VZCZCXRO8037
RR RUEHWEB
DE RUEHPOD #0001 0031428
ZNR UUUUU ZZH
R 031447Z JAN 07
FM AMEMBASSY PODGORICA
TO RUEHC/SECSTATE WASHDC
INFO RUCPDOC/USDOC WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHNO/USMISSION USNATO
RUEHPOD/AMEMBASSY PODGORICA

UNCLAS SECTION 01 OF 04 PODGORICA 000001 
 
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: NOVEMBER-DECEMBER 2006 
 
 
PODGORICA 00000001  001.3 OF 004 
 
 
INDEX: 
 
 
 
MACROECONOMICS 
 
-- GOVERNMENT BUDGET PASSED FOR 2007 
 
-- GOVERNMENT BUDGET IN SURPLUS 
 
-- INFLATION IN 2006 TO BE "BELOW THREE PERCENT" 
 
-- STRONG GDP GROWTH PROJECTED 
 
-- EXPORT TARIFFS ABOLISHED 
 
-- ELECTRIC DEMAND TO RISE, PRODUCTION TO SLIP 
 
 
 
BUSINESS AND TOURISM: 
 
-- LAW ON OPTICAL DISKS PASSED 
 
-- U.S. CHAMBER OF COMMERCE TO OPEN OFFICE 
 
-- REAL ESTATE SALES REACH EUROS 570 MILLION 
 
-- ANOTHER LOW COST AIR CARRIER EXPRESSES INTEREST 
 
-- KAP STRIKE ENDS 
 
 
 
PUBLIC ECONOMY: 
 
-- MINIMUM WAGE TO RISE 
 
 
 
T-BILLS 
 
STOCKS 
 
-- NATO PARTNERSHIP FOR PEACE INVITATION HAS POSITIVE EFFECT 
 
 
 
MACROECONOMICS 
 
 
 
GOVERNMENT BUDGET PASSED FOR 2007 
 
--------------------------------- 
 
 
 
¶1. ON DEC. 27, THE MONTENEGRIN PARLIAMENT ADOPTED THE BUDGET FOR 
2007 IN THE AMOUNT OF EUROS 617 MILLION, UNDER WHICH CURRENT AND 
CAPITAL EXPENSES HAVE BEEN SEPARATED FOR THE FIRST TIME EVER. 
(THE SEPARATION, COMMON PRACTICE IN EUROPE AND ELSEWHERE, WAS 
FACILITATED BY USG EXPERT ASSISTANCE.) TOTAL REVENUES ARE EUROS 
85 MILLION HIGHER THAN BUDGETED FOR 2006, WHILE THE CURRENT 
EXPENSES WILL BE AROUND EUROS 583 MILLION AND CAPITAL EXPENSES 
AROUND EUROS 34 MILLION. IT HAS BEEN ESTIMATED THAT TOTAL PUBLIC 
EXPENDITURES IN 2007 WILL BE 42.85 PERCENT OF GDP AND THE 
PLANNED SURPLUS IS 0.54 PERCENT OF GDP. GDP REAL GROWTH FOR 2007 
IS ESTIMATED ON THE LEVEL OF 6 PERCENT AND PROJECTED INFLATION 
IS 3.4 PERCENT. 
 
 
 
GOVERNMENT BUDGET IN SURPLUS 
 
---------------------------- 
 
 
 
¶2. THROUGH OCTOBER, THE GOM BUDGET SHOWED A SURPLUS OF EUROS 
28.35 MILLION, IN CONTRAST TO THE PLANNED DEFICIT OF EUROS 31.6 
MILLION.  RECEIPTS HAVE TOTALED EUROS 467.66 MILLION, WHILE 
EXPENDITURES WERE LOWER THAN PLANNED AT EUROS 425.8 MILLION. THE 
BOOKS HAVE JUST BEEN CLOSED ON 2005, WHEN GOVERNMENT COLLECTED 
EUROS 581 MILLION, SPENDING EUROS 611 MILLION - ABOUT ONE-THIRD 
OF GDP. 
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PODGORICA 00000001  002.3 OF 004 
 
 
 
 
 
INFLATION IN 2006 TO BE "BELOW THREE PERCENT" 
 
--------------------------------------------- 
 
 
 
¶3. THE CENTRAL BANK OF MONTENEGRO EXPECTS THAT INFLATION IN 2006 
WILL BE "A BIT BELOW THREE PERCENT." ITS PROJECTION FOR 2006 AT 
THE BEGINNING OF THE YEAR WAS 3.8 PERCENT. INFLATION IN 2005 WAS 
1.8 PERCENT. MONTENEGRO USES THE EURO, ALTHOUGH IT IS NOT PART 
OF THE "EURO ZONE." 
 
