas.

After completion of the final report which is expected in late January, the Re-port will be presented to the national ac-crediting Officer (NAO), and after his ap-proval the report will be forward to the ec Delegation in Podgorica, and the ec in brussels for approval. In accordance with the results of the report, the devel-opment of the detailed action Plan will commence for this phase which will in-

clude clearly defined responsibilities and deadlines for the execution of these ac-tivities, the Financial Management and control Procedures Manuals, and audit Manuals. In this way, the action Plan will contain all recommendations and find-ings from the audit report, as well as the deadlines to remedy deficiencies, representing at the same time the next stage in the road Map - gap plugging, whose goal will be to fill the gap between the real situation the state of play of the country in the establishment of the DIs, and the status required by the ec, based on identified deficiencies and provided recommendations in the report.

DIs bodies will be provided with the experts’ help through the project “Stre-n gthening of the Management and co-n trol System for the EU financial assis-tance to Montenegro“, financed from IPa 2009, with the objective to remedy identified deficiencies during the Gap As-sessment.

Conclusion

the importance of the stage 1 - gap assessment is foreseen in a realistic as-sessment of the system related to the current human resources and current legislation for obtaining the DIs accredi-tation. timely and successful remedy of identified deficiencies in this stage will provide for the compliance with the deadlines set forth in the national road Map for Introduction of DIs for the IPa component I and II, and therefore the at-tainment of the final goal envisaged in independent management of aforemen-tioned funds.

Ms. nataša KOVAčEVIć, Deputy Minister,

Ms. bojana POčEK, Independent Advisor III

Sector for Finance and Contracting of the EU Assistance Funds

29


Foreign exchange savings, i.e. so called old foreign currency savings, are the savings that citizens, by 18th March 1995, deposited to deposit accounts and foreign currency bankbooks, which than banks deposited with the national bank of yugoslavia. Montenegro is obliged to compensate the foreign exchange cur-rency savings to citizens who deposited amounts with authorized banks in Mon-tenegro and citizens who deposited sav-ings with authorized banks headquar-tered outside Montenegro.

The payment of foreign exchange currency savings with authorized banks in Montenegro is made in accordance with the the Law on regulating obliga-tions and claims in respect of foreign debt and citizens’ foreign exchange sav-ings and the Decree on conversion of citizens’ foreign exchange savings. The payment of bonds of converted foreign exchange currency savings is made in installments maturing on 1. july 2004 to 2017. as of 1st july 2009, the payment of sixth installment of bonds of convert-ed foreign exchange currency savings is made through the commercial banks and the central bank of Montenegro – regional centers.

The owners of foreign exchange sav-ings who failed to withdraw the first in-stallment and do not have the certificate of converted foreign exchange currency savings in bonds, need to address to the bank in which they held deposits (Prva banka Montenegro – former owners of deposits of Nikšićka banka, Atlasmont banka – for former owners of deposits of beranska banka, societe general group – for former holders of deposits of Podgorička Banka, and Pljevaljska banka and).

Former owners of deposits of Monte-negrobanka jsc Podgorica and jugoban-ka jsc Podgorica should address to the central bank of Montenegro – regional centers.

the liability of Montenegro on the ba-sis of the payment of bonds amounts to 137,2 million €, out of which up to 31st no-vember 2009 was paid the total of 55,3 million €, (38,4 million € in cash and 16,9 million was paid in bonds). the outstand-ing liability amount is 81,9 million €.

however, there is a number of citi-zens residing in Montenegro that de-posited foreign exchange savings with authorized banks headquartered in former Fry countries. these countries have adopted laws on the basis of which in the stock of public debt they have in-corporated only the foreign currency sav-ings of their citizens, i.e. citizens resid-

ing in their country. Laws of former Fry prescribe two criteria for determining the right to the payment foreign exchange currency savings: headquarters of the bank and the residence of citizens, thus a part of citizens residing in Montenegro are now in unfavorable position against those citizens who deposited their for-eign exchange currency savings with banks headquartered with former Fry countries. therefore, with the objective of protecting the interest of the citizens who failed to exercise the right on the basis of the laws of the state on which territory the bank is headquartered, Montenegro passed the Law on payment of foreign exchange currency savings de-posited with authorized banks headquar-tered outside Montenegro. the Ministry of Finance passed the Instruction on the manner of realization of payment of foreign exchange savings deposited with authorized banks headquartered out-side Montenegro. requests for the pay-ment of foreign exchange savings were submitted to the crnogorska komerci-jalna banka up to 6th january 2008, or 30th May 2009, and payment is made in installments each 1st july up to 2017.

Liabilities of Montenegro on the ba-sis of payment of bonds amount to 34,4 million € and up to 31st november 2009, it was paid the total of 6,7 million € (6,1million € in cash and 0,6 thousand € of bond was bought out). the outstand-ing debt amounts to 27,7million €.

Apart from realization of bonds within the maturity date (1st july in maturing year of bond), foreign exchange savings bonds acquired on the basis of aforementioned laws may be used prior to maturity data on the for the purchase of: shares of state enterprises and enterprises owned by the

Citizens’ Foreign Exchange Currency Savings

Marina Popović

30

Pension and Disability Insurance Fund and the employment Fund in the privati-zation process, purchase of apartments, residential premises, business premises, terrain or other property in state owner-ship, payment of tax liabilities of the Bud-get of Montenegro in the current year, may be sold on the stock exchange through au-thorized persons on the securities market (brokers), as well as to buy-out citizens’ foreign exchange currency savings matur-ing in 2016 and 2017, at the highest price of 0,50 €.

Moreover, citizens residing in Monte-negro who failed to exercise the right to repayment of deposited foreign currency funds on the basis of the headquarters of banks are in unfavorable position compared to citizens of a country where banks and company jugoskandik jsc is headquartered, since they have de-posited their funds on the basis of the contract on business – technical coop-eration with the banka privatne privrede jsc Podgorica.

the republic of serbia has protected the interest of its citizens – deponents of aforementioned banks - by adopt-ing the Law on the basis of which their uncollected fixed – term deposits were

transferred into the public debt stock. the documents on deposited foreign currency deposits of the citizens are submitted to the commercial court in belgrade, bankruptcy proceeding of the company jugoskandik jsc was initiated before this court. by adopting the Law on payment of foreign exchange assets de-posited with the Dafiment Bank JSC Bel-grade and the banka privatne privrede Podgorica deposited through the com-pany jugoskandik DD belgrade provided the legal basis for the payment of foreign currency assets of citizens deposited with these banks. The Law defines the payment of foreign exchange assts as unpaid fixed – term deposits decreased by amounts of calculated contractual interests and amounts of executed pay-ments up to 4th april 2008.

The Law sets forth that the citizens of Montenegro are acquiring the right to payment of foreign exchange assets following the date of determining the amount of foreign exchange assets. right to payment is determined on the basis of the request of the deponent, supported by the contract on time de-posits of foreign currency assets (for Dafiment Bank), the Contract on time deposit of foreign exchange savings and

bankbook (for banka privatne privrede DD Podgorica deposited through the company jugoskandik DD belgrade), as well as the proof of residence. on the basis of aforementioned documents submitted to the bank and other avail-able documents, right to payment and the amount of foreign currency assets is determined by the commission of the Ministry of Fiannce issuing a certificate.

When developing the Law and following the adoption of the Law, the cooperation was achieved with the representatives of the Ministry of Finance of serbia and the National Bank of Serbia expressing the readiness to make available the data on deponents residing in Montenegro to the Ministry of Finance. however, the Ministry of Finance of Montenegro did not receive required documents for determining the right to the payment of foreign exchange currency deposits, and therefore the com-mission of the Ministry of Finance still did not start to issue certificates thus it is not possible to start with the payment of funds of the owners of contracts with the aforementioned banks.

Ms. Marina POPOVIć, Independent Advisor I

31


Did we ever ask ourselves what are the stages of the decision making process in one economic system? how the decision was made, e.g. to adopt the law or to establish a body? Whether the decision was made at the initiative of one or several institutions in the system? What is the procedure preceding the decision-making process - whether the analysis was made to review the adva ntages and disadvantages, costs and benefits, brainstorming or it was brought ad hoc?

all these issues, in the last decades of the twentieth century, become par-ticularly important in the so called pe riod “reregulation”. namely, most go ve rnments of developed countries ha ve found themselves in a situation when the current regulation is too lar-ge becoming a major administrative burden, particularly for conducting bu-sin ess. In this situation, governments ha ve suffered consequences or entered traps of their own bad or inappropriate decisions in terms of regulation. For this reason the need emerged to search solutions, or new tools or techniques contributing to increase in the quality of decision making process from the as pect of introducing new analysis and justification of the existing regulation.

In these circumstances, in 80’s of the previous century, the oecD countries have initiated with the application of so-called rIa - regulatory Impact asse ssment or the analysis of the regulatory effects (hereinafter referred to as: the “rIa”).

rIa represents the tool, or the me-thod used to analyze possible effects of new regulations or its amendments, applied to the overall system. this me-

thod is based on a series of steps whi-ch, providing systematic answer to the question whether new regulation or amendments to the existing ones will meet desired effects. During the imple-mentation of such process, major or side effects of regulations are being ide ntified, and if possible, it quantifies the potential implementing costs and benefits of analyzed regulation to citi-zens, business community and the sta-te. the rIa includes the provision of info rmation to the decision makers and all stakeholders on the results of the analysis. In the light of the above, the objective and the role of rIa is to make the regulation allowing for the adoption whose benefits exceed the costs of imp-le mentation.

on the basis of best practices in co-untries implementing rIa, it is consi de-

red that its essence is reflected in the following:

- Posing “real“ questions during the review of the idea on the need for new or amendments to the existing regulations, as well as during the development pha se;

- Organization of the process of ana-lysis of regulation applying appropri ate methods and procedures by a competent authority;

- Information exchange between deci-sion makers and stakeholders;.

The document “Inflation Impact Asse-ssments” is considered to be the first rIa document, created at the request of carter administration in the u.s. in 1978. rIa was further developed during the reagan administration, when the preparation of the “cost benefit” analysis became binding. australia is another country being among the first ones in establishing rIa in 1985. From mid nineties and now on, all oecD member countries are applying rIa. the need for introducing rIa is strongly promoted by the World bank, in communication with its clients. as the result of the above, the number of developing countries that have implemented rIa is constantly growing.

For quite a wile, rIa represents a ma-n datory part of the preparation stage of regulations for all eu states, while in some countries it is present for more than twenty years. the importance of rIa implementation in the european union became more important after publishing so-called Mandelkern group report1.

the obligation of preparing rIa, is usually contained in rulebooks on work of the member states governments, su-ppo rted by the list of questions to be

Regulatory Impact Assessment (RIA)

1 - Mandelkern’s Report provides recommendations both at the governmental level of the member states and at the level of the European Commission. In the Report, the RIA was identified as one of seven areas representing the basis for improved regulation. Moreover, it was concluded that RIA should represent an integral part of the policies development and implementation process at all levels.

Bojana Bošković

32


answered or principles and guidelines on how to implement the analysis. obl-igation itself does not mean that all member states are meeting it in a pro-fessional and thorough manner. In so me member states of the european uni on, like britain, holland, Ireland and De-nmark, rIa is systematically used, whe-reas in some member states it is only recently and very selectively applied.

In countries applying rIa, there is the absence of unified methodology or approach in the implementation of rIa.

Most oecD member states, have esta blished one standard method for estimating potential regulations effects. In principle, this model implies a clear identification of objectives, including consultation with those who will be “affe-cted” by the implementation of new or amended regulations, being presented by detailed overview of the effects and possible alternatives to the current proposals. In the light of the above, the preparation of rIa implies answering the questions about the nature and the size of the problem, objectives and alternative solutions, and economic and social effects of alternatives, as well as the control and evaluation of effects. ten of these issues are covered by the list of recommendations of the oecD, which can be applied at all levels of decision making and policy making process. Qu-estions contained in this list are indi-cated bellow in the Box 1.

oecD List of recommendations (que-sti ons) for adoption of regulatory de-ci si ons

1. Is the problem correctly defined?2. Is government action justified?3. Is regulation the best form of interve-ntion in resolving the problem?4. Is there a legal basis for regula-tion?5. What is the appropriate level (or levels) of government for this action?6. Do the benefits of regulation justify the costs?7. Is the distribution of effects across society transparent?8. Is the regulation clear, consistent, comprehensible and accessible to use rs?9. have all interested parties had the opportunity to present their views?10. how will compliance be achieved

It may be concluded that the main benefit achieved by RIA is the increase in the justification degree of particular decisions. Implementation of rIa before making a decision on a regulation means that the decision makers “measured twice”. If they were transparent in this process, then it is an additional step to-wards securing the support of the public and all stakeholders. generally, we can say that the greatest contribution of rIa, assisting developers of regulatory policy, is in insuring them that costs are justified against benefits being clearly defined.

In addition to contributions of gover-nment policies quality and efficiency improvement, it is considered that rIa application, contributes and increa sed the competitiveness of the econo my, increases transparency and accountab-ility while reducing possibilities for co-rruption. Moreover, rIa is a good tool for monitoring and evaluation of imple-mented policies.

as in any other business, rIa imple-mentation carries potential risks. recent practice has identified the following:

- Lack of political consensus rega-rding the consistent application of RIA;

- Lack of activities to strengthen the capacity of relevant institutions for rIa implementation;

- rIa becoming a mere formality be-ing only applied not providing useful effect;

- Lack of support of the public admi-n istration in rIa implementation - recu-rrence of the old system;

Political pressure for rapid adoption of the regulation - avoiding rIa.

* * *

rIa represents modern technique, which implementation is required in pa st decade. It is still hard and early to estimate its benefits in adoption of adequate decision. It requires a longer period of its implementation that could provide for an empirical and quantitative assessment of its usefulness. however, the fact that its implementation, starting from 1980, was progressive is showing the confirmation of its quality. In reference to rIa, it is important to remember that it neither represents the substitute for decision-making process nor that its introduction itself means that decisions will be adequate. rIa is essentially a tool used by decision makers allowing them to make decisions in a transparent and responsible manner, with the inclusion of the public.

Ms. bojana BOšKOVIć, Independent Advisor I

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2nd October 2009 – Fifth Session of the Council for Elimination of Business Barriers.

the activity of the council was fo-cused on the Doing business report

2010, published by the World bank. In this report, Montenegro improved its position by six ranks, on the basis of achieved progress in the areas of start-ing a business, dealing with construction permits, employing workers and paying taxes, while only 11 out of the total of 183 countries achieved progress in greater number of indicators than Mon-tenegro. better ranking position repre-sents a confirmation of efforts used by all institutions in charge of areas ana-lyzed in this Report in reference to im-proving regulations governing business

environment. the fact that Montenegro is among 20 countries that have made the biggest number of reforms in the period from 2008 to 2009 represents a great progress, at the same time im-posing the obligation and responsibility to intensify reforms in order to further enhance the business environment and improve the position of Montenegro at the international investment level. If Montenegro succeeds in implementing recommendations set by the action Plan it would be among the top ten reformers in the next Doing Business Report.

Activities of the Deputy Prime Minister and Finance Minister in the period from 1st October

to 31st December 2009

Gordana Jovanović Ivona Mihajlović

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6th October 2009 – IMF and the World Bank Annual Meetings in Istanbul.

In the period from 3rd to 6th october 2009, the Deputy Prime Minister and Finance Minister, Mr. Igor Lukšić, PhD, and the governor of the central bank, Mr. Krgović, took part in the meetings with the International Monetary Fund and the World bank which this year were held in Istanbul. During this oc-casion, the Deputy Prime Minister Mr. Lukšić and Mr. Krgović took part in the work of Dutch constituency and held a number of bilateral meetings with rep-resentatives of the IMF, World bank, IFc, Deutsche bank, credit swiss and finance ministers of Netherlands and kosovo, etc. the focus of meetings was the current economic and financial sit-uation in Montenegro and undertaken activities aimed at overcoming the con-sequences of the crisis, as well as the current measures aimed at reducing public consumption level and creating e a sustainable fiscal and monetary framework. the Deputy Prime Minister Mr. Lukšić and the Governor Krgović, have informed the IMF and the World bank representatives on recent activi-ties aimed at amending laws govern-ing the banking sector, which should strengthen and provide for further stabilization of the financial system of Montenegro. activities of the govern-ment to improve the business environ-ment were assessed positive, which resulted in improved ranking by 6 posi-tions in the Doing business report. the fiscal package of measures, adjust-ments of large industrial enterprises and structural reforms were assessed as a good platform for continued dis-cussions about a potential arrange-ment, if Montenegro opts for this form of cooperation.

7th October 2009 – Interview of the Deputy Prime Minister and Finance Minister, Mr. Igor Lukšić - TV Show “Živa istina”.

16th October 2009 Deputy Prime Minister and Finance Minister, Mr. Igor Lukšić, PhD., met with the President of the World Tourism and Travel Council, Mr. Jean – Claude Baumgarten.

the Deputy Prime Minister and Fi-nance Minister, Dr. Igor Lukšić, met today with the President of World tour-ism and travel council (Wttc), Mr. jean-claude baumgarten. the global economic trends, economic situations in Montenegro, as well as trends in the tourism sector in years after the crisis were subject to discussion. having in mind the global economic situation, the Deputy Minister Lukšić expressed his satisfaction with the achieved results of this year’s tourist season, pointing out that 2010 will represent a challenge for all european economies. he empha-sized that the tourism is one of the most important priorities in Montenegrin eco-nomic agenda, and that in the years af-ter the crisis, Montenegro will perform a well organized post crises management in all sectors, aimed at improving the existing offer, launch new investment in road and utility infrastructure, stress-ing out that the environmental protec-tion and ecological orientation, solving the issue of environmental black spots, the use of alternative energy sources are the top priorities in the further de-velopment of Montenegrin tourism sec-tor. Mr. baumgarten said that the key prerequisite for tourism development

in one country is the proactive dialogue between public institutions, decision – makers and the private sector, em-phasizing that Montenegro represents a good example to other member coun-tries of the Wttc. he also stressed the importance of understanding the tour-ist value of all stakeholders, primarily government institutions.

On 27th October 2009 – published

was the authorial text by the Deputy Prime Minister and Finance Minister Mr. Igor Lukšić, PhD., in the daily newspapers “Pobjeda” – Fragment from the text.

„... Is it pretentious to say that sever-al following months will significantly im-pact the road that the economic system of Montenegro is to take in the coming years? Quite certainly it does sound pre-tentious, but I believe that such state-ment is realistic. a lot of work is ahead of us in several various fields, but they are all in fact to be encountered in the same horizon. The outcome of econom-ic trends significantly depends on the extent in which specific policies will be implemented. Global financial and then economic crisis left trail on the world economy. Total capital flows have been reduced, as well as the world trade, and a large number of employees have lost their jobs. the world economy is under-going adjustment, which irrespective of the government support will take a long time. the world economy growth will be slow and long-lasting, while the concern is growing since fiscal stimuli, due to the limitation of public debt accumulation, are restricted from the aspect of time. In such context Montenegro is facing numerous challenges, both short-term and long-term. another key task is the adoption of the budget for the following year. It must be realistic and viable. at the same time, it needs to ensure the maintenance of economic stability, as to have positive effects on economic growth opportunities. the balance point between the budget deficit and public debt is significantly lower than in devel-oped countries.

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2nd November 2009 – Interview of the Deputy Prime Minister and Finance Minister, Mr. Igor Lukšić, PhD, for “Atlas” TV

6th November 2009 – Sixth Session of the Council for Elimination of Business Barriers

the council for elimination of busi-ness barriers at its 6th session discussed the action Plan for reforming the Doing business areas, being developed on the basis of the recommendations from the World bank for improving the business environment, provided on the basis of the analysis of the latest Doing business report 2010. the action Plan sets a nu-mber of measures and reforms to be coordinated by relevant departments in the next short-term and mid-term period. The Council verified the aforementioned action Plan and submitted it to the gov-ernment for approval. the successful im-plementation of the action Plan will rank Montenegro in the top ten reformers in the next Doing Business Report. The council discuses the initiative to amend a number of laws whose legal basis is limiting the business environment. In the forthcoming period the council will propose to the government regulations to be amended.

9th November 2009 – Deputy Prime Minister and Finance Minister, Mr. Igor Lukšić, PhD, met with the representatives of the Directorate General for Eco nomic and Financial Affairs (DG ECFIN).

the Deputy Prime Minister and Fi-nance Minister, Mr. Igor Lukšić, PhD, met

with Mr. Antonio Sanchez Pareio and Mi-khail Makovei, economic analysts for Mo ntenegro in the ec Dg ecFIn.

the Deputy Prime Minister informed the officials with the activities of the government aimed at reducing public consumption and creating a sustainable fiscal framework in years after the cri-sis. Moreover, financial situation of local self-government units was subject to dis-cussion. Mr. Lukšić emphasized that the infrastructure – related projects funding in local self –government units is a pri-ority in the future, bearing in mind the need for its further improvement. at the same time, he stressed the importance of adopting a number of laws to improve the regulation of financial sector.

13th November 2009 Deputy Prime Minister and Finance Minister, Mr. Igor Lukšić, PhD, met with the representatives of Youth SDP.

the Deputy Prime Minister and Fi-nance Minister, Mr. Igor Lukšić met the representatives of youth sDP, who sub-mitted a petition on the government’s Decision on employment of trainees in governmental agencies, without com-pensation on the basis of mutual con-sent. Mr. Lukšić welcomed the initia-tive of youth sDP and the gathering of young people around one idea, stressing that the decision of the government is positive and stimulating being justified in the financial crisis context, however it was misinterpreted by the public. he repeated that the objective of the gov-ernment’s decision was to enable the

possibility for young people, that if an institution in which they want to go through the apprenticeship does not have financial resources; this can be done without compensation on the ba-sis of their consent. “In my opinion this is entirely positive decision, bearing in mind that a large number of institutions, due to limited funds, are not in position to employ trainees. thus we created a possibility to go through apprenticeship and obtain further education in our in-stitutions. When developing the budget for 2010, we will try to approve to the employment bureau, the same amount of funds that was approved last year for these purposes, with the objective of as-signing these funds to economy in order to perform rationalization of the number of employees and provide for the long-term investments in Montenegrin econ-omy. there is now a widespread impres-sion that by doing this the government is closing the door to young people, which is misleading. If you take a look at the structure of employees in the Ministry of Finance, you will see that young people are working on the most important posi-tions. I’m open for employing young peo-ple and trainees in our institution even in the next period, off course, within our financial possibilities”…

18th November 2009 Deputy Prime Minister and Finance Minister, Mr. Igor Lukšić, PhD, took part in the Regional Conference on Business Environment Reforms in Southeast Europe Fragment from the Speech.

“…Improving business conditions is not and should not be an isolated objec-tive of economic policy makers. In the short run, countries devoting greater attention than others may realize some benefits, but already in medium and long term timely coordinated efforts of the re-gional countries aimed at creating con-ditions for easier operation, make the total region both more competitive and

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visible in the market. only then real ben-efits for citizens of our counties may be achieved. It would seem unusual today to neglect the chronology and causes of the crisis. It seems to me that the word “crisis” in the speeches of Ministers of Finance has almost become slang and it is still difficult, after a very uncertain year, to find the right answer. Is the cri-sis caused by the collapse of the market or is it that a reckless economic policies that were previously implemented? or our national plans determined by global financial and economic trends. It is a question that the later economic history will be able to answer, if having previous experience in mind could be subject to a basic consensus. however, I believe that the key challenges for recovering from the long-term consequences of the crisis will be to strive business environ-ment and to use further efforts aimed at establishing the free trade system, i.e. free trade exchange. The affirmation of facilitated operations principle in time of economic crisis suggests that institu-tional economy elements are gradually becoming a part of mainstream econ-omy, which only ten years ago was un-thinkable for many”...

19th November 2009 – Agreement on Additional Financing of the Project for Health System Strengthening of Montenegro.

the Deputy Prime Minister and Fi-nance Minister, Mr. Igor Lukšić, PhD, and the World bank representative in Mon-tenegro jan - Peter olters, have signed the Agreement of additional financing of the Project for health system Improve-ment of Montenegro. on the basis of the agreement on Loan, the World bank will issue to Montenegro the loan in the amount of 5, 10 million euros for these projects. these funds will be used to sup-port first steps for reforming Montene-grin health system, whereas the priority

is to strengthen capacities for planning and regulating the health policy, health system financing stabilization, improve-ments in the provision of primary health care services.

20th November 2009 – Signed Contact of Guarantee for the credit support to KAP.

the Deputy Prime Minister and Fi-nance Minister, Mr. Igor Lukšić, PhD., signed the contract of guarantee for the credit support to kaP, in the amount of 49.68 million euros. on this occa-sion following agreements were signed: Loan agreement for restructuring (so-cial programme), refinancing, signed on behalf of Montenegrobonus jsc cetinje by the ceo of kaP Mr. Leonidas krilov and the vice President of the otP bank, Mr. László Wolf, and the Agreement on implementation of social programme signed by the Minister of economy, Mr. branko vujovic and ceo of kaP, Mr. Leonid krylov. the credit period is four years with the one year grace period and with EURIBOR + 4.625% interest rate. Loan agreement for restructuring amounts to 25 million euros and it is intended for resolving the issue of sever-ance pay of employees in kaP and the Bauxite Mines - Nikšić. The Refinancing Loan agreement, in the amount of 21.68 million euros is intended for debt repro-gramming of kaP to ckb / otP.

24th November 2009 – Signed Agreement for Solid Waste Management Project in Montenegro.

the Deputy Prime Minister and Fi-nance Minister, Mr. Igor Lukšić, PhD,

and the eIb regional senior credit of-ficer, Mr. Marion Hoenicke, signed the agre ement for the solid Waste Manage-ment Project in Montenegro, worth 27 million Euros, which will be financed by the european Investment bank. the objective of the Project is to develop an integrated scheme for sustainable solid waste management in Montenegro, in compliance with the european union standards. the project includes the con-struction of the first cells for sanitary landfill sites in Kotor (for the Municipali-ties of kotor, budva, tivat and herceg Novi); Niksic (for the Municipalities of Niksic, Plužine and šavnik), Bijelo Polje (for the Municipalities of bijelo Polje, ko-lasin and Mojkovac), and Pljevlja (for the Municipalities of Pljevlja and zabljak). the project envisages the rehabilitation of 30 landfill sites, purchase of vehicles for waste disposal, and the production of all required studies for the construc-tion of landfills, technical assistance for the project preparation and implementa-tion, and the implementation of the sys-tem for waste registering and monitoring across the country.

24th November 2009 Reception on the occasion of celebrating the tenth anniversary of successful cooperation in the development area between the Government of Montenegro and the Government of Germany – Fragment of the Speech of Mr. Lukšić, PhD.

“…When we make a retrospective of one cooperation and friendship, it is always appropriate to observe achieved results. as I had the opportunity to ob-serve presentations on my way here, I felt great satisfaction with the knowl-edge, experience, development projects which german government brought to Montenegro. When someone gives you money, then it becomes your Patron, and when it gives you a part of them-

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selves and their knowledge, then they are your friend. For small countries such as Montenegro, existing the transition, it represents the gift of friendly country that we will remember and return by ac-celerated learning in peak political and economic path enabling us to learn and help others. and it is the cycle that lasts, providing the opportunity to some new countries, to what we are striving for and where I envisage the most recent future of Montenegro. the work, good will and positive energy around a single goal always has multiple benefits through knowledge, development and joy for the common job. hence, I would like to use this opportunity to thank everyone, whether they are from Montenegro, germany, or any other party, for helping Montenegro to bridge the gap between north and south, provide and develop required infrastructure, enrich its tourist and cultural offer, improve the financial framework and all else…”

26th November 2009 – Statement of the Deputy Prime Minister and Finance Minister, Mr. Igor Lukšić, PhD., on the occasion of determining the Proposal of the Law on Amendments to the Law on Personal Income Tax, Proposal of the Law on Amendments to the Corporate Profit Tax, Proposal of the Law on Amendments to the Use of Motor Vehicles, Vessels, Aircrafts and Airplanes, Proposal of the Law on Amendments to the Law on Contributions for Compulsory Social Insurance, and Proposal of the Law on Budget of Montenegro for 2010.

