VZCZCXRO0433
RR RUEHAST
DE RUEHBW #0904/01 1580802
ZNR UUUUU ZZH
R 070802Z JUN 06
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC 8756
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 03 BELGRADE 000904 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT PASS TO OPIC, EXIM, TDA AND USAID 
USDOC FOR 4232/ITA/MAC/OEERIS/SSAVICH 
 
E.O. 12958: N/A 
TAGS: ECON EFIN KPAO ETRD EINV EAID PGOV MW
SUBJECT:  MONTENEGRO: ECONOMIC DEVELOPMENTS: MAY 2006 
 
BELGRADE 00000904  001.2 OF 003 
 
 
Index: 
 
MACROECONOMICS: 
-- Montenegro Declares Independence From Serbia 
-- Indicators for Q1 2006 
-- Export Tariffs to be Abolished 
-- IMF, Montenegro Express Readiness for Cooperation 
 
BUSINESS and TOURISM: 
-- KAP: Strike Threat 
-- New Airports 
-- Tourism Numbers up Through April 
-- Best Western Opening in Podgorica 
 
PUBLIC ECONOMY: 
-- Unemployment Down 
-- Montenegro to Pay Off Old Foreign Exchange Deposits 
-- Private Savings Deposits Nearly Double 
-- Real Wages Rise 
 
T-BILLS 
STOCKS 
 
MACROECONOMICS: 
 
Montenegro Declares Independence From Serbia 
-------------------------------------------- 
 
¶1. On June 3, the Parliament of Montenegro adopted a 
Declaration of Independence, following the May 21 
referendum on independence from Serbia. The two economies 
were already distinct, stemming from Montenegro's adoption 
of the deutsche mark in 1999, and later the Euro. The 
distinction is reflected by the separate applications of 
Montenegro and Serbia to the WTO, and the EU's "twin-track" 
approach on accession.  The GoM has posted on its website, 
www.vlada.cg.yu/eng, the May 21 Financial Times article, 
"Montenegro can seize its chance to be friendly to 
business," underscoring its commitment to economic reform 
and investment. 
 
¶2. Deputy Prime Minister Branimir Gvozdenovic, speaking in 
Belgrade at both the May 11 Summit of Serbia and 
Montenegro, and before the American Chamber of Commerce on 
May 31, said Serbia will remain as Montenegro's most 
important economic partner.  He stressed that business 
relations will break down any barriers that politicians may 
attempt to erect. Local business associations, the 
Montenegro Business Alliance (MBA) and the Association of 
Employers of Montenegro (UPCG), also welcomed independence 
as good for development and for business. Standard and 
Poors confirmed that the referendum would have no negative 
effect on its rating for Montenegro, raised to BB-plus in 
December 2005. 
 
Indicators for Q1 2006 
---------------------- 
 
¶3. GDP rose 4.1 percent in real terms in first quarter. 
Industrial production rose by 4.4 percent, while tourism 
and catering marked a sharp increase of 25.9 percent. A 
slow-down in aluminum production at KAP in April however 
resulted in a decrease in monthly overall industrial 
production,  down 7.8 percent from a year earlier.  The 
GOM's budgetary deficit was held to 1.5 percent of GDP. 
Inflation is on target to meet the annual goal of no more 
than 3 percent, with inflation through the end of April at 
1.1 percent. 
 
Export Tariffs to be Abolished 
------------------------------ 
 
¶4. Minister for Foreign Economic Relations Gordana Djurovic 
announced that all export tariffs will be abolished by 
January 1, 2007, in accordance with WTO standards. 
 
IMF, Montenegro Express Readiness for Cooperation 
--------------------------------------------- ---- 
 
¶5. Finance Minister Igor Luksic said Montenegro will 
establish full relations with the IMF, World Bank, European 
Bank for Reconstruction and Development (EBRD), and similar 
institutions.  With the IMF, it will draw a new program of 
cooperation, focused on structural reforms.  The IMF 
Resident Representative replied that the IMF was ready to 
cooperate with Montenegro. 
 
