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Economy: The costs and benefits of union, by Eric Jansson, published in Financial Times, June 29 2004

Published date: 30.06.2004 14:00 | Author: Kliping inostranih medija

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Gordana Djurovic, the minister of European integration and international economic relations, who was recruited into the government earlier this year from the University of Podgorica's economics faculty, has taken on the critically important brief of helping Montenegro to court the European Union while peddling a cold, rational case for scrapping the union with Serbia.The minister's crisp critique of the union focuses fairly, if predictably on its weak points, while building up a broader, harder-hitting argument.Like it or not, the economies of Serbia and Montenegro are distinct, she says, and profound differences between the two are irreconcilable within a single economic space.Opposition to Montenegrin independence will melt away, government officials hope, if the facts come out. "The international community does not know enough about us. We need to send a clearer, stronger message. What we need is statistics," Mrs Djurovic says.Her argument critique begins with the existing institutional divide. Montenegro's five-year-old "dollarisation" policy, through its abandonment of the old Yugoslav dinar and adoption of the euro, is one point of essential difference.It renders impossible any near-term convergence of the two republics' monetary and fiscal policies and also limits the scope for a common market."We have two different economic systems with different priorities and different strategies. This is a fact," she says.Mrs Djurovic next attacks the notion, often asserted by EU diplomats, that Montenegro can afford swift harmonisation of trade tariffs with Serbia across the board.The two republics already have already reached compromises on hundreds of tariffs but harmonisation is proving excruciatingly difficult on 56 others. Many of these relate to staple food products protected in Serbia but imported tariff-free by Montenegro.Sudden changes would jolt prices for the flour, wheat and sugar which are "basic agricultural products for poor citizens which are not provided by our local economy," the minister says."We cannot allow some kind of attack on living standards. This is totally reasonable, totally normal. We must protect our interests, just like the Serbian side."The assault continues with a long list of areas in which Montenegro's long-term strategic development diverges from Serbia's or competes directly.In overland transport the main trade corridor through Serbia misses out Montenegro altogether; the government in Podgorica sees greatest potential in routes paralleling the Adriatic coast. Concerning floating stock, Serbia's redevelopment of Danube river transport represents competition for Montenegro's Adriatic port of Bar.Airborne trade also looks competitive with Serbia renovating its international airport near Belgrade after last year ceding control of Montenegro's Podgorica and Tivat key airports.Finally, Mrs Djurovic scolds the union with Serbia for what she calls its wastefulness of Montenegrin funds."We paid 41m for the union in 2003. If we had not, we could have run a lot of effective development programmes." At 61 per citizen, this is real money for the diminutive republic.The government's case carries weight. But if independence is won, ministers may no longer be able to blame Serbia and the EU for Montenegrins' economic woes.Rather, they will be forced to confront ugly realities within the domestic economy, found on the flip side of Mrs Djurovic's reasoning.While the euro gives Montenegro a high degree of economic independence from Serbia, it also comes at a price. Unable to print currency, Ljubisa Krgovic, the central bank governor, lacks the primary instruments of monetary policy.This makes the republic's imbalance of payments a serious problem, with the trade deficit last year valued at 26.2 per cent of gross domestic product.With inflation at 6.7 per cent in 2003, surpassing that of the eurozone, Montenegrin prices are rising fast by European standards.The precious food products the government wants imported tariff-free are increasingly necessary because the average citizen already spends more than 50 per cent of his or her paltry per capita annual income of 2,231 on food. The corresponding portion in the EU is 15 per cent.As for the savings to be enjoyed if Montenegro no longer needed to fund the union, the figures are somewhat murkier. New embassies would be required but the republic already pays for representative offices abroad.Dragisa Burzan, the foreign minister, says the difference would be negligible. But hidden costs may appear along with the fuller burdens of sovereignty.Back on earth, beneath the political stratosphere inhabited by the republic's ministerial class, ordinary Montenegrins want nothing more than jobs with good pay. It is hoped that the run of privatisation expected this year will go some way to delivering them.But the payoff will not come immediately.For now, official statistics show unemployment at more than 20 per cent. Mr Krgovic, the central bank governor, admits illegal trading accounts for roughly 30 per cent of economic activity and siphons money out of the legitimate economy.The government is trying to rein in black marketeers, and a value-added tax introduced last year is proving helpful in this regard.Still more reforms are needed. At the present rate of growth, official figures indicate Montenegro will return to a 1990 income level only by 2012.No one is ready to wait so long, with or without Serbia.