“... the current budget will amount to 651.46 million Euros, and the debt fi-nancing is of around 128 million euros. the amount of the capital budget is 121 million euros, which is by nine million less in this year. state – owned Funds expenditures amount to 527.61 million euros. one the data are consolidated, this budget will be at the level of about 40% of estimated GDP. A moderate re-covery of economy is planned of 0.5%, which means stagnation. We are review-ing a probability of having a budget defi-cit of around -2%, which is in accordance with the IMF prospectus. economic ac-tivity in recent months is indication that

the economy in the next year should not suffer additional fall. We could hope for a recovery or stabilization. A plan for next year is that the Government enters the loan agreements worth 73.5 million Euros, for covering of deficit and debt servicing up to 200 million euros, and to issue guarantees for loans worth 202 million euros. It is certain that a one part of guarantee, primarily for kaP and steel Mill will be transferred from this year to the subsequent year…

1st December 2009 – Deputy Minister and Finance Minister, Mr. Igor Lukšić, was hosted in radio broadcasted show “Vruća stolica”, Radio Antena M.

1st December 2009 – Interview of the Deputy Prime Minister and Finance Minister, Mr. Igor Lukšić to SEE NEWS.

3rd December 2009 – Statement of the Deputy Prime Minister and Finance Minister, Mr. Igor Lukšić, PhD., on the occasion of determining the Proposal of the Law on Investment – Development Fund of Montenegro and the Action Plan for business environment improvement.

“…after long consideration of differ-ent transformation options of the De-velopment Fund, the government det-e r mined the Proposal of the Law on Investment - Development Fund of Mo n-tenegro, for the reasons being reflected in recommendations previously issued by the State Audit Institution in the context of redefining the position of the Develop-ment Fund in our system, due to certain contradiction in budgetary treatment of the Fund, or organizational treatment in the context of the Business Organiza-tions Law. For aforementioned purpos-es, the new Law is enabling the transfor-mation of the Fund into the Investment Development Fund, i.e. joint stock com-pany that will continue with the provision of the support to entrepreneurship and the Directorate for small and medium

- sized enterprises development. This is simultaneously resolving the issues proposed by the state audit Institution to be resolved and the provision of more qualitative system solution. at the same time the Directorate for the development of small and medium – sized enterprises will continue to perform operations with-in established scope of activity which is to encourage businesses, create condi-tions for the development of business incubators to assist micro and small – sized enterprises in reaching high qual-ity business plans, projects, etc.., posi-tioning them on the ... “

4th December 2009 Council for Elimination of Business Barriers held 7th Session.

the 7th session of the council for the elimination of business barriers was dedicated to reviewing a model enabling the implementation of efficient amend-ments to certain legal solutions, for which was estimated to impose restric-tions to operation of business organiza-tions. therefore, the council proposed the development of laws for improving the business environment, which would include amendments to the existing le-gal solutions being recognized by the council as the greatest business bar-riers. the council endorsed the action Plan for regulatory reform and regulatory policy reform, which will be adopted by the government of Montenegro as a key document for the implementation of the “guillotine of regulations” and further reforms in business barriers area. the council also endorsed a Memorandum of understanding between the govern-ment of Montenegro and the Interna-tional Finance Corporation, defining fu-ture consulting and financial assistance and cooperation in the area of improving business environment and eliminating business barriers.

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4th December 2009 Deputy Prime Minister and Finance Minister, Mr. Igor Lukšić, PhD., met with Mrs. Jane Armitage, Country Director and Regional Coordinator for South East Europe in the World Bank.

the Deputy Prime Minister and Minis-ter of Finance Mr. Igor Lukšić, PhD., met with Mrs. jane armitage, country Direc-tor and regional coordinator for south east europe in the World bank. the Deputy Prime Minister Lukšić informed Mrs. armitage on recent measures of the government of Montenegro aimed at public finance stabilization and finaliza-tion of tax reforms initiated in 2002. The Deputy Prime Minister expressed hope that the new set of tax regulations and the Proposal of the budget Law will be approved by the Parliament, trade union and economy, as well as by incorporat-ing new tax solutions will provide more effective implementation of unified tax registration system which will com-mence next year. Mr. Lukšić informed Mrs. armitage on most important as-pects of measures for public finance stabilization and the new Proposal of the Budget Law for 2010, emphasizing that the current consumption was decreased compared to the previous year, capital budget is almost at the same level as in the previous year, and planned deficit is at the level of the capital budget. they also discussed the progress made by Montenegrin administration in the year of the crises – preparation of answers to the Questionnaire, visa regime liber-alization, MAP membership and other important economic and political issues. “all aforementioned is providing us with the additional wind at our backs to con-tinue with the implementation of mea-sures both in the economic and political plan in 2010. Mrs. armitage announces the potential loan of the World bank for March next year, aimed at supporting fi-nancial sector and industrial systems to complete programme requirements.

7th December 2009 – Deputy Prime Minister and Finance Minister Mr. Igor Lukšić, PhD., was hosted in the show “Načisto”, 4th December 2009.

10th December 2009 –Statement of the Deputy Prime Minister and Finance Minister, Mr. Igor Lukšić, PhD, on the occasion of reviewing the role of the banking sector in implementing Economic Policy measures for 2010.

“... I guarantee success in achieving our objectives, i.e. to provide for the bal-ancing of loans - by increasing loans to decrease to achieve the credit growth. aforementioned represents a prereq-uisite for implementing optimistic sce-nario, or realistic scenario if we fail to generate credit growth of at least 3 to 5% next year then we can talk about re-cession. commercial banks in coopera-tion with the central bank must focus on passive interest rates, being one of the reasons why the active output inter-est rates significantly increased or are considered to be high. It is agreed with commercial banks to increase the use of cash from international financial institu-tions for lending to small and medium - sized business. It is expected that the lending will spur the adoption of the Law on Development Investment Fund, for which is being estimated that will addi-tionally or significantly assist in providing incentives to lending, because the Fund will dispose funds that may be used as a guarantee in a manner that the Fund will be in position to issue guarantees for up to 50% for certain loans. If the banking sector is entrusted to the central bank to be the regulator, than the central bank should entail moves for which con-siders that will provide proper financial sector stability operating on the basis of adopted rules ... “

15th December 2009 – Deputy Prime Minister and Finance Minister, Mr. Igor Lukšić, took part in the Seminar on the occasion of official commencement of the Twinning Project

“Strengthening the regulatory and supe rvisory capacity of the financial re-gu la tors”

„... In the light of large steps of Mon-tenegro towards joining the european family, allow me to make a retrospective of few important activities achieved in previous period. Precisely one year ago, Montenegro has submitted a formal ap-plication for candidate status in the eu-ropean union. In the light of the global economic crisis, which as we can say just reached its peak in the year count-ing down last days, our commitment to the integration policy did not loose on its intensity and enthusiasm. consis-tent implementation of the Stabilization and Association Agreement, confirmed through regular meetings of subcom-mittees, implementation of priorities defined in the National Program for In-tegration of Montenegro into the eu, the ratification of the Stabilization and association agreement, which I hope is reaching its final phase representing ad-ditional positive stimulus of the member states, represent just few indicators that even a small administration may qualita-tively respond to major challenges and assumed obligations. this twining Proj-ect is financed through the Instrument of Pre-accession assistance of the euro-pean commission, and it is using a solid basis and cooperation of the Ministry of Finance and the Delegation of the euro-pean union to Montenegro. this Project will just confirm stable grounds of quali-tative and efficient cooperation between the Ministry of Finance as the project leader of the Montenegrin side with ben-eficiary institutions the Central Bank of Montenegro, the security commission and the Insurance supervision agency, being a cornerstone of good coopera-tion and experience exchange between our country, bulgaria and netherlands, because, as you may admit, the will to exchange experience and achievements represents the first step of success…”

15th December 2009 – Statement of the Deputy Prime Minister and Finance Minister, Mr. Igora Lukšić, PhD., on the occasion of discussions on the Proposal of the Budget Law of Montenegro for 2010, Proposal of the Law

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on Salaries of Civil Servants and State Employees, Proposal of the Law on Amendments to the Law on Civil Servants and State Employees, Proposal of the Law on Amendments to the Corporate Profit Tax, Proposal of the Law on Amendments to the Use of Motor Vehicles, Vessels, Aircrafts and Airplanes, Proposal of the Law on Amendments to the Law on Personal Income Tax and Proposal of the Law on Contributions for Compulsory Social Insurance.

“the adoption of the budget Law for 2010, is the most important regulation among other regulations that we will adopt this year, and this Law will direct the future and stability of public finance of Montenegro in forthcoming years, and will, to the greatest extent, influence the creation of the necessary prerequisites for economic recovery and long - term economic policy implementation. as it was the case of all economies in the world, even Montenegrin economy halt the economic development due to finan-cial stampede destroying much stronger systems than Montenegrin one. and this is not a political and economic excuse, as I often had to opportunity to hear, to justify developments in industry, bank-ing sector and other important sectors of the economy, it is more a reality that affected us and with which we are faced with. It seems to me that the sooner we realize that the exit from the crisis is our common responsibility and to redirect the crises outside the framework of po-litical competition, sooner we will jointly bring solutions enabling us to spur the recovery of our economy. and this is our crucial issue of tomorrow. I am empha-sizing that despite difficult events in the economy and industry, and despite criti-cism, Montenegrin administration did a good job and found real solutions for solving all burning issues in the year of the crisis. this is because for 2010 we need additional strength and energy of all our capacities - government, Parlia-ment, political parties ... “

18th December 2009 – Signed Purchase and Sale Agreement of 41,1402% share capital in the company “Lovćen osiguranje” JSC Podgorica.

Signed Contract of sale of 41.1402%

of share capital of the company “Lovcen osiguranje” aD Podgorica.

the contract was signed between the government of Montenegro, Pension and Disability Insurance Fund, employ-ment bureau of Montenegro and the De-velopment Fund of Montenegro, as well dealers and and zavarovalnica triglav, jsc slovenia, being the buyer shares. zavarovalnica triglav along with related parties became the owner of 91.83% in Montenegro’s largest insurance compa-ny. the Insurance supervision agency is-sued consent for the purchase of 83,331 shares in “Lovcen osiguranje”, and the purchase of zavarovalnica triglav was made in the amount of 5,999,832 eu-ros, i.e. 72 euros per share. the transac-tion will be completed in january 2010. on this occasion, the Deputy Prime Minister and Finance Minister, Mr. Igor Lukšić said: “signing of this contract means the completion of the privatiza-tion in the financial sector, by which we are implementing one of important seg-ments of the overall structural reforms. by purchasing controlling package of shares, triglav osiguranje is showing its committed to become the strategic partner in this area in Montenegro”. Fol-lowing the signing of the agreemnt, Mr. Matjaz Rakovec said: “Triglav Group is strengthening its presence in Montene-gro, because until now we proved to be a good co-owner and qualitative partner of our insurers, business partners, and em-ployees. In accordance with corporate values, we would like to be connected to the environment in which we operate, thus we are strengthening our social re-sponsibility. to conclude, in the future we will also be open to support culture, sports and youth of Montenegro.” triglav group will donate 150,000 euros in the next five years for the implementation of sports programs in the municipality of cetinje.

On 21st December 2009, published was the authorial text by the Deputy Prime Minister and Finance Minister, Mr. Igor Lukšić, PhD., published in the magazine Podgorica Info – Fragment from the text .

“…The global financial and economic crisis has left a deep scar in the world’s economy making certain that the future recovery will be tough. It seems that a lot of time will be consumed by restoring the confidence of all participants in eco-nomic and financial flows. The previous year was marked, above all, by the skep-ticism and fear both of the citizens and the bankers, and perhaps the greatest was the fear of investors fearfully observ-ing and analyzing all further investments plans in 2009. however, Montenegro, is isolated from the global context and se-ceded to complete practically the most important projects and investments – to lease Lustica Peninsula, recapitalized and partially privatize EPCG , initiate the construction of the highway bar-boljari, and above all, to continue with infra-structure – related investments initiated in the pre-crises period. For Montenegro this year was, perhaps, the most chal-lenging in the economic and political sense in the last decade, if we exclude the year in which the citizens voted for independence . however, this was the year to sublimate achieved results and to summarize long-term economic poli-cies. The crisis once again confirmed that it is important to work on further liberalization of the economy, strength-ening market principles, Doing business programmes and free trade in the course of next year. In order to achieve afore-mentioned objective, the understanding of two administrations is of utmost im-portance - local and national, regarding to the adjustment of redundant lengthy procedures of issuing various permits, strict legal solutions, thus I see a chance in this area for reaching consensus of national importance… “

Prepared by:

Ms. gordana JOVANOVIć, Spokesperson

Ms. Ivona MIHAJLOVIć, Assistant to Spokesperson

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2nD october 2009 – Information of the Ministry of Finance: signed general conditions for the Loan agreement

representatives of Montenegrin commercial bank (crnogorska komerci-jalna banka), otP, kaP (aluminum Plant) and the Ministry of Finance signed the

general conditions of the Loan agree-ment in the amount of 49.68 million eu-ros. the amount will be used for solving employees’ social issues in accordance with the social programme adopted by the government of Montenegro, kaP’s outstanding liabilities to otP / ckb and

Montenegro bonus. i.e. Montenegro bo-nus to ckb / otP. Put from aforemen-tioned amount, 25 million euros will be allocated for solving the social issues of employees, 21.68 million euros for ser-vicing liabilities to ckb / otP, while 3 mil-lion euros will be allocated for servicing

Info/web of the Ministry of Finance for

the Period from 1st October to 31st December 2009

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liabilities of kaP to Montenegro bonus, i.e. Montenegro bonus to ckb / otP.

5th October 2009 Prva banka fully repaid the loan to the Government of Montenegro

on 17th December 2008, follow-ing contracts were signed: credit assis-tance contact, no. 01-9510/1 between the government of Montenegro and Prva banka crne gore a.D., Podgorica established in 1901, and the contract of pledging shares, no. 01-9509/1 be-tween the Pledgor – the owner of shares issued by the Prva banka crne gore – established in 1901, a.D. Podgorica and the Pledgeholder – the government of Montenegro. both contracts were signed following the implementation of the procedure defined by the Law on measured for the protection of the bank-ing system („Official Gazette of Monte-negro“, no.64/08) and the rulebook on more detailed conditions and procedure for issuing guarantees and provision of the assistance to the banks („Official Gazette of Montenegro“, No.66/08). It is worth mentioning that Prva banka repaid the first installment in the amount of 11, 0 million euros on 17th March, second installment on 17th june and third in-stallment on 17th september 2009. the maturity date of the forth installment, being the last installment, in accordance with the Annex II of the aforementioned contact was on 17th December 2009. Prva banka made the early repayment of loan in the amount of 11, 0 million euros on 5th october 2009, fully repaying the loan of the government of Montenegro. We are emphasizing that following the loan repayment will initiate cancellation procedure of the pledge of shares in ac-cordance with the contract of pledging of shares.

16th October 2009 Payment of third installment of compensation bonds

In accordance with the Law on com-pensation to the holders of pension and disability insurance rights, on 20th oc-tober will start the payment of the third installment of compensation bonds with maturity date to the holders of bonds who acquired rights on the basis of com-pensation for the period from july 2002

to December 2003. Prva banka crne gore, crnogorska komercijalna banka and nLb Montenegrobanka will make payments through their branch units. Prva banka crne gore will make pay-ment to holders of compensation bonds residing in Podgorica, Nikšić, Plužine and Šavnik. crnogorska komercijalna banka will make payment to holders of compensation bonds residing in bijelo Polje, Budva, Danilovgrad, and Žabljak, berane, kolašin, kotor, Mojkovac, Plav, Pljevlja, Rožaji, Tivat, Ulcinj, Herceg novi, cetinje and andrijevica. nLb Mon-tenegrobanka will make payment to the holders of bonds residing in the Munici-pality of bar and to all owners of com-pensation bonds from abroad (croatia, Bosnia and Herzegovina, Macedonia, austria, bulgaria, germany, hungary, sweden and serbia), provided in follow-ing Municipalities: bar, Podgorica, ro-zaje, Ulcinj, Kotor, Budva, Tivat, Herceg novi, niksic, bijelo Polje, Mojkovac, cet-inje and Pljevlja. the holders of bonds receiving pensions and other payments through the Post Office of Montenegro, the compensation of bonds will be made in the same way as the regular payment of pensions and other payments. at the moment of payment, the compensation to holders of bonds who acquired rights on the basis of compensation from pen-sion and disability insurance, a holder of bonds must present an identification document – ID card, passport of driv-er’s license. the payment of residual amount of compensation bonds with maturity date will be made in three (3) semiannual installments (april and oc-tober), and the last installment is due on 20th april 2011.

19th October 2009 – Signed Operating Agreement between Programme Authorizing Officer (PAO) and Senior Programming Officers (SPO) – Heads

of Programme Implementation Units (PIU) in line ministries

Deputy Minister in the Sector for fi-nance and contracting the eu assistance funds, Ms. Nataša Kovačević, signed to-day the operating agreement between the Programme Authorizing Officer (PAO) and Senior Programme Officers (SPO), as well as heads of the Programme Imple-mentation units (PIu) in line ministries. The Agreement relates to Decentralized Implementation system (DIs) of pro-grammes of the IPa component I, titled: transitional assistance and capacity building, representing an important step within activities directed to the establish-ment of DIs. Following the signing of the Agreement, experts engaged within the Project “First Steps for a Decentralized Implementation system (DIs) in Monte-negro” have presented this document to the future signees of the agreement for the purpose of its better understand-ing. the basic purpose of the document is to define the segregation of duties and responsibilities between Pao/cFcu and sPo/PIu, for the purpose of provid-ing more efficient activity performance in the process of implementing the eu funded projects, in accordance with the european union requirements in the area of conferral of management powers form the european commission to Mon-tenegro, i.e. process requirements for DIS establishment. Experience of coun-tries which went through the accredita-tion process, i.e. DIs establishment are indicating that the timely signing of the operating agreement is of crucial im-portance for the overall operation and further development of structures within the Decentralized Implementation Sys-tem of the eu funds.

20th October 2009 – Ms. Ana Ivanović and Ms. Bojana Bošković, Independent Advisors in the Ministry of Finance held lecture for young journalists

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Independent advisors in the Ministry of Finance, Ms. ana Ivanovic and Ms. bojana boskovic, within the programme-seminar of the Media Institute and the eu center for journalism, held a lecture on “International financial institutions and financial system of Montenegro.” the objective of the seminar was to ac-quaint a group of young Montenegrin journalists with the work of the eu insti-tutions, as well as with the eu integra-tion process in our country, who within this programme will have the opportunity to visit the european Investment bank, european Investment Fund, european court of justice, eurostat and other insti-tutions. representatives of the Ministry of Finance in their presentations have focused special attention on the role, significance, legislative and institutional framework of international financial insti-tutions, cooperation of the government of Montenegro with these institutions, as well as the most important features of Montenegrin financial system. Dur-ing the lecture, young journalists asked questions regarding current issues – the IMF arrangements, generated economic growth in 2009, indebtedness with the eIb, state debt of Montenegro, the es-tablishment of the development bank, etc.

26th October 2009 – Presentation of Ms. Bojana Bošković, Independent Advisor in the Ministry of Finance on the occasion of workshop opening titled “Do ing Business Report Indicators”.

“…the Department for business environment improvement is officially operating from june this year. this De-partment was established a year ago in the Ministry of Finance, thus from june of the current year is operating under a slightly altered name and with the same human capacities performing activities in the area of business environment improvement mainly related to commu-nication and cooperation with the World bank in relation to the Doing business report, as well as the coordination of other government departments in ref-erence to this report. since june, i.e. when the council for elimination of busi-ness barriers is operating in new term, this Department has a role in providing administrative and technical support to the council, which means the prepara-tion of appropriate regulations for the work of the council, implementing and coordinating tasks and objectives set by the council. Moreover, at the proposal of the council, the government changed its rules of Procedures, in adding addi-tional activity to this Department related to provision of opinion on proposals of regulations, i.e. regulations and subordi-nate legislation determined by the gov-ernment…”

27th October 2009 – Seventh Treasury Bills Auction

The Ministry of finance through the central bank of Montenegro, being the fiscal agent of the Government of Monte-negro, on 27th October 2009, organized seventh treasury bills auction. total an-nounced offer for the sale of the trea-sury bills was in the amount of 8 million euros, with 182 days to maturity. the auction was successfully organized and attended by high number of interested domestic commercial banks, as well as by one bank from the region, with the total purchase demand in the amount of 12,05 million euros. the t - bills issu-ance and registration with the cDa (cen-tral Depositary agency) will be done on Wednesday, 28th october. all offered t – bills were sold in the amount of 8 million Euros, or 100% of the offer. The average waited interest rate, representing at the same time the lowest and the highest accepted interest rate for sold t- bills,

amounts to 3%, which is the result of one accepted of one accepted offer. the aforementioned interest rate represents at the same time the lowest weighted average interest rate against average weighted interest rates obtained at pre-vious t – bills auctions, ranging from 3,82% to 5%. The Value of unaccepted purchase offers amounted to 2,05 mil-lion euros, being rejected due to unac-ceptable conditions of the offer.

30th October 2009 – Statement of the Deputy Minister of Finance for International Economic Cooperation, Structural Reforms and Business Environment Improvement, Mr. Milorad Katnić, M.Sc.

“... I’m pleased to see the results of this training which lasted for five days, providing training and knowledge to fifty public administration employees, hoping that by implementing this newly acquired knowledge, they will succeed in improving, not only the indicators of the World bank, but also the environ-ment, which we believe will provide new incentives for investors, new jobs and possibly open new opportunities for a better living standard for the majority of citizens in Montenegro. It is important to emphasize the importance of this event, being for the first time organized in the region and we are for being given this op-portunity, dealing recently with this issue launching our country on the list of top reformers in the region. We are appre-ciating the fact that we have the possi-bility and the opportunity to acquire new

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knowledge, and to develop a new knowl-edge data base and new capacities in this hard orientation to eliminate busi-ness barriers, hoping that this will assist us in becoming top reformers even next year, being recognized not only in the re-gion but worldwide... “

30th October 2009 – Negotiations between the representatives of OTPCKB Bank, KAP and the Ministry of Finance in reference to the credit support in the amount of 49,68 million Euros continued

negotiations between the representa-tives of otP-ckb bank, kaP and the Min-istry of Finance with regard to the credit support in the amount of 49, 68 million euros continues and negotiating parties agreed negotiations implementation schedule. In accordance with planned dynamics, it is envisaged that by tues-day, 3rd november, that all stakeholders agree the set of documents relating to obligations to employees, servicing of li-abilities to ckb / otP, liabilities of kaP to Montenegro bonus, or Montenegro bonus to ckb / otP. In accordance with agreed terms, we expect that the Credit committee of otP bank will approve the document, after which the documents will be forwarded to the government of Montenegro for review.

4th November 2009 – Training on the Procurement Procedures applied to the EU funded projects

training on procurement procedures applied to projects funded by the euro-pean union, and therefore the IPa funds, will be organize din Podgorica in the pe-riod 4 – 5 november 2009. the training will be devoted to procedures that are prescribed by the european community, being listed in the IPa Manual of Pro-cedures that will be used by all bodies responsible for implementing these proj-ects. the training program is intended

for Senior Programme Officers – SPO’s, employees in the Project Implementa-tion units, representatives of the sector for finance and contracting the EU assis-tance funds (cFcu), as well as represen-tatives of the national Fund. the primary purpose of training is to acquaint partici-pants with the procedures relating to the service contracts and procurement of goods, on the basis of which all bodies involved in this process will adhere to, following the conferral of management powers over programmes and projects from the european commission to the beneficiary country of the EU assistance - Montenegro, i.e. after the establish-ment of DIs. the training envisages pre-sentations on Manuals applied in the eu-ropean commission, in order to acquaint participants with the procurement proce-dures from the very beginning up to the procedure of awarding the contract. Lec-tures – presentations will be provided by the long - term expert, Mr. Ray Yates, en-gaged within the Project “First steps for a Decentralized Implementation System (DIs) in Montenegro”.

14th November 2009 Ministry of Finance issued Bulletin No. XVII

16th November 2009 Presentation of the Deputy Minister of Finance of Montenegro, Mr. Milorad Katnića, on the occasion of presentation of proj

ects within Montenegrin – German cooperation in the area of development.

“...I am honored for being given the opportunity to speak on today’s press conference on behalf of the government of Montenegro in light of celebrating ten years of successful cooperation in the development area between the govern-ment of Montenegro and the government of the Federal republic of germany. the Federal republic of germany, with 200 million euros of assistant is the largest bilateral donor in Montenegro. In the pre-vious period, both with the financial and experts assistance the German Govern-ment assisted us in implementation of important projects for the development of necessary infrastructure in the energy area, utility infrastructure, tourism, etc. however, our biggest challenge in forth-coming years is certainly the recovery of our economy and in meeting this ob-jective we will be supported by projects which we will implement with german partners who will contribute to bridging the economic gap between the north and south (tourism development and tourist infrastructure in the continental part of Montenegro), opening new em-ployment opportunities, vocational train-ing, etc. Moreover, the continuation of technical and expert’s cooperation, nu-merous development and infrastructure – related projects aimed at improving water supply and waste water manage-ment systems, energy efficiency, the use of renewable energy sources, opening new credit lines, support to small and medium – sized enterprises, will cer-tainly represents a significant impulse for the implementation of our economic Policy objectives ... “

17th November 2009 – Presentation of the Short – Term Expert for Human Resources Management and Strategic Planning

on the basis of the european union’s technical assistance to the government

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of Montenegro, through the Project “First Steps for a Decentralized Implementa-tion system (DIs) in Montenegro”, Ms. Emilia Cernaianu, the short - term expert in the area of human resources man-agement and strategic planning was en-gaged in the Ministry of Finance in the period 9 – 7 november 2009. this was the second visit of the short term expert. the objective of the visit was to iden-tify the most important training needs of employees in IPa bodies, i.e. Project Implementation units (PIu) in all minis-tries, National Fund, Sector for finance and contracting the eu assistance funds (cFcu), Internal audit units, in relation to their roles and responsibilities within the DIs system. For this purpose, they were submitted a Questionnaire designed for all employees in the aforementioned structures, representing the training needs assessment. the Questionnaire included questions on received training in programming and implementation of IPa projects, needs for further training, as well as the list of skills that are nec-essary for conducting activities following the conferral of management powers of programmes and projects from the eu-ropean Commission to the beneficiary country of the eu assistance, i.e. Mon-tenegro.

18th November 2009: External audit company KPMG held meetings with all actors in the Decentralized Implementation System (DIS) actors

kPMg representatives held individu-al meetings with all DIs actors, i.e. senior Programme Officers (SPO’s) in all minis-tries, National Fund, Sector for finance and contracting of the eu assistance funds (cFcu), Internal audit unit and other representatives of the IPa bodies. namely, following the assessment of the european commission that Montenegro is currently in the phase 0, representing the establishment of the framework for the management and control system in accordance with the road Map for the Decentralized Implementation System of IPa funds (developed by the european commission), the need arose to formally implement the phase 1 from the afore-mentioned road Map, i.e. gap assess-ment. accordingly, the Delegation of

the european commission after imple-mented tender procedure, engaged the KPMG - external audit company, which will conduct activities set forth in the Phase – 1. bearing in mind that the gap assessment commenced, the objective of the meetings was to acquaint the au-ditors to the representatives of the IPa bodies, and to collect relevant docu-ments on the basis of which will be done the requirement conformity assessment for the establishment of the Decentral-ized Implementation System of the EU funds. on the basis of the gap assess-ment results, the auditors will proceed with the development of the report on gap assessment representing the basis for the next Phase 2 – Gap Plugging.

