Montenegro will be burdened by a large debt to China

In the coming years Montenegro will be under a significant burden due to a large debt to China for the Bar-Boljare highway project. Fiscal and management risks stemming from growing dependence on China could jeopardize Montenegro’s geo-strategic orientation and democratic development.

This is the main conclusion of the analysis “Vulnerabilities to Chinese influence in Montenegro” carried out by the Center for Democratic Transition (CDT) with the support of the Center for International Private Enterprise (CIPE) from Washington. The Report presents an analysis of the Chinese influence in Montenegro from economic perspective, with a focus on the issue of corrosive capital – a term used to denote financing that is insufficiently transparent, responsible and market-oriented. In the analysis, special emphasis is placed on the Bar-Boljare highway project, due to its notable share in the country’s external debt.

The loan the Government of Montenegro assumed from the Chinese EXIM Bank to finance the construction of first section of the Bar-Boljare highway has already dramatically increased the state debt. Under the burden of such a high public debt, Montenegro is finding it increasingly difficult to obtain funds on the financial market and is already borrowing at interest rates that are less favorable than those available to its neighbouring countries. Consequently, autonomous and fully independent decision-making on strategic issues of economic development is hindered.

Lasting transition of a society jeopardizes the autonomy of a state and/or its institutions if it mainly depends on the economic or political influence of foreign states. Such influence can only be resisted by strengthening democratic institutions and procedures. In this way, Montenegro can take a step out and away from the scope influence of authoritarian regimes and their interests to which it has been exposed for the past 15 years.

Montenegro needs to introduce effective financial policies to prevent malignant foreign policy influences. Mechanisms to prevent corruption, illegal financing and money laundering also need to be improved to reduce the possibility of political elites capturing economic resources. Creating a transparent database of companies, foreign investments and real estate would help identify corrosive or illegal capital inflows to the country.

The first step of the new Montenegrin government in resolving problems identified should be to publish the full set of highway project documents. It is necessary for the Assembly to be fully acquainted with the details of the financing of projects implemented on the basis of intergovernmental agreements, with which use the previous government had bypassed national regulations on public procurement. General public must be informed about the potential problem that the Government has brought us into by accepting the extremely unfavourable and humiliating provision of the agreement on the jurisdiction of the Chinese court in case of a dispute.

Montenegro must be cautious in valorising its resources, especially when it comes to investments in the production of electricity from coal, hydropower, wind farms and solar power plants. Although we do need large development projects, we must avoid becoming excessively dependant on the capital of any foreign country, particularly the capital concentrated in key industries.

Decision on whether foreign capital should be allowed to enter key industries must be assessed from the perspective of national security and economic development. Montenegro needs to establish an effective investment verification mechanism. Investment screening should be mandatory for investments in sectors that are crucial for the Montenegrin economy, i.e., it must cover foreign investments in domestic industries of strategic importance and in critical infrastructure, such as energy production and supply, tourism, real estate market, transport, telecommunications, minerals, and media. The investment control mechanism must be clearly aligned with the country’s strategic orientation and it should prevent Montenegro from assuming additional loans that are not in line with EU regulations.

For the purpose of drafting this report, its authors used official documents, statistics, open-source data and interviews with experts in this field, all in order to initiate a dialogue on the shortcomings in democratic and economic governance that make Montenegro vulnerable to adverse foreign activities. The aim is to encourage all stakeholders to contemplate on possible solutions to remedy the identified management shortcomings. Full analysis is available here.

CDT President

Milica Kovačević