bne -

As expected, long-time Montenegrin leader Milo Djukanovic's Democratic Party of Socialists (DPS) and its coalition partners won parliamentary elections on Sunday, October 14, but they appear to have fallen short of an absolute majority, according to preliminary results.

With more than 90% of votes counted, the results suggest that the DPS-led ruling coalition won 45.6% of the vote, Serbia's B92 news agency reported. According to projections, DPS will send 39 members to the 81-seat parliament, leaving it just two deputies short of an absolute majority. It may therefore bring former ally the Bosniak Party (BS), which relies on Slavic Muslims for its support base and won three seats, back into the fold to form a new government.

The new Democratic Front coalition won a respectable 23.8% votes (giving it a projected 20 seats); the Socialist People's Party (SNP), the traditional party of opposition 10.6% (nine seats); and Positive Montenegro (PCG), another new political force, 8.9% (seven seats). Once again, opposition divisions deprived voters of a clear alternative to Djukanovic. Turnout was around 70% - not bad, given that the result was seen as something of a foregone conclusion, but also perhaps an indication of the loyalty of the DPS's support. Djukanovic's opponents occasionally make dark allegations that this loyalty is secured by underhand means. While the vote was apparently free and fair, there is little doubt that the DPS has sunk its roots deep into Montenegrin society and the economy.

The result would take the DPS up to a quarter century of ruling the former Yugoslav state. By some measures, in fact, the DPS has been in charge since 1943, since it is the direct descendant of the Montenegrin branch of the League of Communists of Yugoslavia. The party, and thus the country, has long been dominated by the controversial Djukanovic, who in the 21 years since 1991 has spent 12 years as prime minister and nearly five as president. Since 1998, Djukanovic has also been leader of the DPS, meaning that he has been an influential power player even when not in executive office - including the last two years, when the PM has been "Milo" ally Igor Luksic.

Djukanovic has long been dogged with allegations of corruption and links to organised crime, but no charges against him have ever led to conviction. The most notorious claims are that Djukanovic was involved in tobacco smuggling in the 1990s - all claims against him were dropped by Italian prosecutors in 2009 - and those relating to the government's handling of Prva Banka, a bank controlled by the leader's family. The claim is that the Djukanovic family "treated the bank like an ATM machine" in the worlds of one investigative journalist, depositing state cash in the institution and then lending it out to businesses owned by family members and allies.

Djukanovic calls the charges "overblown" and indeed they seem to have made little impact on his Montenegrin fan base, or on the DPS's support. The tall and dashing Djukanovic is seen by some as the "father of the nation" having led it to independence from Serbia in 2006.

The DPS is a powerful force - according to Balkan Insight, it counts 100,000 members, around a fifth of the electorate. (For purposes of comparison, a British political party would need about 9m members to say the same.) It is still strongly linked to the cause of Montenegrin independence, with Djukanovic repeatedly pointing out that most of the opposition opposed sovereignty. And Djukanovic is also playing heavily on Montenegro's progress towards the EU, which has indeed been a high point of his rule, as the country commenced membership negotiations in June.

As those the results indicate, the opposition itself is divided. The establishment of the Democratic Front was greeted with much fanfare, with hopes rising among the DPS' critics that Montenegro might at last have a united force for change. But the SNP's decision not to join - and to expel members who joined the Front - scuppered the new alliance's hopes of power.

The opposition hoped the government would stumble on the economy, which, being small, open and strongly linked to the Eurozone, has been hit by the current crisis. But they offer few solutions of their own.

Montenegro has done very well in recent years at cultivating its tourism industry, one of the world's fastest growing. Projects such as Porto Montenegro, a luxury resort on the coast, are drawing in big investors as well as a smattering of the world's glitterati.

Tourists have continued to flock to the coast, but cannot power the economy alone. After several good years, a sharp recession in 2009 saw GDP contract by 5.7%. The recovery was respectable, with two consecutive years of 2.5% thereafter, but this year, will slow to just 0.5%, according to Standard & Poor's, which downgraded Montenegro's long-term credit rating further into junk status in June. S&P drew particular attention to the country's fiscal crunch, which is pushing the government to implement austerity measures after public debt rose to 47% of GDP at end-2011, from 28% in 2007.

The International Monetary Fund (IMF) and EU - as well as investors and the likes of S&P - are now urging the government to step up reform efforts. Those usually cited include labour liberalisation and the privatisation of KAP, a huge but heavily-indebted aluminium plant that until 2009 contributed half the country's export earnings. "The economic priorities of the new government should be; firstly, to maintain high level of foreign direct investments through privatisation in key sectors, particularly energy, industry and tourism," Petar Ivanovic, a prominent Montenegrin economist, tells bne. "Secondly, to further increase economic freedom and to stimulate entrepreneurship in order to create new jobs and reduce unemployment. And thirdly, to control public debt and public spending. Those priorities will keep Montenegro out of trouble and allow real economic growth and increases in the standard of living."