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Bojan Sarkic
Montenegro and Structural Reforms(1997 - 2001)



i)  Judical system and Public administration

ii) Legislation

iii)Financial and Trade area

iv) Police - internal affairs area

v)  Education System

vi) Information System


(The Text)


i) Judicial system and Public administration

By the end of this year we will finish draft text of the Law on Public Administration (drafting of the
group of laws in this field is envisaged for the next year: Inspection Law, Law on Civil Servants, Act
on Public Administration Structure etc.) 

      In the judicial branch, in the course of this year, we plan to finish drafting the Law on Courts,
Law on State Prosecutor of the Republic of Montenegro and Penalty Code. By the end of the year,
we envisage to finish drafting  the Law on Enforcement of Criminal Sanctions and Judiciary Police

It is expected that the Parliament of Montenegro will adopt Local Government Law and sets of acts on
funding local government by the end of this year, which will be conducive to the reform of local
government. Upon that (in the first half of 2002), Law on Capital City, Law on Historical Capital and Law
on Territorial Division will be adopted. 

In order to more precisely comprehending the situation in judiciary in Montenegro, we would like to make
correction as to some inaccurate assessments presented in the study on reforms in Montenegro:

 The Law on Courts of the Republic of Montenegro stipulates the number and the type of courts. The
Parliament of Montenegro is competent to pass the laws, therefore, the Ministry of Justice has no
influence on judicial authorities in a sense that it determines the number of courts and judges. 

      Judiciary Council consists of two judges, the President of the Supreme Court of the Republic
of Montenegro who is by his position the President of Judiciary Council as well, and one eminent
legal scholar (not two, as stated in the study).

      According to the Law on Courts, the President of Court does not initiate the procedure for
dismissal of any judge. S/He sumbimts a proposal for administering procedure for dismissal, and
Judiciary Council is the authority that administers the procedure thereof. 

      Also, pursunat to the Law on Courts, a judge can temporarily be transferred (six months the
longest per year) to work in some other court, but upon his/her consent, and not following the
decision of a president of court. A president of court can take away a case from one judge and
reassign it to the other, with the obligation to inform the President of the Supreme Court about that,
only in case when judges fail to observe deadlines i.e. fail to administer court procedure in given

After examination of the report of the Supreme Court of the Republic of Montenegro, it is clear that in the
period 1994 to 2000, there was a constant inflow of cases and increased number of requests for court
protection, which indicates as to public confidence in judiciary regained. The inflow of new cases increased
from 52608 in 1994 to 253 895 in 2000. 


ii) Legislation


In the past period, the activities in the field of legislation were focused on standardizing, regulating, and
institutionalizing societal structures by means of introducing a new legal system. In that respect, the
substantial harmonization of the legal system with the EU law and with the best practice of the developed
countries as far as the market economy is concerned, has been undertaken, in order to create legal
framework for the reform implementation.

            The following laws are were drafted respectively: Privatization Law, Law on  State Property of the
Republic of Montenegro, Law on  Fiduciary Transfer of Property Rights, Law on Chamber of Commerce of
the Republic of Montenegro,  Law on Environment, Law on  Companies which were Established and 
Operate under the Special Legal Terms, Law on  Construction Lots, Law on Expropriation, Law on 
Registration of Property Right, Law on Water Resources, Law on  Forests, Law on  Mining Industry, Law
on  Geological Research, Law on Use of National Symbols, the Draft Bill on  Denationalization.

In the close co-operation with foreign experts the following Laws were drafted: Foreign Investment Law,
Law on Securities, Public Procurement Law, Law on  Central Bank, Law on Banks, Law on
Telecommunications, Election Law, and Public Information Law.

            The following Laws, partly independently and partly in co-operation with foreign experts are
being drafting now: Law on Trade Societies, Bankruptcy Law, Law on Payment Operations, Law on
Electronic Trading, Law on  Electronic Signature Attesting, Law on  Private Sector Participation in
Public Services, Anti-monopoly Law, Anti-corruption Law and Law on Money Loundering.

