IMF urges Montenegro to close aluminum plant to cut debt

Montenegro should shut down the loss-making aluminum plant that is the country's biggest single industrial employer to stem a sharp rise in its public debt, the International Monetary Fund said.

The partly state-owned Kombinat Aluminijuma Podgorica (KAP) factory produced 120,000 metric tons of the metal last year, accounting for 4.7 percent of the tiny Balkan country's economic output.

But its total debt of around 350 million euros ($449 million) is equivalent to one tenth of GDP, and it soaks up a further 3 million euros of state subsidies every month.

"In the last three years, KAP was the major problem for the economy. There should be a clear plan to liquidate the factory," the IMF's Nadeem Ilahi told a news conference.

Ilahi, the head of an IMF mission to Montenegro for the Fund's annual inspection, welcomed cuts to KAP's production and workforce but said the plant continued to rack up unpaid bills. It owes 60 mln euros for electricity alone.

It still employs 1,200, and lawmakers fear that shutting it down would provoke social unrest.

KAP, which lost 16.2 million euros in the first quarter of the year, is jointly owned by the Montenegrin state and the Central European Aluminium Company of Russian billionaire Oleg Deripaska.

Montenegro's economy is expected to grow by between 1 and 2 percent of national output this year, a more meager pace than the boom years after independence in 2006 when growth was driven by property construction and foreign investment.

The onset of the global crisis reined in foreign direct investment and since 2009 Montenegro's public debt has surged from 37 percent to 54 percent of GDP.

Ilahi said that figure needed to fall over next decade to "near 30 percent", recommending a 2 percentage point rise in value-added tax to 19 percent. The government has already said it is considering raising VAT.