Milo Djukanovic to become Montenegro's PM-designate

Democratic Party of Socialists (DPS) leader Milo Djukanovic reacts after Montenegro's parliamentary elections in Podgorica, October 14, 2012.

PODGORICA (Reuters) - Milo Djukanovic, the leader of Montenegro's ruling Democratic Party of Socialists, was tasked on Friday with forming a new government to steer the ex-Yugoslav republic through European Union accession talks and to try to overhaul the economy.

In coalition with the Social Democratic Party, the DPS won a parliamentary election on October 14 but failed to secure an outright majority for the first time in 11 years. It has since built a majority via deals with ethnic minority deputies.

President Filip Vujanovic told reporters on Friday he had agreed to the DPS's proposal to nominate Djukanovic as prime minister-designate.

"I have always favored the option of the government being led by a strong political figure who will take the country out of problems," Vujanovic said, saying he would forward Djukanovic's nomination to parliament immediately.

Djukanovic must then propose a cabinet to parliament and win the chamber's backing for his lineup.

The DPS has been in power ever since communist Yugoslavia collapsed in 1991 and Djukanovic was prime minister or president for all but the last two years.

He stepped down in 2010 to run a small private business but remained influential.

Even before Friday's announcement, few doubted Djukanovic would continue to hold the reins of power. He led the country of 680,000 to independence in 2006 when it narrowly voted to end a state union with Serbia.

Djukanovic and his party have been dogged by accusations of graft and cronyism, which he has consistently dismissed.

Italian prosecutors accused him of involvement in large-scale cigarette smuggling during Yugoslavia's international isolation in the 1990s, but he was cleared of all charges.

The new government will face pressure from the EU to get serious about rooting out organized crime and corruption, which has flourished since Yugoslavia's bloody collapse in the 1990s. Most Montenegrins perceive corruption to be widespread.

It will also have to try to revive an economy projected to grow by just 0.5 percent this year, after having boomed on the back of tourism and foreign investment.

(Reporting by Petar Komnenic; Writing by Zoran Radosavljevic; Editing by Andrew Osborn)