18th November 2009 – Speech of the Deputy Minister Mr. Milorad Katnić, at the Regional Conference on Business Environment Reforms in South East Europe – Fragment from the Speech.

“…In my opinion, this is a unique op-portunity for exchanging regional experi-ences gained in the process of reforms implemented by our countries. I’m using the opportunity to express my gratitude both to the International Finance cor-poration for cooperation and the gov-ernment of the republic of albania for hospitality. one of the strategic priorities of the government of Montenegro is the improvement of the business environ-ment and implementation of regulatory framework in reaching the final transi-tional phase, as well as fulfilling the Co-penhagen related to the ability of facing with the competitive pressure imposed by the european union. In addition to the protection of ownership rights, being a basic prerequisite for the strengthen-ing of entrepreneurial initiatives, the Government of Montenegro recognized the importance of creating the economic system and institutional framework be-

ing eligible and allowing for the regula-tion and establishment of institutions that will accelerate and abolish business barriers existing in both current and new businesses. In that light, in the past pe-riod reforms were implemented to allow for such approach in all areas of the economic system, with the objective of creating more favorable business condi-tions to the highest possible extent. The strong commitment of the government of Montenegro to create a favorable environment for private sector develop-ment through improvement of business regulation was recognized institutionally by establishing the council for elimina-tion of business barriers. the council for elimination of business barriers is the authority established by the government with the task of organizing and coordi-nating activities of state administrative bodies and other relevant institutions with the objective of eliminating barriers to business. In order to improve legisla-tion, the council has the mandate to pro-pose to the government the adoption of regulations governing the area of busi-ness barriers elimination, as well as to analyze existing regulations from the as-pect of business barriers and to propose amendments to the government...”

24th November 2009 – Presentation of Ms. Bojana Bošković, Independent Advisor, at the Round Table Event “Business Environment and Business Barriers in Ulcinj” – Fragment from Presentation

“…We all the witnesses of the recent government efforts used with the aim at designing the economic system that in addition to the protection of property rights being one of the prerequisites for investments growth, would provide for and create regulations and institutions that will not create development barriers to new and existing businesses. Thus,

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all recent government’s reforms were directed to the creation of an economic system being capable of improving the business environment. the results of our used endeavors are speaking for themselves, being published in the ease of Doing business report, so called Do-ing business report, in which Montene-gro improved its ranking by six positions against the ranking in the previous year, achieving progress in four out of ten in-dicators analyzed by this Report . The progress has been made in the indica-tors regulating the starting a business, dealing with construction permits, em-ploying workers and paying taxes ...”.

27th November 2009 – Final Steering Committee Meeting of the Project “First Steps for a Decentralized Implementation System (DIS) in Montenegro”

the Final Project report was pre-sented at the final Steering Committee Meeting of the Project “First steps for a Decentralized Implementation System (DIs) in Montenegro”. the report pro-vides the description of conducted ac-tivities and achieved results during the reporting period. In addition, the report sets forth recommendations on required activities to be undertaken in the period after the completion of the Project, in order to successfully established DIs in Montenegro. undertaken Project a are divided into six main components, such as the following: component 0: hori-zontal activities (related to IPA bodies), component 1: national IPa coordinator (nIPac), component 2: national Fund, Component 3: Sector for finance and contracting the eu assistance funds (cFcu), component 4: Internal audit unit of the Ministry of Finance (MF - Iau) and component 5: senior Programme Officers.

3rd December 2009 – Ms. Ana Krsmanovic, Independent Advisor in the Ministry of Finance, took part in the Ministerial Conference devoted to the Financial Reporting Reforms, organized in Vienna – Fragment from the Speech.

“…on the path towards an open, competitive and liberal economy with stimulant market Montenegro has un-dergone many reforms, which led us to the final stage of the transition process. the forthcoming period will be marked by the „fine tuning” of established in-stitutions, especially within the eu in-tegration context. However, in the last year it seems that many countries have postponed the finalization of the transi-tion process for a post-crisis period. the need to preserve the social and econom-ic balance worldwide becomes ecumeni-cal priority. negative crisis implications will significantly downgrade the efforts and economic results achieved by many countries. the continuity of the constant growth related to the improvement of the economic systems and subsequent realization of macroeconomic scenarios will be affected. We see structural re-forms as being an ultimate response to the crisis, and thus we understand the crisis also as an opportunity to continue and intensify reforms. currently, one of our urgent priorities is the further busi-ness environment improvement, with the elimination of business barriers, pro-vision of incentives to entrepreneurship and development of small and medium

– sized enterprises. In that since, lack of reliable financial reporting system we recognize as an important business bar-rier. Improving business conditions is not and should not be an isolated objective of economic policy makers. In the short run, countries devoting greater attention than others may realize some benefits. but already in the medium and long term timely coordinated efforts of the regional countries aimed at creating conditions for easier business operation, make the total region both more competitive and visible in the market. only then real benefits for citizens of our counties may be achieved. being aware that reliable financial reporting system is also a cor-nerstone for the proper functioning of the market economy and strong finan-cial system, Montenegro has set an am-bitious agenda for improving financial re-porting in the economy. the strategy and action Plan for Improvement of Financial in Montenegro have been adopted by the government of Montenegro in october 2008. In this process, we have benefited from assistance of the World bank, and I would like to express my gratitude with the hope that its assistance will continue in the future…”

4th December 2009 – Information of the Ministry of Finance on the occasion of the Statement of Employers Association in reference to new tax solutions

on the basis of the Law on amend-ments to the Law on Personal Income Tax, and the Law on contributions for compulsory social insurance, the per-sonal income tax decreased from 12 to 9%, as well as contributions charged to employer from 14.5% to 9.8%, and total aunt of contributions for compul-sory social insurance increased from 32 to 33.8%. In this way, contributions charged to employee increased, while contributions charges to employer de-creased by 4.2 percentage points. the increase in contributions charged to employee and decrease in net income is not jeopardizing the liquidity of any com-pany in Montenegro. on the contrary, the reduction of the total earnings expendi-tures, employers are given the option to generate the same level of expenditures

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for payment of earnings, by decreas-ing contributions charged to employees along with a minor decrease in net earn-ings. For example: if the agreed gross earning amounted to 641 euros, and the net earning amounted to 460 euros, the total employer’s expenses amounted to 745 euros. Proposed legislation envis-ages the canceling of advanced monthly payment of profit tax, leaving more cash for business, improving the liquidity of a company, reducing business barriers and simplifying the payment of tax liabili-ties procedure.

7th December 2009 – Mr. Milorada Katnić, M.Sc., Deputy Finance Minister in the TV – Show “Prizma”, 4th December 2009.

9th December 2009 – Presentation of the Deputy Minister of Finance and the National Authorizing Officer (NAO), Mr. Boris Bušković, at the Press Conference of the Project ‘‘First Steps for a Decentralized Implementation System (DIS) in Montenegro’’.

“…european Integration process is a top priority of the government of Montenegro, being used as the cor-nerstone of its future and the overall social-economic and political system. on this road there are a number of criteria to be fulfilled, and one of them is the existence of qualitative manage-ment system of the eu funds. namely, the country’s membership readiness is reflected in its ability to manage the EU funds in a decentralized manner, i.e. through its own institutions. Decentral-ized Implementation System (DIS), as-

sumes the conferral of management powers of the eu funds, being trans-ferred from the european commission to the beneficiary country. This is a long - term and demanding process in which the european commission requires from a country aspiring the eu mem-bers to prepare its institutions, public administration in the first place to man-age allocated funds in an efficient and qualitative manner ...”.

9th December 2009 – Final training on financial management, within the Project ‘‘First Steps for a Decentralised Implementation System (DIS) in Montenegro’’.

The training on financial manage-ment of the europena union funds, therefore the IPA funds was organized within the Project ‘‘First steps for a De-centralised Implementation system (DIs) in Montenegro’’. Financial management incorporates management of the eu funds following the conferral of manage-ment powers from the european com-mission to the beneficiary country of the eu assistance, i.e. Montenegro, having in mind that the use of funds must be ac-curately, consistently, efficiently and ef-fectively identifies, adhering to the best international practice of the sound finan-cial management. the main purpose of the training was to aquaint participants with detailed aspects of the financial management of the eu projects with the objective of effective performance of du-ties, delegated to a special IPa body. the training included following procedures: co-financing, determining the payment amount to projects financed by the EU and financial reporting on the state of project implementation progress, refer-ring to the timely submission of monthly and annual reports, as well as progress reports, reports on irregularities and re-ports on –spot - control .

14th December 2009 – Information of the Ministry of Finance on the occasion of providing funds for the Social Programme for employees of KAP and Bauxite Mines

the government of Montenegro pro-vided funds in the amount of 5 million euros for the social Programme for em-ployees of KAP and Bauxite Mines.

the aforementioned funds will be paid to the special account of crnogor-ska komercijalna banka. the payment of governments contribution will initia-te simultaneously with the payment of finds provided by the KAP for the Social Programme for which the government of Montenegro issued guarantee.

25th December 2009 – Initiated negotiations for the development of the Draft Collective Agreement for Administration and Judiciary area

the government of Montenegro and the union of administration and judicia-ry have established negotiating teams for the development of the first Draft Col-lective Agreement in the field of admin-istration and judiciary, being a result of qualitative social dialogue. It was agreed to finalize the document by the end of january 2010. up to present, negotiating teams held two meetings, and the third is scheduled for 30th December 2009. the joint assessment is that negotia-tions are held in good spirit, with full mu-tual respect of social partners and their arguments. the objective is to sign the collective agreement, providing labor rights, at the same time creating con-ditions for administration and judiciary efficiency. A joint press conference of Unions and Employers will be organized after finalizing the Collective Agreement, will be organized in a joint press confer-ence the representatives of trade unions and employers.

Prepared by:

Ms. gordana JOVANOVIć, Spokesperson

Ms. Ivona MIHAJLOVIć, Assistant to Spokesperson


the european union, in addition to a high degree of economic integration of the member states, insists on the integration of the payment services, in order to insure its consolidation in the national regulations of the member states and to avoid difficulties in joint financial transactions.

as of 1st january 2002, cash payments in the Euro zone were made using single currency, but electronic payments contin-ued to be expensive and complicated be-cause the banks charged different commis-sions depending on whether the euro was moving inside or outside national borders. all of aforementioned led to conclusion that the further integration is needed. In the light of the above, in December 2001, the euro-pean union adopted the regulation (regu-lation no. 2560/2001) obliging the banks

to charge same commission to cross-border and domestic payments. since the costs of cross-border payments were higher, it led to the establishment of the european Pay-ments council, whose goal was to create, more precisely determine and to follow up the implementation of the principle - sePa - single euro Payments area.

sePa objectives mostly originate from the Lisbon agenda on the basis of which the integration of the payment market into the Euro zone, represents one of the basic prerequisites for the fulfillment of objec-tives stipulated by this strategy and to cre-ate the eu market as the most competitive and most dynamic one in the World. since sePa Project united fragmented national markets in the Euro zone, contributing to the reduction in business barriers and

increase in competitiveness, sePa repre-sents a step forward in strengthening the overall european economy.

Benefits from joining the Single Euro Payments area and acceptance of com-mon rules defined by SEPA project are as follows:

- Single currency (Euro);- Unified set of payment instruments;- Expansion of the banking market of

each sePa country member, which leads to increase in competition and better qual-ity of services;

- the possibility to use single account (regardless of the country of residence);

- Standardized transactions realization time;

- Possibility of using single credit card within SEPA environment;

SEPA - Single Euro Payments’ Area and the Role

of the Public Sector

48


- common legal framework with clear regulations;

- Favorable transaction price.

sePa annuls the differences between domestic and international payment trans-action operations in the Euro zone regard-less of their form, instruments, processing techniques, number of transactions carried out equally, easily and transparently as well as payments within national borders. For the euro system, sePa represents a full implementation of the single currency, and for the european commission it is impor-tant for the comprehended single market.

sePa project was launched on 28th jan-uary 2008, when the application of sePa credit transfer (sct) commenced simplify-ing the initiation process of the payment transactions, processing and settlement of payment on the basis of automatic data processing (stP - straight through Process-ing). sePa credit transfer offers advan-tages to both the payment initiator, and the end user in the form of functionality, cost effectiveness, simplifies payment op-erations and automatic data processing. In addition to this, transactions are carried out in full amounts without any commis-sions, i.e. the commission is charged to the bank of the client, providing security in cash availability disposed to the account of the end user, i.e. transactions execution is limited to the maximum of three days from the moment of transaction commence-ment, i.e. from accepting the payment in-structions. the introduction of sePa credit transfer in countries where banks were beneficiaries of the SEPA project, made them the first ones in the world to apply the ISO 20,022 standard for processing fi-nancial messages, which apart from Iban (International bank account number) and BIC (Bank Identifier Code) standards is obligatory for sePa transactions.

In addition to sePa credit transfer, on 13th october 2009, was launched the sePa Direct Debit, implying the direct payments system, i.e. accelerates, simplifies and low-ers the prices of collection processes on the basis of contracts between two legal entities. the goal of the Direct debit is to make debit transactions automatic from the moment of concluding the contract between the busi-ness organizations up to the realization of last payment made on the basis of that con-

tract. Standardization for banks and their clients means the acceleration of transac-tions, reduction of operating expenditures and increase in profits for both sides.

since the sePa project requires a criti-cal mass in order to achieve a certain level of cost efficiency, the role of the public sec-tor, being the biggest participants in the electronic payment system, is of crucial im-portance, because of the volume of trans-actions that are realized on a daily basis. In the Euro zone, the share of the public sector is of about 20% in the total amount of payment transactions. therefore, the public sector is plays a crucial role in ac-cepting the sePa project, thus accelerat-ing the process of transferring to the new system, reducing additional costs caused by the fact of dual payment systems func-tioning during the transitional period. on the basis of aforementioned it may be con-cluded that the role of the public sector be-ing the innovator in this area, is extremely important being seen as a holder generat-ing changes.

the european commission conducted research on preparedness and the status in the process of transferring to sePa in the public sector. research was conducted in 2008, showing that the implementation of the sePa credit transfer by the public administration was limited by the fact that this service is conditioned by the payment service used by the country provider, also in many countries the administration had not received an offer from their banks for the introduction of the SCT. The first step in the adoption of the sePa project is to appoint the sePa manager in public administration who will be responsible for supervision and monitoring of development projects, and according to the Research only 46% out of the total number of administrations appointed sePa managers. Moreover, the problem was because the public sector of a large number of countries, was issuing payment instructions using the format for national credit transfers, Iso 20,022 xML format. contrary to the application of the Iso standards, the research has shown that countries have accepted the transfer to Iban and bIc standards in the domestic payment system.

sePa project for the public sector does not represent an additional standards to be

applied, but rather the right opportunity for increasing efficiency of the overall economy and the manner of participating in the pro-cess of modernization and integration in the overall financial sector. Administration is in the process of improving its capacity, modernization and increased interaction with citizens through higher application of information technology and the introduction of the e-government, contributing to reduc-tions in public sector expenditures, increase in competitiveness and achieving goals of the Lisbon agenda. through the sePa Project, the public sector has the possibil-ity to improve administrative services and internal payment system, and along with the commercial banks and the central bank it is able to observe opportunities offered by the sePa in simplifying payment transactions, electronic invoicing and procurement.

therefore, sePa is a very good tool

to modernize the payment system in the public sector, more efficient management of the payment transactions because fi-nancial integration is one of the require-ments for the eu membership and sePa contributes to it, resulting in an innovative administration that will try to reduce ex-penditures and meet the requirements of its citizens.

Today SEPA project is in extremely criti-cal development stage, due to the fall in enthusiasm in reference to the further sePa development, being the result of the world economic crisis, due to aggravated situation for investments to the sePa system by the banks. the total economic benefit achieved by this project is in con-junction with the strong adoption rate of new products on the supply and demand side. For all these benefits, even during the world economic crisis, sePa remains nec-essary and economically valuable project. therefore it is very important to maintain the speed of the Project development and to provide all the benefits of this project and all savings in costs.

Ms. Marija POPOVIć, Senior Advisor II

49


the escalation of the global eco-nomic crises and its consequences to world economies have surged numer-ous issues related to the financial sector regulation and control. as one of the im-portant areas for the functioning of the financial system is the accounting and auditing area. recently, accounting and auditing are subject to discussions within the european union and internationally, and they are especially important region-ally. Within the reParIs1 Programme of the World bank, focused on improving the financial reporting in the countries of the region Montenegro, serbia, croatia, Albania, Macedonia, Bosnia and Herze-govina, Moldova and kosovo). the Min-isterial Conference was organized at the beginning of December 2009, at which ministers and representatives of the Ministry of Finance have emphasized the importance of the financial reporting for economic development, financial sta-bility and the eu integration.

the countries of the region have made similar progress in the application

of international financial reporting stan-dards and they are more or less in the same development phase of this area. Moreover, there is a set of and challeng-es which is common to all countries in the region.

Regulatory Framework for Accounting and Auditing

the Ministry of Finance is a body re-sponsible for financial reporting in all countries of the region, adopting regu-lations and monitoring the implementa-tion, while depending on country, it may undertake additional countries. serbia, Montenegro, kosovo and bosnia and her-zegovina, have regulated the accounting and auditing area with one law, while in croatia and Macedonia, these two areas are covered by individual laws.

In the accounting area, all coun-tries have accepted the International acco9nting standards (Ias) and Inter-national Financial reporting standards (IFrs). however, there are differences

in the compliance degree for legal enti-ties, thus in Serbia, Bosnia and Herze-govina, Macedonia and Montenegro2 all legal entities are applying IFrs, while in croatia large companies, companies listed on the stock markets, banks, brokerage companies, insurance com-panies and other financial institutions are applying IFrs, and small and me-dium – sized companies are applying national (Croatia) financial reporting standards.

With regard to the accountability for the adoption and funding of transla-tion of standards, there are differences among the countries in the region. In croatia and kosovo, a body in charge of standardization financed through the budget is adopting the standards and covering the expenses of translation, while in other countries in the region, the government/Parliament is adopting the standards and translation expenses are being paid by professional organiza-tions. (see the chart bellow for detailed overview).

Accounting and Auditing Regulatory Framework

in the Region - Application of Standards

1 - REPARIS- Road to Europe: Programme of Accounting Reform and Institutional Strengthening – Road to Europe.2 - It is planned to apply the EU Directive for small and medium – sized enterprise in the financial reporting area.

50


Review of basic features of the accounting system

bosnia and Herzegovina croatia kosovo Macedonia Montenegro serbia

Fr standards IFrs - all entities

IFrs - large, listed companies, banks, brokers, insurance firms and other financial institutions cFrs (croatian Frs) - all sMes

IFrs - public entities IFrs for sMes - approved but not implemented national accounting standards for sMes

IFrs - for all entities

IFrs - large companies sMes -eu Directives for sMes

IFrs - all entities

body responsible for Fr standards setting & funding of the standard setting

Parliament - adopting Professional bodies - translating and publishing Financed by the professional bodies

croatian Fr standard board (cFrsb) financed from state budget. amount in 2009 is 100,000 euro.

kosovo board for Financial standards (kbsFr) approves the standards kbsFr is funded by the government

government sets standards Institute of Certified auditors of the republic of Macedonia (IcarM) translates, implements and updates IFrs

MoF adopted IFrs - no national standards Professional bodies themselves translate from partner organizations srrs

MoF adopted IFrs association (srrs) funds and translates

scope of publication of financial statements

Listed companies published short version Fr in newspapers

Publication of financial reports will be organized within central registry which is linked with commercial court (1 eu Directive). all legal entities submit financial reports

MtI - business registration office

central registry of republic of Macedonia

crPs - all statements (hard copy & e-statements)-next year scMn - large companies (annually, quarterly) already in place

agency for business register

Note: IFRS– International Financial Reporting Standards

The submission of financial reports is organized similarly in all countries in the region, while with regard to publishing of the financial statements the biggest progress was made by Montenegro and Croatia, introducing the obligation of publishing state-ments on websites of institutions in charge of supervision (central registry of the commercial court, securities commission, central bank of Montenegro and institutions in croatia).

Training and certification of accountants in all countries in the Region is within the competence of professional organizations, whereas only in Montenegro is achieved cooperation between the Ministry of Finance and professional associations in reference to checking public operations.

apart from similarities in the accounting system and similar profession development degree, all countries in the region are facing with forthcoming challenges/problems. Joint problems were identified through the activity of the regional REPARIS, and are as follows:

• IFRS application and implementation;• Improvement of accounting profession; • Establishment of capacities for the quality control of financial statements,• Training on IFRS and the process of timely updates of new or revised standards; • Best practice in the area of the accounting standards for MSP,• IFRS implementation parallel with the adjustments in Universities curriculum;• Improvements in financial discipline.

51


regulatory framework for audit in the regional countries is arranged in accordance with the european union Directives, where-as the degree of the application of directives is different from country to country. all countries intend to fully accept and apply all existing acquis communitaire in the forthcoming midterm period. All countries through regulations have assumed the obligation to apply International auditing standards and the code of ethics for professional accountants.

In croatia, serbia, Macedonia and kosovo, the licensing is assigned to the bodes established by the governments of afore-mentioned countries, while the training and certification is assigned with professional organizations. In Montenegro, the licenses to auditors are issued by the Ministry of Finance, while in Bosnia and Herzegovina the licenses are being issued by the govern-ments of entities. The training and certification of auditors is the responsibility of professional organizations.

The supervision of auditing companies is differently organized in the countries of the Region. In Croatia, the supervision over auditors is carried out by the Board for public supervision of auditors, In Macedonia is established the Institute of Certified Audi-tors, in Kosovo is established the Board for financial standards is supervising the work of auditors. Supervisory bodies in afore-mentioned countries are government bodies financed through the budget. In Montenegro, Serbia and Bosnia nad Herzegovina the supervision over the work of auditors is within the competence of the Ministry of Finance, and all countries are planning to establish bodies for public supervision of auditors.

regardless the fact that three countries in the region have established the body for supervision of auditors, the work of these bodies is still in development phase, thus all the countries are facing with similar problems and dilemmas. joint problems identi-fied through regional forums are as follows:

• Provision of quality control;• The composition of the Body for supervision of auditors;• Sustainable funding of the Body for supervision of auditors;• Control over the work of auditors;• Training of auditors.

Review of the organization of the public supervision over the work of auditors

Bosnia and Herzegovina Croatia Kosovo Macedonia Montenegro Serbia

Body for public supervision of auditors

Public oversight is performed by the Ministry of Finance, from January 1, new laws on force which defines oversight authorities

PO Board - independent body for legal persons, for banks - Croatian National Bank, for listed companies - HANFA (SEC)

KBSFR performs oversight

CAOA - Institute of Certified Auditors

No oversight body established, Ministry of Finance is in charged for control

No oversight body established

Funding of the body for supervision

N/A.PO Board - by the state budget

KBSFR financed by the state budget

CAOA is financed by the state budget

N/A N/A

Apart from joint dilemmas in the organization of the public supervision of auditors, in the countries in the Region are identifies problems of ensuring the application of the International auditing standards, as well as the development of local auditing profession.

Development of accounting and auditing in the forthcoming period.

The accounting and auditing represent areas, within the context of international framework, being steadily improved and developed in accordance with the economic reality. In the same manner, the financial reporting system in the countries in the region will be further developed. Future reforms and system development in the regional countries will be carried out through the assistance of international financial institutions and other donor assistance, through regional cooperation of regulators, profes-sional bodies and educations institutions within the reParIs Project and on bilateral basis.

Ms. ana KRSMANOVIć, M.sc., Independent Advisor I

Ms. aleksnadra POPOVIć, Independent Advisor II

52


With the objective of providing quali-tative management of projects and pro-grammes financed by the funds of the european union (eu), it is very important to establish quality procedures that will assist and ensure institutions involved in the development and implementation of eu programmes and projects, that activi-ties carried out within their competence are being qualitatively implemented. Quality in this context means the ability of local institutions to efficiently manage resources, thus ensuring the highest level of utilization of allocated funds, si-multaneously ensuring adherence to the rules and standards prescribed by the eu. therefore, management instruments are being applied in the programming / projects cycle in the implementation of the pre – accession assistance. the pro-gramming cycle in the context of the EU assistance incorporates six phases: the development of a national plan for the use of assistance, development of spe-cial operating programmes for certain areas (sectors), daily management of programmes, programme implementa-tion phase, monitoring and evaluation phase. It may be stated that aforemen-tioned phases have the feature of con-tinuous activities, bearing in mind that

some of them occur simultaneously, i.e. not excluding each other.

Montenegro is currently in the preparation phase for the decentral-ized management of funds allocated by the European Union. Decentralized management means that the country is capable of performing operations

independently, currently being perfor-med by the european commission. Montenegrin institutions, which under decentralized management system will be involved in programming and imple-menting of the Instruments for Pre-ac-cession assistance - IPa, will use the IPa Manual of Procedures. this document implies horizontal features, providing institutions involved in the process of using the IPa funds, the instruction for implementation of certain activities, as well as the possibility to get familiar with some specific activities, getting the overall picture of the pre - accession assistance implementation process. the IPa Manual of Procedures, among ot her things, includes chapters on pro-gramming, financial management, pub-lic procurement system on the basis of the eu rules, risk management, human resources management, irregularities management, as well as the chapter on monitoring and evaluation.

Monitoring and Evaluation Assessment Forms

Monitoring and evaluation represent procedures for assessing implemented activities and achieved results set by a

Monitoring and Evaluation

of IPA Programmes

1 - This document relates to the monitoring and evaluation at programme level, representing integral part of projects implementation being described in the Chapter H, IPA Manual of Procedures - Procurement.2 - National IPA Coordinator - NIPAC 3 Article 36 of Law on ratification of the “Framework Agreement between the Government of Montenegro and the European Commission on the rules for the cooperation regard-ing the financial assistance of EC to Montenegro under the implementation of the Instrument of Pre-accession Assistance” (Official Gazette of Montenegro, No 01/08).;Article 58 Commission Regulation (EC) No 718/2007 of 12 June 2007, implementing Council Regulation (EC) No 1085/2006 establishing an instrument for pre-accession assistance (IPA)

Katarina Živković

53


specific programme or project. These pro cedures, as assessment forms, are in te rrelated; to some extent differing depending on the assessment subjects and the timeline during which they are conducted.

Monitoring represents a systematic activity of the management process, which is done rapidly and continuously during the implementation of the pro-gramme/project by the beneficiary coun-try of the eu assistance. this type of as-sessment is performed several times a year, in order to verify whether the pro-gramme/project is implemented in the manner envisaged by plan, i.e. whether achieved results correspond to planned results. therefore, results (achieved) and plan (planned results) are the two most important elements of monitoring process. It is important to make the dif-ference between the programme level results and the project level results. re-sults at the programme level are set on the basis of a certain financial agree-ment, and the results at the project level are set during the development of the project fiche1. Deviations against bench-marks are identified during the develop-ment of the project fiche, occurring in the implementation phase with the plan or proposal to remedy deviations. the programme user (beneficiary of the pro-gramme) is in charge of monitoring the process.

unlike monitoring, evaluation assess-es the medium – term and long – term effects of the programme/project with the special emphasis on the sustain-ability of achieved results. on the basis of aforementioned, it may be concluded that achieved effect and its sustainabil-ity are the most important elements of evaluation.

the evaluation time-frame:

• Ex – ante evaluation – conducted prior to implementation, i.e. in the phase of developing operating programmes,

• Interim evaluation – conducted during programme/project implementa-tion, and

• Ex – post evaluation – conducted after programme/project implementa-

tion, usually within 6 or 24 moths follow-ing the completion of a programme.

