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Montenegro
The Development Challenge
A constituent republic of the Federal Republic of Yugoslavia (FRY) until the dissolution of the FRY in March 2003, Montenegro became a constituent republic of the new state union of Serbia and Montenegro. Montenegro is approximately one-sixth the geographical size of Serbia with 616,000 inhabitants (less than one tenth of Serbia's population). The ethnic composition is considered to be predominantly Montenegrin and Serbian, with less than 25% Bosniak, Albanian, Croatian, and Roma. Currently, there are about 31,000 refugees and internally displaced persons, primarily from Kosovo, within Montenegro.
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Elected President in October 1997, Milo Djukanovic was supported by a broad multi-ethnic coalition which ousted supporters of Serbian President Slobodan Milosevic from power. This laid the foundation for the democratization of Montenegrin society. Social and political life became more open, NGOs and the media enjoyed greater freedoms, and the Government of Montenegro (GoM) embarked upon a series of potentially far-reaching political and economic reforms. By 2000, Montenegro acquired a large degree of independence and established a separate economic system; however, it remained minimally subordinate to the FRY in foreign affairs and defense matters. The United States and the European Union welcomed the GoM's efforts to democratize society and provided critical financial and technical assistance for reforms.
Montenegro is more politically and economically stable now than it has been in over a decade. However, this has not yet led to high levels of growth or decreases in unemployment. Much remains to be done. The recently published Poverty Reduction Strategy Paper (November 2003) reports the absolute poverty rate in Montenegro to be 12.2% with more than one third of the population classified as economically vulnerable. Given regional variations, this figure is 19.3% in the north, representing 45% of the total poor in the republic. GDP remains near 1990 levels (about 1.4 billion Euros); unemployment, adjusted for the gray market, is 17%; the average recorded net wage in the formal sector is about 188 Euros; inflation in 2002 was 9.4%; international trade, excluding Serbia, yielded a deficit of $402 million in 2002, though some of this was made up by tourism and other receipts to yield a current account deficit of $161 million; and if arrears accumulation is considered, the deficit for 2002 is 39 million Euros.
In FY 2003, USAID built upon the legislative and institutional framework it helped to develop in past years and has become more constructively engaged in assisting and encouraging the government in the implementation of its ambitious reform agenda. Significant implementation gains were made in the financial sector; pension reform; the economic reform agenda; tax administration; local governance and community revitalization; democracy and human rights; and rule of law. The continuing challenge in the coming years will be to accelerate the pace of the GoM's reform agenda while renewing public confidence in the GoM to improve the quality of life.
The USAID program in Serbia and Montenegro is aligned to achieve the four strategic objectives enumerated in the joint State-USAID Strategic Plan. The intent of these objectives is to synchronize diplomacy and development assistance through 1) achieving peace and security; 2) advancing sustainable development and global interests; 3) promoting international understanding; and 4) strengthening diplomatic and program capabilities.
The USAID Program: To accelerate the development and growth of private enterprises, USAID concentrates on economic growth and job creation; competitiveness-building activities that seek to attract investment and drive exports; privatization of State-owned enterprises; increased access to credit and financial services; preparation of Montenegro for membership in the World Trade Organization; restructuring of fiscal, financial and banking systems; sound and prudential practices implemented in bank and non-bank financial institutions; reorganization and strengthening of tax administration; strengthening of private enterprise and free market institutions; and strengthening of commercial laws and related institutions.
To promote more effective, responsive, and accountable democratic institutions, USAID focuses on training for democratically-oriented parties; technical assistance for selected government institutions; support for non-partisan efforts aimed at ensuring more participatory and fair election processes; building capacity of the civil society sector, independent media and trade unions; and anti-trafficking efforts. Due to the strong need to strengthen the rule of law in Montenegro, USAID will significantly expand efforts in this area in FY 2004 and concentrate on promotion of a better-trained, more efficient and democratically-oriented judiciary, legal profession, and court system; support for legal aid and human rights programs;
To increase and inform citizens' participation in political and economic decision-making, USAID will continue to concentrate on building trust in communities to demonstrate the value of citizen participation; provide technical assistance, training and information technology grants to improve local government customer focus and responsiveness; improve constituent access to and involvement in local government; and increase financial sustainability of local government.
The specific activities to be funded by FY 2004 and FY 2005 appropriations are described in more detail in the following Program Data Sheets.
Other Program Elements: USAID will, in conjunction with U.S. Treasury advisors, continue to advance the policy and economic framework for sustainable economic growth and the emergence of a viable private sector. U.S. Department of Treasury advisors will complement USAID's program and focus on financial crime investigation, tax implementation, budget and banking reforms. The Department of State will support Public Diplomacy and similar high priority programs, such as policy reform and training.
Other Donors: USAID has been the primary donor in Montenegro, but other donors have become increasingly active and coordinate closely with USAID. USAID recently handed over responsibilities to the British Department for International Development (DIFID) and the European Agency for Reconstruction (EAR) for technical assistance to the Energy Regulatory Agency, and to the International Bank for Reconstruction and Development (IBRD) for the completion of the unbundling exercise at the state power company. DFID has also taken on some responsibilities in the banking sector, handling the deposit insurance program and the privatization of the last majority state-owned bank in Montenegro. In pension reform, the IBRD is planning a loan and technical assistance program to take over from USAID advisors improving efficiencies in the pension system. USAID is closely coordinating its efforts with EAR customs advisors in implementation of the Value-Added Tax and on development and implementation of the new treasury system, as well as municipal development efforts and the upgrading of border crossing facilities. The German Development Assistance Bank has provided a line of credit for small- to medium-sized enterprise lending to the Opportunity Bank, which was established in Montenegro with USAID support. With the ending of USAID budget support in FY 2003, the IBRD initiated a structural adjustment credit. The International Monetary Fund assists with monetary stabilization.
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