Montenegro first ‘Chinese debt diplomacy’ victim,’ after EU refuses aid

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The European Union has said it will not help Podgorica repay the billion-euro Chinese loan, making Montenegro the first European victim of 'Chinese debt diplomacy', the Frankfurter Allgemeine Zeitung has reported on Tuesday.

„A billion Euro loan is a lot of money. Especially when the country has an annual GDP of four billion,“ the newspaper wrote as carried by Deutsche Welle (DW).

Official Podgorica has asked Brussels’ aid to repay the previous government’s loan from China in 2014 for a motorway section.

But Brussels responded the EU did not finance loans from third countries and could offer favourable loans for other sections of the road instead.

The Bar – Serbia’s border motorway should be 177 kilometres long. According to the International Monetary Fund (IMF), the part from Podgorica to the northern town of Kolasin already cost a billion Euro, and the rest could be more expensive.

According to FAZ, the coronavirus epidemic has crippled a small Balkan country’s economy heavily depending on tourism. The World Bank expects three percent growth in Montenegro this year.

The first instalment of the loan from the Chinese Exim Bank with an interest rate of two percent is due by mid-2021.

„It seems Montenegro has become a victim of Chinese debt diplomacy that is emerging around the New Silk Road,“ FAZ reported.
„It’s no surprise,“ Sebastian Horn, a researcher at the Institute for World Economy at Kiel University, said.

„The motorway financed and built by China had an unrealistic assessment of profitability from the beginning and exceeded the country’s ability to borrow,“ Horn told FAZ.

He recalled that several countries sought financial support from international organisations in the previous months due to debts to China. Among them are Ecuador, Kenya, Ethiopia and Pakistan.

Mario Holzner, head of Vienna’s WIIW think tank dealing with Eastern Europe, recalled that China had reserved Montenegrin land as collateral if the loan was not repaid.

„Of course, the EU has a chance to bind Montenegro to itself in the long run if it financially supports the country,“ Holzner said.