II. Country Assessment--Montenegro

The Republic of Montenegro declared independence on June 3, 2006 after a public referendum in May was judged by international observers to be "conducted in line with OSCE and other international standards related to democratic electoral processes." The U.S. recognized Montenegro on June 12 and opened its embassy on October 5. A foreign policy priority for the U.S. is to help consolidate democratic and economic reforms in Montenegro, and to aid Montenegro's rapid integration into the wider Euro-Atlantic community, including NATO, EU, and WTO. That integration will stabilize Montenegro and the region, eliminate a past source of foreign policy concern, and open additional markets to U.S. trade and investment. It will also provide a secure destination for U.S. citizens traveling abroad. Additional priorities in Montenegro are to combat terrorism and extremism, prevent trafficking in persons, weapons, and drugs, and fight organized crime and corruption.

USG assistance to Montenegro is focused on its integration into Euro-Atlantic institutions through consolidation of economic and democratic reforms. Formerly a socialist state, Montenegro has privatized 86% of state-owned businesses and property, and placed foreign investors on a level playing field with local investors. Strong USG assistance has supported both macroeconomic reform and the creation of a better environment for foreign investment. Working with the Government of Montenegro (GOM) to create a public Economic Reform Agenda, now in its fifth year, and providing economic development assistance projects throughout Montenegro, have spread the benefits of economic reform. The USG has assisted with democratic reforms through the development of modern parliamentary procedures and assistance to NGOs, including support for key local NGOs as they monitored the crucial May independence referendum. Assistance provided to the courts streamlined archaic procedures, drastically cutting backlogs and allowing the courts to fulfill their proper role in mediating commercial disputes. The USG further assisted the development of the rule of law by providing technical advisors to the Finance Ministry to develop modern budget systems and combat money laundering, and supported two programs to advance the professionalism of law enforcement agencies, including the police, border police and customs service. Wide-ranging public diplomacy outreach programs centering on exchange visitors (including students) and speakers from the U.S. advanced a positive view of the U.S. while presenting new approaches to solving Montenegro's challenges.

OPERATING ENVIRONMENT

Montenegro is now an independent state for the first time since World War One. The peaceful and democratic resolution of the lingering state status issue will allow the USG to continue its focus on economic reform and development, and will enable additional local actors to turn their attention from politics to the economy, thus enhancing the effect of USG assistance efforts to build capacity in new state institutions. Independence will also permit the acceleration of wide-ranging reforms in the security sector, including downsizing and professionalizing the police. As it is not the legal successor to the State Union, however, Montenegro will need to once again join a wide range of international organizations and agreements, which will divert attention in the near future from certain reform efforts, including those receiving USG assistance.

In March 2006, the Montenegrin Parliament reached consensus on the law setting conditions for the historic May 21 referendum vote on independence. Consensus was reached after three months of intensive negotiation over modalities for the campaign and vote, aided by mediation by the EU and other international community members. The referendum was conducted peacefully and, in the view of the OSCE and other international and domestic observers, in line with European and international standards, with voter turnout in excess of 86%. While the opposition contested the results initially, the entire opposition also returned to the campaign trail to contest the September 10 parliamentary election, which was also conducted peacefully and democratically. After 17 years at helm of state, PM Milo Djukanovic left office in October, handing power to party colleague and former Justice Minister Zeljko Sturanovic.

U.S. ASSISTANCE PRIORITIES

In order to strengthen democracy and the rule of law, it is crucial that the voice of citizens outside of the ruling parties is heard by the Government of Montenegro. USG assistance focuses on the political process and conduct of elections through advising political parties and assisting independent NGOs working on elections and electoral reform. The USG also provides assistance to civil society NGOs and media to improve their abilities to widen and affect the public discourse. Other high priorities are to support the reform of the judiciary, entrenchment of the rule of the law, and local and republic decentralization efforts.