Evaluation represents detailed effi-ciency analysis (use of resources) and effectiveness (achieved results against the plan) in one fixed, precisely determi-ned point. unlike monitoring, being co-n tinuously conducted, evaluation is pe r formed one or twice a year by the eu r-op ean commission or the nIPac2 office.

Monitoring System IPA Components 1 and 2

NIPAC Office, i.e. Ministry of Europe-an Integration is in charge of establish-ing and managing national monitoring system within the IPa, in the Decentral-ized system of Montenegro. Monitoring is performed through the activities of dif-ferent committees, which competencies differ based on the level of their compe-tence. the Monitoring committees are as follows:

• IPA Monitoring Committee- cover-ing the overall IPA;

• Sectoral Monitoring Committee – covering components level.

IPA Monitoring Committee

In accordance with the Framework agreement and the IPa Implementing Regulation3 each beneficiary country of the IPa, is required to establish the IPA Monitoring Committee within six months following the entry into force of the first Financial Agreement. This committee represents the highest level in the hierarchy of committees dealing with the monitoring issues, and its task is to monitor the implementation of programmes financed through the IPA funds. the IPa Monitoring committee is composed by fo llowing representa-tives: representative of the european commission (ec), nIPac, national ac-crediting Officer (NAO), Programme Ac-crediting Officer (PAO) and Senior Pro-gramme Officers (SPO). The Committee meets minimum once a year, co-chaired by nIPac and ec representative. the Committee verifies whether the general implementation efficiency and qual-ity is in compliance with the objectives

set by a concrete Financial agreement and Multi-annual Indicative Planning Document - MIPD. In accordance with the aforementioned, the committees is proposing to the ec, ek, nIPac and nao measures for the provision of com-pliance between a programme and activities, as well as the measures to se ctoral Monitoring committees to be un dertaken in reference to achieving obje c tives of a concrete programme.

the Ministry of european Integration and the nIPac are in charge of organi-zation of this Committee. The Ministry prepares and presents the rulebook on work procedures of the committee, or-ganizes meetings, submits all relevant information to the members of the com-mittee, and prepares the reports on mo-nitoring and, after finalization, submits it to the members of the board.

Sectoral Monitoring Committee

Pursuant to the article 59 of the IPa Implementing regulation, the IPa moni-toring committee shall be assisted by sectoral monitoring committees being attached to programmes and compo-nents. In Montenegro, those are:

• Transition Assistance and Institu-tion building committee - taIb commit-tee responsible for the component 1, and

• Joint Monitoring Committee – JMC, responsible for the component 2.

sectoral Monitoring committee may be assisted by sectoral Monitoring sub-committees, usually covering one area, e.g. subcommittee for agriculture, ju-diciary, safety, etc. In accordance with the needs, it is on a country to decide whether or not to establish a subcom-mittee.

nIPac is responsible for the estab-lishment of sectoral Monitoring commit-tees, i.e. taIb committees and jMc com-mittees. as previously mentioned, taIb committee is in charge of monitoring IPa component 1 - transition assistance and Institution building, while jMc committee is responsible for monitoring cross-border

54


programmes, establishing each cross-bo-rder programme individually. the task of these Committees is to examine the ef-ficiency and quality of implementation of programmes and activities related to the programme implementation.

taIb committee is responsible for the review of the status of play in terms of financial and technical prog-ress of annual programmes, review of achieved results, review of problematic areas proposing corrective measures to overcome the problem thereof. the Ministry of european Integration is re-sponsible for the establishment of the IPa Monitoring committee and the taIb committee. having in mind the fact that the centralized management system is in place in Montenegro and that the monitoring of the IPa component 1 is performed by the Delegation of the eu-ropean union to Montenegro, taIb com-mittee is not established yet, thus this role is performed by the IPa Monitoring committee.

Unlike the first two Components, in cross-border cooperation component (IPa component 2), jMc represents a joint management body of countries participating in a programme. jMc pass-es a number of important decisions for the successful programme implemen-tation. jMc approves criteria for selec-tion of activities to be financed within a programme, reviews progress achieved against objectives set by the cross-bor-der programme, carries out a review of achieved results in certain priority areas, approves audit programme proposals and participates in the development of the annual report on implementation. the Ministry of european Integration, being the jMc secretariat, is prepar-ing for the committee the rulebook on procedures for its work, produces infor-mation for the members of the commit-tee and controls the quality of sectoral annual reports on implementation. the Ministry of european integration may delegate aforementioned activities to the joint technical secretariat - jts of a programme.

sectoral Monitoring committees me ets twice a year. conclusions from the meeting are summarized in reports submitted to the IPa Monitoring com-mittee. reports contain information on achieved progress in implementation of the programme (results achieved), the financial indicators related to imple-mentation, as well as suggestions for improving the implementation of the programme. In addition, reports con-tain observations related to the finan-cial management and control system submitted by the national accrediting Officer – NAO and Co mpetent Accredit-ing Officer – CAO being responsible for ensuring the quality of the functioning of this system.

Members of the taIb board are: nI-Pac, nao, Pao and sPo’s and the ec representative, while the members of the jMc are: the President (represen-tatives of countries participating in the programme on rotating basis), represen-tatives of each country participating in a particular cross-border programme, representatives of operating structures of countries and the ec representative participating in the work of the commit-tee on advisory basis.

Monitoring Reports within IPA Component 1 and 2

In accordance with the reporting level, there are sectoral reports and implementing reports on monitoring. as it may be concluded, sectoral re-ports cover the level of the component, implementing reports cover all compo-nents together, i.e. the level of the IPa instrument.

Sectoral Monitoring Report

there is a difference between the sectoral annual reports and Final sec-toral monitoring reports. the annual sectoral report covers a financial year (from 1st january to 31st December), whi le the final report covers the entire per iod of programme implementation. both of these reports, after being con-

sidered by the taIb committee, or jMc committee are submitted to nIPac, nao and the ec.

the annual sectoral report is sub-mitted at latest by 30th june each year, while the final sectoral report is submit-ted at latest by six months following the completion of the programme. It is im-portant to note that the these deadlines represent fixed deadlines, as prescribed by the european commission and their modification is not allowed3.

Reports on Implementation

reports on implementation can be the annual report on implementation of the IPA (covering one financial year) and a Final report on implementation of the IPa. these reports cover the level of the instrument and are produced on the ba-sis of annual and final sectoral reports, summarizing all data contained in these reports, indicating the overall progress achieved in the use of the eu assistance and against the MIPD, along with the financial aspects of assistance imple-mentation.

nIPac is responsible for the submis-sion of the annual and Final reports on implementation to the IPa Monitoring committee for approval. nIPac is sub-mitting approved reports to the ec and nao. the deadline for the submission of the annual reports on Implementation of the IPa is 31st august each year. this deadline also may not be chanced ant it is determined by the european com-mission.

NIPAC Office is in charge for the preparation of the sectoral annual and Final reports, as well as for the prepa-ration of the annual and Final reports on implementation. senior Programming Officers in all line ministries are provid-ing the data for the development of the narrative part of these reports to nIPac, while the part covering financial data is submitted by the sector for Finance and contracting of the eu assistance funds - cFcu.

3 - Articles 84 and 144 of the IPA Implementing Regulation;

55


Evaluation System in Montenegro

as already being mentioned, the evaluation represents the assessment form of activities carried out within a programme, component or at the level of the IPA instrument and it may be ex – ante, interim and ex – post evaluation. The EC is currently re-sponsible for evaluation, but decentralized system of implementation means that Montenegro will need to have its own system of “internal” evaluation. The internal evaluation includes ex – ante and interim evaluation, while the ex – post evaluation will remain as the obligation of the EC, as a form of external evaluation.

Interim evaluation is a special form of evaluation for whose realization will be responsible NIPAC in the decentralized manage-ment following the DIs accreditation (Ministry of european Integration). For performing interim evaluation, on the basis of the annual monitoring plan and evaluation, NIPAC will engage external auditors to provide an independent assessment on the imple-mentation of a specific programme. In addition, NIPAC is responsible for the control of work of independent auditors and the quality of provided services, as well as for the development of reports on the findings (evidence) identified during the implemen-tation of the assessment. NIPAC is submitting the Report on findings of evaluation to the IPA Monitoring Committee and Sectoral committees. apart from submitting the report, nIPac will be responsible for initiating corrective measures and implementation of recommendations stated in report on evaluation in made in reports on evaluation to the overall projects and programs carried out in the best possible way.

Conclusion

Qualitative management imposes the need for the control of results achieved by implementing planned activities by organiza-tions, companies or individuals. In managing the programme/ project cycle, monitoring and evaluation are the most important instruments, used to assess the success of implemented activities against a plan. Results assessment and identification of weak-nesses in the process of implementation of activities is crucial for long-term success of all activities, and even those that financed by the eu. apart from above-mentioned, monitoring and evaluation have an advisory role, because the recommendations given by those who are conducting the assessment may facilitate the work of those engaged in the implementation of activities aimed at overcoming problems and improving implementation of activities, as well as to prevent their occurrence in future.

Ms. katarina ŽIVKOVIć, Independent Advisor II


annual/Final IPa report on Implementation

sectoral annual/Final report for IPa component

1, taIb

Financial condition

(cFcu’s input)

technical Progress

(sPo’s input)

Financial condition

(cFcu’s input)

technical Progress

(sPo/Its’ input)

sectoral annual/Final report for IPa component

2, cbc

56


Public Internal Financial control (PIFc) incorporates a part of the acqu is communautaire principle, being establi-shed by the european union as the overall internal financial control system ensuring sound management of public funds, regardless their source of origin.

the PIFc eu Model segregates func-t ions and responsibilities for fina n cial management and control system, compr-ising ex ante, current and ex post controls and the independent internal audit.

the development of the internal au dit in public sector, being one of the elements of the public internal financial control (PIFc) and its establishment in public administrative bodies, represe-nts one of the eu requirements for all candidate countries for the eu membe-rship, representing the integral part of Montenegrin legislative compliance with the eu legislation.

activities aimed at establishing the internal audit function in the public sec-tor have commences by adopting the Law on budget in 2001, establishing the sector for internal audit within the Mi nistry of Finance, being centralized internal audit performing auditing in all budgetary spending units.

the Law on Public Internal Financial control in December 2008 marked the commencement of the official legislative compliance of Montenegro with the eu leg islation, obliging the public sector ent ities to establish the internal audit function.

Pursuant to the Law, the public se-ctor entities are obliged to establish internal audit: by establishing an inde-pendent internal audit unit within the entity which will report directly to the

head of the entity; by establishing a jo-int internal audit unit upon proposal of two or more entities, subject to the prior approval of the Ministry of Finance or by performing the internal audit by the internal audit unit of another entity or local government unit on the basis of the agreement which is subject to the prior approval of the Ministry of Finance. on the basis of the Decree on the establishment of the internal audit in the public sector, adopted by the government of Montenegro in March 2009, prerequisites were created for the establishment of the independent internal audit function within the pu blic sector entities. the process of esta-blishing the internal audit within certain entity have commenced by establishing a special organizational unit for inter nal audit on the basis of amended rule-book on internal organization and sy-stematization of employees posts. The Law prescribes the deadline for the es-ta blishment of internal audit units, thus budgetary users of Montenegro are obl-

iged to establish them by april 2010, and other entities by april 2011.

the establishment of the internal audit represents an important instrument providing the public sector entities with an objective review and advisory activity, aimed at providing added value and improving the operations of entities, which assists the entity in achieving their objectives by providing a systematic, disciplined approach to the evaluation and improvement of risk management, controls and management processes.

the role of the internal audit is to asses the adequacy, application and effi-c iency of the financial management and control systems, based on determining potential risks of processes and acti vi-ti es. the Internal audit helps the ent ity in achieving its goals by applying a sy-stematic and disciplined approach in eva-luating activities involving assess ment and improvement of the risk ma na ge ment system, control and proce sses. the scope

Internal Audit - PIFC Component

Maja Bašić Valentina Perović

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of the internal audit involves all processes and activities of the entity at all levels of management responsibility. the internal audit revie ws, evaluates and reports on the control status thereby contributing to the appro priate management, economic and effi cient use of resources and achi-eve ment of organizational objectives aga i nst esta blished standards related to bu si ness performance, i.e. contributes to ope ration improvement.

the role of the internal audit is to re-view, asses and reports on the followi-ng:

• Efficiency and adequacy of the fina-ncial management and control system, with the objective of controlling the risk;

• Reliable, accurate and complete fi na ncial and other operational inform-a tion;

• Efficiency, effectiveness and eco-no my of operations;

• Protection of assets and other res-ources, implementation of measures against possible losses, misuse, ina de-quate management, errors, frauds and irregularities;

• Implementation of tasks and achi-evement of goals;

• Undertaken measures by the head of the entity, on the basis of issued rec-ommendations of the internal audit, with the objective of curing identified we-aknesses and irregularities.

the Internal audit does not represent the supplement or the replacement to the management process, it assists the head of the entity to achieve set obje-ctives in the area of its competency.

Internal audit must be functionally and organizationally independent, mea-ning the independence from the audited activity being directly subordinate to the head of the entity, i.e. without the influence of the head, the internal audit is independent in decision making pro-cess with regard to the audited area. Functional independence implies that internal audit is not part of any business process or organizational part, and in its work it is directly accountable to the head of the subject.

Internal auditors are not directly acc o untable for audited activities. Inte-r nal auditors are neither involved in de-v elopment or implementation of pro-cedures, nor in audited activities. Internal auditors are on advisory basis involved in development or implementation of policies, systems and procedures of entities, in accordance with issued reco mmendations by the internal audit unit. Internal auditors are independent in their work, which is performed on the basis of strategic and annual internal audit work plan.

In general, the internal auditors are authorized for system audits, co m pl-i ance audit, audit of operation perfo-rmance, financial audit and the IT sy-stem audit. the most common type of audit is the system audit of processes and subsystems (parts of the system) that are interacted and interconnected in achieving the goals of the entity. When performing the audit, the internal auditor is entitled to free access to employees and assets of the entity, information, all available documents and records necessary for performing the audit. Internal auditors are authorized only for performing the audit and may not reassign rights to other persons or organizational units. In their work, they cannot engage experts which special knowledge and skills are required for performing the audit.

the process of individual audit com-pr ises following phases:

• Internal audit planning and prelimi-nary activities;

• Determining and recording the sys-tem;

• Assessment of the internal control system;

•Testing;• Formulation of evidence, provision

of opinion and recommendations;• Reporting, and • Monitoring the implementation of

recommendations.

the audit report represent a uni-que tangible audit product. the rep o rt represents an instrument of communi-cation for an exchange of information

between the internal auditor and the head of the entity. the audit report sho-uld provide the head of the entity the confirmation on adequacy of audited system, being used as the basis for full confirmation of internal control system adequacy, being communicated through the report issued to the management. It represents a summary of planning, timeframe and efforts used in one audit and it reflects the quality and thorough of performed audit.

the basic objective of the audit repo-rt is to: report on identified problems and causes of the problems; to explain consequences of the problems and to make quantification where appropriate; on the basis of the analysis and asse-ssments, measures operational perfo-rmance, identifying areas requiring gre-a ter efficiency and effectiveness and elimination of losses; it should persuade the management that a change is requ-ired; proposes practical and economic solutions, providing the basis for monito-ring appropriate measures.

It may be stated that the manage-mentis responsible for following up the implementation of recommendations issued by the internal audit. In other words, prudent management structure should follow up the implementation of recommendations and undertake re-quired measures. the auditors should follow up whether activities aimed at implementing recommendations are be ing undertaken in accordance with agreed activity plan for implementation of recommendations. In the light of the above, the responsibility is on the ma nagement, and avoiding mistaken impressions that the audit is to «check» the management. however, the audit should, at the minimum, be in position to asses whether set results were achieved by implementing agreed activities, i.e. it must provide for incentives for reco-nsiderations and allow for underta king actions when needed.

Ms. Maja BAšIć, M.Sc., Authorized Officer I

Ms. valentina PEROVIć, Authorized Officer II

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Singapore is the most developed country in Southeast Asia, with excellent infra-structure, strategic location, diligent and educated manpower and stable political situ-ation, which helped to position the island as an important financial and commercial center. the country has one of the busiest ports in the world and having more than 7,000 multinational corporations suing singapore as a base for conducting business activities. this asian country enjoys the lowest level of bureaucracy on the continent in the context of the Doing Business. Government agencies performing regulatory func-tions have good cooperation with the private sector, unions and employers. In order to provide incentives to private sector development, time-consuming bureaucratic pro-cedures are reduced to a minimum, creating conditions for the provision of grants, financial assistance for small and medium-sized enterprises, as well as other types of assistance. The government strongly supports foreign investment and skilled foreign workforce.

Singapore in Doing Business Report 2010Singapore achieved remarkable results on global and regional ranking lists in reference to ease of doing business efficiency.

the latest World bank report (Doing business report 2010) is positioning this island country at the very top, where the fourth year in a row occupies a leading position. At the global level, in 5 out from 10 indicators, the Asian island occupies the first or second position. Historically speaking, the initiator of many reforms was actually a financial crisis. Economies of East Asian coun-tries, motivated by the consequences of the financial collapse in 1997 and 1998, decided to review their bankruptcy procedures. singapore has reformed laws relating to the strengthening of investor protection and in the last year has continued with the re-forms, implementing electronic services, in order to facilitate the process of starting businesses, issuing building permits and the process of transferring the ownership rights.

Db 2010 Db 2009 repositioning

ease of Doing business 1 1 0

starting a business 4 4 0Dealing with construction Permits 2 2 0employing Workers 1 1 0registering Property 16 15 -1getting credit 4 4 0Protecting Investors 2 2 0Paying Taxes 5 5 0trading across borders 1 1 0enforcing contracts 13 16 +3closing a business 2 2 0

Singapore: Doing Business Efficiency

Ivan Radulović

Commentary

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Competitiveness is a key principle on which the economy of this country is based and subject to penalization are all of activi-ties excessively preventing, restrict or jeopardizing competition. Singapore is literally a free port and customs duties are calcu-lated on few products, such as petroleum products, tobacco products, alcoholic beverages and motor vehicles. Due to health, safety or security reasons, certain goods are subject to control, such as telecommunications and audio communication equip-ment, animals, birds, plants, meat products, firearms and explosives, toys in the form of guns, publications, audio and video tapes and games, films and medical products. The import of certain products is prohibited, and they include chewing gums, chewing tobacco, controlled drugs, and endangered species of wild animals, firecrackers, and toys in the form of money.

The Government has established different programmes providing incentives to assist companies to improve efficiency boost opportunities and explore new business options. Some programmes are addressing the needs of newly established and local companies, while others are addressing the needs of global companies having greater needs, such as the establishment of regional / international headquarters in singapore. Incentive schemes are ranging from assistance in manpower development, technological development, research and development assistance (r & D), intellectual property and industry development. the assistance may be in the form of loans, grants, decreased tax rates, capital financing, as well as non-financial assistance.

Starting a BusinessNewly established company in Singapore, if properly structured, represents an attractive, tax-efficient entity for successfully perfor-

mance of international business activities. the registry of companies and businesses has merged into a single electronic form. the es-tablishment of electronic registration is not only improving the security, but the transparency and information excha nge, enabling sound and simplified introduction of new electronic services. Three required procedures for starting a business include: online – registration with acra1 (Accounting and Corporate Regulatory Authority) requiring the application of the company and the tax identification number (registration is done through Bizfile, the electronic system for the submission of applications); making of company’s stamps and submis-sion of applications for compensation of insurance with the Insurance agency. three days are required for the successful completion of these procedures. A foreign company that wants to establish branch offices must appoint two local agents to represent it. These agents must be the residents of Singapore, citizens, residents with the permanent permit residence, or foreigners with the work permission. Special permits are required for some jobs such as banking, insurance and stock exchange brokerage.

Dealing with Construction Permitsaccelerated application processing for obtaining construction permits is the most important reform implemented in 2009.

Increased use of Internet resulted in reduction of required time for issuing building permits from 102 to only 38 days, whereas in singapore, it takes less time to obtain the permit than in any other country, For a successful completion of this process it is necessary to implement 11 procedures lasting 25 days.

1 - ACRA was established by merging the Registry Of Companies and Businesses with the Public Accountants Board Singapore. ACRA is the governmental body super-vising the registration or establishment of companies from 1st April 2004.

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REqUIRED PROCEDURES FOR OBTAINING CONSTRUCTION PERMITSIt is necessary to obtain written permission from the urban redevelopment authority (license application is submitted in

electronic format along with all supporting documents, such as the proposal and development plans, as well as survey plans for the curved and undulated sites, 14 days), obtaining permits for structural plans and building commencement permit, 14 days (permits can not be issued without written permission or provisional approval issued by the urban redevelopment authority and the payment of development costs, if any. structural approval is generally issued the day after the urban redevelopment agency issues planning permit. building commencement must begin within 24 months from the date of issuing the approval. the License for structural plan may be issued along with the building commencement permit, thus providing the possibility to commence with the physically work. as of 2008, the Development agency has introduced a possibility of informing the clients via email and sMs on the status of the application); Obtain technical clearance from the Fire Safety & Shelter Department (FSSD) of the Singapore Civil Defense force, 10 days; technical consultation with the Central Building Plans Unit of the Ministry of the Environment and Water Resources, 1 day; technical consultations with the Central Building Plans Unit of the Ministry of the Environment and Water Resources, 1 day, technical consultation with the Land Transport Authority, 1 day; obtain building plan approval, 7 days, to make an online declaration of risk management implementation and to notify the commissioner for Workplace safety and health, 1 day, obtaining power, water, and sewage connection. For all three connections, it may be applied through one-stop service and it takes 7 days to obtain the phone connection, 1 day; receive final inspection 1 day and the last procedure is to obtain a certificate of statutory completion. the registry of newly built warehouse by the urban redevelopment agency is not required.

Employing WorkersSingapore offers the best rated manpower globally, recognizable by the high productivity and efficiency level. Tripartite alliance

of the government, employers and unions is promoting and improving national interests, establishing the cornerstones of a sound social dialogue, freed from political pressures and public disorder. on the basis of published data by the Ministry of Labor, as of 20th January, the sector of services is recording the highest percentage of employees (67%), followed by the production sector (20%), civil engineering - construction (12%) and miscellaneous (0.7%). Singapore is implementing an open policy for employing of foreigners. It is not difficult to obtain work permits for executives and management of foreign or multi-national organizations, well-qualified experts, representatives of regional firms, staff necessary for the establishment of new company, as well as for carrying out of the financial or service activities. The country has no legally defined minimum wage. In accordance with this, the accordingly, the national Wages council (nWg) in consultation with the representatives of the union of employers (mainly, the national employers Federation and the chamber of commerce), national trades union congress and the government is recom-mending and issuing national guidelines for determining annual income. employees, those with permanent resident, as well as their employers are paying contributions to the central provident Fund (cPF). over the past 50 years, the cPF system has evolved from a simple compulsory savings plan, in complex social schemes providing pensions, health and housing needs of employees. employees can be represented by the trade unions, but the membership is not compulsory.

Registering propertyAs for the registering property, Singapore continued to improve computerized system of state agencies. The provision of an-

swers is fact and required time for registration of property was reduced from 9 to 5 days. It is necessary to perform three proce-dures: electronic search and the payment of stamping fees (electronically), electronic transfer of funds to the account of the Land authority and electronic submission of the information on transfer.

Getting LoanSingapore is highly developed and well regulated financial center being internationally recognized, with the best credit rating (

“aaa” ranking based on the assessments of the credit rating agency Moody’s and standard & Poor’s), in which more than 500 do-mestic and foreign financial institutions are operating offering a wide range of financial products and services. The financial sector is based on the highest regulatory standards, providing services to the local economy, Asia and the Pacific region and Worldwide. In 2008, the share of financial services amounted approximately 13% of GDP. In addition to commercial banks, business banks and financial companies are issuing loans adapting their structure in accordance with the requirements of each customer. Bank loans range from the contracted repayment schedule of loans, short - term investments, medium – term and long – term loans. these funds include credentials, bond discount, financing acceptability, financial guarantees, transport guarantees, purchase of contracts and currency swaps. some banks are not only mediating in the collection of funds intended for users, but they are also assuming the risk for allocated amount being unsecured by the investor or and banks’ loan providers. Loans may be approved on the basis of collaterals with or without a guarantee of third persons depending on the creditworthiness of the client. guarantee may be issued in the form of mortgage on real estate, fixed and current expenditures, and collateral part of the property, share or any other market collateral. Business banks are usually issuing same types of loans as commercial banks, but they are not approving the extension of contracted deadline for the repayment of the loan (reprogramming period), some of them are not providing credentials, as a security. Like commercial banks, business banks are authorized to issue loans in any currency, with or without collaterals.

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Protecting investors and contracts enforcementDoing business has recorded 68 reforms related to strengthening of investors protection in 50 economies in the past 5 years.

Economies that are highly ranked in the index, “ the strength of investor protection “ are protecting minority investors, have clearly defined job descriptions for directors and easy access to corporate information. Examples are New Zealand, Singapore and United Kingdom. These economies also have efficient, responsible and fast judicial systems, without which the good laws would have a minimum impact on investor’s protection. In Singapore, for example, it required averagely 150 days for judicial resolution of com-mercial disputes, making the judicial system of this asian county the fastest in the world. the reformers, requiring consent in rela-tion to transactions between related parties have two options: the approval of the Management board (or supervisory board) or the approval by the shareholder. In any case, interested directors should not be allowed to participate in the process or their cotes should not be considered. In economies in which international business corporations are operating, successful performance of the modern legal systems and the existence of good communication infrastructure, as it is the case in France and Singapore, obtaining the approval of shareholders is preferred option.

Tax SystemDuring last year, since financial and economic crisis affected economies worldwide, governments have continued with the

implementation of the reform programmes aimed at reducing the tax burden for companies, as well as expanding the tax base. During the Asian financial crisis in late 1990, Singapore started to implement tax reforms, which led to the decline in operating expenses by decreasing tax rates and tax refunds. Tax on profits or sales tax is not charged. Agreements on avoiding double taxa-tion were concluded with over 50 countries. Moreover, the number of payments was reduced by abolishing stamping of almost all documents. Social welfare contributions amount to 13% - (electronic payment), profit tax - 18% - (electronic payment), real estate tax - 10% tax on roads (fixed fee) and VAT - 7% (electronic payment). Tax on profits is 7.9%, taxes and contributions for employees amount to 14.9%, other taxes amount to 5%.

In Singapore, corporate profit, personal income, as well as property are subject to taxation. The tax system is territorial - based. Profit of companies realized in Singapore is subject to taxation, as well as income realized in the country originating from abroad. as of 1st June 2003, foreign dividends, profit of foreign branch units and foreign revenues realized on the basis of services pro-vided in Singapore (service recipients are citizens of Singapore) are exempted from profit tax, if the following conditions are being fulfilled: revenues are subject of some type of profit in a foreign country, profit is transferred from the country on the basis of calcu-lated tax rate not less than 15% and if the Administration responsible for the control of the profit tax is ensured that the tax reliefs will represent a benefit for a person who is a resident. In 2003, Singapore introduced the Capital Loss Carryover system related to reliefs approved for group of companies, where the group comprises the parent company and all its branches established in sin-gapore. Two companies established in Singapore may be the members of the same group if 75% of a company is in the ownership of another company or if 75% of both companies are in the ownership of another company. The group of companies must have the same accounting period in order to qualify for assistance. Groups are also allowed to carryover tax losses from the current year and unused capital benefits, but it is not allowed to carryover investments benefits and foreign losses. All companies will be allowed a one-year carryover period for unused capital benefits and business losses in the current year in the amount of 100,000 USD or 71,310%, if all requirements are fulfilled. Capital Loss Carryover System will will be additionally strengthen in 2009 and 2010, allowing the carryover period up to 3 years, while the maximum carryover amount will be increased from SGD 100,000 SGD to 300,000. Singapore has a wide range of tax benefits for companies. There are two main tax categories of tax reliefs: those implemented by the Economic Development Board on the basis of the Economic Expansion Incentive and in accordance with the Law profit tax. With regard to the taxation of individuals, taxable income includes the trading income, employment income, divi-dends, interest, pensions, benefits or annuities, rents, royalties, premiums and other real estate revenues. Real estates tax rate for industrial, commercial and leased buildings is 10% on the basis of the annual value. The property of individual owners enjoys tax concessions of 4%. The duty is charged to all instruments related to the transfer, allocation of shares in companies and real estate property. Transfer of shares on the stock market is not subject to taxation. Nowadays, Singapore is still one of the countries where the procedure for the payment of taxes is taking least time to taxpayers.

