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Montenegro Declares Itself Offshore Economic Zone

November 19, 1996

SVETI STEFAN, Yugoslavia (AP) _ Tiny Montenegro has declared itself an offshore economic zone with virtually no limits for foreign investment, despite opposition from big brother Serbia, which could derail the project.

The republic, which forms what is left of Yugoslavia with Serbia, hopes to normalize ties with the West and revitalize its economy, shattered by a trade embargo imposed on Yugoslavia during the Balkan wars.

``The offshore project epitomizes our strategic aim of opening up towards the world,″ Montenegro’s premier Mile Djukanovic said at a formal opening of the zone this past weekend.

Montenegro’s aim is to attract investment through formation of offshore companies that would pay taxes of 2.5 percent to the state, Djukanovic said. Cyprus has had the lowest such taxes in Europe, with 4.25 percent.

Serbian President Slobodan Milosevic, a devoted communist who is effectively the most powerful man in Yugoslavia, is against the idea.

His reasons aren’t clear and officials have refused to comment. Serbia’s state-run media virtually ignored the weekend ceremony.

Also unclear is how far Milosevic will take his opposition. He could derail the whole project through Yugoslavia’s joint federal parliament, which he controls. Already, he has had Belgrade lawyers start court proceedings against Montenegro, arguing that offshore companies are against Yugoslavia’s constitution.

Despite the opposition, Djukanovic and others are optimistic. The premier denied the lawyers’ claims, saying the offshore project was ``compatible with the Yugoslav constitution.″ He assured there would be no problems for investors.

Foreigners could have full ownership and control of their companies and banks in Montenegro if they pay the tax, he said. Other forms of ownership are also possible.

Officials hope most of the new investment will be in tourism and hotels along Montenegro’s beautiful 177 miles of Adriatic coast, said Milutin Lalic, director of Montenegro’s foreign investment agency.

Montenegro is also seeking to rebuild roads and modernize its two main airports, while re-establishing full ties with the International Monetary Fund and World Bank.

In the first year of the offshore project, Montenegro could gain a relatively small sum of $6.6 million, Lalic said. The eventual target is $100 million a year.

That could go a long way in this small, impoverished and mountainous region of just 617,000 people, which has paid dearly for loyalty to Serbia. Its economy _ largely dependent on tourism _ was devastated by the trade embargo imposed against Yugoslavia in 1992 as punishment for Milosevic’s role in instigating wars in Bosnia and Croatia.

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