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NewsInterview with Montenegrin Minister of Finance, commenting on the political and economic...

Interview with Montenegrin Minister of Finance, commenting on the political and economic situation

Montenegrin Minister of Finance in the technical mandate, Aleksandar Damjanović, said in an interview for Voice of America that borrowing, which is foreseen in the budget for this year, is being discussed again with partner banks and announced a new credit arrangement in February. Damjanović does not rule out the possibility of an arrangement with the International Monetary Fund, in case of worsening market conditions, but points out that this is not currently being considered.

Commenting on the political crisis in Montenegro, Damjanović says that he does not expect extraordinary parliamentary elections to be held this year, which some political parties and the public, as well as the USA and the EU, insist on. However, he expects the discussion of the parliamentary majority on the government to continue, regardless of the outcome of the presidential elections on March 19. From Monday, he also announces talks between a part of the parliamentary majority and the government about a possible presidential candidate.

Damjanović commented on the political and economic situation in Montenegro for the Voice of America during his visit to Washington, where he attended the Prayer Breakfast, and among others, he spoke with the US Deputy Assistant Secretary of State, Gabriel Escobar.

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The International Monetary Fund presented a more optimistic estimate of world growth and the fall in inflation for this year. What are the estimates for Montenegro?

– When we passed the budget at the end of last year, we made a kind of conservative estimates regarding growth and inflation. We hope that it will be in single digits for 2023. It was double-digit last year in 2022. The expectation is that it will still slow down and that in relation to the possibility of growth of the Montenegrin economy, both in real and nominal terms, it will exceed some of our projections. We were conservative here, we planned the budget deficit and tax revenues for the current year conservatively. Optimism at the IMF is pleasing, bearing in mind that when I was here at the regular session of the IMF and the World Bank in October, those estimates were much more pessimistic, Said Damjanović.
This year’s budget envisages a debt of around 700 million euros. Where, when and under what conditions will you borrow?
– Up to 600 million should be possible credit support. That is some upper level of support. Whether it will be necessary will depend on the results and growth of the economy and economic activities in general, and on the tourist season, the inflation factor. We went with the option that in this first part of the year, when liquidity problems are more pronounced, bearing in mind that the budget is best filled from April until the end of autumn, to open the possibility of a possible arrangement that would overcome these liquidity problems. We are in negotiations with a traditional partner bank and during February an arrangement will be concluded that will make it easier for us to get through this part of the first quarter with a lot of obligations, conditionally speaking with a lower level of income than during the following quarters.

– Of course, one part will remain and we are thinking in two directions. If the forecasts of the IMF and some of ours come true, the market stabilizes somewhere, and thus possibly the price of some of our bonds on the secondary market, the conditions could be created for – I say if there are stable forecasts and there is a recovery and the removal of the recession – to exit to the bond market if the trends are normally similar. We left room to secure an additional 500 to 600 million through credit arrangements with partner banks, primarily with these big ones that were partners of Montenegro in terms of credit support in previous years. We monitor market conditions, global markets, global expectations, interest rate conditions. It’s not just about interest rates, but also terms and grace periods. We are trying and will provide, conditionally speaking, as much money as is needed to complete this year’s budget.
What kind of borrowing conditions do you expect? We know that they have not been the most favorable so far. The previous loan you took was at an interest rate of 7.5 percent…

– An interesting thing that I saw when I was visiting my colleague, the Minister of Finance of Serbia Sinisa Mal, is that Serbia entered the bond market, that it did not fare so badly as far as the interest rate is concerned, it was somewhere around 5 percent. It seems to me that it was somewhere similar to what Romania and even Hungary have at the moment. The fact is that immediately before that, Serbia defined the continuation of the stand-by arrangement with the IMF and some credit support of 2.4 billion. This means that the arrangement with the IMF led to the fact that Serbia has much better conditions for bond issues than it would have without that arrangement, Damjanović added.

Until now, you have ruled out the possibility of an arrangement with the IMF. Are you considering it now?