To support democratic political processes and elections, USG assistance in FY 2006 worked closely with parliamentary parties, including opposition parties, to develop more effective procedures and programs within the parliament. Those included new rules, establishment of a committee system, and the creation of a student intern program that augmented scarce staff resources and exposed future leaders to the internal operations of parliament. The USG also provided support to a respected independent NGO to monitor the referendum, from campaign to vote to final results.

Civil society-related assistance focused on NGO and media effectiveness and sustainability. Targeted NGOs provided assistance to citizens in a number of areas, including consumer protection, freedom of government information, employee rights, media access, and public corruption. USG assistance to media focused on building the business and self-regulating capacity of media organizations to provide professional news and information to citizens.

The USG continued to provide technical assistance to improve the structure and operations of the judiciary. Assistance helped to reduce the backlog of court cases, efficiently allocate administrative tasks throughout the court system, and strengthen overall court operations. The USG promoted progressive legal infrastructure change through workshops and conferences that support the drafting and implementation of civil legislation. Decentralization and local governance programs helped municipalities establish local government structures, systems, and practices.

Public diplomacy programs assisted democratic reforms and economic development through support for local NGO projects, media training, educational and academic exchange programs, translation, and publishing of American books and the U.S. speaker program. The USG provided small grants to support grass-root projects from indigenous NGOs, including a civic education project and other programs aimed at encouraging inter-ethnic tolerance and reconciliation.

A small grant program supported the efforts of a local NGO for a Republic-wide campaign monitoring effort for the referendum, culminating in the day-long coverage of over 98% of all polling places. This work provided a benchmark for the U.S. Embassy and other observers to evaluate the transparency of the referendum process, and consequently the validity of the independence result. The larger political process program facilitated the finalization and adoption of new parliamentary rules of procedure, while supporting the participation of ten university students in the parliament's internship program in FY 2006.

USG assistance for judicial reform improved case management. In the two basic courts, in Kotor and Cetinje, where model reform projects were introduced, overall court performance improved and civil case backlogs were reduced: Kotor by 60% and Cetinje by 36.5%. Recommended court practices were also implemented and significantly improved. To improve the quality of judicial decision-making, USG assistance implementers conducted eight trainings with 328 participants. Surveys indicated that participants' knowledge of procedures increased by an average of 46%, well beyond the 20% target.

NGOs receiving USG assistance were at the forefront of efforts to implement new laws providing greater transparency of government operations and existing laws protecting ordinary consumers and workers. One NGO filed over 850 requests for information from the GOM, tracking responsiveness in a public, monthly list. Overall, NGOs had input into or influence on 43 GOM policies and laws affecting the citizenry; the target was 25. The USG-assisted NGO Coalition produced a first draft of the National NGO Strategy to cover preconditions for financial, operational, and programmatic sustainability for the entire NGO sector, and will work on its implementation during FY 2007.

A USG-funded civic education project trained all sixth grade teachers and 22 secondary and elementary principals over a two year period. Media training programs in Montenegro and the U.S. allowed over 60 Montenegrin journalists to explore topics including local TV market expansion, freedom of information access, investigative journalism, and leadership. In its second year, the American-Serbian/Montenegrin Youth Leadership Exchange (ASMYLE) sent 25 local students to spend a full academic year at U.S. high schools. Ten American speakers gave presentations throughout Montenegro on topics ranging from eco-tourism and development of national parks to anti-drug programs.

With IT equipment and software, training, and technical support from the local government program, 19 out of 21 municipalities (including the capital Podgorica) have formed consolidated municipal finance departments and have implemented a new municipal financial management system. This ensured complete and transparent revenue and expenditure tracking and reporting as well as efficient and flexible development of budget strategies.

