Montenegro : The Challenges of a Newborn State

After the peaceful passing of a referendum that dissolved the Union of Serbia and Montenegro in May 2006, people flocked to the streets to celebrate the establishment of Montenegro as a newly independent republic of about 630,000 people. While still part of the union with Serbia, Montenegro had started an economic reform program. The reforms that have taken place have focused on stable monetary policy, protection of property rights, lowered barriers to trade, decreased business regulation, and equal rights for foreigners within the country.The country is now at a crossroads. Montenegro can continue its reform process and tackle the big challenges ahead (including reforming its labor markets, public finance and public sector management, business regulations, and constitutional rules) or it can follow the path of many former socialist countries and eventually stifle the reforms. Most importantly, Montenegro must decide whether to join the European Union and whether to amend its constitution in order to protect its institutional reforms.During this time, Montenegro can learn from other countries' experiences. The Estonian experience shows that following liberal reforms can have a significant positive impact on economic growth. The New Zealand case provides an instructive example of governmental discipline for a small and transitioning country.Montenegro's small size puts it at an advantage to continue the liberal reforms it has already started and from which it has benefited. If it follows best practices in the reform process, the country can strengthen its institutional framework in order to foster entrepreneurial activity. Montenegro could become the first Mediterranean tiger and thereby inspire transitioning countries around the world