– I want to say that all those voices of opponents of the a priori arrangement with the IMF or the World Bank about the fact that the IMF is asking for impossible conditions, reduction of pensions and salaries, fall away. In Serbia, that is absolutely incorrect. There were no such conditions. And under two, that some kind of arrangement endangers some other arrangements. In the case of Serbia, this was again proven to be incorrect. It was these arrangements, as I was told here in October, that contributed to some other commercial arrangements being much more favorable than they would have been without such an arrangement. When we were adopting the budget in the parliament, I publicly told the deputies, when asked about the arrangement with the IMF, that we are a member of the IMF and the World Bank, that we have the right and obligation to all kinds of arrangements – which are not just stand-by, but have a hundred possibilities – we use them to the full extent in accordance with our needs if conditions on the market worsen and if somewhere it would have a negative impact not only on the global market and the region, but also on Montenegro. Bearing in mind some political instability that certainly does not contribute to a better position of Montenegro, I do not rule out the possibility of concluding that arrangement, which of course would serve the interests of Montenegro and the possibility of securing additional accumulation and stability, Damjanović said.
Have there already been any contacts with the IMF on that occasion?

– Those contacts will be continued now during March or April when the spring session of the IMF and the World Bank will be held and the period from last fall to spring will be analyzed. Then we will know much more, precisely in relation to the expectations and new projections presented by the IMF, to see if it is slowly moving towards a zone of recovery and a reset, both global and regional, European, and thus also Montenegrin, or whether it will go again in some uncertain expectations. At any moment, as a member of the IMF, we have the opportunity and the right to use all possible arrangements in front of us in order to ensure absolute stability and financing. We are not thinking about that at the moment. I’m just admitting Serbia, which is definitely – as far as the financial and budgetary positions are concerned – better than Montenegro.

In the budget for this year, there is a record allocation for social benefits, followed by salary increases in the state sector, pensions. In the meantime, Montenegro is still over-indebted, the conditions for borrowing are increasingly unfavorable, and the deficit is large. How will you cover all those costs? Who will pay for it in the end?

– I have already said that we conservatively planned revenues, they will be much higher than we planned, not only because of the inflation factor, increased personal consumption, but also because of some measures that we are slowly but surely implementing through some new tax measures that we introduced in in December, and which we are planning now in February and March. They also concern the gray market and the use of tax potential that was unused. We are doing all this without increasing the basic tax rates, and here I am primarily referring to the VAT rate, the personal income tax rate, bearing in mind some limitations we have in terms of consumption, budget expenditures… This is what we have predicted to be an increase of 20 percent of wages in the public sector corresponds to the inflation rate that was last year. In this way, we preserve the real purchasing power of citizens, which would have collapsed if there was no increase in wages, even at the rate of inflation.

Has that salary increase been realized?

– This increase is realized through the conclusion of collective agreements, branch agreements with the police, education, health, the cultural sector, public administration. It is happening successively, collective agreements have been closed somewhere and there will be an immediate salary increase. Somewhere they are just closing, like the public administration… The matter of collective agreements is not only wages and the level of coefficients, it is a hundred things that are of interest to employees and unions in the long term. Both the unions and the government are negotiating the collective agreement in a way that is in the perfect interest of the long-term employees, the unions, and the state. And not only to close it with a story about the coefficient, but they ignore some things that are difficult to fix later. All this is being concluded these days and weeks, and the good news is that in 2023, employees in the public sector will have increased wages and will preserve their real purchasing power from last year… the minister said.

Can these increases keep up with the rate of inflation in Montenegro and the increase in prices? Are you planning any additional measures to correct the consequences of inflation?

