Governor for Stav:IMF requiring the reforms, we need to carry out anyway

The IMF is asking us to implement reforms which we would need to carry out without them anyway

Regardless all the problems which the country has been facing during the previous year – from health to economic ones – the country's financial system, which is the base of any economy, has showed no signs of instability at any moment. A part of credit certainly goes to the Central Bank of Bosnia and Herzegovina. The Governor of the Central Bank of Bosnia and Herzegovina, Senad Softić has spoken about this, and also about the new building of the Bank and negotiations with the IMF.  

STAV: There are attempts to involve the Central Bank in daily political disputes related to Hastahana, by offering a replacement location to the Central Bank, which the Central Bank, naturally, is not accepting. Could you explain the positions of the Central Bank on this issue?

SOFTIĆ: Regarding the replacement location, the Central Bank of Bosnia and Herzegovina clearly communicated its position to the Centar Municipality as early as at the joint meeting in the end of February 2021, however, again, this time through the media, the same replacement location is being offered to us. More than three years of invested time, efforts, funds, human resources engaged on the project, demanding public procurement processes, preparation and adoption of plan documents and decisions, and finally the fact that the Central Bank wishes to complete the project on its land which it fully owns, with the previously fulfilled all the legal conditions and contractual obligations, are sufficient reasons not to accept any other solutions offered as „optimal“. As you said yourself, politics and political decisions are obviously in question, which is why we asked the head of Centar Municipality, as well as all the other political participants in Bosnia and Herzegovina, not to misuse the institution of the Central Bank of Bosnia and Herzegovina for political and promotional purposes. The Central Bank is a state institution for which the interests of Bosnia and Herzegovina and all its citizens are one of the basic priorities, the same as for Centar Municipality. Guided by such interests, we have expressed willingness and interest to contribute, as a reliable partner, to the development of the park in Hastahana site. It is our interest also to have our future environment developed according to the needs of all, including the CBBH, and citizens using public surfaces. The Central Bank is willing to cooperate, and within its competences and possibilities, to help the development of the park, if Municapility shows good will. However, the fact which needs to be pointed out is that the Central Bank has not bought a park, but the lot representing essentially the parking lot, which is next to the park “Prof. dr. Nijaz Duraković”. The lot, owned by the Central Bank has never been a park and has never been used for such purposes.

STAV: How will the site look like when the Central Bank builds a building which is planned? What will the local community get? 

SOFTIĆ: The Central Bank has recently promoted the chosen conceptual design which it is very proud of. We still believe that this project would improve the appearance of the entire site. By joint efforts of Centar Municipality and the Central Bank of BH, the entire location can be much improved, through the development of the park lot, so that it includes all the necessary elements, including green surfaces, which we have pointed out many times. Now, there is an area which is not developed, which requires significant investments. By the project presented by the Central Bank, in addition to the planned building construction, excellent ideas are offered for the complete development of the park area in this site, which can be used properly, directed to obtain the final conceptual design for the location, while the activities of the Municipality and the Central Bank can be implemented simultaneously, so that in the end we obtain a nice area with all the elements useful firstly to the local community. It is the only way how we can make the entire location a place of good quality and comfortable living. Taking into account the fact that the Central Bank, with the use of sophisticated security systems, video surveillance, and adequate lighting, will be protecting its facility on the future site, it will, without any doubt, indirectly influence the safety of the other parts of the site as well.  

STAV: You already have a conceptual design, when is the construction planned, how much will it cost and what will actually a new building in Sarajevo mean for the Central Bank? What will happen with the building where the CBBH head office is now located?

SOFTIĆ: First of all, the public needs to know that the Central Bank, besides the Head Office located in Sarajevo in 25 Maršala Tita Street, includes also organisational units in Sarajevo, Mostar, Banja Luka, Brčko and Pale. So, the building in Maršala Tita Street will still be used by the Head Office in Sarajevo. Specifically, the construction of the building in Kranjčevićeva Street has been planned for our Main Unit Sarajevo. The reasons are quite grounded, as Main Unit Sarajevo has no adequate conditions and premises for its operations, it becomes increasingly difficult for it to perform its operations safely and without disturbances, and it is one the organisational units through which operations with commercial banks and indirectly with households are organised. Main Unit Sarajevo holds reserve accounts of the highest number of banks in BH through which settlements of all the payments of our citizens and legal entities are performed, and it also performs all cash operations. What does it mean in practice? If such functions are not performed – there are no payments (including pensions, wages etc…), there is no supply of commercial banks with cash. Making the improvement of work conditions in which the CBBH invests its daily efforts, more difficult affects directly the increase of daily operating risks which we are exposed to. We are sorry that those responsible for legal and timely operations of municipal administrations do not understand such facts. We are currently in the stage of implementing the process of public procurement for the main design creation, and, as far as the Central Bank is concerned, everything goes as planned, but, unfortunately, it does not depend on us entirely. The deadlines and implementation will certainly be influenced by the obtaining of the needed licences, so we hope, that, finally, everything will be carried out as expected, according to the deadlines and procedures defined by the Urban Planning Law. 

STAV: For a year now, we have been in a strong economic crisis, what is the position of the financial system of Bosnia and Herzegovina? 

SOFTIĆ: Fortunately, the financial system of Bosnia and Herzegovina is stable. The CBBH strictly obeys the currency board rules, and that is a guarantee of the stability not only of KM to euro exchange rate, but the entire financial system. Our gross foreign exchange reserves amount to KM 13.7 billion or EUR 7 billion. The banking system, as its biggest and most important part, is highly capitalised, so it has solid reserves. Banks are very liquid, excess holdings above the reserve requirement continuously exceed the required reserve. I am trying to say that there are funds in banks. It is correct that Bosnia and Herzegovina, as most of the world, was in a crisis due to the COVID-19 pandemic in 2020. However, as the CBBH announced in the end of March of this year, according to our forecasts, economic activity in Bosnia and Herzegovina is recovering, which is positive news for financial sector. A higher GDP growth means a more stable financial system.

