Montenegro is weeks away from reaching an agreement with European and American banks to swap or refinance roughly $1 billion in debt due to China, with the goal of lowering the loan’s interest rate to below 1%, Economy Minister Jakov Milatovic told Reuters.

In 2014, Montenegro borrowed $944 million from China to finance a 41-kilometer (25-mile) stretch of road, dubbed the “Road to Nowhere” by opponents of then-Prime Minister Milo Djukanovic, who claimed it exemplified waste during his administration, an assertion he refuted.

Prime Minister Zdravko Krivokapic, who came to power in December, is seeking to reduce the cost of the Chinese debt which has a 2% interest rate and reduce currency risk as the loan is denominated in U.S. dollars, Milatovic said.

“We are negotiating with a number of Western banks from Europe and the United States. We are for sure going to do it with the Western banks,” Milatovic, 35, said, adding that he was seeking an interest rate of “less than 1%” for the debt.

“There are two options: the first is to refinance, the second is to swap the loan, or the third option is to do part of the first one and part of the second one,” he said. “We believe we can get much better terms – I am very optimistic about it.”

Milatovic refused to name the European or American banks, but when asked how soon a settlement may come, he answered, “Soon – I guess weeks.”

According to Reuters, Montenegro is banking on European Union funds to help it pay off its Chinese debt.

The Chinese loan was taken out in 2014 with a six-year grace term and a 14-year additional maturity from the state-owned Export Import Bank of China. The principal is currently being paid off.

According to a person familiar with the negotiations, Montenegro is likely to swap the debt and continue refinancing talks, then terminate the swap once the refinancing talks are successful.

‘CAPTURED STATE’

Nestled on the shore of the Adriatic, Montenegro has for centuries tumbled with the vicissitudes of great powers, though after seceding from a state union with Serbia in 2006, Montenegro joined NATO in 2017 and hopes to be an EU member this decade.

Prime Minister Krivokapic, a 62-year-old former engineering professor, said Montenegro was for the first time in decades entering into a democratic transition towards what he cast as a Euro-Atlantic future along the lines of Luxembourg.

Krivokapic said his biggest challenge was to establish rule of law in Montenegro which he said had in essence been “captured” by criminals and ensnared in corruption for years.

“International organized crime has been present in Montenegro and as a small country we cannot tackle this problem on our own,” Krivokapic said. “Zero corruption is the formula for the work of this government.”

TOURISM

Montenegro’s economy collapsed 15% in 2020, one of the biggest drops in Europe, as the COVID-19 pandemic cut off tourism.

“We are now seeing a strong recovery of our tourism sector,” Milatovic said. Tourism activity is around 70-80% of the 2019 level, with a full recovery of the sector expected by the end of 2022.

The government predicts that the economy would grow by 10.5 percent in 2021, with inflation of around 2%, and by 6-7 percent in 2022.

According to Milatovic, Krivokapic’s government inherited poorly operated state firms, hence ministers are considering the creation of a properly run national holding company to handle the assets.

“This is something Greece accomplished during its recovery phase – it’s the appropriate route to go in order to privatize some assets, make some state-owned firms more effective, and, at the end of the day, offer a return on assets for taxpayers.”

“Some assets would be sold, while others would be managed by the holding,” he explained.