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MONTENEGRO interview CRISIS WILL NOT HALT INVESTMENT Dr Igor Lukšić, Deputy Prime Minister of Montenegrin Government for magazine “Diaspora” talks about the current economic situation A lthough the effects of the global economic crisis spilled over to our country, the Montenegrin Government has undertaken appropriate measures to mitigate the negative impact on the economy, but also aiming to attract investment. We discussed the current economic situation with Montenegrin Deputy Prime Minister, Dr Igor Lukšić The impacts of economic crisis have not skipped Montenegro, in particular in its banking sectors. What will the Montenegrin Government do in the upcoming period to, at least, mitigate the impact of the global financial crisis? • Over the past period we have endeavoured to respond to the needs of the banking sector, the economy and the citizens and pass the best solutions and measures to mitigate the impact of the economic crisis which are in the range of 10% GDP or 320 million euro. We responded timely by enacting the Law on Measures to Protect the Banking System, we pumped some 90 million of the state funds into the system, we are now negotiating with renowned international banks, the European Investment Bank and the German Development Bank – KfW, for the provision of credit support to the banking sector in the value of 150 million euro to be guaranteed by the Government. These days we are preparing the implementation of a new measure. In agreement with the Central Bank of Montenegro, we enabled the commercial banks to use 20% of obligatory reserves (some 40 million euro) for the purchase of treasury bills, and in addition the 2009 Budget Law envisages the borrowing of 75 million euro to finance budgetary spending. We are currently negotiating with prospective partners the provision of these funds. All these measures put together will give an impetus to the banking sector, will improve liquidity of the payment operations and increase the investment spending component. Several projects to improve road infrastructure in Montenegro and investments in Montenegrin economy have been envisaged. Can Montenegro expect foreign investments for these projects? • Speaking of road infrastructure, by far the most significant project is the Bar-Boljare motorway. Over the past period we have raised the interest among the international 2009 The capital increase of the EPCG was performed. What positive impacts are expected to ensue to Montenegrin economy? • We have been deliberating for long the proper model for privatisation of EPCG. We decided eventually to do so gradually, we stipulated the terms of the tender in which in the first stage we offered for sale 10% of shares, the issuance of 10% of new shares, and the strategic partner is obliged to offer to purchase the shares from minority shareholders. We strived to come up with a model to be the driving impulse for the overall economy and the financial system. Moreover, the entry of another significant strategic partner is a sign of Montenegro being an attractive and conducive environment for investments. Given the financial crisis, this will prove to be significant since these funds will contribute to the improved liquidity of the banking sector and maintenance of the economic growth we had over the past years, and for the Right Time for Investments Montenegrin Government intends to attract, in some way, the capital of Montenegrin emigrants, since that would be more than a welcome injection to overcome at least some of the negative impacts of the global financial crisis in Montenegrin context? • By all means, we also endeavoured over the past years to entice Montenegrin emigrants to invest in Montenegrin economy. We have good examples from some Montenegrin municipalities. Even in the context of the global financial crisis, any support is welcome and any investment means the support to the financial system liquidity, development of strategic economic sectors for Montenegro. Naturally, with intensive communication established via our diplomatic representative offices abroad, we endeavour to encourage as many of our emigrants as possible to invest in Montenegro. energy sector it will mean the decrease in losses, revitalisation of the grid and possible new investments. There are some ongoing strikes of the workers in Processing of the Steel Plant, the Tobacco Company due to unpaid salaries and other payments owed to them. What is the Government undertaking and what does it intend to undertake to resolve the workers problems? • In the past and in particular at this time the Government is taking in careful consideration the demands of workers in the context of continuous improvement of the social dialogue. Every grounded demand was met with our support. Aware of the sensitivity of the socio-economic moment at the end of the transition process, in 2008 we implemented a comprehensive package of measures to support workers aiming to cushion the impact of economic reforms. In case of the above companies we have a responsible attitude, but primarily within the legislative framework. MONTENEGRO financial institutions, we talked with EIB, EBRD and KfW bank, we organised an investment conference, we invited tenders for concessionaires obliged to find financiers. The tender process is in progress and we are very optimistic about this project, we expect several companies to submit their bids. In addition, over the past years we endeavoured to create an environment conducive to business and encourage investments by eliminating business barriers and by the single digit taxes. We expect the continuation of ongoing investments as well as the new investments in the peninsula Luštica, Velika plaža, the capital increase of the EPCG. In addition, the entry of the Erste Bank to Montenegrin financial market in the situation of financial crisis is a very good indicator that Montenegro is quite attractive to investors even in these extraordinary global circumstances. Montenegrin Government offered to KAP twenty million to resolve the current problems. Is it enough for KAP to overcome the crisis it is in? In addition, what would be the impact on Montenegrin economy, and what on the environment in Podgorica and its vicinity if KAP would cease its operation? • We are witnessing the hard times of the aluminium industry globally. There is almost no aluminium producer currently operating without losses. This severe crisis hit Montenegrin aluminium industry as well. The situation is currently such that the production price is greater than the market price. In such changed circumstances, we are aware of the social and economic significance of KAP for Montenegro with a view of several large companies, primarily the Railway, the Port of Bar, Bauxite Mines, as well as a number of small and medium-size companies directly linked to and dependant on the operation of this company, and we assessed the state intervention to be necessary in order to maintain the economic and social balance. The non-operation of the company would have the long-term negative consequences on the Montenegrin economy. For that reason we decided to extend the credit support in the amount of 20 million euro to maintain production in this factory and cover the outstanding liabilities towards the workers and suppliers and create the conditions for restructuring. It is our estimate that this financial injection would help to restore the soundness of the company and create the conditions for the continuance of regular production. KAP shares the same destiny and suffers the consequences of the poor state of the aluminium industry worldwide, and thus the KAP crisis is linked with the developments at the global stage. We believe this support would solve some of the problems, but it is also too early to speak of the negative scenarios, or the definite closure of KAP. Still, in order for this arrangement to be implemented, we need an agreement related to some issues including the long-term vision of the company. Miloš Krivokapić DIASPORA of MONTENEGRO