* * *While any other form of regulation may be considered as a barrier to business, relevant laws are necessary and have an im-

portant goal. Doing business - to provide cheaper, faster and easier opportunities – is of crucial importance for making business decisions. It is necessary to remove barriers existing in the laws in force, with the objective of enabling companies to become more efficient and to contribute to the overall economic prosperity of the country.

Mr. Ivan RADULOVIć, Independent Advisor III

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Montenegro is currently in the stage of establishing the DIs1, thus it must es-tablish certain rules and procedures in order to implement the DIs as soon as possible. DIs accreditation represents both the important step in the approxi-mation of Montenegro to the european union (eu) and the evidence that our administration is capable to manage funds independently. With the objective of finalizing the process successfully, the Manual of Procedures (hereinafter referred to as: the “Manual”) represent-ing a basis for work of each DIs struc-ture addressing all management levels and intended for both IPa components available to Montenegro, being a po-tential candidate country. as such, the Manual contains several chapters which relate to various areas, such as financial management, procurement, risk man-agement, programming, monitoring and evaluation, etc.

One of the many areas defined in the Manual, representing at the same time the requirement for DIs accreditation, is reporting irregularities. namely, in

the course of implementing the Projects financed through the IPA funds, from the very beginning of the Project up to its end, several structures are involved in its implementation such as nIPac of-fice, National Fund, CFCU, Project Imple-

mentation units in line ministries, audit authority, Internal audit units, as well as many end users. the higher the number of entities involved in implementation of the programmes financed by the EU, higher are the chances of deviations that may affect the ultimate outcome of Proj-ects. Irregularities are the result of these adverse situations being paid great at-tention. since irregularities may occur in any of aforementioned structures, thus each structure needs to report them in accordance with the established rules for reporting irregularities.

What is the meaning and definition of irregularity? Irregularities are defined as an event that occurred against pre-scribed legal basis, or irregularity or any deviations from required quality or ex-tent during the implementation process. Fraud and corruption are also consid-ered irregularities. Moreover, irregularity refers to any violation of the provisions of the community (including the Finan-cial agreement, contract) and/or Monte-negrin laws, and it may come as a result of employee’s actions or errors, physical

Definition and Reporting Irregularities in

Projects Financed Through the IPA Funds

1 - Decentralized Implementation System – System on the basis of which the European Commission is transferring some decision making rights on funding from the IPA funds to Operating Structure established with the Montenegrin public administration, while pertaining the responsibility over the general budget (Conferral of Manage-ment Powers).2 - Manual of Procedures for the Components I and II – Chapter “Irregularities”3 - OLAF – Office Europeen De Lutte Antifraude4 - NAO – National Accrediting Officer – in Montenegro is appointed the Deputy Minister for Treasury Operations

Žarko Krcunović

63

or legal entities or any other body having, or would incur damage on the budget of the community, through the payment of unjustified expenses.2

the main purpose of reporting irre-gularities is to protect financial assis-tance of the eu. When detected, Irregu-larity must be immediately reported, wi thout any delay. It is important to ra-ise awareness of employees that any ty pe of irregularity will not be tolerated, and that the failure of reporting irregu-larities may lead to the withdrawal of the EU funds. In order to fight against any type of irregularities effectively, the eu established oLaF3, the european anti – Fraud Office. The aim of OLAF is to pro-tect the financial interests of the EU, to fight fraud, corruption and any other ir-regular activity, including proceedings of the european institutions deviating from prescribed rules. Within the system for reporting irregularities, oLaF, besides the european commission (ec), is the body which must be informed on identi-fied irregularities by the NAO4. Moreover, in accordance with the ec requirements, each candidate country should establish

the aFcos system, for preventing irregu-larities and fraud that may arise from the use of the eu funds, as well as to provide efficient and qualitative protection of its financial interests. This system is operat-ing in all candidate countries, as well as in the eu member states since 2001.

the chapter on Irregularities in the Manual, sets clear guidelines on the ba-sis of which Montenegro should develop its system for reporting and combating irregularities. the chart 1, indicates the proceedings of responsible bodies and persons from the identification of irregularities, through the actions to be undertaken to cure and erase them. the chart is indicating that current report-ing of the EC on identified irregularities represents an important link in the chain of reporting irregularities. nao is the of-ficer who reports to OLAF and EC, while all IPa bodies must appoint the Irregular-ity Officer, who on a quarterly basis will report on identified irregularities, or act immediately in case of alert. the Irregu-larity Officer should be a person of trust with adequate work experience and high moral and ethical standards, gathering

any information on current and/or sus-pected cases of fraud, recording data in the Irregularity register, participating in monitoring missions and verifications on the spot, cooperating with other bod-ies in order to confirm the existence of irregularities. he /she is not obliged to adhere to the hierarchy of reporting, be-cause if he/she assesses that the report will not reach nao, he/she is entitled to directly inform nao. schematic reporting on irregularities of the IPa bodies is in-dicated in the chart 2, representing the operating base of the aFcos system in Montenegro.

All previously identified irregularities will be incorporated in the “Quarterly re-port on Irregularities”. the report should contain information on any established procedure enumerating all previously identified irregularities, as well as impor-tant changes that have arisen from it. the “Quarterly report on Irregularities” should be submitted by different compe-tent bodies in accordance with the terms set forth in the table 1. a very important thing in the overall system is the prin-ciple of “whistle blowers” in most cases

64


anonymously reporting irregularity, and when a whistle blower directly reports irregularity, nao is obliged, through legal provisi-ons, to provide adequate protection from unfavorable consequences of these actions.

as it may be concluded the process of establishing the structure for irregularities reporting is comprehensive, and it must include all officers of the IPA bodies As the reporting of irregularities is only one of the Chapters of the Manual, it is clear that this is a complex task to be fulfilled by the public administration, which must prove that is capable to adapt to new rules, working methods, etc , therefore being able to take over the decision making responsibility.

it , and e a stl o er re tl repo ts r egularity N O s u l g i on to v t f able con equences of these actions

m y p l n t c re rt g s c m r he siv a d it mus i lude all fficers of t e

ies As the reporting of irreg lar ties is only one f the Chapters of the it i lear that t is is a complex task to be fulfi ed by the publ

, s v i c pa ne u , g etc t er fo e bein able to ta over t e de isi m ki g

Irregularities Identification

Preliminary Damage Assessment

Informing all officers involved in

the process

Opening of a special Irregularities File”

Investigation/Irregularity Confirmation

Current EC Report

Actions to cure irregularities

Funds Return (if possible)

Iskorenjivanje nepravilnosti

Quarterly Reports – irregularities updates

Chart 2: Irregularities Reporting System

NAO

HNF

I regularity Officer NF

PAO

Irregularity Officer CFCU

SPO

Irregularity Officer PIU

ECDG Enlargement

OLAF

NIPAC

chart 1. Procedure of responsible bodies and persons chart 2. Irregularities reporting systemin the process of reporting irregularities

Quarter submission by sPo to cFcu/Pao

submission by Pao to nF/nao

submission by nao to ek and oLaF

I quarter 5 april 30 april 31 MayII quarter 5 july 31 july 31 augustIII quarter 5 october 31 october 30 novemberIv quarter 5 january 31 january 28 February

table 1: Deadlines for the submission of the Quarterly report on Irregularities

Mr. Žarko KRCUNOVIć, Independent Employee III


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Montenegro, the potential candidate status for the eu membership, is using the opportunity to participate in the pro-gramming of funds available through the Instrument for Precession assistance - IPA. IPA is being implemented through five components, whereas Montenegro as the potential candidate country is entitled to the first two Components.

The objective of the first IPA Compo-nent “transition assistance and Institu-tions building“ is to strengthen institu-tional capacity, support the transition and development of democratic institutions, construction of infrastructure – related projects, as well as to participate in com-munity Programmes. this component re-pr esents a continuation of the national carDs program.

The first two components in Monte-negro are implemented by means of the twinning project instrument. From May 1998, the twinning Programme is one of the main tools to assist beneficiary coun-tries developing modern and efficient ad-ministration, with the structures, human resources and management skills that are required for the implementation of the acquis, with the objective of achieving the standards of the european union member states. the twinning provides the oppor-tunity for beneficiary countries and their administration and regulatory agencies to work with their counterparts from the member states. they are jointly develop-

ing and implementing projects aimed at transposing, strengthening and applying a specific chapters of the EU acquis.

the main feature of the twinning proj-ect is to achieve specific and guaranteed results. Beneficiaries of this programme may agree in advance a detailed work pro-gramme for the implementation of priori-ties in the field of legal solutions that are in line with the eu standards, as envis-aged in the accession Partnership agree-ment. Since 1998, beneficiary countries have used the total of 1.100 twinning Projects up to now.

Priority task of the beneficiary’s ad-ministration of the member state is to provide effective long-term changes in the administration of the state supervised by the EU experts, practitioners in the imple-mentation of the acquis to the new mem-ber states, the accession state, candidate country and potential candidates. each twinning project has at least one resi-dent twinning advisor (rta) and the team Leader. rta is selected from the adminis-tration of the member state or approved by other authority in the member state working in the beneficiary country, work-ing full time for at least 12 months in an institution - partner country implementing the Project. the team Leader is respon-sible for the overall outcome and project coordination. team Leader receives as-sistance of experts, organizes the train-ing etc., monitoring the reform process against targeted results.

the Ministry of Finance is the leader of the twinning Project: “strengthening the regulatory and supervisory capacity of the financial regulators”. Montenegrin partners are: the national bank of bulgar-ia, the Financial supervision commission of bulgaria and the central bank of the kingdom of netherlands.

The final objective of this Project con-taining three components, relates to the capacity strengthening of the central ba-nk of Montenegro, the securities commis-sion and the Insurance supervision agen-

Twinning Project: „Strengthening

the Regulatory and Supervisory Capacity of

the Financial Regulators”

Nina Vukotić

66

cy, as well as the promotion of regional and cross-border cooperation between ot her regulatory and supervisory institu-tions, with the special emphasis on do-micile supervisory bodies of international banks with branches in Montenegro. spe-cial project purpose is the transposition of the eu directives and best practice in the field of regulation and financial institu-tions and markets supervision, strength-ening institutional capacities for regulat-ing the financial sector, with emphasis on anti-money laundering prevention, fi nancial crime, improved functioning of financial and capital markets, as well as the introduction and regulation of the new financial instruments, as well as acceler-ated accession of Montenegro into the european union.

the Project incorporates following three components:

Component 1: Activities related to the CBMNE support in banking supervision and financial stability:

the new Law on banks provides a broad framework and high level prin-ciples, entrusting the authority to the central bank to pass subordinate legisla-tion related to concrete application of the Law. thus, advisory support and various forms of training will be implemented to support the cbMMe in the preparation of appropriate subordinate legislations

and the development of new procedures and guidelines for their implementation, including:

• Research on the application of the eu Directive on Financial conglomerate to the supervision character on consoli-dated basis;

• Assistance in the implementation of the best practices in the field of anti – money laundering;

• Assistance in strengthening opera-tional capabilities in the sector for super-vision of the central bank, with the adop-tion of relevant eu Directives and best practice, as well as the capacity strength-ening for efficient cooperation with the banking supervisory authorities of other countries.

Component 2: Support activities to the Securities Commission

advisory support and training will be provided in the following areas:

• Supervisory capacity strengthening of the Commission (e.g. financial report-ing area), ie. regulatory and supervisory skills development;

• Assist in the adoption of market rules in accordance with the EU regulations;

• Development and implementation of the strategies for the training of consum-ers, to provide their better understanding of risks and market opportunities of the market enabling them to make more ra-tional decisions.

Component 3: Activities to support the Insurance Supervision Agency.

this support will include:• Inclusion and implementation of all

relevant parts of acquis in the insurance sector during the training of employees in the Agency;

• Production of Manuals for the es-tablishment of supervisory procedures;

• Organization of study visits to the eu insurance supervision authorities.

total duration of the Project is 18 mo nths, worth 1.2 million euros, which means that institutional capacities of project beneficiaries will be strengthened providing 630 days of training by 76 ex-perts of the national bank of bulgaria, the Financial supervision commission of bulgaria and the central bank of the king-dom of netherlands.

by implementing this Project, Monte-negrin financial system will be strength-ened and its regulatory system will be further improved by introducing the eu-ropean best practice. thus Montenegro will have the opportunity to become equal member of the european union and the european Monetary system.

Ms. nina VUKOTIć, Advisor

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In early november, the Ministry of Finance – state treasury has developed and submitted the Instruction on clos-ing final accounts of spending units for 2009 to all budgetary spending units of Montenegro, comprising the following:

In accordance with the provisions of the item 118, of the Directions on state Treasury Operations (“Official Gazette of Montenegro “, no. 80/08 and 2/09), all General Ledger financial transactions are due by 31st December of the current year. therefore it is required:

1) that spending units submit to the state treasury at latest by 25 Decem-ber 2009, all payment requests, using prescribed forms in accordance with

prescribed contracted commitment pro-cedure, or reservation of funds for the purpose of registering them into the trea-sury general Ledger enabling timely pay-ment of liabilities pursuant to the inflow of funds to the state treasury Main ac-count. Moreover, by 31 December 2009, all spending units are obliged to refund unspent funds collected in cash or dis-bursed to accounts or credit accounts (cards), used for cash operations. In the course of contractual commitments procedure and submission of payment requests, the requested amounts may not exceed annual approved amount, i.e. spending units are obliged to align to ap-prove expenditures level (approved war-rant) and earmarked spending of funds.

reservations submitted without pay-ment request, will be cancelled at the end of a year and may not be transferred in next year. Possible contracted commit-ments without payment requests will be treated as commitments to be realized in the next fiscal year if such expenditure is planned in the following fiscal year (Article 31, of the Budget Law - “Official Gazette of the RoM “, No. 40/01,44/01 and 71/05 and “Official Gazette of Mon-tenegro “, No. 12/07 and 53/09);

2) In accordance with the item 119, of Directions on state treasury opera-tions, following the closure of the trea-sury general Ledger accounts, chief Finance Officers will compare their ac-counting records with the records in the

Instruction on Closure of the Annual Treasury General

Ledger Accounts of Spending Units for 2009

Stanimirka Mijović Dušanka RudovićMarija Popović

68


treasury general Ledger and notify the Treasury of identified discrepancies. The spending units will reconcile data form their business books with the data from the treasury general Ledger on the ba-sis of the annual reports of the state Treasury on executed payments. The identified discrepancies will be removed in accordance with the instructions of the treasury and in accordance with the type of identified discrepancy;

3) In accordance with the item 120, of Directions on state treasury ope r a t-ions, spending units that made pay ments through sub-accounts or suspe nse ac-counts and that, due to technical reasons or time taken by legally established pro-cedures, are not able to transfer funds from such accounts to an end-user by 31 December of the current year, they may transfer such funds no later than the ex-piry of the deadline for submission of an-nual financial reports (31 March 2010). Exceptionally from the clause 120 of these Directions, the funds in the sus-pense accounts for resolving housing needs of senior grade and lower grade civil servants recorded in the treasury General Ledger as an expense, are con-sidered as an expenditure due to dura-tion of normative-legal procedure for al-location of such funds to end-users. For funds that have not been spent in the current year to the moment of submis-sion of annual financial reports, the user shall inform the treasury thereof, which is obliged to produce a special report on unspent funds and inform the Parliament of Montenegro thereof.

4) spending units are obliged to in-form the state treasury of the unspent funds on sub-accounts or suspense ac-counts, for the purpose of corrections to be inserted in the treasury general Ledger. unspent funds are included in deposits and the expenses are canceled in the same amount, and contracted commitments for which the funds were reserved will be settled against the bud-get positions for 2010.

5) spending units submit a stateme-nt of the spent funds upon the expiry of a fiscal year to the moment of expiry of the deadline for submission of annual financial reports, to the Ministry of Fi-nance – state treasury, signed by the

Chief Finance Officer that such funds have been used for the purposes in ac-cordance with expenditures from the treasury general Ledger. the statement (Form 6) is made under material, moral and criminal liability.

6) spending units using government bank accounts being incompliant with the provisions of the article 12, of the budget Law, and item 92 – 100 of the Directions on state treasury operations, are obliged to submit the request to close these accounts. Funds from these accounts will be transferred to the state treasury Main account. If there is a need for such account, it will be opened in ac-cordance with aforementioned Law;

7) spending units which during 2009 used donor funds not being planned by the budget for 2009, when submitting annual financial statements will submit a special report comprising following data: data on donor, amount and alloca-tion of donation, spent amount during the year and implementation phase;

8) at latest by 31 january 2010, spending units need to submit to the state treasury the structure of out-standing Liabilities as of 31 December 2009 by budget lines;

9) spending units will make the reg-istry list of assets and liabilities as of 31 December 2009. Data on assets registry (purchase value, corrections and book-keeping/fair market value) comprising immovable and movable property sum-marized in groups and synthetic ac-counts in accordance with rulebook on Consistent Classification of Accounts for the Republic Budget, Budgets of Extra-budgetary Funds and Municipal budgets (“Official Gazette of the RoM “ No. 35/05, 37/05 and 81/05). In accordance with International accounting standards for public sector the evaluation at fair mar-ket values will be performed for assets without purchase value of significantly deviating from market value.;

10) spending units verify earmarked spending of budgetary funds, since the supreme audit Institution in the audit report of the Final account’s budget of Montenegro for 2008, have indicated that the expenditure structure indicated by some spending units is not in compli-ance with planned budgetary expendi-

tures, and i.e. does not correspond to the purpose stated in the budget. thus it is necessary to underline that financial statements need to provide true and ob-jective description of revenues and ex-penditures of spending units;

11) spending units need to develop and submit the Report on realization of the programming budget including detailed analysis of implementation of programme objectives and tasks, and spending units implementing capital budget need to submit detailed report on capital budget implementation.

spending units are submitting annu-al financial statements for 2009 to the Ministry of Finance – state treasury, in forms representing the integral part of the rulebook on the manner of produc-ing, consolidating and submitting annual financial statements of the budget, state owned funds and local government units budget (“Official Gazette of Montenegro, No. 21/09), indicated in the Annex.

the article 3, of aforementioned ru-le book, prescribes the deadline for the submission of annual financial state-ments - 31 March of the current year for the previous year, with the obligation of spending units having sub-units (institu-tions, centers, etc.) to prepare and sub-mit to the Ministry of Finance – state treasury consolidated annual reports of their sub - units.

annual Financial statements will be prepared in accordance with Internation-al accounting standards for public sector on a cash basis for financial reporting on cash flows and submitted on the follow-ing forms:

- Report on cash flow III and- report on outstanding liabilities.

Annex:Form 3 – Report on cash flow III (with

the instruction for completing)Form 4 – report on outstanding li-

abilities (with the instruction for com-pleting)

Form 6 – statement on the manner of spending of funds upon the expiry of the fiscal year (with the instruction for completing)

69


Form 3

cash Flow report year / Period (in €)

no. Cash Flow – Economic Classification Plan

Execution in comparative period of the previous year

Execution in the period of the current year

1 2 3 4 5 1 receipts 1.1 general revenues 1.2 earmarked revenues 1.3 own revenues 1.4 Donations 1.5 Loans I total receipts (1.1+1.2+1.3+1.4+1.5) 2 Expenditures 2.1 Current expenditures 2.1.1 gross earnings and contributions charged to employers 2.1.2 other personal income 2.1.3 Expenditures for material and services 2.1.4 current maintenance 2.1.5 Interest 2.1.6 rents 2.1.7 subsidies 2.1.8 other revenues 2.2. transfers for social protection 2.3. transfers to institutions, ngo’s and public sector 2.4. Capital expenditures 2.5. Loans and borrowings 2.6. Debt repayment 2.7. Provisions II Total expenditures (2.1 + 2.2 + 2.3 + 2.4 + 2.5 +2.6 +2.7)

In __________ responsible person for completing the report Authorized person

________________ ___________

InstructIonFor completing the cash Flow report III

the columns 3, 4 and 5 following data on revenues are to be entered:

- no. 1.1 – general revenues represent regular budgetary funds of the budget of Montenegro, or, municipality’s budget used by a spending unit;

- no. 1.2 – earmarked revenues represent revenues of the budget of Montenegro or Municipality’s budget, are used by a spending unit in for the purpose of performing certain activity in accordance with the Law;

- No. 1.3 – own revenues represent revenues realized by a spending unit on the basis of performing commercial activities or providing services

- No. 1.4 – donations represent revenues on the basis of donations assigned to a spending unit;- No. 1.5 - loans (realized revenues with the repayment obligations and corresponding fee/interest ).

70


The Columns 3, 4 and 5 following data on expenditures are to be entered on following accounts:- No. 2.1 category 41;- no. 2.1.1 group 411- no. 2.1.2 group 412- no. 2.1.3 group 413- no. 2.1.4 group 414- no. 2.1.5 group 415- no. 2.1.6 group 416- no. 2.1.7 group 417- no. 2.1.8 group 418- no. 2.2 category 42- no. 2.3 category 43- no. 2.4 category 44- no. 2.5 category 45- no. 2.6 category 46- no. 2.7 category 47

Form 4

report on outstanding Liabilities year (in €)

no. Description

outstanding liabilities balance as of 31 December of the previous year

outstanding liabilities balance at the end of the reporting period

1 2 3 41 Liabilities for current expenditures (1.1+1.2+1.3)1.1 Liabilities for gross earnings and contributions on behalf of employer1.2 Liabilities for personal income1.3 Liabilities for other current expenditures2 Liabilities for transfers for social protection3 Liabilities for transfers to institutions, individuals and loans4 Capital expenditure liabilities5 Liabilities from borrowings and loans6 Liabilities based on debt repayment7 Liabilities from reserves8 outstanding liabilities balance at the end of the period (1+2+3+4+5+6+7)In _________ Responsible person Authorized person

for producing the report_________________ ______________

InstructIon on coMPLetIng the rePort on outstanDIng LIabILItIes

Data recorded on following accounts are to be entered in columns 3, 4and 5:- no. 1 category 21- no.1.1 category 211- no.1.2 group 212- no.1.3 = group 213 + group 214 + group 215 + group 216+grupa 217 + group 218- no. 2 category 22- no.3 category 23- no.4 category 24- no.5 category 25- no.6 category 26 - no.7 category 27

71


Form 6

Statement of the spent funds upon the expiry of a fiscal year (in €)

no. eco code Expenditure Title

balance as of 31 December 200_

spent funds in the period from 31 December 200_ to _____200_.

account balance as of ______200_

1 2 3 4 5 6= (4 -5)2 4111 net salaries3 4112 Personal income tax4 4113 contributions charged to employee5 4114 contributions charged to employer6 4115 Municipal surtax7 4121 Meal allowance8 4122 annual leave allowance9 4124 allowance for lodgings and separation from family10 4125 transportation allowance11 4126 jubilee awards12 4127 severance payments13 4128 allowance to Members of Parliament14 4129 other allowances 15 4131 Expenditures for supplies16 4132 Expenditures for business trips17 4133 Expenditures for representation18 4134 Expenditures for energy19 4135 Expenditures for phone services20 4136 Expenditures for postal services21 4137 Banking services and negative foreign exchange rates22 4138 transportation services23 4139 contracted services 24 4141 current Maintenances of public infrastructure25 4142 current Maintenances of building26 4143 current Maintenances of equipment27 4151 Interests to residents 28 4152 Interests to nonresidents29 4161 Lease of buildings30 4162 equipment lease31 4163 Land lease 32 4171 subsidies for production and provision of services 33 4181 communal Fees 34 4182 Penalties

Duties 35 4183 other36 4184 communal Fees37 4211 children’s allowances 38 4212 War veteran and disability protection39 4213 Family financial support40 4214 Maternity leave41 4215 other people’s care and help42 4216 Meals for children in preschools

72


43 4217 support for inmates in homes 44 4218 other social security transfers45 4222 severance payments for redundant labor 46 4311 transfers to public institutions 47 4312 transfers to ngos, political parties and associations 48 4313 transfers to individuals 49 4411 Outflows for infrastructure of general importance 50 4412 Outflows for local infrastructure 51 4413 Outflows for structures52 4414 Expenditures for land improvement53 4415 Outflows for equipment54 4416 Investment maintenance55 4417 Outflows for stocks56 4511 Loans and credits nonfinancial institutions57 4513 Loans and credits to individuals58 4515 other Loans and borrowings59 4611 repayment of securities and loans to residents60 4612 repayment of securities and loans to nonresidents61 4622 repayment of guarantees in abroad62 4630 repayment of liabilities from previous years

t o t a L

by assuming full moral and material responsibility I hereby declare that aforementioned data are accurate.

In _________ 200_. Chief Finance Officer M. P. _____________________

InstructIon on coMPLetIng the stateMent oF the sPent FunDs uPon the exPIry oF a FIscaL year

The Column 4, should contain data on the balance of funds on sub-accounts or suspense accounts upon the expiry of the fiscal year on the basis of economic classification as being recorded in the Treasury General Ledger.

The Column 5, should contain data on spent funds in the period from the end of the fiscal year to producing annual financial statements by economic classification.

the column 6, should contain data on unspent funds on sub – accounts and suspense accounts on the day of producing financial statements. Data in Column 6 represent the difference in data entered in the Columns 4 and 5.

Ms. stanimirka MIJOVIć, Independent Advisor I,

Ms. Dušanka RUDOVIć, Independent Advisor I

Ms. Marija POPOVIć, Senior Advisor II

73


the article 1, of the Law on salaries of civil servants and state employees defines that a civil servant and a state employee realize their right to salary, supplement, allowance and other inco-mes in the manner and under conditions determined by this Law.

Depending on the complexity, respon-sibility, significance and working condi-tions titles of civil servants and state employees determined on the basis of the Law on civil servants and state em-ployees are classified in 38 salary grades expressed in coefficients, which are:

- for basic school education, prescr-ibed coefficient is from 2,00 to 2,86;

- for secondary school education, pre-scribed coefficient is from 2,93 to 3,77;

- for college education, prescribed co-efficient is from 4,10 to 5,01.

- for university education, prescribed coefficient is from 5,20 to 7,15 for civil servants and state employees and for carrier civil servants, appointed persons and heads, prescribed coefficient is from 7,15 to 9,90.

article 14 of the Law prescribes that the Finance Minister is passing adminis-trative order on the fixed part of the salary of a civil servant or a state employee, on the basis of the Decision on classification

or promotion to a higher title, while the administrative order on the fixed part of the salary of other state bodies is passed by the head of the state authority.

article 21 of the Law, prescribed that the Ministry of Finance is in charged to keep a central record on salaries of civil servants and state employees, which particularly includes the following data: personal data – name and surname, uni-que citizens’ registry number, coefficient,

supplement to the salary, variable part of the salary, compensation to the salary and reimbursement of expenses, length of service, the years of service calculated for pension, etc

the Ministry of Finance, through au-th o rized persons, is in charge for the su-pe rvision over the enforcement of this Law and other regulations on salaries and allowances of civil servants and sta-te employees.

