Peter Nicholl: Statements on the Bankruptcy of BH Unfounded

The Governor of the Central Bank of Bosnia and Herzegovina (CBBH) Peter Nicholl thinks that the statements that BiH faces insolvency and will go bankrupt are not founded. Such kind of statements, which deter badly needed investments, are not only damaging for the country, but are also incorrect for several important reasons, the Governor said.

The first fact that confirms that BH is not facing insolvency or bankruptcy is that the total external debt is modest and is slightly higher than 40 percent of the GDP. The external debt has been fully serviced in the past and servicing the external debt will not be a problem for BH in the future either, the Governor said.

The second fact that confirms that BH is not facing insolvency or bankruptcy is that the level of the country's foreign reserves has been increasing in recent months. In countries that face insolvency, foreign reserves do not increase, but show a rapid decline, Governor Nicholl emphasized.

At the end of August 2003, foreign reserves of the CBBH were at the level of 2,4 billion KM and since May 2003, they have been increased by 250 million KM or by more than ten percent. They have been risen a further KM 100 million in the first 10 days of September so the upward trend is still continuing beyond the summer period.

'This upward trend in foreign reserves shows that BH's external financial position has been getting stronger in the last few months, making comments about insolvency and bankruptcy totally inappropriate", Mr. Nicholl said.

The large trade deficit that BH has is a problem, Mr. Nicholl said and he agrees that speeding up exports or promoting import substitution are high priorities for BH. But this trade deficit is nothing new, as the coverage of trade import by export has been 30 percent or less continuously for the last five years.

According to the CBBH data, trade deficit for the first six months of 2003 is smaller than it was in the same period of the last year so this trend is also starting to move in the right direction.