SUN, 20 JAN 2002 22:54:41 GMT
The Euro & Montenegro
People Donít Trust Banks
Out of EUR11 million purchased from local financial institutions by
individuals and companies, only EUR200 trickled back.
AIM Podgorica, January 11, 2002
By Jan. 10, 2002 Montenegrins had exchanged more than DM30 million into
euros. This does not include another DM160 million, which at midnight on
Dec. 31, 2001, was on the accounts of the Payment Transfer Authority and
four banks licensed by the Montenegrin central bank, and which were
Considerable public interest in the conversion process brought people
thronging to their banks, where they waited in long lines for up to two
hours simply to exchange their cash. The EUR30 million dispatched to
Montenegro by a German bank was beginning to dwindle at breakneck speed
and many feared that it will not suffice to meet demand. Because of that
Montenegrin central bank representatives interrupted their Christmas
vacations and urgently left for Frankfurt, returning later that evening
with a fresh shipment of the European currency.
"As of Jan. 10, EUR55 million has been put in circulation in
Montenegro," said Dragana Ostojic, the central bank's chief economist,
assuring the public that there would be enough currency for exchange.
If the conversion process can be said to have been more rapid than
expected, however, the same does not apply to its entering regular
financial channels. According to unofficial information carried by
Podgorica media, out of the EUR15 million that left various financial
institutions, Montenegrin companies returned only EUR200 in daily
The remainder ended up under people's mattresses, and in company safes,
the latter obviously still keep a portion of their cash outside of legal
cash flows in order to avoid paying taxes.
The most striking example of this attitude are companies, some of them
state-run, which allegedly withdrew euros to pay December salaries, but
actually paid their workers in German marks, thus converting the money
This practice has additionally complicated estimates of the amount of
money circulating both legally and illegally in Montenegro. Ahead of
Jan. 1, the Montenegrin central bank officially announced that that
amount was estimated at between DM200-250 million, including the DM160
million in bank deposits. Most of this is "home savings," or money that
people stash at home or invest into the grey economy, which accounts for
40 percent of all Montenegrin economic activity.
The quantity of D-marks converted into euros so far, however, raised
suspicion that there is much more currency outside legal channels than
officially estimated. Thus, according to European economic experts
quoted by the German edition of The Financial Times, it is believed that
there is a total of one billion German marks in Montenegro.
In any case, Montenegrin bankers are satisfied. Savings are on the rise
because only DM10,000 can be converted in cash, and this is improving
the liquidity of local banks.
Despite a decade of mistrust of Montenegrin banks, however, the four
banks licensed for conversion (Podgoricka, Hipotekarna, Crnogorska
Komercijalna, and Euro Banka) have registered an increased inflow of
savings deposits. If it turns out that this trend is of a more lasting
nature, the economy will also profit.
The secret lies in the conversion rules. "Amounts of up to DM10,000 can
be converted into cash without commission in the banks, and Payment
Authority offices will convert up to DM5,000 free of charge, after which
a commission of 0.5 percent has to be paid. To convert greater sums one
has to open a bank account," explains Ljubisa Krgovic, chairman of the
Montenegrin central bank council.
Montenegro's shopkeepers are, however, in a somewhat different mood,
although the fact that the euro has not yet being actually put in
circulation, is advantageous for them. Once the conversion process is
complete, the major problems will kick in.
For instance, special cash registers introduced with much pomp last
year, are still not equipped with the software necessary to process
euros, and it is uncertain when this will be done. In addition,
merchants say they will have trouble with change, despite claims by
central bank officials that the first shipment of the European currency
contained EUR3 million in coins. This is why unexpected price increases
are not ruled out, because prices would be rounded off, leaving shoppers
without part of their change.
At the same time local retailers are afraid that using the euro will
reveal the fact that many foreign goods are more expensive in Montenegro
than in their countries of origin, such as Italy, which could prompt
Italians, for instance, to attempt a direct thrust onto Montenegro's
market and end high profits for local vendors. The arrival of Slovenia's
Merkator retail chain, for example, and the opening of its big
department store in Podgorica is considered a certainty.
And, at the end, an interesting story: Dejan Dikanovic, 38, of
Podgorica, was the fist Montenegrin who converted his German marks into
euros, only five minutes after the year 2002 began. As a gift from
Podgoricka Bank, he received a savings account with a EUR50 deposit.