Law on Salaries of Civil Servants

and State Employees (“Official Gazette of the RoM 27/04 and

the “Official Gazette of Montenegro, No. 17/07, 27/08)

Bosa Pavićević Olga Uskoković

74

the Ministry of Finance is on a daily basis passing administrative orders on the fixed part of the salary on the basis of decisions on classification, reclassifica-tion or commencement of employment and the Rulebook on internal organization and systematization of state authorities.

the Ministry of Finance is cooperating with the Ministry of Internal affairs and Public administration in case of noncom-pliance with the public advertise ment procedure, failure in fulfilling systemati-zation requirements and other types of omissions.

The Ministry of Finance as the first instance body is acting upon appeals on administrative order on the fixed part of the salary.

The Ministry of finance performs cal-culation of salaried for approximately 3900 state and judiciary employees and executives at the level of Montenegro.

all laws, subordinate legislation and other regulations in the area regulating

the salary rights of employees are being constantly followed up.

Moreover, all changes related to the Law on taxes of income of physical per-sons, La won contributions for compul-sory social insurance, Law on health in-surance, Law on pension and disability insurance and the instructions for their implementation are subject to supervi-sion and the follow up.

Information, suggestions and inter-pretations for all aforementioned laws, as well as receiving and control over le-gality of all monthly payroll lists with sup-porting documentation for all employees of spending units are being provided.

after the timely input of data into the system, payroll lists are being sent by mail to banks all over Montenegro for em ployees receiving salary through the commercial banks.

Printing of analytical cards for each employee individually is done on a mon-thly basis, containing (name, unique ci-

tizens’ registry number, coefficient title, the length of service or employment, re-gular work, overtime work, on - duty time, etc.).

the printing of calculations list is done on a monthly basis for each employee in-dividually on a monthly basis containing the data on the basis of which the spend-ing units are populating monthly and an-nual forms ctc1 and ctc3 (calculation of Taxes and Contributions Lists), which are subsequently submitted to the Tax administration and Monstat.

on the basis of the request of employ-ees data on employment are provided used for regulating labor rights.

Ms. bosa PAVIćEVIć, Authorized Officer

Ms. olga USKOKOVIć, Independent Advisor I

Calculation of Salaries Unit

75


the escalation of the global economic crises in the forth quarter of 2009, and the growth in public consumption against structural budget revenues in previous two years, have shaped and determined the main assumptions for the development of the budget for 2010. Main economic activity indicators in leading world economies have indicated that the economy reached the low-est point of cycle, meaning that a moderate recovery is expected in the forthcoming period, not excluding a possibility of enduring additional expenses which may lead to another fall in global economy, making the recovery rate uncertain.

When implementing fiscal policy measures in the forthcoming period, it should be accounted for almost the same level of budgetary revenues against estimated ones in 2009, as well as some additional factors:

1. Budget Balancing up to 2012;2. The EU Accession process;3. Continuation of the construction of the highway Bar – Boljare and other infrastructure – related projects; 4. Social Programme for the protection of most vulnerable categories of citizens affected by the crises and further economy

transformation.

the public consumption assessment in Montenegro for 2010, and medium - term budgetary framework are based on esti-mated data on gDP trends, data on public consumption trends in the period from 2006 to 2008, achieved public consumption for the first nine months of 2009, inflation and evaluated impact of global economic crises to Montenegro. Apart from aforemen-tioned, fiscal effects of the main structural reforms were taken into account, as well as the fiscal impact of amendments to the legislation related to tax rates and contributions. For 2010, is forecasted a mild recovery of economy, which will highly depend on fulfilling following assumptions:

• Banking sector stabilization – consolidation of banking sector balance, decline in claims percentage, increase in deposits and recovery of lending to economy and households sector,

• Continuation of positive trend of foreign direct investments inflow,• Recovery of leading indicators of Montenegrin economy, such as: payment operations, retail sales and banking sector in-

dicators.

The following Chart indicates macroeconomic and fiscal framework for 2010:

Macroeconomic and fiscal framework (in % GDP) 2010 Plan

Mac

roec

onom

ic in

dica

tors nominal gDP growth 3.8

real gDP growth 0.5Inflation 2.0Import 51.4Export 33.6Current balance deficit 17.1nett FDI and other reinvestments 15.4Domestic loans 77.1banking deposits 52.3

Fisc

al in

dica

tors Public revenues 41.9

consolidated public consumption 46.2Deficit/Surplus -4.3Interest 1.0Primer deficit/surplus -3.3Increase/Decrease in deposits -2.76

Budget of Montenegro for 2010

76


Planned public consumption in 2010 is based on the objectives set in the economic Policy of Montenegro for 2010: • Macroeconomic stability maintenance;• Provision of sustainable public finance system;• Improving transparency and spending control over public resources;• Creating conditions for removing barriers to business;• Attracting FDI.

Budget of Montenegro and Stateowned funds budget in 2010

the following table indicates the source revenues plan of the budget and state - owned funds budget and budgetary consump-tion with financing in 2010, in million €, and forecasted GDP % for 2010.

DescriptionPlan 2010

mil € % GDP

source revenues of the budget of Montenegro 1164.89 36.39

Taxes 746.27 23.31Taxes on income of physical persons 83.63 2.61Corporate profit tax 49.58 1.55Taxes on sales of property 5.65 0.18vat 398.86 12.46Excise 149.89 4.68Taxes on international trade and transactions 48.87 1.53Other taxes of the Republic 9.79 0.31contributions 323.93 10.12contributions for pension and disability insurance 198.64 6.21contributions for health insurance 115.23 3.60contributions for unemployment 10.06 0.31Duties 22.04 0.69Fees 32.45 1.01other revenues 33.36 1.04receipts from repayment of loans 6.84 0.21a (b+c) consolidated public consumption 1298.15 40.55b current budgetary consumption 1156.21 36.12Current Expenditures 560.94 17.52gross earnings and contributions charged to employer 279.35 8.73other personal income 25.85 0.81Expenditures for material and services 134.67 4.21current maintenance 29.14 0.91Interest 32.14 1.00rent 9.56 0.30subsidies 43.62 1.36Other expenditures 6.61 0.21transfers for social protection 406.50 12.70rights from social protection 58.71 1.83Funds for employees proclaimed redundant 5.42 0.17rights from pension and disability insurance 321.00 10.03other rights in the health protection area 14.06 0.44other rights in the health insurance area 7.32 0.23transfers to institutions, individuals and ngo’s in public sector 174.14 5.44transfers to public institutions 152.99 4.78transfers to non governmental sector 3.52 0.11transfers to individuals 16.87 0.53transfers to municipalities 0.75 0.02borrowings and Loans 4.26 0.13

77


Provisions 10.37 0.32C Capital Expenditures 141.94 4.43capital budget of Montenegro 120.80 3.77Capital current budget expenditures and State owned funds 21.14 0.66 Surplus/ Deficit -133.26 -4.16FInancIng 133.26 4.16Domestic financing -84.52 -2.64repayment of debts to residents 84.52 2.64repayment of principal to nonresidents 17.84 0.56repayment of liabilities from previous years 66.68 2.08Foreign financing 48.36 1.51borrowings and loans form foreign sources 91.70 2.86repayment of principal to nonresidents 43.34 1.35Donations 27.49 0.86Revenues from privatization and sales of property 59.00 1.84Increase/Decrease in deposits -82.93 -2.59

as for the planning of the revenues, it was introduced the follow up of basic indicators of economic activity, 20 indicators from

four areas were followed up providing gDP trend forecast. Moreover, detailed analysis was made as an attempt to segregate the cycle from structural revenues, thus the revenue forecast for 2010 was developed. Due to the size of our economy, it is quite dif-ficult to isolate short term effects to revenues from permanent ones.

Consolidated expenditures of the Budget of Montenegro in 2010, were planned in the amount of 1.298,15 million €, repre-senting 40,55 % GDP. Current budget consumption was planned in the amount of 1.156,21 million, representing 36,12 % GDP. On the basis of economic classification, transfers for social protection have the biggest share in consolidated expenditures – 406,50 million €, representing 12,70 % GDP, and expenditures for gross earnings amount to – 279,35 million € or 8,73 % GDP (since the part of earnings is recorder within the transfers for the health Insurance Fund, real fund of gross earnings is in reality higher by 72 million €), transfers to institutions, individuals, ngo’s and public sector in the amount of – 174,14 million € or 5,44 % GDP. Capital Budget of Montenegro in the amount of – 120,80 million € or 3,77 % GDP, capital expenditure in the current bud-get and state owned funds budgets in the amount of 21,14 million € or 0,66 % GDP and expenditures for material and services were planned in the amount of 134,67 million € or 4,21 % GDP. All other budgetary expenditures were planned in the amount of 160,47 million €, representing 5,01 % of estimated GDP in 2010.

Earnings and pensions represent a key segment of fixed, or mandatory expenditures of the Budget of Montenegro, which sha re in the period from 2006 - 2009 ranged from 75 to 80% in consolidated budgeted expenditures of the country. As it may be noted in the Table 3, according to the budget rebalance for 2009, 76% of consolidated expenditures were defined in advance by regulations (general and Industrial collective agreements, Laws and contracted Liabilities) – earnings and other personal in-come, pensions, transfers for social protection, transfers to the university of Montenegro, transfers to political parties, interests, subsidies, etc. aforementioned is indicating that the economic policy creators have less possibilities for spending at discretion.

Fiscal and Discretion Consumption of the Budget of Montenegro for 2007 – 2009

DescrIPtIonRealization in 2007 Realization in 2008 rebalance 2009

mil € % of share mil € % Of share mil € % Of share

Consolidated Expenditures 951.34 100.00 1272.03 100.00 1347.36 100.00Fixed Expenditures 757.70 79.65 957.77 75.29 1025.69 76.13Discretion Expenditures 193.64 20.35 314.26 24.71 321.67 23.87

For the purpose of developing comparative analysis to the previous years, the next Table indicates expenditures of the Budget of Montenegro and State - owned funds for the period from 2007-2010, whereas the expenditures for material and services and capital expenditures were decreased by a part of these expenditures being financed from international donations and borrow-ings and loans in order to have a clear review of the budgetary consumption level which is finances from general and earmarked revenues.

78


current and capital budget of Montenegro 2007-2010

DescriptionFinal account 2007 Final account 2008 rebalance 2009 Plan 2010

mil € % BDP mil € % BDP mil € % BDP mil € % BDP1. current budget and state owned funds budget 864.96 32.27 1191.48 38.61 1241.91 40.28 1149.12 35.90

gross earnings and other personal income 283.61 10.58 376.45 12.20 391.29 12.69 384.87 12.02

other personal income 27.51 1.03 21.75 0.70 24.51 0.79 25.48 0.80

Expenditures for material and services 135.26 5.05 158.32 5.13 167.44 5.43 164.61 5.14

current maintenance 22.63 0.84 22.15 0.72 5.53 0.18 28.64 0.89

Interest 27.10 1.01 22.53 0.73 25.17 0.82 32.14 1.00

rents 4.92 0.18 8.36 0.27 9.66 0.31 9.42 0.29

subsidies 13.07 0.49 18.59 0.60 51.07 1.66 44.07 1.38

Other expenditures 5.75 0.21 5.74 0.19 6.82 0.22 6.61 0.21

transfers for social protection 298.51 11.14 346.54 11.23 419.75 13.62 406.86 12.71

rights form social protection 39.19 1.46 42.10 1.36 48.95 1.59 43.53 1.36

Funds for employees proclaimed redundant 11.42 0.43 30.21 0.98 22.39 0.73 20.96 0.65rights from the Pension and Disability Insurance area 228.37 8.52 250.94 8.13 321.02 10.41 321.00 10.03

other health protection rights 19.54 0.73 23.29 0.75 15.60 0.51 21.38 0.67transfers to institutions, individuals, ngo’s and public sector 55.41 2.07 74.76 2.42 74.49 2.42 30.75 0.96

Capital expenditures of the current budget and state owned funds budget 0.00 0.00 83.06 2.69 47.86 1.55 27.39 0.86

borrowings and loans 7.85 0.29 62.54 2.03 28.75 0.93 4.26 0.13

Provisions 10.84 0.40 12.44 0.40 14.07 0.46 9.50 0.30

2. capital budget 82.20 3.07 73.37 2.38 112.76 3.66 86.01 2.69

total (1+2) 947.16 35.34 1264.85 40.99 1354.67 43.94 1235.13 38.59

As it can be noted from the Table, the growth of current expenditures in 2009, was by 8% higher than in 2007, whereas the incre ase is almost equally divided into the following three categories: (i) earnings and other personal income, (ii) transfers, and (iii) capital expenditures of the current budget, although on the basis of the budget rebalance for 2009, significant corrections were being made to the bottom, compared to initial budget planning.

On the basis of the Budget for 2010, current consumption declined by 4,3% GDP compared to 2009 and by 2,7% compared to 2008, or by 92 million compared to 2009 and 58 million € compared to 2008. Budget deficit in 2010, was planned in the amount of 133,26 million €, representing 4,16 % GDP. It is important to emphasize that he budget deficit is linked to capital bud-get realization, and that only 0,28 % GDP relates to financing of the current consumption, however it should be considered that 24 million € allocated for maintaining the road and railway infrastructure from the capital budget was transferred to the current budget for 2010. Capital budget in 2010, having in mind this change, was significantly increased compared to previous years by projects in the area of road infrastructure on the basis of funds provided by contractors, including the project for constructing the highway bar boljare, opening of the credit lines with international credit institutions.

the budget for 2010, provides for regular functioning of operation of all spending units, while on the other hand it considers the reality of decline in economic activity which has been recognized through the deficit of the budget exceeding Maastricht crite-ria. Any further budget decline would probably jeopardize the work of certain number of spending units, causing insolvency of the system which would result in decline in aggregate demand, representing the most important component of the expenditure side of Montenegrin gDP. Moreover, if the budget may be considered as a developing instrument, it creates the space for completing numerous investment projects providing a good basis for long term development the country mitigating negative crises effects in the civil engineering sector.

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Fiscal Risks

When forecasting macroeconomic and financial indicators, following factors were considered, on the basis of which Montene-grin public finance in 2010 is exposed to higher or lower risk:

• Situation in the banking sector: Although the banking sector consolidation is in process, whereas the increase in liquidity trend is noticeable, gradual decline in percentage of outstanding receivables and increase in deposits, it is uncertain whether the growth of lending will be achieved in 2010, representing the signal that Montenegro is exiting recession.

• The continuation of the exposure of Montenegrin economy to external shocks; Montenegro, being a small and open economy, being dependent on economic trends in the environment, especially from all eu countries, thus the slow revival of economic growth in those countries will reflect on macroeconomic and fiscal trends of Montenegro in the next year. The overflow of the crises into trade flows resulted in the decline in aluminum export, due to the decline in the external demand, declined aluminum production in Montenegro, as well as drastic reduction in aluminum price on international market. Apart from trade channel, the crises overflow into the banking sector. In 2009, there was a significant contraction in credit activity of the banks (being a consequences of de-creased access of domestic banks to capital and increased growth in price), and such trend may continue even in 2010.

• Dependability of the country on trends on international tourist market; International tourist services market, and Monte-negro being a tourist destination, is very exposable to external impacts. The outcome of the Summer tourist season in 2009, was almost at the same level achieved in previous year, with almost the same number of tourist and financial effects. Trends in forthcoming years will be determined by the global economy growth and international tourist market. Moreover, in order to at-tract a significant number of tourists having greater payment possibilities, it is necessary to improve accommodation and room complementary tourist activity, requiring banking sector support. This risk is increased by visa liberalization of the countries in the region – tourists from serbia, Macedonia and Montenegro will be in position to travel abroad.

• Uncertainty of recovery of company’s in the Heavy industry sector; Current aluminum and steel prices on the world market are not allowing for the profitable operations of these companies, which even in the long run is jeopardizing their functioning. The restructuring of these companies is in process aimed at reducing expenses up to the level providing profitable operations.

• Decline in public consumption in 2010, with the objective of providing system sustainability of public finance, will have negative effects causing additional contractions in aggregate demand due to the fact that the public consumption represents a significant part of the overall demand in Montenegro.

• Issued guarantees and other implicit obligation of the country; one of the support measures to the real sector affected by the crises, was the issuance of guarantees for approved loans. accumulated debts of legal entities in case if negative trends continue in the real sector will increase the possibility of activating issued guarantees which would overburden the payment of planned budgetary expenditures, due to the increase in the repayment of loans.

• Increase in unemployment rate and decline in earnings may increase the impact on social transfers from the budget; Like in all other countries affected by the crises it is realistic to expect that the continuation of the crises will be followed by the increase in unemployed rate, which will increase the impact on social transfers from the budget. This risk might become extremely impor-tant in the context of possible halt of production in some of the biggest industrial capacities.

• Uncertainty of planned privatization; In accordance with the adopted plan in 2010 it is planned to privatize some business entities owned by the state. However, the prolongation of the current and economic financial crises may lead to certain problems in realization of those plans or deadlines for execution of privatization plans.

Having in mind aforementioned fiscal ricks, as well as the fact that the high public consumption would result in prolonged and slower recovery of Montenegrin economy, the fiscal policy in the next midterm period have defined following basic objectives and directions:

• Establishment of sustainable public finance system through the definition of “anchors“. Main fiscal anchors in the period up to 2012, are incorporated in the “base scenario“ such as: decrease in current consumption and state debt bellow 35%; balanced budget in 2012; limiting the decrease in wage fund and subsidies at the same time decreasing the mandatory expenditures share, constant capital budget at the level of around 3.5% GDP and possibility of financing capital projects through Public Private Partnership projects, structural revenues should cover current consumption and at least 50 % of the capital budget, while follow-ing the economic situation stabilization, the budgetary balance should reach the surplus at he level of around 2 % GDP. In the light of the above, the movement of the current public consumption after 2012, would be at he level of around 30% GDP, while the debt would go under this level.

• Finalization of revenues side reforms in public finance initiated in 2007; Reforms related to the decline in tax rate on physi-cal persons income initiated in 2007, will be completed in 2010, thus on the basis of this parameter, Montenegro will become the most competitive country in the region. Upon reducing the tax rate on physical persons income to 12 % in 2009, this tax rate should be reduced to 9% in 2010. This measure is significantly impacting the creation of incentives for the development of pri-

80


vate entrepreneurship and increase in competitiveness, as well as the decrease in employment within the “gray economy – non observed economy“. At the same time aforementioned will result in the decline in contribution rate charged to employer by 14,5% in 2009, to 10% in 2010. the decline in aforementioned rate will significantly unburden liabilities of employer, reduce business barriers and increase competitiveness.

• Continuation of public consumption reforms directed to the creation of stimulating economic environment; In the period 2010 – 2012, fiscal and structural reforms in the public consumption system will be continued, aimed at creating stimulating economic environment. This will be achieved by decreasing tax burdens and eliminating business barriers, providing competitive-ness of the economy and additionally attracting foreign direct investments.

• Establishment of sustainable health and pension system; the integration of the Pension and Disability Insurance Fund and the Health Insurance Fund into the State Treasury System in 2010, their receipts and expenditures will be recorded and processed through the state treasury. this will improve budget transparency and spending control over budgetary funds, and the liquidity. Parallel to aforementioned process, the Development Fund is being transformed into state Investment Fund, and from 2010 it will not operate as a spending unit.

With the objective of achieving aforementioned objectives, following measures or economic and fiscal policy instruments will be applied:

(i) Creating conditions for more flexible position of the Government in developing the budgetary policy, primarily through the reduction of mandatory obligations against discretion policy, (ii) Strict employment policy through the rationalization of the num-ber of employees and the use of internal transfers (legal possibility enabling the transfer of employee from one spending unit to another one), (iii) Transfers by economic classification which will improve control and transparency in public resources spending, (iv) Determining methodology and procedures for defining basic macroeconomic and fiscal indicators, e.g. current and capital consumption level, deficit and public debt, (Iv) The use of one – time revenues of the budget for early repayment of debt gener-ated in the period 2009 and 2010, and in some cases, for the one – time repayment of expenditures for employees proclaimed redundant or prequalification of the manpower, (v) The use of the EU Pre – accession funds – IPA funds, whereas Montenegro as a potential candidate country will be entitled to use up to approximately 33 million €, in the period 2011-2012, (vi) Increase in cur-rent consumption limited to development projects, at the same time abolishing the irrational public consumption programmes.

Crises Scenario

unlike the budgetary scenario, “crises” scenario is based on macroeconomic projections , in accordance with which in 2010 will continue the decline trend of GDP, i.e. the economic growth rate will be negative up to the level of -2% . It is necessary to emphasize that the realization of the “crises scenario“ would occur if negative trends are simultaneously achieved which were elaborated in the part covering fiscal risks.

The crises scenario indicates how fast the fiscal indicators may deteriorate in case of less favorable conditions than under-lined in basic scenario, and why fiscal policy should remain conservative.

Macroeconomic and fiscal framework (in GDP %) scenario -2%

2010 Projections

2011 Projections

2012 Projections

2013 Projections

Mac

roec

onom

ic in

dica

tors

nominal gDP growth 1.9% 6.1% 7.6% 8.0%real gDP growth -2.0% 3.0% 4.5% 4.0%Inflation 2.0% 3.0% 3.0% 3.5%Import 50.9% 52.0% 52.9% 53.5%Export 33.2% 33.7% 34.1% 35.0%Current account deficit 15.9% 15.9% 16.0% 16.0%nett Foreign Direct Investments 15.9% 16.8% 16.9% 16.0%Domestic loans 77.7% 76.1% 77.8% 78.0%banking deposits 52.6% 54.1% 54.1% 54.6%

Fisc

al in

dica

tors

Public revenues 40.2 40.3 39.4 38.1consolidated public consumption 46.0 43.5 41.1 38.7Deficit/Surplus -5.8 -3.2 -1.7 -0.6Interest 1.04 1.04 1.03 0.96Primer deficit / surplus -4.8 -2.2 -0.6 0.3Increase / Decrease in deposits -4.28 -2.1 -1.62 -1.43

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On the basis of macroeconomic indicators, fiscal “crises scenario“ was developed which basic indicators are indicated in the lower part of the Table 7, while in the Table 8 indicates “crises scenario” of public finance of Montenegro for the period from 2010-2012. The scenario is based on real growth rate of the GDP of -2,0% in 2010, 3,0% in 2011, and 4,5% in 2012.

DescriptionProjections 2010

mil € % BDP

Public source revenues 1285.74 40.41Taxes 781.39 24.56contributions 307.73 9.67Duties 30.11 0.95Fees 110.02 3.46other revenues 49.65 1.56receipts from the repayment of loans 6.84 0.22consolidated public consumption 1472.29 46.27current public consumption 1246.31 39.17Current expenditures 624.66 19.63transfers for social protection 407.21 12.80transfers to institutions, individuals, ngo’s and public sector 197.44 6.20Capital expenditures 225.98 7.10borrowings and loans 4.48 0.14reserves 12.52 0.39Surplus/ Deficit -186.55 -5.84FInancIng 186.55 5.84Domestic financing -101.23 -3.18Foreign financing 56.66 1.78Donations 20.77 0.65Revenues from privatization or deposits 73.22 2.30Increase / Decrease in deposits -137.14 -4.31

Declined level of public revenues would result in public consumption deficit by 5,83 % GDP. Expected level of receipts would fail to cover funding of expenditures, which would result in withdrawing and use of foreign deposits funds in the amount o0f 4,3% gDP. the assumption of this scenario is that the decline in budgetary consumption will not occur, rather the high level of budget-ary deficit (4-6% GDP) which will be financed by lending from abroad and use of state deposits, which would affect the increase of foreign indebtedness level. There aren’t state deposits to finance such deficit, the stock of public debt would significantly increase and become a burden in the forthcoming period. besides, prerequisites on macroeconomic stability and commitments that we took over within European and Euro – Atlantic Integrations would be jeopardized. In the case of having this scenario, and in order to provide for sustainable financing of public finance system, it would be necessary to implement the following measures:

• Implementation of additional cost – saving measures regarding current expenditures (pursuant to the Article 5, of the Bud-get Law of Montenegro for 2010) – on the basis of realized savings in 2009, possible savings are being forecasted in the amount of 20 million €.

• Further wage fund reduction, through rationalization of public administration or decline in gross earnings. There is a space for decrease, but this space is limited by the general collective agreement, which would be subject to negotiations with the union.

• Decline in spending at discretion – decline in capital budget of Montenegro; On the basis of realization from previous years, it is possible to expect the decline in capital budget by 30 million €.

• Reconsideration of the tax policy, in the light of increasing tax rates in order to increase source revenues of the budget of Monte-negro and local self – government units; Increase in the VAT tax rate by 1% would boost additional increase in revenues in the amount of 20 million €. Further increase in excise tax on fuels by 0,05 €/ liter, would increase excise tax approximately by 15 million €.

Mr. radovan ŽIVKOVIć, Independent Advisor I,Mr. vladislav KARADŽIć, Independent Advisor,

Ms. Iva VUKOVIć, Senior Advisor

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I Realized revenues

The total amount of realized revenues of the municipalities budget (21) for the period from January – September 2009, amounted to 197,7 million € (average monthly amount was 21,97 million €), which compared to the same period last year (237,2 million €) declined by 16,65%. In the structure of total realized revenues, the share of current revenues (local revenues, assigned revenues, revenues of the Equalization Fund and conditional donations) amounts to 128,2 million €, and the share of other revenues (revenues from sales of property, donations, loan funds and borrowings, transferred funds from the previous year, subsidies of budgetary users) amounts to 69,5 million €. In the revenue structure, the share of local revenues (local taxes, duties, fees and other local revenue) amounts to 48,15%, the share of assigned state revenues from the central level (personal income tax, tax from sales of property, concession and other fees for the use of natural resources and the annual fee for the registration of passengers cars) amounts to 9,44%, the share of the Equalization fund funds amounts to 6.90%, conditional donations 0,34% and other revenues 35,17%.

The following Table indicates the overview of realized revenues of the municipality’s budget for the period from January – Sep-tember 2009, on the basis of the revenue sources:

Realization of Public Expenditure on Local

Self - government LevelJanuary - September 2009

Gordana Radović Snežana Mugoša

83


no. Municipalities Local revenues assigned revenues

Equalization fund

conditional Donations

other revenues total (3 to 6) %

1 2 3 4 5 6 7 8 91. andrijevica 193.729 72.075 534.661 86.247 886.712 0,452. bar 7.849.988 1.372.739 10.347.209 19.569.936 9,903. berane 1.145.481 356.131 1.958.252 64.000 1.059.561 4.583.425 2,324. bijelo Polje 2.269.847 426.115 2.294.640 5.911.874 10.902.476 5,515. budva 22.151.803 1.999.347 5.795.682 29.946.832 15,146. Danilovgrad 981.769 273.068 885.756 100.000 1.657.894 3.898.487 1,977. Žabljak 354.881 157.807 312.155 32.906 649.201 1.506.950 0,768. kolašin 1.435.585 130.941 488.307 150.000 804.756 3.009.589 1,529. kotor 5.498.818 1.171.158 5.940.020 12.609.996 6,3810. Mojkovac 406.988 114.406 863.113 314.305 1.698.812 0,8611. Nikšić 5.007.570 1.476.461 1.392.431 79.000 4.170.327 12.125.789 6,1312. Plav 685.386 120.261 922.388 99.158 1.827.193 0,9213. Plužine 1.294.993 212.591 227.445 2.260.284 3.995.313 2,0214. Pljevlja 4.098.571 786.835 693.538 1.340.872 6.919.816 3,5015. Podgorica 28.486.500 6.371.554 26.340.028 61.198.082 30,9516. Rožaje 952.069 302.585 1.257.254 181.000 33.537 2.726.445 1,3817. tivat 2.782.488 647.095 1.169.187 4.598.770 2,3318. ulcinj 1.766.403 498.546 473.944 625.451 3.364.344 1,7019. herceg novi 5.985.218 1.834.831 118.724 7.938.773 4,0120. cetinje 1.806.896 322.722 804.331 57.600 582.569 3.574.118 1,8121. Šavnik 63.482 25.795 531.018 247.753 868.048 0,44

totaL: 95.218.465 18.673.063 13.639.233 664.506 69.554.639 197.749.906 100,00% 48,15 9,44 6,90 0,34 35,17 100,00

1. Local revenues of Municipality’s Budgetthe local revenues of the budget of municipalities for the period january – september 2009, amounted to 95,2 million €

(average monthly 10,6 million €), and compared to the same period last year (125,6 million €) declined by 24,20%. Out from the aforementioned amount, the share of local fiscal revenues amounts to 87, 59% (taxes, fees and duties) and the share of other local revenues amounts to 12,419% (monetary fines and interest, revenues obtained from the activity of municipality bodies, services) and other revenues 12,41%.