The efforts of the USG-supported local NGO CDT, were key to ensuring a peaceful outcome to the referendum on independence by providing a professional and respected independent opinion on the process and results. In the final analysis, the willingness of the opposition to acquiesce to independence depended on its acknowledging that reliable and unbiased international and domestic observers, including those supported by the U.S. Government, saw no major problems in the conduct of the campaign, vote, and tabulation. Broader political process assistance contributed to the establishment of confidence between the opposition parties and the U.S. Mission, a significant factor in ensuring that the independence referendum's issues were solved consensually. USG-supported NGO programs continued to help change the political climate in Montenegro, creating an atmosphere in which political and governmental transparency is not only possible, but expected by the citizens.

USG political process assistance also increased the role and voice of the opposition in Parliament. A deputy speaker is now drawn from the ranks of opposition, as are the chairs of several parliamentary committees. USG efforts supported the pioneering of the use of committees to increase parliamentary involvement in the discussion, drafting, and passage of legislation, as well as the introduction of "Question Hour," requiring the Government to respond to opposition inquiries - a tradition in Western Europe, but essentially unprecedented in Montenegro. Finally, the increased reliability of the civil case docket management system in the courts supported increased foreign direct investment in Montenegro, which in FY 2006 reached $840 per capita, one of the highest rates in Europe. The existence of a reliable dispute resolution system is a key factor considered by investors.

MEASURES OF PROGRAM EFFECTIVENESS

In order to determine how U.S. Government assistance affects a country, U.S. embassies set targets for improvement called "performance indicators." Data for these indicators are collected by research institutes, embassies and international organizations. By examining data over time, U.S. policymakers can better understand whether or not assistance programs are having the intended impact.

Please find below two important indicators in the area of Governing Justly and Democratically. In the charts, the "Baseline" refers to a starting point from which to measure progress or regression over time. The embassy and its partner organizations then agree on a "Target" figure that they hope to achieve as a result of U.S. assistance programs. The "Rank" figure is the resulting measurement. "FY" stands for "fiscal year," the period of the U.S. budget that runs from October 1 - September 30 of the following year. "CY" stands for "calendar year," or January 1 - December 31.

Performance Indicator: NGO Sustainability Index 2005. Seven different dimensions of the NGO sector are analyzed each year in the NGO Sustainability Index: legal environment, organizational capacity, financial viability, advocacy, service provision, NGO infrastructure and public image. The NGO Sustainability Index uses a seven-point scale, to facilitate comparisons to the Freedom House indices, with 7 indicating a low or poor level of development and 1 indicating a very advanced NGO sector. Source: USAID, The 2005 NGO Sustainability Index for Central and Eastern Europe and Eurasia. Found on line at: http://www.usaid.gov/locations/europe_eurasia/dem_gov/ngoindex/2005/.

CY 2003 Baseline	CY 2004 Rank	CY 2005 Rank	CY 2006 Target
4.5	4.3	4.2	4.0

Impact of U.S. Assistance on the Above Indicator: USG broad civil society assistance and small grants have provided direct support to the NGO sector. While only slight improvement is indicated from 2004 through 2005, it is believed that as Montenegro develops strengthened political and economic institutions, NGO sustainability will progress.

Performance Indicator: Media Sustainability Index 2005. The MSI assesses five "objectives" in shaping a successful media system: 1) free speech; 2) professional journalism; 3) plurality of news sources; 4) business management; 5) supporting institutions. The MSI uses a four-point scale, with a 0-1 range indicating unsustainable, anti-free press, a 1-2 range indicating an unsustainable mixed system, a 2-3 range indicating near sustainability, and a 3-4 range indicating a sustainable, free media environment. Source: USAID/IREX, Media Sustainability Index 2005. Found on line at: http://www.irex.org/msi/index.asp.