            Numerous comparative studies have, also, been completed: property under the comparative law, real
estate under the comparative law, employment under the comparative law, protection of the minority rights
of the shareholders under the comparative law and the position of the national minorities in civil society
under the comparative law.


iii) Financial and Trade Area


      The most important activities in the financial area are aimed at reforming the fiscal system,
commercial transactions, the Budget of the Republic and the securities. 

In the fiscal system area, the following draft bills have been prepared: Draft Bill on Legal Persons'
Income Tax, Excises, Property Tax, Natural Persons'  Income Tax; and Tax Administrartion. In
addition to these draft bills, several decrees and regulations governing the tax rate have been adopted,
and measures, aimed at eliminating grey economy by introducing of the so-called “excise goods” (
first of all for cigarettes and alcohol) have been introduced as well. Preparing of the draft law on VAT
is underway and it is expected to be completed by the end of  September 2001.

In the field of economic finance, the following pieces of legislation are being drafted in close co-operation
with the USAID representatives: Draft Bill on Accounting and the Draft Bill on Accounting Statements
Auditing, as well as the updated information on the functioning of the person and property insurance system
in the Republic of Montenegro.

            In the sector of the Montenegrin Budget, and in accordance with the Law on  Budget of the Republic
of Montenegro, with the expertise of the USAID advisors, European Commission and the USA Treasury, the
new Account Plan has been drawn up and adopted in accordance with the international standards. This
enables transparency and provides adequate information to foreign donors and creditors. Moreover, this
system provides for efficient utilization of internal financial resources. Establishing of the Fiscal Analysis
Department is currently in progress and the Draft Bill on Customs as well as the Draft Bill on Customs
Service are being drafted. 

            In the securities and privatization area, the major part of the activities were focused on privatization
process that is currently being implemented by the mass voucher privatization model. Some of the
enterprises will be sold by means of tenders, capitalization and auction, while some of them will go

            Regarding the acceleration of privatization and the structural change of the economy, preserving of
the social stability and improving living standard, the projects titled ‘Analysis of the Development of the
Small and Medium-Size Enterprises’ and ‘Institutional Support to the Development of the Small and
Medium-Size Enterprises in the Republic of Montenegro’ have been drawn up. The project for
incorporating European system of the national accounts titled ‘Implementing of the national account system
and the updating of the existing account of the macroeconomic aggregates in the Republic of Montenegro’
has also been prepared. The project thereof should start by the end of this year. The project titled ‘Training
and Establishing of the Manager Teams’ is in progress  and thereby capacities will be built for new models
of  management. The preparation of the project titled ‘Model for the Business Co-operation and National
Competitiveness of  Enterprises’ is under way. The aim of the project is to make the comparative analysis
of developed economic models in Europe and America and to identify opportunities for the implementing
optimal solutions into the Montenegrin economy. All of the projects and activities in this area have been
carried out in close co-operation with international institutes and organizations as of this field.

            Most of the activities in the trade area have been focused on foreign trade and customs service
liberalization, the liberalization of prices, transformation and privatization of the trade enterprises and
restructuring  the Republican Commodity Reserves etc.

            All activities have been carried out in the close cooperation with the Stability Pact for the South
Eastern Europe (Work group on the trade facilities and the liberalization – Working table II), World Bank
and the EU – European Commission. The Government of the Republic of Montenegro decided to apply for
accession to the World Trade Organization. 

Regarding liberalization of foreign trade and customs, incentive customs rates were introduced in
order to alleviate negative effects caused by the measures of  federal administration imposed on the
economy of the Republic of Montenegro. The complete liberalization of the foreign trade has been
conducted so that the import-export restrictions have been levied only on a small number of goods.
The Government of the Republic of Montenegro has harmonized its customs tariffs with the HS

            Economic policy of the Government of the Republic of Montenegro is envisaged to render product
prices and services only by market principles and to liberalize prices of the products which are controlled
by the State i.e. the retail prices of  flour, bread and milk.