– Since May, we have halved the excise tax on oil and oil derivatives, and on that basis the budget lost 40 to 50 million euros. But the citizens and the economy won. That measure also had a broader significance, because as a tourist destination we were more favorable due to the lowest fuel prices we had last summer. Now we have returned the amount of the excise tax in full, it seems to me that this measure of ours is also expiring these days. We follow the prices on the market – oil and oil derivatives – we have to be proactive here. If there is a disruption and a significant increase in those prices that affect all other costs, we will go again radically with the reduction of excise taxes. We have also adopted some measures regarding the limitation of margins. However, it turned out that regardless of the fact that by reducing the VAT rate of basic life items to zero and 7 percent from higher rates, we made a concession to the economy, it did not have a major effect on the price reduction of basic food items.

Montenegro imports most of the goods for general consumption, even food items, and even water, although it should be producers. And those prices, of course, depend on external inputs. There are few market mechanisms to influence. Of course, if there are radical disturbances, then we will react radically. Certainly, one of the measures we can implement is to at least increase wages… After the increase in wages that is expected in February, March and April in the public sector, which will drag down the growth of wages, and the latest inflation rates that we will have, there will be a new adjustment of pensions. We are thinking, and I discussed this with the Prime Minister, to intervene in the Law on Pension and Disability Insurance, to define a model that will enable the acceleration of the growth of pensions, because our goal is to give us the minimum the pension should be 60 percent of the minimum wage, and the average pension should be 60 percent of the average wage.

The media report that the government will propose to Brussels a new model for extending the economic citizenship program, according to which the money from the project would be directed to pay back the Chinese loan. Can you confirm that and what kind of reaction do you expect from Brussels, which was decisive in canceling that program?
– I had intensive communication with our European friends and during November and December it was clearly agreed that we would not extend the validity of the decision that expired on December 31. Now we have two jobs after that – the first job is to process all those applications that arrived by December 31, of which there are hundreds, and triage those requests as soon as possible, and that some of the benefits that were already visible last year , and are visible for the budget, classes and in the current year. In that part, we will redefine the relations in the Investment Agency, which did not prove to be good enough in that context. The second task is to possibly design a model that would be absolutely in line with the model developed by the countries of the European Union – from Portugal to Hungary. The model that Malta had, the so-called golden passport, is impossible, the EU said that neither Malta can do it because there is that dispute that is being conducted before the European Court, neither can Montenegro as a candidate. That’s fine, we’ve complied and aligned the policy. I hinted to our Brussels friends that we will ask for support from the European Union and from the member states to apply the model applied by the EU states. It is not the sale of a golden passport, it goes in the direction of some permanent residence and some concessions for those who are interested in investing in Montenegro. If there is one, if we redefine it, it will be absolutely in accordance with the rules of the European Union and which are applied by a part of the EU countries.

“Parliamentary elections in 2024, when it’s time”
As we know, Montenegro is in a deep institutional and political crisis. You recently mentioned the idea of reconstructing the current government, which seems to have no support. Do you think that extraordinary parliamentary elections are still a more realistic option at this moment, which is insisted on not only by the opposition, but also by the majority of citizens, but also by the USA and the EU?
– I do not see extraordinary parliamentary elections in 2023 for two reasons. First, we have regular presidential elections that are held on September 19, if I gathered it correctly, April 2 would be the second round, when Montenegro could get a new president. It seems to me that President Đukanović’s mandate expires on May 30, that a new president will take office after that, that the only way to have extraordinary elections is to shorten the mandate of the parliamentary majority in the Assembly, and I don’t see that. And that is a question for the parties of the parliamentary majority. From my communication with them, I think that they are thinking first of all about eventually getting to reconstruction, Damjanović said.

– It will certainly depend on the outcome of the presidential elections and, even if we were to enter into the story of the shortening of the mandate of the parliament, in May, June, then we would enter the zone where we would only have some special elections in the fall, in October, November, and I’ll just remind you that at that time, the law defined the management of the population census in Montenegro as a regular job, which must not overlap, according to EU guidelines, with the election cycle. Therefore, if someone wanted to go to extraordinary elections in the fall, then that person would have to say that he is against the census, because then the census will be eliminated and the question is when it will be, and that is the statistical basis necessary for Montenegro and the basis to develop its policies, which we cannot actually develop because we do not have indicators. Who is in Montenegro, how many people live, how many are outside, simply without a census we are unable to have strategic policies. This is another fact that indicates that – and again I say a lot will depend on the presidential elections – those elections can also be held in 2024 when the time is right. Therefore, despite the desire of some non-parliamentary entities and daily clamoring for early elections, I do not see elections on the horizon, and this is a real issue for the parties of the parliamentary majority, which can only challenge elections if they shorten their mandate.