 
 
STRONG GDP GROWTH PROJECTED 
 
--------------------------- 
 
 
 
¶4. THE GOVERNMENT ANNOUNCED ITS EXPECTATION THAT GDP GROWTH IN 
2007 AND 2008 SHOULD BE SIX PERCENT, IN 2009, 5.5 PERCENT, 
SLOWING IN 2010 AND 2011 TO FIVE PERCENT. IN CONSEQUENCE, GDP IN 
2011 WOULD BE EUROS 2.76 BILLION. GOVERNMENT PLANS TO CONTINUE 
REDUCING ITS PUBLIC DEBT, WHILE SHIFTING ITS REVENUE BASE 
INCREASINGLY FROM INCOME TAXES TO VAT AND EXCISES. 
 
 
 
EXPORT TARIFFS ABOLISHED 
 
------------------------ 
 
 
 
¶5. AS OF JANUARY 1, 2007, ALL EXPORT TARIFFS HAVE BEEN 
ABOLISHED, BRINGING MONTENEGRO IN ACCORDANCE WITH WTO STANDARDS. 
EXPORT TARIFFS WERE IMPOSED IN 2003 ON RAW MATERIALS. 
 
 
 
ELECTRICITY DEMAND TO RISE, PRODUCTION TO SLIP 
 
--------------------------------------------- - 
 
 
 
¶6. THE GOVERNMENT HAS SAID THAT ELECTRICITY DEMAND IN 2007 IS 
EXPECTED TO RISE TO 4,800 GWH, FOUR PERCENT MORE THAN IN 2006. 
HOWEVER, DOMESTIC PRODUCTION WILL DECLINE EIGHT PERCENT, TO 
2,520 GWH, DUE TO PLANNED OVERHAULS OF KEY POWER PLANTS IN 
MONTENEGRO. 
 
 
 
BUSINESS AND TOURISM: 
 
 
 
LAW ON OPTICAL DISKS PASSED 
 
--------------------------- 
 
 
 
¶7. THE LAW ON OPTICAL DISCS WAS PASSED BY THE PARLIAMENT OF 
MONTENEGRO, WITHOUT ANY DEBATE, ON DECEMBER 26. THE LAW WAS A 
CENTRAL POINT INCLUDED IN THE GOM IPR ACTION PLAN AGREED WITH 
THE USG. 
 
 
 
AMERICAN CHAMBER OF COMMERCE TO OPEN OFFICE 
 
------------------------------------------- 
 
 
 
¶8. THE AMERICAN CHAMBER OF COMMERCE WILL OPEN AN OFFICE IN 
MONTENEGRO IN THE FIRST QUARTER OF 2007.  THE EXECUTIVE DIRECTOR 
OF THE MONTENEGRO BUSINESS ALLIANCE (MBA), DARKO KONJEVIC, IS 
QUOTED AS SAYING THAT SUCH AN OFFICE WOULD ENCOURAGE U.S. 
COMPANIES TO INVEST IN MONTENEGRO. AMCHAMS OFFICE IN BELGRADE 
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PODGORICA 00000001  003.3 OF 004 
 
 
HAD COVERED BOTH REPUBLICS PRIOR TO INDEPENDENCE. 
 
 
 
ANOTHER LOW COST AIR CARRIER EXPRESSES INTEREST 
 
--------------------------------------------- -- 
 
 
 
¶9. GERMANWINGS, THE LOW COST AIR CARRIER OWNED BY LUFTHANSA AND 
BASED AT COLONGNE/BONN, ANNOUNCED THAT IT IS EXPLORING POTENTIAL 
ROUTES TO MONTENEGRO. SERVICE WOULD NOT BEGIN BEFORE SUMMER 
¶2007. IN THE REGION, GERMANWINGS ALREADY FLIES TO DUBROVNIK, 
PRISTINA, AND TIRANA. 
 
 
 
REAL ESTATE SALES REACH EUROS 570 MILLION 
 
----------------------------------------- 
 
 
 
¶10. THE MINISTER OF FINANCE ANNOUNCED THAT SALES OF REAL ESTATE 
IN MONTENEGRO, THROUGH NOVEMBER, REACHED EUROS 570 MILLION, 
CALCULATED ON THE BASIS OF RECEIVED CAPITAL TRANSFER TAXES. 
MOST PURCHASES WERE MADE BY RUSSIANS, BRITISH, AND IRISH, IN THE 
COASTAL REGIONS. 
 
