Post by Bozur on Dec 22, 2008 15:35:45 GMT -5
Europe's ex-poster boy Montenegro faces grim '09
Fri Dec 19, 2008 9:50pm IST
By Dusko Mihailovic
PODGORICA, Dec 19 (Reuters) - After declaring independence from Serbia in 2006, Montenegro became a poster child for Balkan revival, with one of Europe's fastest-growing economies and millionaires docking their yachts in its ports.
Now businesses and officials are worrying that world economic gloom will cloud a once bright future and keep big spending tourists away in the vital summer tourist season.
Just last month officials predicted the nation best known for its scenic Adriatic shoreline and aluminium production would escape the worst of the world economic crisis.
Yet in the past ten days, the International Monetary Fund slashed its 2009 growth forecast, Moody's downgraded its rating and the government bailed out the most prominent bank.
"They've had to review their earlier estimate that they would be able to more or less steer clear of this financial problem," said one diplomat in the capital Podgorica. "That is going to hit them much harder than they predicted."
"Also, in the preliminary figures there are hardly any pre-bookings for the holiday season next year, meaning the summer holiday, so they are already concerned not only for the short term course but also the longer one."
The glum news has marred a week in which Prime Minister Milo Djukanovic -- the longest-serving leader in the Balkans -- applied for European Union membership, fulfilling a long-time promise to strive for a European future.
What a difference a few months make. Since it ended its union with Serbia, Montenegro posted an average growth of eight percent a year, mainly driven by foreign investment, tourism and mining.
Yet this week, amid a slowing of investment projects, the IMF forecast just two percent growth in 2009, far lower than the government's five percent estimate.
"Montenegro's economy is dependent upon foreign investment to such an extent that it becomes a basic element of growth," said Milenko Popovic, a professor at Montenegro Business School.
"The main problem is that such growth is unstable and not sustainable in the long run."
From January 2006 to September 2009, Montenegro lured more than two billion euros in foreign investment, with Russia leading the way. About 50 percent of the investment went into the real estate sector, with property near the sea a big lure.
Over the last three years the country of 650,000 people trailed only Estonia in foreign investment per capita.
SEVERE IMPACT
Montenegro's use of the euro as its currency made it easy to invest -- and for foreign tourists to visit -- but the policy has caused other woes in the current crisis.
Moody's this week cut the country's rating to negative from stable over concern that the central bank cannot secure liquidity because it cannot produce euros.
"Moody's believes the combination of adverse shocks is likely to have a severe impact on the country's economy, and will weaken the government's financial strength to an extent that will be difficult to reverse over the medium term," it said.
It added that the shock will cause a severe economic slowdown, increasing pressure on the budget and liquidity.
The banking sector was the first to be hit by liquidity problems. The government last week granted a 44 million euro ($61.42 million) bail out loan to Prva Banka, in which Djukanovic's company has a personal stake.
A feared tourism slump next summer could further slow the inflow of foreign cash -- and cause investors to be more wary.
Finance Minister Igor Luksic said the government is negotiating with international institutions such as the World Bank, the European Bank for Reconstruction and Development and the European Investment Bank to secure long-term loans that would enable commercial banks to revive their credit lines.
The problems accumulated when Montenegro's only aluminium smelter KAP, which accounts for 15 percent of GDP and 50 percent of exports, said last month it would cut its production by half in 2009. (Additional reporting by Adam Tanner; Writing by Ivana Sekularac; Editing by Christian Lowe)
in.reuters.com/