Montenegro on Brink of Financial Ruin

Montenegro faces financial collapse, as the country moves deeper into the red and Western financial aid runs out, raising fears of widespread social unrest that could topple President Milo Djukanovic' s government.

The administration is already in a weakened state. Djukanovic's pro-independence Social Democratic Party did badly in April elections and was forced to turn to the Liberal Union's six deputies to maintain a majority in the 77-seat parliament.

While Slobodan Milosevic was in power in Serbia, the pro-independence government in Montenegro enjoyed much Western sympathy. Podgorica's coffers were generously replenished while the world conveniently averted its gaze from the country's illegal rackets, such as cigarette smuggling.

But since Milosevic fell in Belgrade, Western support for Montenegrin independence has evaporated, partly out of concern for Kosovo, which would be thrown to the top of the international agenda if Yugoslavia broke up. The province, now under an international protectorate, remains a designated part of the federation under UN resolution 1244.

The government is trying to fill the financial hole by feverishly collecting customs duties and taxes, issuing bonds and taking out foreign loans. But Montenegro remains heavily dependent on Western donations. The country received 335 million German marks during the past three years from the US and the EU, almost 10 per cent of the country's GDP from 1998 to 2000.

The US granted Montenegro financial aid worth 89 million dollars for this year, some of which was intended to fill the budget deficit, while part was allocated to social programs and technological help. However, the money earmarked for the budget arrived months late. The first instalments only appeared in mid-summer.

This has caused huge problems, delaying the issue of state pensions by at least a month. Refugees and displaced persons have also suffered. Lack of foreign aid means the government has had to fund 40,000 of them from its own depleted resources.

Many Montenegrins fear the West is punishing the government by deliberately slowing down the disbursement of assistance. "It was planned that 20 per cent of this year's budget would be covered by foreign donations," a finance ministry official said. "But it seems the insistence of the government on Montenegrin independence caused some Western countries to 'forget' their financial aid."

As a result, the administration faces a shortfall of at least 20 per cent on this year's budget of about 450 million German marks. One remedy is to raise cash by the release of government bonds. The first issue, worth 5 million marks, was released on September 4.

The finance ministry said it was sold off at an auction the same day, but did not say who the buyers were. There are suspicions that the purchasers were mostly state companies which only bought the bonds to show Djukanovic their loyalty. The real test will come when the government redeems the bonds on October 4. If it can pay them back with interest, buyers will be attracted to the next three issues, worth 10 million marks. It they cannot redeem the money, buyers will be leery.

The ministry of finance, tax and customs, meanwhile, said in August it had increased its estimated annual takings from 45 to 53 million marks. However, this is still not enough to bridge the gap left by the delay in EU and US foreign aid.

As well as issuing bonds and collecting taxes, the government is desperately slashing expenditure. Investments in state-sponsored infrastructure projects in 2001 have been cut by 20 per cent, while the government has allegedly decided to sell two aircraft and reduce the official car fleet. They have also taken the unpopular measure of cutting state subsidies for milk and bread, which is bound to trigger further unrest amongst the poor.

As funds and subsidies dry up, internal pressure is growing. The biggest trade union in Montenegro, the Union of Independent Workers, announced an hour-long general strike will take place on October 1. It complained of the growing disparity between the cost of living and salaries and demanded a 20 per cent hike in the minimum wage, pegged at 80 marks a month.

The government is resisting the union's demand, as it would add another 10 million marks a month to costs. "Money does not come from Mars", complained the minister of labour, Dragisa Burzan.

The opposition, meanwhile, is seizing on the crisis to lambast the authorities for misplaced faith in free-market economics. Dragisa Dozic, of the Social Peoples Party, supporters of continued union with Serbia, said hunger was "knocking at the door" of many Montenegrin families as a consequence of Djukanovic's policies. "The liberalisation of prices of staple products without adequate social programs has put the economic existence of the citizens in jeopardy," he said.

The test of the government's strategy will almost certainly follow within the next six months, when it is likely to face new elections.

Zoran Radulovic is a journalist with the Podgorica weekly Monitor