CY 2003 Baseline	CY 2004 Rank	CY 2005 Rank	CY 2006 Target
2.31	2.42	2.38	2.6

Montenegro's commitment to economic growth showed measurable results in FY 2006. Gross Domestic Product (GDP) per capita grew at 5%, and sustained growth is expected in 2007. Foreign Direct Investment (FDI) rose to record levels, at $840 per capita, mainly in the tourism, financial, and technology sectors. Unemployment declined, from 20% to 14% of the workforce, as measured by GOM statistics. Other macroeconomic indicators, including inflation, central government debt, and interest rates, showed similar favorable results. However, poverty remained entrenched, if at a comparatively low level - around 11% of the population - and will require serious attention from the GOM. Montenegro's independence in June 2006 was greeted with optimism by foreign and domestic investors, as reflected in double-digit percentage growth in shares exchanged on Montenegro's nascent stock exchanges and rapid appreciation in real estate values, particularly along the coast. Montenegro may be able to accede to the WTO in early 2007 and already has agreement for that step from the EU.

U.S. ASSISTANCE PRIORITIES

USG assistance seeks to support economic reform in Montenegro, aimed at entrenching a market economy to replace the socialist structures left behind by the collapse of Yugoslavia. The GOM's revised Economic Reform Agenda (ERA) illustrates a commitment to a liberalized, open economy with transparent and decentralized democratic institutions. In addition to providing clear reform commitments to the public, the ERA is used by the GOM as a tool for donor coordination. In order to support the successful implementation of the ERA, USG assistance works to increase formal private-sector employment and reduce unemployment in order to reduce the size of the gray economy. Additionally, programs support the development of legislative and institutional frameworks needed to ensure a stable free market economy.

USG programs help the GOM consolidate reform through improved implementation of laws and regulations. Efforts support continued progress toward rationalizing the structure of expenditures, although they remain weighted toward wages and social transfers. USG assistance is also designed to improve analytical capacity and procedures, budget analysis, planning and management, and revenue forecasting. In FY 2006, technical assistance was provided for debt and budget management, WTO accession, and capacity building in trade.

Private sector development programs provided assistance to private firms, business associations, and government counterparts in the tourism, agriculture, and wood sectors, as well as to business-sector NGOs. Program activities also provided crucial assistance to trade and investment policies that will allow Montenegro to participate effectively in the liberalized global trade regime. Community development programs supported existing and new businesses to help create an environment that stimulates economic growth and development with a focus on job and income generation.

A competitiveness project enabled the successful and profitable privatization of the Sveti Stefan resort, a landmark tourist destination. Over 200 community development projects were approved in the fields of agriculture, tourism, MSME development, and the stimulation of local and regional economic environments. The projects resulted in more than 20,000 economic beneficiaries and 260,000 non-economic beneficiary impacts. They also led to the creation of 871 full-time equivalent jobs, including 308 jobs in agriculture.

As a result of USG funded water projects, during the 2006 summer season selected local water utilities reported a 76% decrease in the number of days during the peak tourist season during which there were interruptions of an hour or more of drinking-quality water supply - a significant improvement given that the demand also increased with the increase in tourists. In addition, there were no reported interruptions of the monitored wastewater pump stations. USG programs helped improve water and wastewater services for thousands of coastal citizens. The resulting construction investment and increased tourism had a positive effect on the local economy.

PROGRAM PERFORMANCE/IMPACT

USG assistance played a strong supporting role in the GOM's continuing commitment to broad, macroeconomic reform. By the end of FY 2006, Montenegro's laws and regulations had created a framework that was supportive of a market economy and in line with its aspirations to quickly join the WTO and EU. Problems remained in some areas, with an outdated labor law still imposing significant constraints on the ability of businesses to adapt to changed circumstances. Critically, with strong advocacy from USG-supported NGOs, Montenegro created a level playing field for foreign investors, resulting in record per capita levels of foreign direct investment. Consequently, Montenegro is on track to see real per capita GDP growth in 2006 of almost 7%, with inflation just over 3%. At the microeconomic level, employment is increasing (and unemployment declined from 20% in 2005 to just over 14% in 2006) and real wages are rising at a pace commensurate with real GDP growth.