However, another option is also mentioned, which is to extend the 90 days since Miodrag Lekić was appointed as the mandate holder. As we know, the negotiations on the formation of that government failed. How do you see it?
– Yes, but you see you have two facts that will happen. That 90-day expiration falls somewhere on March 22-23, if counted from the moment when Lekić received a mandate in the parliament from the president of the parliament. And it will interestingly fall between the two rounds of presidential elections. Another thing, of course, is that Mr. Lekić has the mandate to propose the government until then, he can also return the mandate to the one who gave it to him and propose another mandate. So there is a terrible situation. And don’t forget another fact that if Montenegro gets a Constitutional Court, one, two, three or four judges who will eventually provide a quorum and the possibility to work and decide, that the Constitutional Court will have priority to decide at least three things. And that is expected from the Constitutional Court during the month of March, certainly before the presidential elections. One thing is to unfreeze the electoral process in Podgorica and Pljevlja, the transition of power. To decide on election appeals. The second thing is to decide on the law on the president, which will also have an effect if it is decided that it was illegal in terms of the new procedure for appointing mandate holders and so on. And the third thing is whether Milo Đukanović as president violated the Constitution… I repeat, the fact that Mr. Lekić has 90 days and that he can return his mandate, and that the mandate be given to someone else, indicates that there are many options. The only option to go to extraordinary elections at the moment is to shorten the mandate of the assembly and that depends on the parliamentary majority. From the position of a member of the government, looking at the relations in the parliament, I do not see that possibility at the moment. This should be the reason to move towards stability, for the parliamentary majority – regardless of the outcome of the presidential elections – to agree on the government, and the eventual reconstruction, or the mandate… Damjanović said.

When we talk about the mandate, it would also be on the basis of the Law on the President and the disputed changes that were condemned by both the USA and the EU. We know that the US has already announced that any government formed on the basis of that law would be constitutionally questionable and that the US does not see how it would cooperate with such a government and how it could rely on its governments. How do you comment on that?

– I hope the Constitutional Court will decide on that law quickly. If it is constitutional then no one will be angry, if it is unconstitutional then we will return to the old solutions where the president of the state must give a mandate to those who bring the most signatures… I will not defend the law because the government has nothing to do with the law passed by the parliament, but I will just to remind that the law was passed after the fact that the current president of the country did not conduct consultations about the mandate and did not give a mandate to the group that submitted the largest number of signatures. Therefore, in order to eliminate this deadlock and the initial violation of the constitution, a law is passed.

But the law was passed despite the Venice Commission’s recommendations not to adopt it, which the US and the EU call for…

– The president of the state stalled the procedure by not giving the mandate to the one who brought the largest number of signatures, nor did he conduct consultations, that was a violation of the Constitution. Parliament then, in order to unblock the procedure, passed a law that is now or will be before the Constitutional Court. Whatever the decision is, in the end we return to either one or the other procedure that completely clearly defines the granting of a mandate, the withdrawal of a mandate, that is, the duration of the mandate of the mandate holder to form the government. Therefore, regardless of the decision of the Constitutional Court on amendments to the Law on the President, I expect the discussion of the parliamentary majority to continue, whatever the outcome of the presidential elections, about the government and that the parliamentary majority from August 2020 will show that it has the desire and the will and the ability and the responsibility to fully implement the transition of power after 30 years of DPS rule and to prepare the foundations by the time of the next elections to disempower, in a systemic sense, all that is the result of 30 years of one government. It is a unique case in Europe and our American friends with whom I spoke and our European friends know very well that after 30 years of one government in August 2020 there was a kind of earthquake and tectonic changes on the political map of Montenegro and that everything that is happening in the last three years are small tremors, settling the ground after that earthquake. And when that calms down, let’s say conditionally, let’s start a new political game and let Montenegro get what the citizens of Montenegro want to lead this country on the path of progress.

