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How a Chinese-built highway drove Montenegro deep into debt

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The section of highway that threatens to cripple Montenegro’s economy begins in the foothills outside the capital Podgorica, where scaffolding lines a multi-lane expressway closed off to the public. The highway ends, for now, in the remote mountainous terrain east of the city.

The Chinese state-owned company hasn’t finished construction yet, so cars are using the old road underneath it. The highway hasn’t been paid for yet, either. The first installment of the $1 billion loan from a Chinese state bank is due in July, and it’s unclear whether Montenegro, whose debt has climbed to more than a 100% of its gross domestic product due to this project, will be able to afford it. What’s worse, says the country’s former Justice Minister Dragan Soc, once completed, the road won’t lead anywhere anyway. “We make a joke: It is a highway from nothing to nothing,” he says.

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The project — a 25-mile section of a proposed 270-mile highway that would run from Montenegro’s Port of Bar on the Adriatic Sea to Belgrade, the capital of neighboring Serbia — is not only raising questions about decisions made by Montenegro’s previous leaders and unsustainable debts associated with China’s ambitious infrastructure and trade initiative across several continents. It also has implications for China’s growing influence along the European Union’s periphery, and whether the EU missed an opportunity to help Montenegro out.

Can’t afford it

Montenegro’s government says the first section put it in so much debt that it can no longer afford to build the rest of the highway. “I think we will pay not maybe this generation, but future generations,” says Soc, the former justice minister. “But I don’t think this is a problem from China. It is our bad decision.”

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He’s not the only one blaming the country’s previous government for catapulting the country into historic debt with this project, which was signed in 2014 with the China Road and Bridge Corporation, and funded by the Export-Import Bank of China. “We are now [a] victim of the extremely bad decision of the former government,” said an exasperated Montenegrin Deputy Prime Minister Dritan Abazovic to Euronews this spring in an effort to appeal to the EU to come to Montenegro’s rescue; the country aims to be an EU member one day.

A copy of the loan contract reviewed by NPR shows that if Montenegro is not able to repay China’s state-owned Export-Import Bank on time, the bank then has the right to seize land inside Montenegro, as long as it doesn’t belong to the military or is used for diplomatic purposes.

In addition, Montenegro’s former government signed off on allowing a Chinese government court to have the final say on the execution of the contract. Deputy Prime Minister Abazovic told Euronews in May that he finds the terms incredulous. “This is not normal,” he said “This is out of any kind of logic of national interest.”

China’s ambitions

Another source of confusion is why China was interested in this project in the first place. For years, Montenegro had plans to build this highway but European banks weren’t interested in lending the money because they didn’t believe they’d be paid back, says Milica Kovacevic, president of the Center for Democratic Transition, an advocacy group in Podgorica. Kovacevic has spent her career studying Russian investment and influence in Montenegro. “We completely understand Russian policy towards the region, and it didn’t change for hundreds of years,” she says. “It was never to occupy. But it was to destabilize and to prevent from any Western integration that was at the time, whether that was in the Austro-Hungarian Empire or now the EU and NATO. So, we knew the goals. We could prepare for that. For China, I don’t think that anyone understands what is the final goal.”

But Stefan Vladisavljev, a program coordinator for the think tank the Belgrade Fund for Political Excellence, believes he knows. For years, he has kept track of Chinese-funded projects in his home country of Serbia. He sees broader political goals for Beijing, especially in the case of Montenegro, where, despite its pleas to the EU, Brussels refused to help repay the country’s loan to China.

“This was a good chance for Brussels to gain some ground in the region,” Vladisavljev says. “It was a good chance for Brussels to show its dedication to the region.”

He says by not helping Montenegro, the EU has ceded potential influence to China, which has economic leverage over the country and the region, and whose presence there underlies broader political plans. “The fact that the Western Balkan countries are not part of the European Union gives them the opportunity to create their foreign policies and their national policies outside of the EU framework,” says Vladisavljev. “So it’s easy way in to the European territory. It is the easy way in to establishing a sphere of influence into the immediate neighborhood of the European Union.”

And that’s something China’s been hard at work at in the region for years. Under its Belt and Road Initiative, Beijing has purchased the Greek port of Piraeus, turning it into the second-largest port in the Mediterranean, and it’s also constructing billions of dollars-worth of highways and railways, including a planned high-speed railway connecting Belgrade and Budapest.

China’s Embassy in Montenegro declined an NPR interview request, and so did several members of Montenegro’s government. Vladisavljev believes the government’s sudden silence — after it reached out to the global press when it needed the EU’s help earlier this year — is a sign that Montenegrin officials are in talks with Beijing to restructure the terms of the loan. That’s something Beijing has done with other Belt and Road projects in the past year.

“Like buying a Ferrari”

Meanwhile, outside of the capital city, Chinese construction crews put the finishing touches on a tollbooth and tunnel of the new stretch of highway. Mladen Grgic, an associate researcher at the European Institute for Asian Studies, says for all its problems, it is the nicest road his country has ever seen. “For Montenegro to have such a highway, it’s like buying a Ferrari with the average salary,” he says. “And then you are thinking, oh, I might not have money for the gas.”

Grgic is finishing his doctoral thesis on Chinese projects like this one in the Balkans, and he says all of them have one thing in common. “These kinds of projects are always political,” he says. “And it’s basically how everything is done in the Balkans. You use public money to redistribute them to your crony network … and then use it for political purposes, and so on.”

Now, he says, this corruption is made easier with the money from a rising superpower eager to wield influence.

Abazovic, the deputy prime minister, said in the interview in May that he was open to launching an investigation into alleged corruption among members of the previous government over the Chinese-built highway. But that was before he stopped speaking to the international press; before the EU rejected his request for help; before his government entered into talks with Beijing over how to repay the money it owes China.

So far, no such corruption investigation has been launched, NPR writes.

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