Tiny Montenegro Booms, and Eyes the Russian Hand Thats Feeding It
Filip Horvat for The New York Times Money from Russian investors helped to build the Hotel Splendid, a luxury resort in Becici, but the construction was disrupted by violence. By NICHOLAS WOOD <http://topics.nytimes.com/top/reference/timestopics/people/w/nicholas_wood/ index.html?inline=nyt-per> Published: December 24, 2006 BECICI, Montenegro <http://topics.nytimes.com/top/news/international/countriesandterritories/mo ntenegro/index.html?inline=nyt-geo> Montenegro has never seen anything quite like the Hotel Splendid. For almost half a mile, this complex of penthouse suites, swimming pools and boutiques stretches along the Adriatic shoreline providing unparalleled luxury for those who can afford it. A secret deal allowed a Russian company to own most of the shares in an aluminum smelter in Montenegro. http://graphics8.nytimes.com/images/2006/12/24/world/24montenegro.map.jpg The New York Times Investments in places like Becici stir fears about secret partners. But like many of the projects backed by Russian investment funds that have recently poured into this small country, the hotel has earned a less than glamorous reputation. Three bombs exploded at the site during construction. The police officer investigating the blasts was killed. When the hotel opened in September, guests were bused in under the watchful eyes of armed guards. In the past two to three years, hundreds of Russians have flocked to Montenegro to buy large stretches of land along the increasing fashionable Adriatic coast and to build resorts like the Hotel Splendid. Farther inland they have bought the majority of shares in the countrys industrial sector. Their money has helped to fuel a real estate boom and has provided much-needed cash to ailing factories. The influx of Russian capital is prompting many here to question its impact on this nation of only 650,000 people, which already has a reputation as one of the most corrupt and crime-ridden states in the Balkans. The concerns spring from the secretive nature of many deals, questions about the origins of their financing and the large sums of money involved. Transactions are frequently carried out with cash. The question is who knows what is going on? Whose funds they are? said Ranko Krivokapic, the speaker of Montenegros Parliament and leader of the Social Democratic Party, one of two major parties in the coalition government. Who knows? In its official policy, Montenegro is avowedly pro-Western. In May, the republic voted in a referendum to end its union with neighboring Serbia, breaking up all that remained of the former Yugoslavia. The newly independent state has made membership in NATO <http://topics.nytimes.com/top/reference/timestopics/organizations/n/north_a tlantic_treaty_organization/index.html?inline=nyt-org> and the European Union <http://topics.nytimes.com/top/reference/timestopics/organizations/e/europea n_union/index.html?inline=nyt-org> immediate priorities. The countrys new prime minister, Zeljko Sturanovic, who took over in October from Milo Djukanovic <http://topics.nytimes.com/top/reference/timestopics/people/d/milo_djukanovi c/index.html?inline=nyt-per> , the longest-serving leader in the Balkans, says he wants to rid the country of the organized crime groups that dominated it during the breakup of Yugoslavia. But government and opposition leaders now worry that Russian money could slow much-needed economic and political changes and thwart Montenegros aspirations for closer ties with Europe and the United States. Russia <http://topics.nytimes.com/top/news/international/countriesandterritories/ru ssiaandtheformersovietunion/index.html?inline=nyt-geo> s president, Vladimir V. Putin <http://topics.nytimes.com/top/reference/timestopics/people/p/vladimir_v_put in/index.html?inline=nyt-per> , recently valued Russian investments in Montenegro at about $2 billion, roughly equivalent to Montenegros annual economic output. But they may be even more; government officials say many ventures are channeled through companies in third countries. Some suggest that these companies are also being used to bring money earned illicitly in Montenegro in the 1990s back into the country. >From Bar to Tivat, Montenegros most prized stretch of coast, Russian voices can now be heard around the ports, on the beaches and in the cafes. Real estate signs are written in Russian and English. Irish and British clients outnumber Russians, real estate agents here say, but it is the Russians many working with Montenegrin business partners who have brought the largest and most valuable assets. It is interesting that they are able to come here carrying four, five or six million euros in cash apparently without any form or official control, said Marija Vukovic, who was until a year ago a municipal lawyer for Budva, a pretty coastal town where Russians have made substantial investments. Ms. Vukovic now owns her business, dealing with real estate transactions. Every day we hear that Montenegro wants to be part of the E.U., but this kind of business is not proof that we are heading the right way, she said. As Russian investments here grow, Moscow has sought to exert more political influence. In August, Russias emergencies minister, Sergei Shoigu, warned in an interview with a Montenegrin newspaper that relations between the countries would be damaged if the Montenegrins continued to pursue NATO membership. Later that month, Mr. Djukanovic met with President Putin in Sochi, a Russian Black Sea resort, and discussed the possibility of creating a military-technical agreement. What will be the price of our partnership with Russia? said Nebojsa Medojevic, an opposition leader. Montenegrins, he said, believe that Russian businesses have little interest in the rule of law in what is still a very weak state. I have nothing against Russians, just their prices, the role of their police, illegal funding, state interference in the media and so on, he said. Historians here point out that Montenegro has performed a balancing act between East and West for hundreds of years. For much of the 18th and 19th centuries, Montenegro which first gained independence in 1878 and lost it at the end of World War I was an ally of the Austro-Hungarian empire. During that time the small principality turned to Russia, a fellow nation of Orthodox Christian Slavs, to finance its debt and buy arms. The royal families of Montenegro and Russia also intermarried. Now, after years of stagnation brought on by war and sanctions in the 1990s, many government officials say Russian investments are crucial to economic revival. Mr. Krivokapic, the parliamentary speaker, said Russian companies were far more willing than Western businesses to invest here because of the countrys shifting political status. He said there was plenty of historical precedent in the reliance of other countries on Russian money. I was surprised when I saw that Nice, Cannes, Monte Carlo were all built with the help of Russian money, he said. Away from the coast Russians have dominated the purchase of state-owned industries from the government in deals that opposition groups have criticized. In 2005, Rusal, the worlds second-largest aluminum producer, based in Russia, became the majority shareholder in Kombinat Aluminum Podgorica, an aluminum smelter, as well as an affiliated thermoelectric power station, bauxite mine and coal mine, which together account for around half of Montenegros export earnings. Rusal was the only company to negotiate with the government, and the government classified the contract as a business secret. In 2004, Montenegros main steel mill, Zeljezara Niksic, was sold to Midland Resources, which is Russian-owned but registered in Britain. That contract was also classified as secret. (The mill was subsequently taken over again by the government and then sold to a British company.) The concerns about these investments are based on a perception that Russian investments are inextricably linked with bad business practices, some critics here concede. Whether or not those views are fully justified, senior government officials say they would like to curb Russias commercial influence. We are aware of the fact, once again, we are a small economic system that can be dominated and manipulated easier than the bigger ones, said Miodrag Vlahovic, Montenegros former foreign minister, in an interview before stepping down this fall. But we believe that with the new investments coming from the Western countries, with one or two strategic players, the situation will be balanced. But critics of Russian investment say the influence of Russian groups already here will be hard to escape in this still fragile country. I wouldnt care that the Russians were coming if we had strong institutions, said Vanja Calovic, the coordinator of MANS the Montenegro Network for the Affirmation of the NGO Sector an anticorruption campaign group based in Podgorica, the capital. But, she said, they will be too powerful to be controlled by the government. http://www.nytimes.com/2006/12/24/world/europe/24montenegro.html?_r=1&ei=508 7%0A&em=&en=568488f9791152cd&ex=1167109200&oref=slogin&pagewanted=all
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