Highway to nowhere
> Chinese loan for project burdens Montenegro, forces it to raise taxes
PODGORICA: Perched atop massive cement pillars that tower above Montenegro’s picturesque Moraca river canyon, scores of Chinese workers are building a state-ofthe-art highway through some of the roughest terrain in southern Europe.
The government has described the 165km highway, with its imposing bridges and deep-cut tunnels, as the construction of the century and a pathway to the modern world.
It is designed to link the port of Bar on Montenegro’s Adriatic coast to landlocked neighbour Serbia.
But once the first, challenging 41km stretch through mountains north of the capital is completed, the government faces a difficult choice.
A Chinese loan for the first phase has sent Montenegro’s debt soaring and forced the government to raise taxes, freeze public sector wages and end a benefit for mothers to get its finances in order.
Despite those measures, Montenegro’s debt is expected to approach 80% of gross domestic product (GDP) this year and the International Monetary Fund says the country cannot afford to take on any more debt to finish its ambitious project.
“There is a big question about how they complete it,” said an EU official who requested anonymity.
“Their fiscal space has shrunk enormously. They have strangled themselves. And for the time being this is a highway to nowhere.”
The road is at the heart of an intense debate about Chinese influence in Europe, both within EU member states and countries aspiring to join the bloc such as Montenegro and its Western Balkan neighbours Serbia, Macedonia and Albania.
As Beijing extends its economic reach under the ambitious Belt and Road Initiative, poor countries across Asia and Africa have seized on attractive Chinese loans and the promise of transformative infrastructure projects.
This has allowed them to develop in ways that may not have been possible without access to China’s vast foreign exchange reserves.
But some countries have found themselves weighed down by debt and ever more reliant on Beijing’s largesse.
Montenegro is the first country in Europe to find itself in this position as its government presses on with its dream of a gleaming new highway to lead the nation to a brighter future.
Some 3,605 workers are busy building the first section of the highway. Roughly two-thirds of them are from China Road and Bridge Corporation (CRBC).
The 809 million euros Montenegro received from China’s Export-Import Bank covers 85% of the cost of the first section of the road.
The dollar-denominated loan carries a 2%t interest rate, 20-year repayment schedule and six-year grace period – attractive terms but a major long-term burden for a country of roughly 620,000 people.
Under the terms of the contract, an arbitration court in China would have jurisdiction in the event of any legal dispute.
CRBC won commitments that all imported construction materials, equipment and other goods be exempt from customs and value-added tax.
Chinese workers were given 70% of the work.
Because the government did not hedge against currency swings and omitted a vital turnpike from its original blueprint, the cost has continued to rise.
It is now approaching one billion euros, nearly a quarter of Montenegro’s GDP.
The remaining threequarters of the highway will plough through less mountainous terrain. The IMF estimates it will cost another US$1.2 billion to complete.
Prime Minister Dusko Markovic said it will be finished at any cost and promised to deepen cooperation with China in other areas, including hydropower and tourism.
But opposition politicians are worried – about the nation’s finances and about China’s role.
United Reform Action party head Dritan Abazovic worries the deal will end up giving Beijing much more influence over Montenegro. – Reuters