A Highway in Montenegro and the Struggle with China

While we are on the subject of infrastructure, I want to take a moment to talk about how a highway in little Montenegro is playing out in the larger geopolitical struggle with China.

Montenegro is the smallest country in the Balkans, with a population of just over 600,000. It is also the second most recent member of NATO, which Montenegro joined in 2017, filling in NATO’s control of the Adriatic coast. It was briefly in the spotlight back then when Donald Trump rudely pushed past Montenegro’s Prime Minister Duško Marković at a NATO summit.
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For much of its existence as an independent country, Montenegro has been ruled by Milo Đukanović and his Democratic Party of Socialists (DPS). Đukanović has served alternatively as prime minister and president ever since the early 1990s, and is regarded by many as both a kleptocrat and authoritarian. I met Mr. Đukanović back in 2019 when we taught a Leadership Academy for Development (LAD) program in Podgorica. Freedom House now ranks Montenegro as a hybrid regime rather than a democracy. Nonetheless, the DPS was narrowly ousted in a parliamentary election last August, and replaced by an opposition coalition.

The Bar-Boljare Highway was originally conceived as part of a larger Adriatic-Ionian Highway that would eventually link Italy to Greece through several western Balkan states. Neither the European Union nor the countries involved could reach an agreement on the project, however, and Montenegro was approached in 2013 by the China Road and Bridge Corporation (CRBC) and the China Exim Bank to finance and build part of a 169.2 km road between the port of Bar in Montenegro with the city of Boljare in Serbia.

This project was controversial from the beginning. A number of private Western contractors considered bidding on it, but banks that would fund them decided that the tolls from the road would not begin to repay its expected costs, which were at the time estimated at close to one billion euros. The Chinese were happy to step in, however, as part of their 16+1 Forum (now 17+1) to build influence in the EU’s back yard. This single project raised the country’s debt-to-GDP ratio from 61 to 69 percent. We wrote a LAD case about it that you can read here, and taught it as part of our program in Podgorica. At the time it was hard to find any of our students who thought the project was a good idea, but Đukanović was running the country autocratically and there was no way of stopping it.

These chickens have now come home to roost. Montenegro’s debt-to-GDP ratio now stands at over 103 percent, and it is facing the prospect of a sovereign default. The newly elected government has appealed to the EU to bail it out, which would mean Europe bailing out the China Exim Bank, which holds 17 percent of the country’s total external debt. Montenegro is a small part of a larger phenomenon of developing countries finding themselves over-indebted to China, and going hat-in-hand to Western financial institutions to avoid the prospect of having to turn over collateral to the Chinese. This has already happened with Sri Lanka and with Pakistan, the latter of which became subject to an International Monetary Fund bailout last year.

The EU initially turned down Montenegro's request. One would normally bridle at the prospect of IMF or EU money going to support Chinese-financed projects that were deemed excessively risky and economically unviable at the time they were negotiated. Some have argued that China has deliberately entered into these deals as part of a strategy of “debt-trap diplomacy” with an eye to seizing assets down the road. Many were negotiated by autocratic and/or corrupt governments that ignored Western cautions in hopes of making quick political gains.

And yet, the issue is not nearly as straightforward as it would seem. The chokehold of Đukanović’s DPS on Montenegro was finally broken by a slender margin, and the new government desperately wants to demonstrate that alignment with Europe can be a serious alternative to China. As Stefan Vladisavljev has argued, neither the EU nor the U.S. have been able to offer much of an alternative in countering the Belt and Road Initiative, and Montenegro represents a relatively small investment to win back a strategically important country.  The EU could still change its mind. The final epilogue to the case of the Bar-Boljare Highway has not been written.