The amount of the realized local fiscal revenues of municipalities in this reporting period is 83,4 million € (average monthly revenue was 9,3 million €). In the revenue structure, the highest share relates to the fee for urban zoning (49,96 %), the real estate tax (15,93%), surtax on income tax of physical persons (13,37%), representing 79,26% of local fiscal revenues. For this reporting period, on the basis of other local revenues, Municipalities have realized 11,8 million € (average monthly revenue was 1,3 million €).

The following Table indicates the overview of realized revenues of the municipality’s budget in the period from January – Sep-tember 2009, on the basis of the revenue sources:

in €

no. Municipality Local fiscal revenues other local revenues total (3+4) %1 1 2 3 4 51 andrijevica 185.724 8.005 193.729 0,202 bar 6.485.033 1.364.955 7.849.988 8,243 berane 1.087.632 57.849 1.145.481 1,204 bijelo Polje 1.609.159 660.688 2.269.847 2,385 budva 20.677.823 1.473.980 22.151.803 23,266 Danilovgrad 811.971 169.798 981.769 1,037 Žabljak 281.080 73.801 354.881 0,378 kolašin 1.244.392 191.193 1.435.585 1,51

84


9 kotor 4.404.520 1.094.298 5.498.818 5,7710 Mojkovac 331.625 75.363 406.988 0,4311 Nikšić 4.922.554 85.016 5.007.570 5,2612 Plav 488.472 196.914 685.386 0,7213 Plužine 1.237.395 57.598 1.294.993 1,3614 Pljevlja 2.735.902 1.362.669 4.098.571 4,3015 Podgorica 26.518.257 1.968.243 28.486.500 29,9216 Rožaje 881.836 70.233 952.069 1,0017 tivat 2.570.440 212.048 2.782.488 2,9218 ulcinj 1.609.071 157.332 1.766.403 1,8719 herceg novi 4.632.373 1.352.845 5.985.218 6,2920 cetinje 641.492 1.165.404 1.806.896 1,9021 Šavnik 46.374 17.108 63.482 0,07 total 83.403.125 11.815.340 95.218.465 100,00 % 87,59 12,41 100,00

2. Assigned revenues of the municipality budget Municipalities budgets (21) for the period from January - September 2009, on the basis of assigned revenues realized the total

amount of 18,7 million € (average monthly 2,1 million €), which compared to the same period last year (27,5 million €), declined by 32,00%. In the assigned revenues structure, the share of personal income tax of physical persons amounts to 47,90%, the share of the real estate tax amounts to 33,72 %, the share of concessions and other fees for the use of natural resources amounts to 11,89% and the share of the annual fee for the registration of passenger cars, tractors and units amounts to 6,49%.

the following table indicates the overview of assigned revenues to municipality’s budgets from the central level, for the period from january – september 2009, on the basis of the revenue sources:

in million €

no MunicipalityPersonal income tax of physical persons

real estate sales tax

concession fees for the use of natural resources

annual fees for registration of passengers cars

total(3 do 8) %

1 2 3 4 5 6 7 81 andrijevica 17.986 10.910 38.157 5.022 72.075 0,392 bar 457.371 731.785 80.987 102.596 1.372.739 7,353 berane 184.146 28.923 93.941 49.121 356.131 1,914 bijelo Polje 244.038 34.286 73.458 74.333 426.115 2,285 budva 526.500 1.421.805 51.042 1.999.347 10,716 Danilovgrad 131.439 67.565 48.981 25.083 273.068 1,467 Žabljak 29.925 61.920 60.798 5.164 157.807 0,848 kolašin 61.635 12.317 46.870 10.119 130.941 0,709 kotor 420.745 562.192 96.622 91.599 1.171.158 6,2710 Mojkovac 52.198 1.965 23.912 36.331 114.406 0,6111 Nikšić 957.305 93.768 316.831 108.557 1.476.461 7,9112 Plav 68.463 9.722 42.076 120.261 0,6413 Plužine 42.422 601 168.931 637 212.591 1,1414 Pljevlja 342.974 59.949 329.386 54.526 786.835 4,2115 Podgorica 4.280.456 1.157.373 542.228 391.497 6.371.554 34,1216 Rožaje 87.575 19.759 121.979 73.272 302.585 1,6217 tivat 171.813 403.647 37.530 34.105 647.095 3,4718 ulcinj 138.520 309.463 11.937 38.626 498.546 2,6719 herceg novi 480.721 1.263.540 21.217 69.353 1.834.831 9,8320 cetinje 235.482 37.227 7.050 42.963 322.722 1,7321 Šavnik 13.023 7.282 5.490 25.795 0,14 total 8.944.737 6.295.999 2.219.423 1.212.904 18.673.063 100,00% 47,90 33,72 11,89 6,49 100,00

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3. Equalization fundIn the period form January – September 2009, out from the funds from the Equalization fund, municipalities were allocated

with 13,6 million € (average monthly allocation was 1,5 million €), representing 68,69% of planned amount for 2009 (19,8 mil-lion €). The highest shares in allocated funds have the following municipalities: Bijelo Polje, Berane, Nikšić and Rozaje which wee allocated over 50% of revenues in the observing period.

4. Conditional DonationsOn the basis of the Budget of Montenegro for 2009 as for the conditional donations for the realization of investment projects in the

area of public utility infrastructure, Municipalities were allocated the total of 901.900 €. these funds, on the basis of the Decision of the government of Montenegro were approved to the following Municipalities: andrijevica (45.110 €), berane (64.030 €), bijelo Polje (64.030 €), Danilovgrad (100.000 €), Žabljak (44.820 €), Kolašin (150.000 €), Nikšić (64.030 €), Plav (57.630 €), Pljevlja (32.020 €), Rožaje (181.000 €), Ulcinj (41.600 €) and Cetinje (57.630 €). As of 30th september 2009, funds on the basis of conditional dona-tions were reassigned only to the following Municipalities: Kolasin, Rozaje, Danilovgrad, Zabljak, Berane, Niksic and Cetinje.

5. Other revenues on the basis of other revenues (revenues from sales of real estate, transferred funds from previous years, donations, subsi-

dies and other transfers, borrowings and loans) for the period from January – September 2009, municipalities have realized the total of 69,6 million € (average monthly realization of 7,7 million €), which compared to the same period last year (66,9 million €) represents the increase of 4,04%. In the structure, the percentage of the transferred funds from the previous year amounts to 57,88%, the percentage of the borrowings and loans is 19,93, the percentage of revenues from sold property is 15,05%, the percentage of donations is 5,49%, the percentage of subsidies and other transfers is 1,65%.

The following Table indicates the overview of realized other revenues of municipalities in the period from January – September 2009, on the basis of the revenue sources:

in million €

no. Municipalityrevenues from sales of property

Donations borrowingstransferred funds from previous years

subsidies and other transfers

total(3 of 7) %

1 2 3 4 5 6 7 8 91. andrijevica 10.000 76.247 86.247 0,122. bar 140.000 10.207.209 10.347.209 14,883. berane 34.189 490.541 55.851 478.980 1.059.561 1,524. bijelo Polje 2.024 2.915.000 2.963.809 31.041 5.911.874 8,505. budva 1.629.816 4.044.000 121.866 5.795.682 8,336. Danilovgrad 153.479 1.504.415 1.657.894 2,387. Žabljak 293.486 170.000 185.715 649.201 0,938. kolašin 795.000 9.756 804.756 1,169. kotor 105.466 5.343.502 491.052 5.940.020 8,5410. Mojkovac 9.486 178.184 126.635 314.305 0,4511. Nikšić 46.685 254.000 3.705.400 164.242 4.170.327 6,0012. Plav 20.000 60.607 18.551 99.158 0,1413. Plužine 20.000 1.000 2.239.284 2.260.284 3,2514. Pljevlja 105.600 1.000.000 235.272 1.340.872 1,9315. Podgorica 8.072.912 18.182.367 84.749 26.340.028 37,8716. Rožaje 33.537 33.537 0,0517. tivat 24.700 1.144.487 1.169.187 1,6818. ulcinj 26.090 248.500 350.403 458 625.451 0,9019. herceg novi 37.750 80.974 118.724 0,1720. cetinje 21.285 455.000 32.546 73.738 582.569 0,8421. Šavnik 768 62.190 184.795 247.753 0,36total 10.465.583 3.822.038 13.863.250 40.256.240 1.147.528 69.554.639 100,00% 15,05 5,49 19,93 57,88 1,65 100,00


II Revenue Execution of local self – government for the period January – September 2009

Total expenditures of the local self government for the period January – September 2009, have been planned in the amount of 322,68 million €, while total execution of municipal budgets amounted to 186,58 million €, representing the realization of 57,82% compared to the plan for the period from January – September 2009 and the realization of 41,24% and execution com-pared to the plan for 2009.

The highest budget execution is realized by the Municipality of Bijelo Polje – 96,48%, Capital City Podgorica – 91,90%, and the Municipality of Plav – 80,23%, compared to the plan for the aforementioned period.

The lowest execution degree compared to the plan for the period January – September 2009 is in the Municipality of Ulcinj – 27,32 % and only 20,40% compared to the plan for 2009.

Municipality Plan for the period 1st january 2009. -31st september 2009.

Execution for the period 1st january 2009. -31st september 2009..

% Execution for aforementioned period

andrijevica 1.18 0.78 66.50bar 33.46 19.25 57.54berane 2.75 1.98 72.17bijelo Polje 11.30 10.90 96.48budva 80.86 29.94 37.02Danilovgrad 4.70 3.05 64.91herceg novi 16.25 7.69 47.30kolašin 4.40 3.01 68.37kotor 19.72 11.53 58.49Mojkovac 3.12 1.59 50.89Nikšić 28.81 12.11 42.03Plav 2.22 1.78 80.23Plužine 3.17 2.15 67.92Pljevlja 16.73 7.25 43.36Podgorica 62.87 57.77 91.90Rožaje 4.14 2.62 63.45tivat 5.93 4.16 70.22ulcinj 12.17 3.32 27.32cetinje 5.73 3.56 62.15Šavnik 0.99 0.66 67.18Žabljak 2.21 1.46 65.89total: 322.68 186.58 57.82

Consolidated expenditures of municipalities for the period January – September 2009, amounted to 158,78 million €. In the expenditure structure, the highest share have the capital expenditures – 80,98 million €.

Bar

87

The following Table indicates the overview of consolidated and total expenditures for the period January – September 2009, (in million €) by Municipality and types of expenditures:

Municipality

Consolidated expendituresconsolidated. expenditures % GDP Debt

repaymenttotal expenditurescurrent

expenditurescapital expenditures transfers other

expenditures

andrijevica 0.31 0.25 0.20 0.01 0.77 0.02 0.01 0.78bar 3.01 12.85 3.19 0.13 19.17 0.62 0.08 19.25berane 0.70 0.73 0.23 0.06 1.72 0.06 0.26 1.98bijelo Polje 1.77 4.92 1.69 0.21 8.59 0.28 2.31 10.90budva 3.94 8.09 2.15 0.14 14.34 0.47 15.60 29.94Danilovgrad 1.51 0.52 0.96 0.00 2.98 0.10 0.07 3.05herceg novi 4.63 1.37 0.72 0.24 6.95 0.23 0.73 7.69kolašin 1.09 0.63 0.29 0.00 2.01 0.07 1.00 3.01kotor 4.42 5.25 1.26 0.19 11.12 0.36 0.42 11.53Mojkovac 0.74 0.60 0.11 0.06 1.51 0.05 0.08 1.59Nikšić 4.82 0.75 1.59 0.87 8.02 0.26 4.09 12.11Plav 0.75 0.45 0.31 0.02 1.54 0.05 0.25 1.78Plužine 0.48 1.38 0.24 0.03 2.13 0.07 0.02 2.15Pljevlja 3.67 2.66 0.58 0.06 6.97 0.23 0.28 7.25Podgorica 13.43 36.99 6.51 0.47 57.39 1.86 0.38 57.77Rožaje 1.01 0.86 0.58 0.01 2.47 0.08 0.16 2.62tivat 1.56 1.62 0.84 0.04 4.07 0.13 0.09 4.16ulcinj 1.85 0.23 0.44 0.00 2.53 0.08 0.80 3.32cetinje 1.74 0.14 0.30 0.36 2.55 0.08 1.01 3.56Šavnik 0.45 0.12 0.08 0.00 0.64 0.02 0.02 0.66Žabljak 0.61 0.58 0.12 0.00 1.32 0.04 0.14 1.46totaL 52.48 80.98 22.41 2.91 158.78 5.15 27.80 186.58

III BUDGET INDEBTEDNESS

total budget indebtedness of the local self government for the period january – september 2009, amounted 40,93 million €, which is 1,33% of estimated GDP for 2009 (3.083 million €). In the indebtedness structure, the stock of domestic debt amounts to 17,56 million €, which is 42,92% of total indebtedness, and the stock of foreign debt amounts to 23,36 million €, which is 57,08% of total indebtedness.

In total indebtedness structure for the period January – September 2009, loans of domestic financial institutions amounted to 13,37 million €, out of which long term loan amounts to 12,59 million € or 30,76% of total indebtedness for the aforementioned period. The total amount of the foreign loan relates to long term loans amounting to 57,08% of the total budget indebtedness.

Nikšić

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no. type of Indebtedness totaL (in million €) % share %GDP

I Domestic debt 17.56 42.92 0.571 Loans 13.37 32.68 0.43a short term 0.78 1.91 0.03 Principal 0.77 1.89 0.03 Interest 0.01 0.03 0.00b Long term 12.59 30.76 0.41 Principal 7.06 17.26 0.23 Interest 0.83 2.03 0.032 bonds 3.99 9.74 0.133 guarantees 0.21 0.50 0.01II Foreign debt 23.36 57.08 0.761 Loans 23.36 57.08 0.76a short term 0.00 0.00 0.00 Principal 0.00 0.00 0.00 Interest 0.00 0.00 0.00b Long term 23.36 57.08 0.76 Principal 18.11 44.25 0.59 Interest 5.25 12.83 0.172 bonds 0.00 0.00 0.003 guarantees 0.00 0.00 0.00I+II total indebtedness 40.93 100.00 1.33

IV - Outstanding liabilities

total outstanding liabilities of the local self government for the period january – september 2009, amounted to 57,80 mil-lion €. In the outstanding liabilities structure, outstanding liabilities for capital expenditures amounted to 34,11 million € which is 59,01 % of total outstanding liabilities. Liabilities for current expenditures amounted to 14,82 million €, while liabilities on the basis of borrowings and loans amounted to 5,60 million € and debt repayment in the amount of 1,69 million €.

no. type of outstanding Liability totaL (in million €) % Share % GDP

I Liabilities for current expenditures 14.82 25.64 0.48 Liabilities for gross salaries and contributions charged to employer 6.04 10.45 0.20 Liabilities for other personal earnings 0.38 0.65 0.01 Liabilities for other current expenditures 8.40 14.54 0.27II Liabilities on the basis of social protection transfers 0.00 0.01 0.00III Liabilities on the basis of transfers to institutions, individuals and ngo’s 1.46 2.53 0.05Iv Liabilities for capital expenditures 34.11 59.01 1.11v Liabilities on the basis of borrowings and loans 5.60 9.68 0.18vI Liabilities on the basis of the repayment of debt 1.69 2.92 0.05vII Liabilities from reserves 0.12 0.21 0.00total outstanding liabilities ( I+II III+Iv+v+vI+vII ) 57.80 100.00 1.87

Ms. gordana RADOVIć,Independent advisor I in the Sector for Tax and Customs System

Ms. Snezana Mugosa, Independent Advisor I, Budget Department

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A reliable financial reporting system re presents a cornerstone for the proper functioning of the market economy and strong financial system. With the objective of creating qualitative institutional frame-work for the continuation of work and de-velopment of Montenegrin economy, intro-ducing financial discipline, increase quality of financial statements, the Ministry of Fi-nance on the basis of the Law on account-ing and Auditing (“Official Gazette of the RoM, No. 69/05 and the “Official Gazette of Montenegro”, no. 80/08), among other things, has introduced the inspection su-pervision as a new obligation. by introduc-ing inspection supervision and control, preconditions were created to decrease misuses and apply sanctions, aimed at improving both the quality of the financial reporting and the financial discipline. The qualitative financial reporting requirement is becoming more important, boosting the number of financial statements, number of users and institutions for the control over the financial statements quality, ad-dressing the need to establish the quality and quality control concept.

Following the establishment of in-

spection capacity in the Ministry of Fian-cée, the control over annual and quarter financial statements have commenced for shareholder companies and other le-gal entities issuing securities, and other financial instruments traded on orga-nized market, as well as national legal entities obliged to compose consolidated financial statements. Aforementioned le-gal entities are obliged to submit financial statements to the securities commis-sion, both in writing and electronically. the Ministry of Finance, in cooperation with the commission has agreed the pro-cedure for maintaining and submitting the records on legal entities.

the securities commission has pu-bli shed the rules on content, terms and the manner of publishing financial sta-tements the security issuers (“Official Gazette of Montenegro”, No. 20/09), de-termining the content, type, manner and the deadline for the submission of finan-cial statements of legal entities obliged to submit financial statements. The Ru-les prescribe that shareholder compa-nies are obliged to submit financial sta-

tements on a quarterly basis within 30 following the expiration of the period covered by the report, and within 45 for consolidated financial statements. Sub-mitted annual and quarter financial and consolidated statements, as well as the auditors reports, the securities commis-sion is publishing on its web page (www.scmn.co.me).

Moreover, the Ministry of Finance in cooperation with the supreme Mis-demeanor court, has agreed the proce-dure for the submission of the request for indication on misdemeanor proce-dure against legal entities and persons responsible in legal entity, who failed to submit annual and quarter financial and consolidated financial statements in prescribed deadline. the deadline for the submission of the request for initiation of misdemeanor procedure is prescribed by the Law on Misdemeanor proceedings, and it is 60 days following the submission of the list to the Ministry of Finance by the securities commission or 60 days upon determining the facts. the Ministry of Finance has submitted

Financial Reporting Inspection Supervision

Aleksandra Popović Ana Krsmanović Danko Dragović

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requests to branch units of the supreme Misdemeanor court, for initiation of misdemeanor procedure against legal entities and persons responsible in legal entity who failed to submit financial statements.

The Graph bellow indicates the review of submitted financial statements in 2009:

59,5%

41,6%

52,9%48,5%

0,0%

10,0%

20,0%

30,0%

40,0%

50,0%

60,0%

70,0%

Godišnji I II I I

Papirna forma Elektronska forma

as of 30th June 2009, the total of 59,5% legal entities have submitted the financial statements for 2008 to the Securities Commission. Moreover, it may be noted, that the quarter financial statements submission percentage has grown by quarters (41,6% for the first quarter, 48,5 % for the second quarter and 52,9% for the third quarter). Having in mind the fact that the Law was adopted by the end of last year, as well as that the deadline for the submission of financial statements was changed, thus the statements are submitted within 28th February of the current year for the previous year, we expect the growth or decline in number of initiated procedures in the subsequent year.

The job of inspectors is not only to perform the control of annual and quarterly financial statements submitted to the Securities commission, their work is to perform the following:

- Control over submitting annual financial and audit reports, along with the opinion on financial statements to the Central Registry of the Commercial Court;

- Control over the auditing companies (whether the audit is being performed on the basis of the working license);- Accuracy of categorizing legal entities into small, medium – sized and large legal entities; - Whether legal entities have established accounting operations in accordance with the Law;- Whether business books and accounting records are maintained in accordance with the Law;- Whether financial statements and consolidated financial statements are signed by responsible person;- Whether the statistical annex was submitted to the financial statements.

therefore, the Ministry of Finance will soon commence the control over aforementioned obligations. If during the conduct of con-trol is determined that legal entities have failed to fulfill legal obligations, the Ministry of Finance will submit the request for initiation of misdemeanor procedure against legal entities and persons responsible in legal entity who failed to fulfill their legal obligations.

As for the control over the submission of the annual financial statements and reports on audit with the opinion on financial statements to the central registry of the commercial court, i.e. whether they have been submitted both in writing and electronic format, the commercial court Podgorica in cooperation with the Ministry of Information society has selected the most favorable bidder for the development of the It system of the central registry of the commercial court allowing for the receipt and recording of financial statements in electronic format. The deadline for the finalization project is planned by the end of 2009, after which all financial statements, as well as the audit reports with the opinion on financial statements will be submitted to the Central Registry of the commercial court in electronic format, and will be published on their web page (www.crps.co.me)

The implementation of the inspection supervision, penalization of legal entities and persons responsible in legal entity, and incre ased transparency in financial reporting is expected better improved financial discipline, increase in corporative culture, as well as faster and easier obtaining of (accurate) required data and information necessary both to shareholders and investors.

Apart form aforementioned, accurate financial reporting would increase security in financial market functioning, strengthen corporative governance by providing the shareholders and public to supervise the work of administration, improving transparency and correct privatization process of companies in state ownership.

Ms. aleksandra POPOVIć, Independent Advisor IIMs. ana KRSMANOVIć, Independent Advisor IMs. Danko DRAGOVIć, Independent Advisor III

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I - Audit Authority Definition and Importance

the european commission (ec) has set a number of requests to be fulfilled by Montenegrin administration within the introduction of Decentralised Implemen-tation system (DIs) for the management of european union funds (eu). one of the requirements is the establishment of the audit authority, which in accordance with the IPa Implementing regulation1 and the Framework agreement2, will be responsi-ble for auditing the use of IPa funds.

the audit authority, is functionally independent from all institutions in the management and control system, should be responsible for verifying effective func-tioning of the DIs system. this authority, being established by the beneficiary of the IPa funds, is not subject to accredita-tion as it is the case with other IPa bod-ies, but its establishment is required at the very beginning of the process for the preparation of the DIs.

In establishing the DIs, the position-ing of the audit authority represents the key issue with whom all countries are facing with, and therefore the represen-tatives of the ec are paying special atten-tion to this issue during their mission for determining facts in all beneficiaries of the eu funds. Many member states and candidate countries differently regulate this matter creating either advantages or disadvantages3. Due to dilemmas of both the neighboring countries and Montene-gro on the issue of institutional position-ing of the audit authority within the na-tional structure of mentioned countries (establishment of the audit authority within the supreme audit Institution – saI or the Ministry of Finance), the ec repre-sentatives passed the document provid-ing recommendations on where and how this authority should be positioned. one of the best solutions in a long run of the ec, is the establishment of an indepen-dent agency performing the function of the audit authority being fully indepen-

dent from other DIs actors.

As emphasized in the aforementioned document, the positioning of the audit authority within the Ministry of Finance would jeopardize the independence in work, because this body would lose the function of the external, independent au-ditor, against other key structures for the DIs process operating within the Ministry of Finance. In this way, the sound func-tioning of the management and control system of the eu funds would be threat-ened since the audit authority is obliged to submit the report to the ec and the Competent Accrediting Officer (CAO) and the National Accrediting Officer (NAO).4

on the other hand, due to different reasons, the opinion of the ec is that the positioning of this body within the saI might jeopardize the independence of saI in auditing. namely, in accordance with the Law on supreme audit Institu-tion, saI is independent in performing its duties, being obliged to report exclusively

The Importance of Establishing the Audit Authority within the

Decentralized Management of Pre-Accession Funds

in Montenegro

1 - Commission Regulation (EC) No. 718/2007 of 12 June 2007 implementing Council Regulation (EC) No 1085/2006 establishing an instrument for pre-accession assistance (IPA);2 - Law on ratification of the “Framework Agreement between the Government of Montenegro and the European Commission on the rules for the cooperation regarding the financial assistance of EC to Montenegro under the implementation of the Instrument of Pre-accession Assistance” (Official Gazette of Montenegro, No 01/08).3 - In the Republic of Croatia was established the Agency as an independent body, in the Republic of Macedonia, Audit Authority is established within the SAI. As for the experience of Albania and Serbia, these countries have not yet decided where to position the Audit Authority. One possible solution is to establish Audit Authority within the Vice President’s Cabinet of the Government.

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the Parliament of Montenegro being leg-islative authority and the government on the use of state funds. however, as al-ready stated above, with regard to the au-dit of the IPa funds, saI would be obliged to report cao and nao, which would be in contradiction to the Law.

although the ec insists only on estab-lishing the audit authority as independent agency, interim solution to the establish-ment of this authority within the saI in Montenegro, serbia, Macedonia, alba-nia, is acceptable for the ec representa-tives, but only up to the enforcement of the chapter 32 – Financial control – re-lated to the public internal financial con-trol (PIFc), after which a special decision will be brought by the ec and aforemen-tioned countries on unbundling the audit Authority from the SAI’s organizational structure. In the light of the above, with the objective of resolving aforementioned problem, most countries have adopted a new legal and normative basis defining the audit authority within the saI, but, pursuant to the Framework agreement, setting reporting requirements to the ec, cao and nao with the objective of avoid-ing the conflict of interest.

therefore, even in Montenegro eme-rged the need to legally and normatively define the establishment of the Audit Au-thority within the saI, being functionally independent from all actors in the man-agement and control system. In the light of the above, the government of Monte-negro and the supreme audit Institution have signed the agreement on the estab-lishment of the audit authority within the Decentralized Management System of the Instrument for the Pre-accession as-sistance (IPa). the agreement was signed by the cao, on behalf of the government of Montenegro and the senator of the saI on 24th December 2009.

as stipulated by the agreement, for the purpose of auditing the IPa funds, SAI within its organization will establish special and functionally independent

unit - audit authority - and employ requi-red number of employees. the head of the audit authority, appointed by saI’s Senate, will be authorized and responsi-ble for passing decisions and signing all documents related to the functioning and competence of the audit authority, in ac-cordance with the Framework agreement. on the basis of performing this function, the head may not be appointed the mem-ber of the senate, but for information pur-poses may submit certain documents de-fined by this Agreement to the members of the senate. Moreover, the agreement stipulates the adoption of the special de-cision on segregating the audit authority from the organizational structure of the saI, following the opening of negotiation chapter 32 – Financial control between the ec and Montenegro.

II Functions and Competences of the Audit Authority

During each year, the audit authority, under the competence of the head, will be obliged to develop an annual audit Plan. the Plan incorporates audits to be performed, in order to verify the reliability of data to be submitted to the ec.

Prior to the commencement of the year covered by the Plan, the audit au-thority is obliged to submit the annual Work Plan to the ec and nao.

all Financing agreements, as well as subordinate programmes and contracts will be subject to supervision and finan-cial control. the representatives of the audit authority will perform all technical and financial verifications related to the audits financed on the basis of appropri-ate Financing agreement.

apart form aforementioned, the audit authority will be obliged to develop and submit following documents:

• Annual reports on performed au-dits5, listing all sources/evidence used in auditing procedure, review of all iden-

tified weaknesses in the control and management systems or in transactions obtained in performing audits in accor-dance with the annual audit Plan for last 12 months.

