The breakup of Yugoslavia left the Montenegrin industrial sector reeling as production was suspended and the privatization program, begun in 1989, was interrupted.  

While little progress has been made in Serbia, the first phase of the Montenegrin program is almost complete. Yugoslavia's unique system of social ownership - under which everybody effectively owned everything and nothing in the same time - has made privatization in the F.R.Y. a more complex and difficult affair than in other transition economies.  

The Montenegrin solution has been to transfer majority ownership to three state-managed funds, with employees retaining a minority holding. Ten per cent of an enterprise's shares are allocated to the workers, who have the right to purchase an additional 30 per cent at a discounted rate (usually between 15 and 20 per cent of the full price). The remaining 60 per cent is split between three state-managed funds. The Development Fund receives 36 per cent, the Pension Fund 18 per cent and the Unemployment Fund 6 per cent. The funds are required to sell their entire stake within five years of the restructuring of an enterprise, with a minimum 20 per cent sold each year. By mid-1996 this first phase, begun in 1991, was almost complete with 96 per cent of enterprises transferred from social ownership to the funds and employees.  

The next stage-finding buyers-is proving more formidable. Domestic sources of capital were either exhausted during sanctions or remain frozen in oversees accounts, so the success of the program is dependent on the arrival of foreign investors. Another problem is that while the ownership structure has changed, communist era practices have not, with a shortage of management, financial and marketing skills hampering progress. Resistance from employees, management and unions is also obstructing reforms, making the arrival of foreign capital and techniques imperative. Until they do, the government's structural reforms 'will amount to little more than paper privatization'.  

The Yugoslav system of payments and financial assessment is also an unwanted relic of the central planning system, making it difficult to evaluate the true performance and assets of an enterprise. With the success of a company judged on turnover rather than profit 'there is problem with communication with foreign companies' (Milutin Lalic), with one side talking of income while the other is concerned with profit. Until international accounting standards are adopted, foreign investors remain wary of any figures submitted by Montenegrin companies, only gaining a realistic picture once an audit has been carried out according to international principles (Business Europe No 18 Oct/Nov1996).