STAV: One of the features of this crisis seems to be its costliness, in respect of human lives, and also money. Does the state, i.e. all its levels, have sufficient funds to finance recovery, or at least survival of economy until better times come?  

SOFTIĆ: Regarding budget funds, taking into account the depth of the crisis which the entire world is experiencing, the IMF funds in the new arrangement would certainly improve the lives of citizens, and also economy, which we all live from. With the IMF loan, the mentioned recovery would be significantly faster. We hope that better times are coming, as forecasts for the world for 2021 are increasingly optimistic. The IMF projection for the entire world for 2021 is a 6% growth. The European Central Bank projects 4 per cent growth for the euro area, the largest part of it to take place in the second part of the year. China, as the second largest economy in the world, could grow by 7 per cent in 2021. Naturally, such high rates result from a low base, i.e. a decline of GDP in the previous year. Those are certainly positive signs for Bosnia and Herzegovina as well. 

STAV: Negotiations with the IMF on a new loan for Bosnia and Herzegovina failed a couple of months ago. One of the issues which could not be agreed upon was the central account registry (I hope this is the correct name), which should have been in the competence of the Central Bank. What is the central account registry and what do we get by it? 

SOFTIĆ: The Central Bank of Bosnia and Herzegovina has a legal and statutory basis, and all the technical conditions, to set up the registry of accounts of natural persons. The legal basis for the single registry of natural persons’ accounts is the same as the one for establishing and successfully keeping other registries in the CBBH – Single registry of business entities’ accounts and Central registry of credits of legal and natural persons. The setup of all the registries, including the registry of natural persons’ accounts is based on the Law on the Central Bank of BH, as one of the basic tasks is to help or establish and maintain appropriate payment and settlement systems and to carry out actions to help combating money laundering, to help anti-terrorist measures and measures against the obstruction of the implementation of the General Framework Peace Agreement in Bosnia and Herzegovina related to banks. The CBBH does not dispute the existence of such registries at the entity level, the same as with the registries of business entities’ accounts. However, the entity law cannot restrict or decrease the competences which according to the CBBH law, this institution has, or more precisely, the performance of defined competences of state and other institutions cannot be restricted or made impossible by the entity laws, particularly with regard to the issues which are very important for all the participants in the financial system and users of these data. At the same time, it does not represent in any way the transfer of competences from the entity to the state level. Insight into the data from the registry would be made possible for legally authorized institutions for purpose of performing duties within their legal competences (courts, prosecutors’ offices, tax authorities, State Investigation and Protection Agency and other institutions authorised by law). The data include only the data on accounts and banks where accounts are opened, and not the data on balances and transactions in these accounts. The registry of natural persons’ accounts in the territory of Bosnia and Herzegovina is very important for efficient functioning of the entire banking sector. Besides being very important in preventing and combating illegal activities, the registry represents an irreplaceable mechanism in preventing terrorism financing and money laundering, it facilitates identification of accounts of debtors in tax and enforceable processes and other court processes. For the banking sector, registry of accounts of natural persons would ensure a more efficient process of collection of claims. It has benefits for citizens as banks in this way are encouraged to increase lending at better terms. 

STAV: Which are other IMF conditions which are currently disputable? 

SOFTIĆ: There are several reforms which in our opinion are not very demanding, and I would point out those relevant for stability and transparency of financial and banking system, i.e. those which would help its improvement. Those are Single registry of bank accounts of natural persons in the CBBH, which would strengthen combating money laundering and stimulate credit growth through a more efficient and faster collection of debts, Law on electronic signature at the state level, which would expand the possibilities for digitization of entire system and Single Financial Stability Fund.

STAV: After the negotiations failed, it was said that there would be another opportunity in spring. So, it is spring, is there hope for new negotiations with the IMF? Has IMF given up Bosnia and Herzegovina?

SOFTIĆ: The IMF does not give up any of its members. It is a multilateral institution which is always ready to help with a loan, when the conditions are met. So, their giving up is not in question. The IMF, said several times, particularly through interviews of Mr. Jewell, that in the shortest time possible, they are ready to continue negotiations if some basic conditions are met which we spoke about. The CBBH is also ready to continue conversations at any time on the principles which the IMF argues for. I would also like to say that within the spring session of the IMF, we had conversations with the highest representatives of the IMF, including the Director of the European Department at the IMF; Alfred Kammer and Executive Director of the constituency which Bosnia and Herzegovina belongs to, Mr. Paul Hilbers. I regret to say that no progress was achieved in those conversations. However, the IMF is ready to negotiate when willingness is shown to meet the conditions which they set. Personally, I am an optimist that those negotiations will be resumed soon.  

STAV: Although debt is not desirable, would you agree that the IMF is working hard on strengthening the state of Bosnia and Herzegovina, particularly when we ourselves are not able to make steps in strengthening the competences of the state? 

SOFTIĆ: Yes, I completely agree that the IMF is working on the strengthening of the single economic space of Bosnia and Herzegovina, which has been clearly defined in the Constitution of BH. I said publicly for a number of times that the reforms suggested by the IMF should be implemented by ourselves regardless of them. As the agreeing processes are very slow, the IMF carries out a useful function of accelerating the necessary reforms. It is important that all the regulations and competences in relations between the state and the entities are respected. Similarly to the IMF, the European Union asks Bosnia and Herzegovina to make steps in that direction.