Cablegate: Montenegro Fails to Renew Formal Imf Agreement

VZCZCXRO1164
RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHPOD #0178 1511239
ZNR UUUUU ZZH
R 311239Z MAY 07
FM AMEMBASSY PODGORICA
TO RUEHC/SECSTATE WASHDC 0244
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHPOD/AMEMBASSY PODGORICA 0257

UNCLAS PODGORICA 000178

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EAID PGOV ECON MW
SUBJECT: MONTENEGRO FAILS TO RENEW FORMAL IMF AGREEMENT

SENSITIVE BUT UNCLASSIFIED - PLEASE HANDLE ACCORDINGLY

1. (SBU) The GoM on May 27 missed its deadline to agree to a new
Standby Arrangement agreement with the IMF. As Montenegro is not
currently borrowing from the IMF, the failure is not a default,
but may be seen by donors, investors and others as a "black
mark" on its economic reform program. The failure resulted from
a split in the minor coalition partner, the Social Democratic
Party (SDP), with a faction of older members rigidly opposing
the party leadership. The SDP faction (unlike the SDP
leadership) objects to further development of plans to privatize
the state-owned electric company, EPCG, and liberalize the very
rigid labor market - both elements of the proposed IMF
agreement. With the GoM having just 41 seats in the 81-seat
parliament, the GoM appears to have concluded that forcing an
open split in the SDP could have negatively affected the
Government.

2. (SBU) The Finance Minister's office told post May 29 that the
GoM will continue to regularly file reports with the IMF.
Additionally, the GoM-IMF dialogue on Stand-by Arrangements --
the so-called "Article 4" discussions -- will continue.
Consequently, a new Stand-by Arrangement may be agreed by the
end of the year. Local IMF representative Harold Hirschhofer
told post May 25 that the IMF looks to the GoM to maintain its
good record on budget discipline (it has been running routine
surpluses), agreement or no agreement.

3. (SBU) Comment: The IMF's Hirschofer was clearly disturbed by
the inability of the GoM and the SDP to rein in its statist and
old-line socialist members, even after a prolonged discussion of
the benefits of the now-rejected program. Interventions by the
EU and USG with the SDP before the deadline were equally to no
avail. At the core of the problem is a GoM and ruling party
(the Democratic Party of Socialists - DPS) that has become
complacent in its "leadership" role, unwilling or unable to
"sell" its more controversial programs - or expecting the
international community to take on that role for it. End
comment.

FERRILL

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