 
BELGRADE 00000904  002.2 OF 003 
 
 
BUSINESS and TOURISM: 
 
KAP: Strike Threat 
------------------ 
 
¶6. Rusal, the new owners of Kombinat Aluminum Podgorica 
(KAP), are looking to cut costs by reducing overstaffing. 
KAP offered excess staff severance pay, computed as 6 
month's pay for executives, 12 months for part-time workers 
and "privileged" workers, 10 months for all others. The KAP 
labor union responded by asking that all discharged workers 
receive 24 months severance pay.  In late March, the Union 
announced it would organize a strike, citing postponement 
by the new owner of talks to reconcile the positions.  The 
commencement of the strike has been repeatedly postponed, 
and is still on hold. KAP estimates a strike could cost USD 
100,000 per day. 
 
New Airports 
------------ 
 
¶7. Podgorica Airport opened its new, Euros 22 million, 
terminal on May 14.  The modernized Tivat terminal, which 
received an eight million Euro investment, will open in 
early June. 
 
Tourism Numbers up Through April 
-------------------------------- 
 
¶8. Through the end of April, 58,600 tourists had visited 
Montenegro, up 23 percent over the same period in 2005. 
Foreign tourists were up 42 percent to 25,000. 
 
Best Western Opening in Podgorica 
--------------------------------- 
 
¶9. The U.S.-based Best Western chain will open its first 
hotel in Montenegro in June, when local franchisors open a 
48-room hotel in Podgorica. 
 
PUBLIC ECONOMY: 
 
Unemployment Down 
----------------- 
 
¶10. The GoM said unemployment declined 1.2 percent to 17.46 
percent. Unemployment this time last year was 21.5 percent. 
 
Montenegro to Pay Off Old Foreign Exchange Deposits 
--------------------------------------------- ------ 
 
¶11. The Government of Montenegro announced in mid-May that 
it would repay citizens of Montenegro who had deposited 
foreign exchange in Serbian banks.  The total amount on 
deposit reported to date is Euros 19.7 million. 
 
Private Savings Deposits Nearly Double 
-------------------------------------- 
 
¶12. In the past twelve months, private savings deposits in 
Montenegrin banks increased by 71 percent, to Euros 198.2 
million by the end of March, 2006. 
 
Real Wages Rise 
--------------- 
 
¶13. The average net monthly wage in April was Euros 246, 
up 4.3 percent from March, with real wages rising 3.6 
percent.  Retail prices rose 0.6 percent, and the consumer 
basket for a family of four rose 0.2 percent to Euros 267. 
(MonStat data) 
 
T-BILLS 
 
¶14. Two auctions of Treasury bills, with a total face value 
of EUR 1.7 million, was held in April (note: data lags by 
one month). The average weighted annualized interest rate 
for the auction held in March amounted to 2.52 percent. 
The lowest accepted interest rate at the auctions held in 
April was 0.75 percent while the highest accepted interest 
rate was 5.00 percent. Participants at the auctions 
included local banks. 
 
STOCKS 
 
¶15. The NEX20 index of the Nex Montenegro Stock Exchange 
ended the month of May up 16.7 percent, at 12,316.56. The 
 
BELGRADE 00000904  003.2 OF 003 
 
 
Moste index of Montenegroberza rose 18.0 percent to 569.732 
in May. The sharp rise reflected support from local 
investors for independence, which they expect will expand 
economic opportunities and attract further investment. 
Major components of the NEX20 include the privatized 
Telekom CG and Jugopetrol; major components of the Moste 
include aluminum smelter KAP and vineyard Plantaze. Note: 
The Montenegrin exchanges are still nascent, and the levl 
of capitalization represented is small althoug rising (NEX 
capitalization at the end of 2004 ws Euros 45 million; at 
the end of November 2005it was Euros 1,410 million). 
 
MOORE