MEASURES OF PROGRAM EFFECTIVENESS

In order to determine how U.S. Government assistance affects a country, U.S. embassies set targets for improvement called "performance indicators." Data for these indicators are collected by research institutes, embassies and international organizations. By examining data over time, U.S. policymakers can better understand whether or not assistance programs are having the intended impact.

Please find below two important indicators in the area of Economic Growth. In the charts, the "Baseline" refers to a starting point from which to measure progress or regression over time. The embassy and its partner organizations then agree on a "Target" figure that they hope to achieve as a result of U.S. assistance programs. The "Rank" figure is the resulting measurement. "FY" stands for "fiscal year," the period of the U.S. budget that runs from October 1 - September 30 of the following year. "CY" stands for "calendar year," or January 1 - December 31.

Performance Indicator: Foreign Direct Investment (cumulative per capita). Source: USAID/E&E/PO, Monitoring Country Progress in Central and Eastern Europe & Eurasia, March 2006, No. 10. The rating is based on a 1 to 5 scale, with 5 representing most advanced. Analysis derived from World Bank, World Bank Development Indicators 2005; EBRD Transition Report 2005. Found on line at: http://inside.usaid.gov/EE/po/mcp.html.

FY 2003 Baseline	FY 2004 Rank	FY 2005 Rank	FY 2006 Target
2.0	2.0	2.0	($ 840/per capita)

Performance Indicator: Private Sector Share of GDP. This indicator measures the annual private sector output as a percentage of GDP. Source: USAID/E&E/PO, Monitoring Country Progress in Central and Eastern Europe & Eurasia, March 2006, No. 10. The rating is based on a 1 to 5 scale, with 5 representing most advanced. Analysis derived from World Bank, World Bank Development Indicators 2005; EBRD Transition Report 2005. Found on line at: http://inside.usaid.gov/EE/po/mcp.html.

FY 2003 Baseline	FY 2004 Rank	FY 2005 Rank	FY 2006 Target
1.0	1.0	1.5	(72% of GDP)

At the end of the 1990s, Montenegro had an overly-large, inefficient, and isolated police force, widely viewed as abusive and incompetent in the face of both domestic and international organized crime. Crime was seen as unchecked, the borders were under the jurisdiction of the military (itself responsive to Belgrade, not Podgorica), and no control was exercised over money flows into and out of the country. Since 2000, Montenegro has embraced the need for reform, but has needed foreign assistance to move forward.

Montenegro's key challenges in the area of security and law enforcement are improving the effectiveness and reputation of the police and judiciaries, controlling its borders, combating trafficking, halting money laundering and fighting organized crime and corruption. In 2006, Montenegro continued efforts to remove inefficient and corrupt judges from the bench and tackle police corruption and stepped up efforts to halt trafficking in narcotics and persons. Montenegro's Financial Intelligence Unit (FIU) looked to improve regional and international cooperation, to check the inflow of dirty money. Notably, the May independence referendum was untouched by any form of violence or disturbance, in sharp contrast to the violence, disturbances and war that accompanied referenda and independence from Belgrade in all other former Yugoslav republics in the 1990s.

In FY 2006, USG assistance continued to target police reform, border security, and rule of law development. A major USG program supported the renovation of the police training center, a police advisor, and the establishment of a forensic lab. USG assistance trained and provided equipment to law enforcement and judicial bodies in response to new investigative techniques introduced by revisions to the Law on Police and the Criminal Procedure Code. USG assistance continued to support the Montenegrin Financial Intelligence Unit (FIU) and strengthen action taken by Montenegro since 2002 to prevent money laundering.

To support police reform, USG assistance provided training, restructuring advice, and equipment. A U.S. police advisor embedded in the Montenegrin Police Academy worked closely with the Academy, the police, and the Ministry of Interior Affairs to leverage these efforts.