The activities have undertaken to restructure the Republican Directorate for Commodity Reserves by
market-oriented models of developed countries. Therefore, the program for the transformation of the
Republican Directorate for  Commodity Reserves into the market-oriented system and the project report
titled ‘Redefinition of the Role of the Republican Directorate for Commodity Reserves’ have been drawn
up. The underpinning idea is to restructure the Republican Commodity Reserves by transforming this
institution into a public enterprise and to privatize it subsequently.

            The Government of the Republic of Montenegro has been preparing grounds for adopting
legal regulations in the trade area at the Republican level in compliance with recommendation of
international organizations and by means of implementing comparative experiences from the EU and
other developed countries.


iv) Police – internal affairs area


The Ministry of the Interior has undertaken numerous measures and activities in the past period in order to
implement modern standards, particularly human rights standards, as recognized in the comparative law of
the EU countries. These measures have been undertaken in order to create an appropriate legal framework
and prerequisites for overall restructuring with a view to incorporating required features of a modern,
professional, efficient and non-partisan institution accessible to the citizens with full trust and openness.

The activities in the following fields are especially important:

The normative legal regulations – drafting of the following system-related laws i.e. Law on the Police
and the Law on the National Security Agency has been in progress and it is the first time that
nongovernmental organizations, the University of Montenegro, representatives of the Council of
Europe and OSCE have been called upon to join in the drafting activity. The drafts of the following
laws have also been prepared: Law on Weapon, Law on Detective Services and Law on Personal and
Property Protection. 

            The co-operation with the police forces from the other countries has intensified, mostly at the
bilateral basis, while the priority has been given to the neighboring countries. In this way, co-operation with
the Republic of Albania, Bosnia and Herzegovina ( the Republic of Srpska), the Republic of Slovenia has
been established and intensified. Regarding cooperation with the Republic of Italy, the Memorandum of
Understanding and Co-operation between the Ministries of the Interior of the Republic of Montenegro and
the Republic of Italy was signed in Bari in December 1999.

      The initiative for the co-operation among all of the countries in the ex-Yugoslav region has been
initiated  and emphasis put on the fighting motor vehicles trafficking.

            Despite the ‘frozen’ membership status in the Interpol, the Ministry of the Interior of the
Republic of Montenegro has directly joined the PACO Initiative, the program against corruption and
the organized crime; OCTOPUS Program,  technical cooperation in fighting the corruption and the
organized crime, SPOC Initiative in the framework of the Stability Pact (Working table III), whose
aim is to strengthen capacities in fighting organized crime in the Southeastern Europe in accordance
with the European as well as the other internationally recognized standards.

            Numerous activities have been initiated in the field of professional training of the officers,
primarily in the field of training being provided for enacting new regulations.  


v) Education System


In order to create a new and streamlined education system, and making it transparent, numerous partnership
relations have been established. Council for Changes in Education of Montenegro, comprising 37
members, has also been established. This Council has authored the book titled "The Book of Changes" - a
strategy for education system development in Montenegro. Principles of new education system are, inter
alia, focused on the development of a democratic and open society, decentralization of educational system
and greater autonomy for educational institutions (schools, training centers etc.).

Significant number of so-called "pilot projects" have been completed, as following: Active
Learning/Teaching; Experimental Curriculum for I and II Grade of the Elementary Schools; Education
for Tolerance and Peace; Step by Step; Education for an Active Democratic Society; Education for
Getting Accustomed to Differences; Integration of Children with Special Needs, Co-operation between
Family and School; OBNOVA (EU Program).

