BOSNIA NOT READY FOR EURO YET

SARAJEVO, Bosnia (August 5th,2008) - Bosnia has yet to meet the necessary conditions to have the Euro as its official currency, Kemal Kozaric, the Governor of the Bosnian Central Bank,said yesterday.

There are “strict and clear rules” on the adoption of the Euro as an official currency. Bosnia met only some of these conditions.

“Our currency is stable and inflation is not that high,” Governor Kozaric said. “But a huge issue is unemployment, which has to be lower than 10 per cent, as well as a reduction in the foreign trade deficit, which is very high now in Bosnia”.

Kozaric said he would like to see Bosnia “part of the Euro zone as soon as tomorrow, but there is a certain procedure and lots of things… to be done before that”.

According to official data, unemployment in Bosnia is between 25 and 30 per cent and inflation is running at around 9.9 per cent a year. One Bosnian Mark is currently worth about half a Euro.

Following the information on introduction of Euro as official Bosnian currency, prior to completion of reform processes in the country,the Bosnian Central provided the following explanations:

"Above all, the Bosnian Central Bank would like to emphasise that for the Bosnian Central Bank, as monetary institution in Bosnia, exit strategy from the currency board arrangement, which, as monetary policy has been used since 1997, is introduction of Euro, for which, there is a consensus at all levels of the authority. That includes accession into the Economic Monetary Union (EMU) and membership in the Eurosystem, which is comprised of Central Banks of the countries, EU members, which had already introduced Euro.

However, in order to achieve the above mentioned, Bosnia needs to fulfil a number of preconditions, while unilateral introduction of Euro is not permitted by the European Central Bank (ECB), nor by the European Union (EU).

First precondition is full membership of the country in the EU. By signing the Agreement on Stabilisation and Accession recently, Bosnia has made a first step in that direction. In order for Bosnia, as EU member, to become the member of the EMU, apart from political willingness, it needs to meet the criteria agreed in Maastricht in 1992, and which are written in the Deed of EU. Those are the criteria that regulate premitted inflation rate, budget deficit level, public debt, average nominal long-term interest rates, as well as exchange rate stability.

Apart from the aforementioned criteria, a country member of EU must support economic policy of EU, and aim at harmonisation with other macroeconomic indicators of Eurozone including unemployment rate and level of foreign trade deficit, which, unfortunately, in Bosnia are far above the Eurozone criteria.

Bosnia fulfils the criteria related to monetary stability, but fulfiling of other criteria is necessary in order to get integrated into the EMU, which requires engagement of all authority structures.

Until all the conditions are fulfilled for entering the Eurozone, the Bosnian Central Bank shall consistently implement monetary policy through the currency board arrangement, which means that Bosnian citizens can have full trust in stability of domestic currency, given that each Bosnian Mark in circulation has full coverage in foreign currencies. Foreign reserves data from the end of May this year indicate that Bosnia's net foreign reserves amounted to 6,48 billion Bosnian Marks, monetary liabilities amounted to 6,08 billion Bosnian Marks, with 400 million Bosnian Marks in net free reserves. These indicators clearly show that stability of Bosnian Mark cannot be questionable," the Bosnian Central Bank said in a statement yesterday.
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