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Montenegrin Firms' Debts Said To Burden Economy

Montenegrin Central Bank headquarters in Podgorica

Montenegrin Central Bank headquarters in Podgorica

PODGORICA -- Montenegro's central bank says that most of the country's businesses are in such a poor financial state that only a handful of the country's 15,000 companies would qualify for a loan, RFE/RL's Balkan Service reports.

The global economic crisis hit Montenegro's economy hard, with businesses struggling to stay afloat and repay their debts. The country's Gross Domestic Product shrunk by 7 percent last year and is expected to contract by another 1.7 percent this year.

Montenegrin businesses were late in the repayment of about 740 million euros ($984 million) of debt, which is equal to one-third of commercial banks' loan portfolio. The accounts of about 12,500 companies have also been blocked.

Darko Konjevic of the Montenegrin Business Alliance told RFE/RL that "the data published by the central bank shows that the problem of liquidity in Montenegro, which means the ability to repay credit or other liabilities, has a worrying dimension."

After examining Montenegrin banks' financial reports, credit history, and cash flow in the first quarter of 2010, the central bank found that only 59 banks would be eligible to request loans from commercial lenders.

Konjevic said commercial banks were happy to lend money until the economic crisis began in 2008. After that the central bank forced them to tighten their purse strings, leaving many businesses unable to get loans.

The central bank has since loosened its policy, but banks have stuck to tight lending practices -- allowing the restructuring of loans only under stricter conditions and at higher interest rates.

Bozo Mihailovic, an economics professor at Podgorica University, told RFE/RL on April 28 that the Montenegrin businesses with financial difficulties have only put off dealing with their problems.

"In economics, if something doesn't have a sound foundation then sooner or later that will come out into the open, and a price will have to be paid," he said.