Presidential elections are held on March 19. Who will you support for president and are you thinking about running for office?

– We will see how the members of the government will express themselves regarding the possible candidate. The government can conditionally name its candidate. They can be non-party and independent candidates, and they can be candidates who will be supported by part of the government or part of the parliamentary majority. I saw that there was bidding with certain names of certain politicians or politicians in an attempt, that a lot of them ran out at this moment. I would like to wait for the days ahead and serious discussions within the parties that make up the parliamentary majority, that make up the government. It seems to me that this is an opportunity, for whoever is the candidate for president, to confirm that the results of the changes from 2020 have been continued and that we do not have someone come to the head of Montenegro who would turn the wheel back or someone who would cooperation with the parties that were left without power after 30 years tried to restore the DPS. Whoever is like that, the citizens will not allow it. As for my candidacy, one by one.

The Democratic Front has Its candidate, as does Europe now. Who will agree on the candidate within the parliamentary majority?

– What follows are serious discussions in the coming days, already from Monday, within the government, and within part of the government and the parliamentary majority, whether there is a possibility to reach a candidate who would be, conditionally speaking, perhaps the most serious solution for victory, that is, for entry to the second round.

Will the decision on this also depend on who the opposition appoints as the presidential candidate?

– The opposition does not declare itself, except for the fact that certain opposition parties say that they are looking for or want to find a common non-party candidate. DPS still hasn’t announced its candidate, and in general I think that they are trying to see who their best candidate is through public opinion surveys. It is natural for the largest opposition party to have its candidate, just as it is natural for the parties of the parliamentary majority and the government – because part of the parliamentary majority makes up the government, but the other parties of the parliamentary majority that are not in the government are also the government in depth – sit down and come to, if not a common candidate, then until an agreement is reached that they support in the second round the candidate of either the parliamentary majority or the government.
“I respect the sovereignty of BiH”

You were recently in the center of public attention due to your presence at the ceremony marking the unconstitutional Day of Republika Srpska. Do you still think it was the right move, have you considered what kind of message you are sending with your presence, especially considering the harsh reaction of Bosnia and Herzegovina and America?

– I was an eyewitness to a strange campaign where every political party tried to position itself in relation to the fact that I was in Banja Luka at the personal invitation of the President of the Republic of Srpska – whom the President of the Republic Mr. Đukanović congratulated just before that – that I was not on behalf of of the government of Montenegro, I said that clearly, that no one in Montenegro has a monopoly on relations with Sarajevo and Banja Luka and with Pristina, that I am someone who can go to Pristina, and to Sarajevo, and to Banja Luka, that I am someone who absolutely respects and BIH and its sovereignty and advocates for the best possible relations between Montenegro and BIH and both entities.

Did you discuss all of this with BiH officials who reacted strongly to it? You say that you respect the sovereignty of BiH, that you are committed to good relations… However, BiH officials did not consider your presence (at the ceremony) as a benevolent message.

– BIH officials may not have had full information at that moment, due to those reactions from Montenegro. I already had the opportunity to explain this in Montenegro, that is, to briefly Inform the Montenegrin public because there was a lot of spin and hypocrisy in the statements that filled the Montenegrin media in those days. As you have seen, after 5, 6 days nothing happens to anyone, it is completely forgotten and one goes to some other stories. The bottom line is that all those who mentioned it for the sake of their cheap political points did not lift a finger to fundamentally improve the economic relations between Montenegro and Bosnia and Herzegovina. Friends of Bosnia and Herzegovina are made behind others’ backs, and two neighbors who have unsuspected potential do nothing to raise the level of their relations in the economic sense.

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