China defends its US$944 million loan to Montenegro for motorway project
- Sum is less than 25 per cent of Balkan nation’s total debt, and relatively high cost of project due to ‘unfavourable geological conditions’, Chinese embassy in Podgorica says
- EU said earlier it would not pay off Montenegro’s debts
“Montenegro has taken out a loan of US$944 million from China for the construction of the [Bar-Boljare] motorway, which is less than a quarter of Montenegro’s total debt, and the interest rate on the Chinese loan is only 2 per cent, which is relatively low in relation to Montenegro’s total debt,” the embassy said on its website in response to inquiries from EU Observer, an online newspaper based in Brussels.
The claim is in line with the Montenegro government’s own figures, which put the nation’s external debt at US$3.69 billion in the third quarter of last year.
“The geological conditions … are very unfavourable, which is the fundamental reason for the relatively high cost,” it said.
It also claimed the motorway was “the largest infrastructure project since Montenegro’s independence” and “of great importance for the long-term development of tourism … the improvement of the imbalance in regional economic development and the strengthening of Montenegro’s connectivity with European countries”.
The statement was unusual in that China rarely releases details of its loans to foreign countries.
The EU said on Monday it would not help Montenegro to repay the loan, which was signed with the Export-Import Bank of China in 2014, but French Secretary of State for European Affairs Clement Beaune on Tuesday adopted a different tone.
“A textbook case on our doorstep. We are working on it with the European Commission: find support and reduce dependence on #Chine in the Balkans. This must mark an awareness of the mirage aids provided by our competitor,” he said on Twitter.
According to an earlier report by the Financial Times, the Bar-Boljare motorway is one of the most expensive roads in the world at an estimated cost of US$23.8 million per kilometre.
Beijing has long been accused of engaging in so-called debt trap diplomacy, and the statement by the embassy in Montenegro echoed its official defence that the loan came with neither “geopolitical motives nor political strings”.
Montenegro’s financial problems come as no surprise to Matej Simalcik, executive director of the Central European Institute of Asian Studies.
“The country was repeatedly warned that the highway project was not feasible, but nevertheless it decided to accept Chinese finance for it as a sort of ‘plan B’ after Western creditors refused to finance it,” he said.
Jonathan Hillman, director of the Reconnecting Asia Project at the CSIS think tank in Washington, said the highway pointed to the “moral hazard” of the belt and road plan.
“One of the most difficult things is to prevent projects that shouldn’t actually be projects from happening,” he said.
“If someone wants to pay for it, the political incentives are so aligned to allow things to proceed. So in Montenegro’s case we’re talking about a project that had two feasibility studies that suggest that it wasn’t going to be viable, done by a previous political leadership,” he said.
Feasibility studies conducted in 2006 and 2012 concluded that the project lacked economic viability and both the European Bank for Reconstruction and Development and the European Investment Bank expressed no interest in funding it.
Nonetheless, Simalcik said the EU had been left in a “sort of lose-lose situation” as it sought to curb Chinese influence in the Western Balkans while promoting responsible fiscal behaviour among prospective members.
“Either it bails out Montenegro and saves the situation despite repeated past warnings that the project is not sustainable, or it will let Montenegro deal with the problem on its own and will have to face a situation in which a bankrupt state is located on its borders.”