RE: [N-B] "Microstate": A Mouse Roars

Whilst I'd agree with most of this article, what it doesn't mention and which is something that does give rise to a bit of concern is the way that the Montenegrin government issued a number banking licences a couple of years ago, took all their fees but not many months later suddenly changed the law and withdrew the licences, effectively making those banks illegal. If a government can do this, without recourse to any effective appeal, in one area, it has the potential to do so in others. Ian. http://iansawyer.com http://iansawyer.ath.cx The state has grown used to treating its taxpayers as a farmer treats his cows, keeping them in a field to be milked. Soon however, in cyberspace, the cows will have wings...... -- "The Sovereign Individual" ~~~~~~~~~~~~

-----Original Message----- From: R.A. Hettinga [mailto:rah@shipwright.com] Sent: 19 January 2005 15:33 To: osint@yahoogroups.com; cypherpunks@al-qaeda.net; libertarian-nation@yahoogroups.com; nation-builders@yahoogroups.com Subject: [N-B] "Microstate": A Mouse Roars

http://online.wsj.com/article_print/0,,SB110608639391629354,00.html

The Wall Street Journal

January 19, 2005

COMMENTARY

A Mouse Roars

By VLADIMIR KAVARIC January 19, 2005

PODGORICA, Serbia and Montenegro -- Since the publication in 1776 of "An Inquiry Into the Nature and Causes of the Wealth of the Nations" by Adam Smith, the impact of free-market activity and international trade on economic development is well-known. The experience of recent decades shows that the most successful countries with the highest growth rates are those that have implemented pro-market policies and allow freedom in economic affairs. That's why a transition economy like Montenegro sees its best chance in openness, private initiative, international competition, and economic freedom.

Montenegro, the smallest state of the former Yugoslavia with little more than 600,000 inhabitants, presents its economic development concept with the slogan "Montenegro -- Microstate." Microstate in this case has nothing to do with the size of the population or the country. Rather, the Montenegrin Microstate concept, developed by Professor Veselin Vukotic, assumes a minimal role for the state in the economy, low taxes, simple business regulations, a stable institutional framework, and the protection of property rights.

The first steps on this road have already been taken. Montenegro adopted the euro as the country's legal tender and thereby minimized the inflation taxation of its citizens. Without that step, the central bank in Montenegro, a transitional economy with weak institutions, would have been under constant pressure to print money.

The adoption of the new tax law will introduce one of the lowest corporate tax rates in Europe: a mere 9%. Capital-exchange restrictions have been eliminated and the repatriation of profits made by foreign investors in Montenegro is free. Interest rates are market determined and more than 99% of the prices are freely set. Treating foreign investors just like domestic ones, enjoying the same rights and legal protections, is intrinsic to Montenegro's privatization, investment and business regulations. In order to encourage new business development, the required starting capital for a limited liability company has been reduced to $1. The aluminum industry, which accounts for 60% of total exports, is in the process of being privatized. The tender for Telekom Crna Gore, the national fixed-line operator, is also already underway. Tourism is another area where Montenegro has enormous potential to expand. A majority of hotels are still state-owned but those are now all up for sale while the country is open for new investments. According to the World Tourism Organization, Montenegro's tourism industry will be one of the fastest growing in the world.

The biggest obstacles to economic freedom at the moment are high government expenditures and the large number of administrative barriers. A reform of the judicial system would also significantly improve the business ambience. These barriers are, for the most part, part of the old socialist legacy.

As anywhere else in the world, the most vigorous objections to the implementation of economic freedom in Montenegro come from rent-seeking groups, monopolists, and people that benefit from state redistribution.

But Montenegro also has to overcome a barrier that is peculiar to its political situation. As one of the basic preconditions for signing the Association and Stabilization Agreement with the EU, Brussels insisted on the "harmonization" of economic systems between Serbia and Montenegro. Given the fact that Montenegro wants to develop an open and service-oriented economy while Serbia wants to protect its agriculture and inherited heavy industries, the harmonization of these systems is more than just problematic. The most illustrative example is the harmonization of custom rates. Through this process, Montenegro was forced to increase its custom rates from an average 2.8% to 6%. Montenegro even had to increase custom rates for those products that it doesn't produce itself, such as sugar and textiles.

There are, however, new encouraging developments in this area. At a recent conference in Maastricht, the EU proposed a more flexible approach to the accession process of Serbia and Montenegro, the so-called "dual track" path. This dual track process demonstrates that the EU recognizes that the economic realities of Serbia and Montenegro are quite different and that they need to be taken into account.

Accepting and acknowledging the economic realities of Serbia and Montenegro would present a new era in interstate relationships in the Balkans. Montenegro would be given the opportunity to take full responsibility for its economic policy. At the same time, the international community would gain stable relations in the region based on respecting mutual interests. An open economy in Montenegro would add to the competitive landscape of the region. More competition (and not harmonization) will lead to prosperity in this part of Europe.

Mr. Kavaric is deputy finance minister of Montenegro.

-- ----------------- R. A. Hettinga The Internet Bearer Underwriting Corporation http://www.ibuc.com/ 44 Farquhar Street, Boston, MA 02131 USA "... however it may deserve respect for its usefulness and antiquity, [predicting the end of the world] has not been found agreeable to experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'

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