Montenegro's new gov't faces economy, graft challenge

(PODGORICA) - Montenegro's centre-left coalition Monday looked set to form a new government a day after winning a vote, faced with the task of reviving the ailing economy and fighting graft to keep the tiny Balkans nation on the EU accession path.

Estimates put the ruling coalition led by political veteran Milo Djukanovic's Democratic Party of Socialists in a comfortable lead with more than 46 percent of the vote.

Economic analyst Vasilije Kostic said that, in the Adriatic coast nation of 625,000 people, "one of the main tasks ahead for the new government will be the fight against corruption and organised crime".

"This fight is a key factor for economic progress and the modernisation of Montenegro. If corruption increases, that will destroy the economy because serious investors will not come," Kostic said.

He added that the nation urgently needs foreign capital.

The European Commission in an annual progress report noted that Montenegro, which started EU accession talks in June, should make more efforts to uphold the rule of law and fight organised crime and corruption.

Djukanovic, a five-time prime minister and president from 1998 to 2002, has himself been accused of corruption but has blasted the claims as "lies".

Just after a 2006 referendum which saw Montenegro proclaim independence in a break from decades-long partner Serbia -- a long-held dream for Djukanovic -- he was named a suspect in an Italian probe into cigarette and people trafficking.

In May 2009 an Italian court dropped the charges against him.

Ahead of Sunday's vote, his centre-left coalition campaigned on a promise of a better quality of life for Montenegro's people, who face an unemployment rate of 20 percent.

Political analyst Srdjan Bogosavljevic said Montenegro is "one of the rare European countries where the leadership has not lost an election over the crisis, which actually gives them a (moral) obligation to work to revive the economy".

Disappointed by another victory for Djukanovic, who has been at the centre of Montenegrin power since the 1990s, business owner Tamara Milic said the current rulers offered no solutions for the economic hardship.

"They have destroyed the economy, infected the administration with corruption, and we reward them by handing them power again. It defies common sense," the woman told AFP.

Montenegro's economy grew by 2.7 percent in 2011, with the government forecasting an expansion of just 0.5 percent this year. State debt has reached a "worrisome" 58 percent of gross domestic product, its central bank has said.

Montenegro's undiversified economy relied heavily on foreign investment in tourism and real estate on the stunning Adriatic coast, which drove a 2006-2008 economic boom.

The average monthly salary is 480 euros ($620).

In February, public finances were thrown into disarray after the government stepped in to take control of the KAP aluminium plant, a major employer. The state took on 132 million euros ($171 mln) in debt, worth about 10 percent of the 2012 budget.

"The Montenegrin economy depends on imports," said Kostic, the analyst. "The country is spending more than it is producing and the new government must buckle down to address this problem."