 
 
KAP STRIKE ENDS 
 
--------------- 
 
 
 
¶11. THE STRIKE AT THE KOMBINAT ALUMINA PODGORICA (KAP - ALUMINUM 
PLANT OF PODGORICA), ENDED DECEMBER 9 AFTER WORKERS ACCEPTED A 
TEN PERCENT SALARY INCREASE, EFFECTIVE JANUARY 1, 2007.  KAP, 
OWNED BY RUSAL, THE WORLD'S LARGEST ALUMINUM PRODUCER, IS THE 
SINGLE LARGEST ECONOMIC ARTIFACT IN MONTENEGRO, ACCOUNTING FOR 
ABOUT 12 PERCENT OF GDP.  IT USES ABOUT 42 PERCENT OF ALL 
ELECTRICITY IN MONTENEGRO, AND ITS ELECTRICITY SUPPLY IS HEAVILY 
SUBSIDIZED. 
 
 
 
PUBLIC ECONOMY: 
 
 
 
MINIMUM WAGE TO RISE 
 
-------------------- 
 
 
 
¶12. THE MINIMUM WAGE, AT EUROS 50 PER MONTH SINCE JULY 2002, 
WILL RISE IN STAGES NEXT YEAR UNTIL IT REACHES EUROS 55 IN JULY 
¶2007.  MANY WAGES IN MONTENEGRO ARE CALCULATED AS A MULTIPLE OF 
THE MINIMUM WAGE. 
 
 
 
T-BILLS 
 
 
 
¶13. ONE AUCTION OF TREASURY BILLS, WITH A TOTAL FACE VALUE OF 
EUR 0.2 MILLION, WAS HELD IN OCTOBER, AND ANOTHER IN NOVEMBER 
WITH A TOTAL FACE VALUE OF EUR 0.8 MILLION (NOTE: DATA LAGS BY 
ONE MONTH). THE AVERAGE INTEREST RATE AT THE AUCTIONS WAS 0.42. 
PARTICIPANTS AT THE AUCTIONS INCLUDED LOCAL BANKS. 
 
 
 
¶14. IN 2006, MONTENEGRO SOLD TREASURY BILLS WORTH A TOTAL OF 
EUROS 12.5 MILLION, IN 15 AUCTIONS. THIRTY-FIVE AUCTIONS WERE 
HELD IN 2005, SELLING EUROS 109 MILLION. 
 
 
 
STOCKS 
 
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PODGORICA 00000001  004.3 OF 004 
 
 
 
 
NATO PARTNERSHIP FOR PEACE INVITATION HAS POSITIVE EFFECT 
 
--------------------------------------------- ------------ 
 
 
 
¶15.  THE MOSTE INDEX OF THE MONTENEGROBERZA STOCK EXCHANGE 
SHOWED A 12 PERCENT RISE IN THE DAYS IMMEDIATELY AFTER NATO'S 
RIGA SUMMIT INVITED MONTENEGRO TO JOIN ITS PARTNERSHIP FOR PEACE 
(PFP). EXPERTS ATTRIBUTED THE RISE TO THE PFP INVITE, WHICH WAS 
SEEN BY INVESTORS AS DEMONSTRATING INTERNATIONAL CONFIDENCE IN 
THE STABILITY OF MONTENEGRO AND THE REGION. 
 
 
 
¶16. THE NEX20 INDEX OF THE NEX MONTENEGRO STOCK EXCHANGE ENDED 
THE YEAR UP 84.5 PERCENT, AT 18,050.89, SLIGHTLY OFF THE HIGHS 
REACHED IN LATE SUMMER. THE MOSTE INDEX OF MONTENEGROBERZA WAS 
UP 96.2 PERCENT TO 908.436, AGAIN SLIGHTLY OFF RECORD HIGHS 
EARLIER IN THE YEAR. AS THE MARKETS MATURE, SLIGHTLY LESS 
VOLATILITY IS BEING SEEN (GROWTH IN 2005 WAS 286 PERCENT FOR THE 
NEX20, 399 PERCENT FOR THE MOSTE). 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 LEVEL OF CAPITALIZATION REPRESENTED IS SMALL 
ALTHOUGH RISING (NEX CAPITALIZATION AT THE END OF 2004 WAS EUROS 
495 MILLION; AT THE END OF SEPTEMBER 2006 2005 IT WAS EUROS 
1,087 MILLION). 
FERRILL