The Montenegrin Border Police was formed in 2001 to assume control over Montenegro's borders from the Yugoslav Army, with the turnover complete in 2003. In FY 2006, the USG's border security program provided the Border Police with professional training and advice, as well as needed equipment. A U.S. customs advisor embedded in the Montenegrin Customs Service worked closely with customs, the police, and the Ministry of Interior Affairs.

USG assistance to enable Montenegro to investigate and prosecute financial crime helped stand up the Financial Intelligence Unit (FIU) as a fully functional organization, capable of close cooperation with both Montenegrin police and prosecutors and FIUs in other countries. The FIU is also the central point of contact in international efforts to freeze the assets of terrorists and others sanctioned by the UN Security Council. The USG is providing additional specialized training for the law enforcement and financial sector.

The presence of a robust anti-money laundering system in Montenegro began to deter dirty money from entering the country. Well-publicized cases such as the conviction and imprisonment of two resident foreign nationals for attempting to launder over USD $1 million in cash, a conviction secured by the tenacity of the FIU in pursuing appeals to a lower court decision dismissing the case, are essential in such deterrence. Without USG assistance the FIU would not exist, nor would the prosecutors have had the professional knowledge needed to make the successful appeal. The FIU has also announced the prosecution of three cases where money laundering was attempted in furtherance of terrorist activities.

PROGRAM PERFORMANCE/IMPACT

In September 2006, fingerprint equipment donated by the USG led to an arrest in Podgorica after a startling attack on a commercial building with a light antitank weapon. A partial fingerprint from the recovered weapon was scanned into the donated equipment; the print was identified within 10 minutes, and the perpetrator arrested within hours - he quickly confessed. Without this system, identification of the print was essentially impossible, and no other clues pointed to the perpetrator. This event was indicative of the improved capacity of Montenegrin law enforcement supported by the USG.

On the borders, USG assistance resulted in a doubling of the amount of narcotics seized. Vehicles and boats supplied by the U.S. pushed smugglers off the lakes and highways, significantly cutting the amount of smuggled goods being brought into Montenegro.

Steady USG support, continued through FY 2006, has helped create a more professional and effective law enforcement community in Montenegro. The increased professionalism was apparent during the independence campaign and referendum, when the police behaved responsibly in a politically charged environment. International and domestic observers alike commended the police's activities in ensuring security for the campaign. Police leadership, accustomed to international oversight, responded quickly and professionally to investigate, explain and, where necessary, correct apparent errors in the conduct of the police during the campaign. The police also took greater steps in FY 2006 to investigate accusations of corruption in the force, and to publicize those efforts. Concerns earlier voiced by regional states that an independent Montenegro would be a "black hole" for criminality faded in the face of Montenegro's demonstrated commitment to fight organized crime and corruption.

Please find below an important indicator in the area of Peace and Security. In the chart, the "Baseline" refers to a starting point from which to measure progress or regression over time. The Embassy and its partner organizations then agree on a "Target" figure that they hope to achieve as a result of U.S. assistance programs. The "Rank" figure is the resulting measurement. "FY" stands for "fiscal year," the period of the U.S. budget that runs from October 1 - September 30 of the following year. "CY" stands for "calendar year," covering events from January 1 - December 31 of the subject year or last calendar year.

Performance Indicator: Global Trafficking in Persons Report country ranking. Tier 1 countries are those whose governments fully comply with the minimum standards of the Trafficking Victims Protection Act of 2000. Tier 2 countries are those whose governments do not fully comply with the Act's minimum standards but are making significant efforts to bring themselves into compliance with those standards. Tier 3 countries are those countries whose governments do not fully comply with the minimum standards and are not making significant efforts to do so. (Source: U.S. State Department Global Trafficking in Persons Annual Report). Found online at http://www.state.gov/g/tip/rls/tiprpt/.

FY 2004 Rank	FY 2005 Rank	FY 2006 Rank	FY 2007 Target
2 Watch-list	2	2	2