Tue, 03 Aug 2021

PODGORICA -- A European financial institution is prepared to help refinance Montenegro's $1 billion debt to China, which the Balkan country incurred over a controversial highway project.

Montenegrin Finance Minister Milojko Spajic said the low-interest credit from the financial institution will allow the cash-strapped government make savings and cut interest rates. He also told a session of the parliamentary Finance and Budget Committee on June 17 that a nondisclosure agreement prevented him from revealing the lender, but that talks were 'in the final phase.'

A European Union source told RFE/RL that an agreement on providing credit is in the process of being finalized and, once finished, will be signed by European Commission President Ursula von der Leyen.

A refinancing agreement could bring an end to the ongoing uncertainty over Montenegro's debt with China and its relations with the EU.

The long-delayed and still-incomplete highway -- for which the loan was given -- and the small Balkan nation's debt to the Export-Import Bank of China are at the heart of a heated debate on Chinese influence in Europe.

SEE ALSO: No Clear Option For Montenegro As It Tries To Repay $1 Billion Highway Debt To China

China's presence in the Balkans looms large and has increased in recent years, with the country investing billions into the region and raising concerns about financial dependence on Beijing that could complicate the EU's eastward expansion and Montenegro's hopes of joining the bloc.

Stefan Vladisavljev, an analyst at the Belgrade Fund for Political Excellence, told RFE/RL that refinancing Montenegro's debt will help counter China's growing influence in the Balkans.

'Montenegro is more important to the EU than it is to Beijing,' Vladisavljev said. 'This [credit] is a common-sense step for Brussels.'

But he said the EU 'missed an opportunity' by stepping up to help Podgorica stabilize its finances only after Montenegrin officials repeatedly asked for assistance to manage the country's debt.

'The response should be more decisive,' Vladisavljev said. 'Still, it is a good thing that the EU is looking for a potential mechanism to assist Montenegro, and it should help improve the bloc's image [in the Balkans].'

The Highway Debt

Montenegro borrowed $1 billion from China in 2014 to fund the first portion of a 163-kilometer motorway to neighboring Serbia. The project itself is divided into three sections, with the Chinese loan only covering the first 41 kilometers.

The first section of the highway was originally due for completion in 2019, but construction delays and the COVID-19 pandemic have pushed the deadline back to November 30.

A section of the new highway connecting Montenegro's Adriatic coast to landlocked neighbor Serbia.

Despite failing several feasibility studies, the project received the green light from then-Prime Minister Milo Djukanovic's government, who took out the massive Chinese loan to fund the highway.

Djukanovic is now Montenegro's president and the current government -- which was narrowly voted into power in December -- is made up of opposition parties that mostly opposed the highway project and have since searched for a financial solution to the mounting debt.

Deputy Prime Minister Dritan Abazovic first publicly raised concerns about the country's debt obligations in March, when he told Montenegrin lawmakers that the EU should help pay off the loan to protect the country from becoming dependent on China.

The EU, however, declined to directly help with the loan, but Reuters reported on June 11 that Brussels was looking to rely on some combination of Germany's Reconstruction Credit Bank, the French Development Agency, and Italy's CDP investment bank to provide financial aid and help Montenegro with refinancing.

Montenegro's government -- a fractious coalition that holds a thin margin in parliament -- is currently juggling a host of political and economic issues while attempting to stabilize its finances.

Montenegrin Deputy Prime Minister Dritan Abazovic (left) meets with EU foreign affairs chief Josep Borrell in Brussels earlier this year.

The tourism-dependent country's economy contracted by 15.2 percent in 2020, according to the International Monetary Fund, due to restrictions on travel caused by the coronavirus pandemic. But current forecasts show Montenegro's economy could grow by 9 percent in 2021.

China holds approximately one-quarter of Montenegro's total debt, which reached 103 percent of GDP last year.

Beijing agreed to defer repayment of Montenegro's first tranche of the loan, which was originally due in July, but has now been pushed back to late 2022.

China And The EU

Finding a solution to Montenegro's economic problems is a test for Brussels's standing in the Balkans and the EU's willingness to counter China's deepening footprint on its periphery, analysts say.

'There is no doubt that China is the main factor guiding the EU's decision making,' Vuk Vuksanovic, a researcher at the Belgrade Center for Security Policy, told RFE/RL. 'Montenegro can be an easy but very big geopolitical [win] for China in the region. The damage to the EU's interests in the region will be irreparable if it does not step up.'

SEE ALSO: Europe Signals Harder Line On Beijing With Frozen EU-China Trade Deal

Montenegro, which became an independent country again when it broke away from Serbia in 2006, joined NATO in 2017 and is working to get the green light to join the EU.

Like many countries in the region, it also has strong ties to Russia and has increasingly looked to China -- under the guise of Beijing's Belt and Road Initiative -- for investment and to build infrastructure in the last decade.

Vuksanovic says EU credibility in the region will hinge on how Brussels continues to assist its small neighbor in the Balkans.

'It gives the Montenegrin government more breathing space and better maneuverability in dealing with debt towards China,' he said.

'Although, China is not entirely the loser here. Let's not forget that it will be paid in the end.'

Copyright (c) 2018. RFE/RL, Inc. Republished with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave NW, Ste 400, Washington DC 20036

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