Year: 2009

The First Bank of Montenegro founded in 1901, the newly acquired name, was an insignificant bank, located in the workers town in the central part of the country until 2006. Next couple of years, this bank succeeded to increase its assets by 24 times, through supervisory non-approved investments in the bank’s share capital from large number of local businessmen and high level political profiles, accompanied by aggressive and not always competitive-driven attraction of deposits from the clients. In less than two years it managed to replace the end of the banks’ market share list with the second place among the reputable and strong competitors. Aggregately, this provincial bank suddenly received abundant funds for unsustainable expansion and implementation of business illusion that only with a strong marketing campaign and with a team of managers who had little or doubtful working experience in banking business could achieve, in very short time, strategically unfeasible ambition to take over the leading role in the banking system.

The first risk-bearing market signs about limited liquidity and solvency of FB MN 1901 were noted in the beginning of 2007; more transparently in the beginning of 2008, as the bank constantly was failing to execute domestic and foreign payments’ orders from clients. Almost by the end of 2008, relevant institutions were too slow and passive to publicly acknowledge the crisis and to face with the system’s disruption caused by the FB MN 1901 insolvency. Furthermore, the situation resulted in systemic risk of the country’s banking sector, that recalled unpleasant memories from the ‘90s when savings “disappeared” from banking balance sheets leaving clients with nominal figures on the accounts, and had strong negative impact on reputation of the country’s overall financial system with significant deposits’ withdrawal.

The legislative solution regarding the protection of banking sector from negative effects of global financial crisis was adopted by the end of the previous year. It provided systemic and regulatory framework for monetary support to FB MN 1901’s liquidity position at the amount of €44 million. The major goals of this facilitation mechanism were: to relax the market and prevent against the panic; to improve confidence and decrease sudden and strong mistrust of clients; to completely execute the domestic and foreign payment’s orders that have been pilled up in the bank’s documentations for several months.

To summarize, semi-decennial national economic reforms strengthened the neo-liberal standing that financial system’s supervision is not necessary and has no market oriented benefits, provided that economic growth will be achieved through significant growth rates, and resulted in full pacification of the national banking sector supervisor from the end of 2006. Therefore, the CBM’s failure of anticipating the roots of the liquidity crisis within the banking system, which originated in FB MN 1901 operations, it could be found surprising from professional point of view, but it had to be systemically and logically expected. Institutional weaknesses and policy limitations in the implementation of CBM competencies have to be subject of future adjustments and corrections, following that Montenegro’s economic system is not yet viable to endure the collapse of the banking business accomplished reforms, which would help to regain and further improve citizens and clients confidence in the country’s banking sector performance.

More than a year has passed since the Montenegrin media have started to report about the case of serious devastation of environment in the region of Bay of Kotor (Bokokotorski zaliv), near the small seaside place Lipci, where 4200m2 of the sea area has been illegally banked.

After the Ministries and their inspections could not agree upon the issue of who has the jurisdiction over the case for months before the eyes of Montenegrin public, the police has stopped the construction works, prosecutor has raised charges against several persons, and the Basic Court in Kotor has ruled verdicts, sanctioning four persons concerning the case.

However, the question of how was it possible that no state institution, in particular inspection services, did not assumed responsibility for the case and prevent the devastation. Later cases of smaller scale are indicative for assessment that in the meantime, almost nothing has changed.

Therefore, the primary purpose of our research is to provide an answer to the question: What to do so that the Lipci case does not repeat?

With that aim in mind, we want to give the public a comprehensive overview of the case, events, actions of state bodies, statements and activities of other institutions and organizations, and then to determine the key problems, their causes and consequences. At end, we want to offer the public, but first and foremost decision-makers, the proposal to create such a legal framework and ambient that will significantly reduce the possibility of a similar case happening again.

Methodology of the research included analysis of the media reports, access to information in the possession of the state administration as well as the review of the legal framework. Draft version of the document was distributed to certain state administration bodies in order to receive their stances, comments and suggestions. The research was conducted in the period May-October 2009.

The aim of this paper is to present the key provisions of the applicable legal regulations, strategic and other documents relating to the work of institutions that belong to the defense and security sector in Montenegro. Furthermore, to present recommendations for improving the applicable legal and institutional framework and to encourage public and professional debate.

With this analysis, Institute Alternative wants to contribute to the development of democratic and civilian control of the security sector, provide a contribution to the work of the competent Committee and legislators whose work relates to legislation and policy in the area of defense and security.

This analysis does not have the ambition to provide a comprehensive overview of the practice of democratic and civilian control of defense and security sector, but to draw attention to key issues, problems and dilemmas that occur as a result of the existing legal framework and practice.

The methodology of the work included analysis of legal regulations, comparative analysis of the solutions from the existing legislation and that in parliamentary procedure, collecting official documents through requests for free access to information, interviews with members of the Montenegrin Parliament’s Committee for Defense and Security.

This document addresses responsible persons in the Public Administration that have jurisdiction in the affairs of defense and security, members of the Committee for Defense and Security along with all MPs and interested international, governmental and non-governmental organizations and media.

We expect this analysis to encourage a more competent and intense public and professional debate concerning an important issue for further development of democracy and human rights, accountability and transparency of public institutions.

This analysis represents an introduction into the further work of Institute Alternative on specific issues of defense and security sector oversight.