The final version of "THE BOOK OF CHANGES" will be adopted as one of the crucial forthcoming
activities. Drafting of the new laws on pre-school, elementary, secondary and college education has soon to
be to be included in the parliamentary procedure (during 2002).



vi) Information System


      Working group for drafting of the Law on Electronic Media and the Public Information Law has been
established. Prominent representatives of the media, NGOs as well as experts from the international
organizations (Council of Europe and OSCE) will participate in drafting process along with experts from
competent government agencies. Representatives of the Council of Europe and European Agency for
Reconstruction have committed themselves to a joint initiative (as of September 14, 2001) to provide
continuous assistance to the media transformation process in Montenegro. A National Working Group is
going to be established soon under the framework of the Stability Pact with the task to prepare a strategy
for media reform and policy in Montenegro.

Telecommunication Law was adopted in late 2000, whereby the Agency for Telecommunication was
established. The Agency is an independent body entrusted with providing and encouraging competitiveness
in telecommunication services and providing telecommunication providers with non-discriminatory setting
for service delivery. The Agency will also cater for the users' rights, supervise legality in
telecommunication service provision etc.


       Over the period 1998-2001, economic policy concept of the Government of the Republic of
Montenegro was fundamentally based on a strategic orientation towards development of an open
market economy, including export orientation and full integration into the international economic
environment. This will imply incorporation of the rules and standards applied in the countries and
institutions within developed and modern economic systems. 

      Aggravating circumstances, under which the reform process has been launched, affected the
very scale of reforms. Although the institutional and infrastructure framework for the implementation
of reforms has been basically finalized, particularly in the field of monetary, customs and tax system,
certain solutions were not thoroughly and fully implemented.


During 2001, the Government of the Republic of Montenegro was particularly committed the Program
aimed at curbing of the grey economy. New regulation related to labeling products with excise stamps has
been enacted in Montenegro. In order to curb illegal sale of goods at market places and temporary selling
places, the Government applies existing decree prohibiting such sale of goods and the Decree on
Prohibition of Fluor, Edible Oil and Sugar Sale at Market Places and Public Areas.


Introduction of double-currency payment system represented cornestone of the monetary policy in
Montenegro, in 1999 - 2000.  In order to protect economic interests and achieve greater stability of the
financial and overall economic system, in late 1999, pursuant to the decision of the Government of the
Republic of Montenegro, Deutsche Mark was introduced as a parallel means of payment, along with
Yugoslav Dinar.

In late 2000, passing of the Law on Central Bank and Law on Banks established strategic benchmarks for the
reform of banking system and starting point for creating new monetary policy. Central Bank of
Montenegro, in accordance with the above Law, has become supreme and independent monetary power in
the Republic. This Law also abolished double-currency payment system, and DEM (until the introduction of
EURO) became single means of payment and reserve currency. Supervision of  business operations of all
banks was finished in mid-2001.

      Passing of the following laws is now in the procedure: Law on Amendments to the Central
Bank Law, which is to provide more precise explanation of given solutions and compliance with
existing conditions, and Law on Bankruptcy and Liquidation of Banks.

One of the important activities of the Central Bank of Montenegro is realization of the program related to
conversion of DEM into EURO (EURO is to be introduced in Montenegrin payment operations from
January 1, 2002), which is in compliance with regulation of the European Central Bank.

Privatization process has not been implemented according to planned dynamic in spite of the fact that
legislation and other conditions for this process were mostly created. Mass Voucher Privatization started in
April 2001. According to this Project, the capital of 225 enterprises, estimated nominal value being 2
billion DEM, is to be transferred to 430.000 citizens as their permanent ownership.

      Small and Medium - Size Enterprise Sector is in early development stage. By 2000, these two
projects have been prepared: "Study of Small and Medium-Size Enterprises' Development in Montenegro
and Proposal of Support System" and "Institutional Support to Small and Medium-Size Enterprises'
Development". Both projects, being the strategic development guidelines for this segment of economy,
have been adopted by the Government of the Republic of Montenegro.  "Enterpreneurship Incentive
Program (self-employment)" is also underway. The  Agency for  Small and Medium -Size Enterprises was
established in 2001. It is, inter alia, in charge of coordination of small and medium-size enterprise
activities. This process will be governed by the new Law on Enterprises in compliance with international
standards  (drafting of the Law is in progress).


