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Western banks help Montenegro escape from the Chinese “debt-trap”

In a move to counter China’s attempts to build influence in Montenegro and in the Balkans, Western banks have finally agreed to help the Montenegrin government in repaying a huge debt it has contracted with Beijing for the construction of a highway, connecting the port city of Bar to Serbia, which is being built by the state-owned China Road and Bridge Group as part of the so-called Belt and Road Initiative (BRI).
In 2014, Montenegro borrowed funds from the Chinese Exim Bank of China to build the first stretch of the motorway (a 41-kilometre portion), despite warnings of international institutions such as the World Bank and the International Monetary Fund, that deemed it commercially non-viable. In total, Podgorica borrowed around 1 billion euros from China to carry out the project and, as a result, China currently holds about one-quarter of Montenegro’s total debt, that is now beyond 100% of GDP in 2020. The growing Montenegrin debt raised concerns about the financial stability of the Balkan country, already a NATO member and the most advanced in the region in the process of EU integration.
In Spring, Montenegro officially pleaded for help to the European Commission, asking for assistance to settle the debt. The new deal with some Western banks, French and American, was “not a classic replacement” of the Chinese loan with the Exim Bank but effectively reduced interest rates from 2% to less than 1%, Montenegrin Finance Minister Milojko Spajic said, speaking of an “incredible success.” The US authorities praised the arrangement, while Beijing suggested to Washington to care about their own business, noting that the relations between China and Montenegro remain friendly. Furthermore, the Chinese embassy in Montenegro said that the project’s high cost was a reflection of the engineering challenges and the unfavourable geological conditions in the area.
Montenegro represents one of the clearest examples of the so-called “debt-trap diplomacy” China is using to extend its influence in the Balkans and beyond, by offering considerable funds to local authorities to build large infrastructure, with the risk of making the receiving countries economically and politically dependent from Beijing.
According to a research by the Center for Global Development, Montenegro is one of the countries that was bound to suffer from debt distress due to the BRI initiative, together with Djibouti, Kyrgyzstan, Laos, the Maldives, Mongolia, Pakistan, and Tajikistan, but also “in Belarus, Bosnia and Herzegovina, Ethiopia, and Kenya, there could be an increase in the risk of debt distress in the short-term due to BRI-related projects,” the Center said.
China is becoming one of the most active external actors in the Balkans in recent years, financing coal-fired power plants in Bosnia and Herzegovina, infrastructure projects in North Macedonia and industry, energy, transport and mine-related investments in Serbia, where President Aleksandar Vucic defined the friendship with China as “made of steel.” In Belgrade, the Chinese telecommunication giant Huawei built also a system of surveillance cameras that might be used in the future in other areas in the Balkans. “While Beijing supports EU accession of the region, its activities raised suspicion within the European Union that China may exploit its economic heft for political gains,” the Munich Security Conference warned back in 2019.

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