• Annual Auditors Report6, indicating the control and management system ef-ficiency and compliance with the rules.

• Opinion on any final report on ex-penditures7, clearly identifying the valid-ity of the request for the final payment and financial data accuracy.

as for the methodology for the audit conduct, submission of the report and opi nion on performed audit, the audit autho rity will adhere to internationally ac-cepted auditing standards.

III Conclusions

since the european union is support-ing the membership of Montenegro, al-locating significant financial assistance each year, defined by the strategic Eu-ropean and national documents, within which the country is proposing certain projects. the allocation amount depends on the quality of proposed projects, the use of the eu funds, as well as from the successful functioning of all actors in the system; therefore, it depends on the func-tioning of the audit authority performing the audit of the IPa funds. by establishing adequate institutions achieving qualita-tive functioning of the management and control system within the DIs, as well as the audit authority, the body in charge of verifying the adequate system func-tioning, Montenegro will simultaneously prepare for the use of significantly higher amounts of funds from the structural and cohesion funds, upon becoming the eu member.

Ms. nataša KOVAčEVIć, Deputy Minister,

Ms. bojana POčEK, Independent Advisor III


4 - CAO – Competent Authorizing Officer is the Finance Minister, Mr. Igor Lukšić, PhD. NAO – National Authorizing Officer is the Deputy Minister for Treasury Operations, Mr. Boris Bušković.5 - Annex C – Framework Agreement6 - Annex D – Framework Agreement7 - Annex C – Framework Agreement

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Montenegro as the potential candi-date country, currently has the opportu-nity to use resources from the two compo-nents of the Instrument for Pre-accession assistance (IPa)1. one of the objectives of Montenegrin administration, on its path towards acquiring the candidate status for the european union (eu) membership, is the readiness of the overall system to use funds from remaining three IPa2 com-ponents, which will be available after ac-quiring candidate status, which includes the preparation of the institutions, struc-tures and the necessary documents. this is again showing that two processes can not be carried out independently from one another: on the one hand the process of harmonizing national legislation with the eu legislation, for which Montenegro opted for by signing the Stabilization and association agreement on 15th october 2007, and on the other hand, the process of preparing the state administration for the use of the eu funds. aforementioned processes must be conducted simultane-ously and Montenegrin objective can be achieved - the eu membership, only by achieving the expected results in both processes.

Regional Development and Human Resources Development Components

regional Development and human resources Development, being the third and fourth component of the IPa, rep-

resent preparatory phase of candidate countries for the eu membership for the use of structural and cohesion funds, as well as the instrument for achieving the goals of the eu cohesion policy, which will be available after joining the eu. Similarities are especially reflected in the programming stage, while the imple-mentation and bodies involved in this phase differentiate.

regional Development component may support regional development proj-ects, covering: transport area, environ-

mental protection and regional com-petitiveness improvement. as such, this component can be considered the fore-runner of the european regional Devel-opment Fund and cohesion Fund, used by some eu member states. component of human resources Development is di-rected towards achieving objectives in terms of education, employment, training and social inclusion, as well as economic and social cohesion, representing the forerunner of the european social Fund3.

areas covered by the fourth compo-nent, i.e. human resources Develop-ment are more compatible, and there aren’t major dilemmas arising in prepa-ratory phase for this component, as it is the case with the third component.

It is on beneficiary country of the IPA funds to opt at beginning, whether funds earmarked for financing of projects with-in the third component will be allocated for covering all three areas or the benefi-ciary country will opt for a concrete one. This decision becomes more significant by taking into consideration the fact that certain funds used by each individual beneficiary country of the IPA funds an-nually, are determined on the basis of Multi - annual Indicative Financial Frame-work - MIFF for the programming period 2007-2013. thus, gaining the candidate status and by meeting the requirements to use remaining three IPa components,

IPA Third and Forth Component

- Preparation for Structural and Cohesion Funds

Bojana Kaluđerović

1 - I Component – Transition Assistance and Institution Building ; II Component – Cross-Border Cooperation;2 - III Component – Regional developemnt; IV Component – Human Resources Developemnt; V Component – Rural Developemnt.3 - Structural instruments represent funds for meeting the EU Cohesion Policy objective comprising the European Regional Development Fund and Cohesion Fund. Structural Fund means European Regional Development Fund and European Social Fund;

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the total available funds will remain at the same level, being only redistributed. since one part of the projects, being covered by the third and fourth component, are currently funded through the technical support and capacity building (IPa component I), it will lead to the redistribution of funds. Given the size of our country, as well as funds at our disposal (in 2007 - was allocated the total of eur 31.4 million up to eur 35.4 million by 2012) it implies to opt for smaller number of areas within the third component. this decision will impact the document whose development is the requirement for the use of these two components.

Strategic Coherent Framework and Operating Programmes

the programming process of the components III and Iv, requires the development of documents that weren’t required or did not exist in the first two components. The Article 154, of the IPA Implementing Regulation4 stipulates the obligation to develop a strategic coherence Framework, being the reference document for programming of components of regional development and human resources development, on one hand ensuring its compliance with Multi-annual Indicative Planning Document -- MIPD, providing linkage to the National Development Plan of Montenegro, which should be developed within the twinning project fi-nanced from IPa 2009. a strategic coordinator is responsible for the development of aforementioned document under the full responsibility of the national IPa coordinator (nIPac - Minister for european Integration). at the same time, the Document repre-sents a requirement for the approval of the programme incorporated within these two components. In accordance with the IPa Implementing Regulation, this Document must be submitted to the European Commission (EC) for review, at latest when first programmes funded within these two components are being approved. the candidate country is developing the strategic coher-ence Framework for the whole programming period (e.g. 2007.-2013, i.e. for the next programming period 2014 - 2020th). Its preparation represents a type of training for candidate countries administrations, in order to be better prepared to create a similar document also required within the structural and cohesion funds, the national strategic reference Framework. the development of this document requires time and constant consultation with the ec and its Directorate general for regional Policy and employ-ment. the strategic coherence Framework regulates activities to be undertaken within these two components, avoiding overlap-ping both with other components and with the work of some international financial organizations.

Apart from the Strategic Coherence Framework, the beneficiary country of the IPA funds is required to develop multiannual Op-erational Programms, arising from the strategic Framework. operating structure is responsible for the development of operating programmes. they must be developed in cooperation with the ec which is approving them. operating programme is a three-year document. the strategic Framework lists operating programmes arising from this document, containing a short summary of key priorities. The number of operating programmes may vary depending on the decisions taken by the beneficiary country of funds. In principle there is at least one operating programme within each component. on the basis of selected scope, the country can decide to develop two or three operating programmes within the third component. one of the features of this document in the context of the IPA Component III, is that it should incorporate indicative list of so called large projects, with a description of the status of project documentation, expected sources of funding and indicative implementation timeline, as well as the structures managing and controlling the implementation of the Operating Programme. The concept of large projects for the first time intro-duced under the IPA components III, including projects whose value exceeds EUR 10 million. The selection procedure is special, because the operating structure is directly sending large projects to the ec and this institution is responsible for selection.

MIFF

MIPD

regional Development component

oP - transport oP - environment

oP – competitiveness

oP – human resources

strategic coherence Framework

national Development Plan

human resources Development component

scheme 1: schematic overview of the strategic Framework for the IPa components III and Iv

4 - Commission Regulation (EC) No. 718/2007 of 12 June 2007 implementing Council Regulation (EC) No 1085/2006 establishing an instrument for pre-accession assistance (IPA);

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Necessary institutional framework

Part from main actors in the process - National IPA Coordinator (NIPAC), Competent Accrediting Officer (CAO), National Autho-rizing Officer (NAO), the National Fund, Audit Authority, being already appointed and established, because their establishment is necessary for the first two IPA components, in accordance with the IPA Implementing Regulation, a country preparing for the use of components III and Iv should appoint the strategic coordinator for these two components.

based on the fact that the strategic coordinator is responsible for the development of the strategic Framework under the authority of the nIPac, the assistant Minister for european Integration was appointed for this position.

With regard to the operating structure, it was significantly changed in relation to the Operating structures being established for IPa I and II components. the operating structure is composed by: a ministry in charge of the operating Programme, as well as ministries/agencies responsible for certain priority/measure, as well as implementing body/agency. a head of operating struc-ture is a person from the ministry responsible for operating Programme (usually someone who is highly ranked in the hierarchy of the ministry). the head of operational structure is responsible for managing the operating Programme.

the role of Implementing body/agency is envisaged in issuing public tenders, contracting, payments and technical implemen-tation of certain programmes, being involved in other components. one of the recommendations of the ec was to assign this role to the Sector for financing and contracting of EU funds of the Ministry of Finance (CFCU). According to EC recommendations, it was considered irrational to establish a special agency to implement these two components having in mind available funds.

Mutual relations and tasks of individual ministries or bodies within the Operating Structure, as well as in the first two IPA components, are defined by the Operating Agreement signed by the Head of Operating Structure with all other actors within the structure. the operating agreement can be signed only after concluding the Implementing agreement between the nao and the head of the operating structure.

Experience of two candidate countries, which were accredited for DIS differentiates. Croatia and Macedonia have differently regulated this issue.

Decentralized Implementation System (DIS)as the Requirement for the Use of Funds within Components III and IV

one of the features of the implementation phase is that funds from these two components may be used only under Decen-tralized Implementation System of the EU funds, thus our administration will simultaneously work on preparation of institutions for establishing the DIs for components III and Iv, and on preparation of documents for programming the funds for these two components.

The EC requires the development of the National Road Map for all five components, breaking in details all activities to be undertaken with the objective of conferral of management powers for the EU funds from EC to beneficiary country of funds, with clearly defined actors and deadlines, being based on its Road Map for Decentralized Management of IPA Funds.

there is a huge risk, at the same time representing a challenge for employees involved in institutions subject to the DIs ac-creditation, which is envisaged in the fact that if Montenegro obtains the candidate status prior accrediting institutions responsi-ble for implementation of funds within the components III and Iv, i.e. if the conferral of management powers fails, than Montene-gro will be not be in position to use funds through these two components up to obtaining accreditation. Macedonia had the same experience which obtained the EU candidate status in December 2005, thus on the basis of IPA had the opportunity to use all five IPA Components, but since it failed to fulfill all other requirements it wasn’t in position to use the funds from the IPA Components III, IV and V. According to assumptions of the EC representatives, in order to go through all six phases prescribed by the Road Map, it takes 28 (optimistic scenario) up to 36 moths (pessimistic scenario). however, since all key actors within the preparation for DIs have been appointed for the IPa component I and II, and the biggest part of documents necessary for DIs implementation is developed for these two components, thus acquired experience may accelerate the process for Components III and IV.

Experience of Croatia and Macedonia

Since Croatia and Macedonia are fulfilling basic condition for the use of the IPA III and IV, these two countries including Turkey have faced with this challenge. croatia and Macedonia had differently regulated the manner of using these two components. both countries obtained the eu5 candidate status prior to introducing IPa6 as unified Instrument for Pre - accession assistance. At the

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very beginning they were in position to use all IPA Components. In order to be able to use funds, it was necessary to fulfill all require-ments. on one hand, these requirements referred to the area of programming (it was necessary to appoint the strategic coordinator and to develop all supporting documents), but in the other hand they had to fulfill conditions for introducing DIS. Croatian institutions were accredited in December 2008, for the first four components, while Macedonian institutions waited a little bit longer, thus they were accredited in August 2009, for the Component III representing the first phase of the conferral of management powers of the EU funds in this country. Both countries have different approach as for making the decision on priorities being financed within the component III. therefore, the number of both operating Porgrammes and operating structure differentiates.

component operating Programmes croatia Macedonia

regional Development

environmental Protection 30% 50%

transport 30% 20%

regional competitiveness 20% 0%

human resources Development human resources Development 20% 30%

table: Distribution of funds by operating structures7

croatia opted for four operating Programmes and forur operating structures (three within the third component and one within forth component). the secretary of the state is the head of the line ministry which is at the same time responsible for operating Programme. Implementing authority is different from scope of activity8. this model is similar to the model for structural funds.

there are two operational structures in Macedonia, one each for both components9.

Next challenges?

the main ec recommendation given to Montenegro is that we should take into account the fact that funds at our disposal are relatively small, so we should consider the possibility to complete some priorities within the third component. Also the simplifica-tion of procedures is the best possible solution in accordance with this recommendation. after the appointment of the strategic coordinator, it is necessary to adopt the decision on operating structures for components III and Iv, as well as their managers. Following the commencement of the Project financed through the IPA programme 2009, “Strengthening management and control systems for the EU financial assistance to Montenegro”, which is scheduled for the second half of 2009, it is necessary to develop the National Road Map for the DIS for Components III and IV, and to commence the implementation of all six stages envisaged by the ec road Map. Parallel to this process, necessary strategic document must be produced, whose development requires the engagement of a large number of experts, as well as long-term engagement in the development of this crucial document.

It is on our administration to use its best endeavors in order to avoid negative effects imposed by accelerated process for obtaining the candidate status than the accreditation process for the components III and Iv.

this challenge should be understood primarily as the preparation for the use of structural and cohesion Finds, i.e. learning through work. the better we establish structure for these two components, we will be better prepared for the eu membership and potentially higher possibilities for the use of funds.

Ms. bojana KALUĐEROVIć, Independent Advisor I


5 - Croatia obtained the EU candidate status in June 2004. godine6 - In force from 1st January 2007.7 - Source: Bender T. and Unterwuzerzacher: Presentation at the Seminar “IPA preparation for Cohesion Policy“, Brussels 24th March 2009.8 - Apart from the Central Financing and Contracting Agency (CFCA), Implementing Authority in Croatian structure is Infrastructure PLL, Croatian Waters, and Fund for environmental protection and energy efficiency, Croatian Employment Institute and Agency for vocational training and education.9 - Central Finance and Contracting Department is in charge for both components, being the implementing authority/ agency. The Head of the CFCD is the Head of the Operating Structure.

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For the first nine months of 2009, the leasing market of Montenegro has recorded the total of 950 concluded contracts, which is by 64,72% less than in the same period last year.

table 1: the number of concluded contracts by leasing recipients

total amount as of 30th september 2008

total amount as of 30th september 2009

number of contracts growth rate

Leasing recipients % number of contracts % number of

contracts %

Legal entities 67,47 1.817,00 47,37 450,00 -75,23Physical entities 29,04 782,00 51,79 492,00 -37,08entrepreneurs 3,49 94,00 0,84 8,00 -91,49total 100,00 2.693,00 100,00 950,00 -64,72

Out of the total number of concluded contracts, total of 492 or 51.8%, relates to the contracts concluded with physical per-sons, while 450 or 47.4% relates to the contracts concluded with legal entities. If we compare data on the share of the contracts concluded with physical entities against the total number of contracts, it is obvious that this share is higher than the share real-ized in the same period last year. This fact is indicating that the leasing companies are directing their business strategies to physi-cal entities aimed at risk diversification insuring optimum client’s structure.

The value and the number of concluded contracts as to the leasing type

As it was the current practice, in the first three quarters of 2009, the financial leasing operations had a significant share in both the number and the value of concluded contracts.

table 2: the value and the number of concluded contracts as to the Leasing type

Total as of 30th September 2008 Total as of 30th September 2009Growth Rate(No.) (3)/ (1)

Growth Rate (value)(4)/(2)

Leasing type

Number of concluded contracts (1)

%

Value of concluded contracts (2)

%

Number of concluded contracts (3)

%

Value of concluded contracts (4)

% % %

Operational leasing

280,00 10,39 12.840.674,87 9,27 70,00 8,01 1.312.155,83 16,92 -75,00 -89,78

Financial Leasing

2.414,00 89,61 125.669.314,85 90,73 880,00 91,99 24.181.877,08 83,08 -63,55 -80,76

T O T A L: 2.694,00 100,00 138.509.989,72 100,00 950,00 100,00 25.494.032,91 100,00 -64,74 -81,59

Leasing Market in Montenegro

- Report for the period 1 January to 30 September 2009 -

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For the first three quarters of 2009, the value of concluded contracts amounted to 25,494 million Euros, representing a fall of around 81, 06% compared to the same period last year. Out of the total number of concluded contracts approximately 83% or 24, 181 million Euros refers to the value of financial leasing, while the remaining amount represents the operating leasing.

Leasing Subject

on the basis of the structure of the total number of concluded contracts, based on the leasing subject, it is obvious that pas-sengers’ cars have the biggest share of around 79,8%, in the total amount of leasing investments.

table 3: comparative review of the value of concluded contracts based on the subject of leasing number of Daily contracts

Leasing subject 30th september 2008 (1) % 30th september

2009 (2) % growth rate(2)/(1)

Passengers cars 1.873,00 69,55 758,00 79,79 -59,53commercial vehicles (trucks, buses and delivery cars) 471,00 17,49 78,00 8,21 -83,44

constructing machinery and equipment 257,00 9,54 51,00 5,37 -80,16

ships 28,00 1,04 4,00 0,42 -85,71real-estate 60,00 2,23 59,00 6,21 -1,67other 4,00 0,15 total: 2.693,00 100,00 950,00 100,00 -64,72

The share of commercial vehicles in the total number of concluded contracts amounts to 8,21%, while the share of constructing machinery and equipment is in the amount of 5,37%, and real - estate share is in the amount of 6,21%. Compared to the same pe-riod last year, the leasing market recorded the decline in the share of commercial vehicles and constructing machinery, equipment and ships, while the share of other categories is recording increase in share in the total number of conclude contracts.

table 4: comparative review of the value of concluded contracts based on the subject of leasing number of Daily contracts

Leasing subject 30th september 2008 (1) % 30th september

2009 (2) % growth rate(2)/(1)

Passengers cars 36.888.375,17 26,63 12.502.431,20 49,04 -66,11commercial vehicles (trucks, buses and delivery cars) 22.196.314,12 16,03 2.003.195,26 7,86 -90,98

constructing machinery and equipment 23.121.566,08 16,69 2.874.783,26 11,28 -87,57

ships 3.033.406,16 2,19 447.719,00 1,76 -85,24real-estate 53.067.798,99 38,31 7.665.924,19 30,07 -85,55other 202.528,50 0,15 total: 138.509.989,02 100,00 25.494.052,91 100,00 -81,59

The passengers cars have the biggest share in the total value of concluded contracts in the amount of approximately 49%, while the real estate leasing amounts to approximately 30%, the commercial vehicles amounts to approximately 8%, and the leas-ing of constructing machinery amounts to approximately 11%.

the decline in operation on the leasing market as to the number of concluded contracts, and its value, is the consequence of general decline in economic activity. the impact of the current crises to this type of funding is obvious, as it is the case with other financial system segments.

Ms. bojana BOšKOVIć, Independent Advisor I,Ms. jelena VOJINOVIć,

Independent Advisor III

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Inspection supervision of the taxpay-ers in the tourist season is essentially the same as the inspection supervision in off-season. the difference from the aspect of the Tax administration may only be in a part related to the number of taxpayers and large inflow of manpower, mostly non-resident persons. Working during the tourist season requires pre-cise planning and organization of work, staff rotation, intensive and prolonged work, which requires increased activities for the preparation of the tourist season. the commencement and the end of the season is relative for the Tax Administra-tion, because its activities are intensive during the whole year, by taking into consideration the size of Montenegro and the fact that the attractive tourism area covers the significant part of its ter-ritory, it may be concluded that the tour-ism and sales are interrelated. therefore the Tax Administration has introduced a following slogan in its plan for the re-alization of the tourist season: “Every town in Montenegro is a tourist destina-tion for all year around tourism”. tourist economy is the driving force of business of other activities, because there is a close interdependence between tourism and other activities. The Tax Adminis-tration is developing its plans and pro-grammes on the basis of the economic Policy of the government of Montenegro and other documents setting out priori-ties for the conduct of the tourist sea-son and the improvement of the tourist offer. The Tax Administration reviewed the economic conditions and opportu-nities for the realization of budgetary

revenues, setting basic objectives in re-lation to the development of the tourist season. the territory of Montenegro is considered attractive for tourism, and the fact that the tourist offer is diversi-fied fulfilling the needs of tourists, but having in mind the size of Montenegro, it is clear that the intensification of tourist activities is immediately reflected in the neighboring areas. the main objective of the Tax Administration is to achieve the highest budgetary revenues taking into consideration the current economic con-ditions, and to establish tax disciplines within very the very broad area of com-petence, applying three strategic direc-tions, above all, education of taxpayers, inspection supervision and collection of tax liabilities.

In accordance with the action Plan for the tourist season in the part of inspec-tion supervision of the taxpayers, the fol-lowing activities were undertaken:

- control over the registration of the taxpayers, particularly taxpayers per-forming seasonal operations;

- control over recording sales in tour-ism and hotel industry;

- control over recording of revenues and income in tourism and hotel indus-try;

- control over the sales of excise products;

- control and tax collection from sales of real estate;

- control over the payment of taxes and contributions on income;

- control activities of entities realizing

significant revenues related to the orga-nization of concerts, festivals, carnivals, fairs, etc.

Activities and measures of the Tax adm inistration during the tourist season were directed towards high-risk groups of taxpayers, and those are primarily persons who rent a room, seasonal tax-payers, persons engaged in real estate sales, persons engaged in investments and construction works, as well as per-sons dealing with trade of excise goods. thus, the inspection supervision in the season covers activities with the high risk of tax evasion, taxpayers performing tourist and hotel activities. achieved re-sults indicate the high degree of success in carrying out inspection supervision, with the growth index in determined rev-enues in 2009 compared to 2008 by 104.

New tax liabilities were determined during the inspection supervision, i.e. undeclared liabilities by the tax pay-ers in costal Municipalities bar, budva and hreceg novi, the amount of deter-mined liabilities was € 9,565,879, out of which:Income Tax 3.136.360€Profit Tax 767.339€Real Estate Tax 275.321€vat 5.386.859€calculated Interest 13.643€

In order to determine the accuracy of

reported tax base of taxpayers, the re-cording of sales was carried out in 104 cases, or retail stores where determined

Results of the Summer Tourist Season of 2009


revenue amounted to € 5,920,924 and vat in the amount of € 825,714, while in the process of enforced collec-tion of 66 taxpayers was collected the total amount of € 780,984. In these branch units the total of 2878 controls were carried out, out of which identi-fied irregularities were determined in the amount of 1588 taxpayers, or 56% of the total number of controls. on the basis of aforementioned, it may be con-cluded that the number of controls with-out determined irregularities represents an indication of improved tax discipline compared to previous years where the number of reported irregularities ranged over 60% compared to the total number of the taxpayers who were controlled. In the part referring to undertaking of mea-sures by the Tax Administration due to the violation of tax regulations submit-ted the total of 1.588 of misdemeanor charges, 12 criminal charges, and mea-sures prohibiting the performance of ser-vices were promulgated in 38 cases. the main conclusion is a significant number

of taxpayers was covered by the inspec-tion supervision procedure and that the significant amount of tax liabilities was determined, and that measures under-taken by the tax inspectors are in accor-dance with the laws authorizing inspec-tors for undertaking these measures.

Planned activities of the Tax Admini-st ra tion in the part relating to the col-lection of tax liabilities, as well as the dynamics envisaged by the action Plan were achieved, and achieved results indicate that the Tax Administration through the systematic work has sig-nificantly increased the level of tax dis-cipline in certain activities. From the aspect of collection of public revenues, being the main objective of the Tax Ad-ministration, at the beginning of Febru-ary 2009, the planning of activities have commenced in order to provide logistic support for the successful realization of set objectives. In preparation for the tourist season, the Tax Administration focused its activities on registration of

the highest possible number of taxpay-ers performing work during the season, especially persons who rent a room, since the analysis of achieved results in the previous period has indicated a tendency of growth in the number of taxpayers being taxed on the lump sum basis. Prompt actions were undertaken aimed at identifying taxpayers – persons renting a bed, on the basis of lists and records produced during previous year, and working permits issued by the com-petent municipal services to these per-sons, in order to inform these persons on obligation of submitting requests for lump sum taxation, enabling the Tax ad-ministration to determine and collect tax liabilities. In the period july – august, in coastal branch offices, the decision on determining the tax liability was prepared and submitted to the taxpayers. During August, activities were intensified aimed at final implementation of work tasks for the summer season, with the over-all objective to implement efficient col-lection measures. according to branch

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offices (Bar, Budva, Herceg Novi, Bijelo Polje and Pljevlja), in the period from 1st june 2009 – 12th october 2009, the to-tal number of taxpayers being taxed on the lump sum bases performing inde-pendent activity and persons who rent a bed in the season of 2009, amounted to 3766. out of the total number of issued decisions, 672 relate to independent ac-tivity - lump sum (seasonal work), 3094 decision were issued to persons renting a bed, and realized collection amounted to 91.87% out of the total amount of de-termined liabilities. By analyzing the tax collection, contributions and other public revenues in the period june - september of 2009, compared to the budget plan, it is indicated the realization index of 115.51. Collection of taxes and contribu-tions and other public revenues, in the observing period was achieved, relating to the following:

Collection of taxes in the period June – september 2009, at the level of the Tax Administration, was realized in the amount of 131.145.028,38€, or with the realization index of 109,42.

collection of contributions in the period june – september 2009, at the level of the Tax Administration, was real-ized in the amount of 123.305.746,59€, or with the realization index of 116,75.

We would like to underline the excise tax collection, which in the period June - september 2009, at the level of the Tax Administration was realized in the amount of € 49,052,607.09, or with the realization index of 135,70 compared to the budget plan. The Tax Administration directed collection measures primarily to persons performing seasonal work, which is completely understandable, since upon the termination of activities it is much more difficult and uncertain to undertake measures aimed at persons who are not actively performing activity. Moreover, the Tax Administration by un-dertaking protective measures, has pre-vented the possibility that the taxpayer is performing activity, generating the tax debt and stops with the work during or at the end of the tourist season, with-out settling the tax liability. To this end, measures were undertaken with the

objective of collecting liabilities on time. Modern Information technology in the Tax Administration enabled rapid com-munication between the headquarters and branch units of the Tax Administra-tion, in the part of activities related to the “activation” of the existing data for taxpayers who are performing activity this season, primarily physical persons - entrepreneurs.

The Tax Administration focused great attention on the process of collecting tax liabilities during the tourist season, collection of corrective liabilities, i.e. li-abilities determined in the inspection supervision process in a manner that if the taxpayer fails to settle liabilities de-termined in the inspection supervision process within prescribed deadline, col-lection measures are being undertaken in accordance with the Law.

starting from the basic criteria for the

assessment of the results of the tourist season 2009, i.e. data on realized rev-enues compared to the budget plan, as well as the data on the number of tax-payers who perform seasonal activity, it can be concluded that the work of the Tax Administration in the part of collec-tion of taxes and the Tax Administration in general as was very efficient during the summer tourist season.

For the Tax Administration the tourist season is not finished with the calendar end of summer, the action Plan envis-aged activities in the coastal branch units in autumn. In this period, is veri-fied the validity of operations, detailed controls are being performed over major taxpayer, and collection of possible out-standing tax liabilities.

I would like to use the opportunity to announce that the Tax Administration has already started with its activities for the preparation of the winter tourist season, since with the beginning of the winter tourist season in the northern re-gion is expected higher inflow of domes-tic and foreign guests, and thus signifi-cant increase in sales of all taxpayers, both on the basis from sales of products and provision of services. The Tax Ad-ministration has organized approach to measures that is undertaking during the tourist season, and our goal is clear, and that is to cover as many taxpayers pos-sible performing activity and to collect tax liabilities from the highest number of the taxpayers.

TAX ADMINISTRATION

Documents

October - December, 2009. BUllETin XViiiFunDs In Montenegro - Ms. Nataša Kovačević, Deputy Minister, - Ms. Bojana Poček, Independent Advisor III IPa thIrD anD Forth coMPonent PreParatIon