Tourism is seemed the basis for future development of Montenegro. Two crucial documents  for the 
future development of tourism, Master Plan and Marketing Concept, have been prepared under auspices of
the German Ministry for Economic Co-operation and Investment Fund DEG, along with foreign
consultants. In accordance with Protocol signed in early 2001, co-operation will be resumed by  the end of
2002.  By 2020, Master Plan is envisaged to provide for foreign exchange turnover of 1,06 billion in 2010
or DM 2,3 billion in 2020, including employment of about 75.000 new employees in the field of tourism. 


With the view to liberalization of import and export and introducing customs incentives, autonomous
solutions in these areas have been made at  the republican level. Complete liberalization of foreign trade
business has been carried out. Therefore, a very small number of goods are levied export and import
restrictions on, i.e. under control of the state. 97,7% of import goods and 95.6% of exports goods have
been put on free regime.


Customs reform has been carried out in accordance with the principles of uniform, low and stable
tariff rates amounting from 0% to 15%. Tariff rates from 0% to 3% are being applied to around 60%
to 70% of tariff positions, and those are mainly products that are either not made in Montenegro nor
supplied at Montenegrin market. Tariff rate of 15% has been applied to the small number of
products  (mainly excise goods).


In accordance with reform commitments, price liberalization in the agricultural sector and undertaken
obligations from the European Commission Program for Food Security in Montenegro, decrees regulating
retail price levels of flour, bread and milk were abolished on August 1, 2001. Prices of oil, oil products,
electricity and utilities services are still under administrative control.


      Over the past three years significant progress has been made in the stimulating policy in
agricultural field. Only specific products of strategic importance have been subsidized, while larger
amount of funds has been allocated to give incentive to setting up and equipping of laboratories,
streamlining services, investments in rural infrastructure etc. Budget policy for agriculture has been
essentially changed. Before the adoption of the budget for 2001, detailed preparations had been made
by expert teams with the assistance of EU consultants. Private farmers are no longer subsidized from
budget through commercial banks. 


Concerning  ownership relations,  a special Law on Property was enacted in 1995, whereby the
existing property concept was changed. This Law contains provisions for ownership relations and
management of housing funds in compliance with international experience in this field. However, due
to inefficiency of some of these solutions in the application of the Law, its functioning is being
analyzed and possible amendments or improvements will be considered.


Law on Environment (1996) is the basis for the implementation of   environmental protection in
compliance with sustainable development. Based on this Law, a number of by-laws have been enacted,
providing opportunities for its application in practice. In that regard, the following decrees have been
enacted: Decree on Environmental Impact Assessment as essential preventive mechanisms, worked out in
compliance with European directives; Decree on Eco-Allowances, which contains the principle 
"pollutant-pays" that is generally accepted principle applied in the EU countries. The Regulations on
Criteria for Location Selection and Waste Disposal (Hazardous Waste) has been harmonized with Basel
Convention and other regulations recommended by EPA.


      Starting from the achieved results so far, the Government has developed macroeconomic
reform strategy for the period 2001-2004. In order to achieve strategic objectives: increasing living
standard of Montenegrin population; creation of efficient market economy; decrease of activities in
so-called gray economy; environmental protection and protection of the people affected by reform,
the Government will focus its activities on several instruments: 1) introduction of Euro as legal
currency - in order to prevent inflationary financing and harmonize monetary system with EU
countries; 2) establishment of sound and well regulated banking system - in order to generate sound
investment activity; 3) restriction of the Government expenses - in order to provide tax cut; 4)
opening of economy for private enterprises  and control of increase in wages - in order to achieve full
employment of the labor force.

Prepared by Mr. Bojan Sarkic

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