The Governor of Central Bank of Bosnia and Herzegovina, Mr. Peter Nicholl, Wishes to Clarify and Correct Information Concerning the Liquidation of the National Bank of Bosnia and Herzegovina

The Governor of Central Bank of Bosnia and Herzegovina, Mr. Peter Nicholl, wishes to clarrify and in some cases correct information released into the public domain, by Federation of BiH Prime Minister Edhem Bicakcic concerning the liquidation of the National Bank of Bosnia and Herzegovina.

First of all, the Prime Minister is respectfully reminded that the NBBH is insolvent, in the process of liquidation and can therefore no longer function as a legal bank. The PM stated that the liquidator, Mr. William Dudley had the legal right to freeze the assets of the NBBH but "not the deposits of the Federation Government with the NBBH". This is not true. There is no legal difference between assets of the NBBH and its deposits liabilities and its deposits therefore fall within Mr. Dudley's legal authority as liquidator of the NBBH, as given to him by the Bosnian Presidency.

The Prime Minister said that the "freezing the governments deposits would affect the budgets of seven cantons and the Federation, preventing the Federation government from performing even a minimum of its functions". This is a major exaggeration, Mr. Nicholl said. The "freeze" would affect only that part of the NBBH's deposits that are not covered by assets. This is necessary to continue to protect the currency board and maintain full backing for the KM. The cantons and Federation entities would open bank accounts in another bank and all of their future revenues flows would go into them. The "freeze" should therefore have little impact on Federation government functions and services.

Prime Minister Bicakcic also stated that he believes the reason for the proposal to freeze the assets of the NBBH is because, "Mr. Dudley is leaving his position shortly." This is also not true. Mr. Bicakcic knows very well that Mr. Dudley issued the instructions to freeze the NBBH deposits on the 16th of July 1998. Three months ago. The order was rejected by the Federation Payment Bureau ZPP, despite its legal right and support from the Office of the High Representative. It is not a new proposal, nor is it, as PM Bicakcic stated, "hasty and unexamined."

There are two important issues that PM Bicakcic failed to tell the people in his "open letter". First, it has been known since the Central Bank of Bosnia and Herzegovina was established on the 11th of August 1997 that the NBBH was to cease monetary operations. Its continued operation undermines the acceptance of the new KM currency in other parts of the country.

Secondly, the liquidation of the NBBH is a prime condition of the IMF, (International Monetary Fund) Standby Arrangement, involving millions of dollars worth of aid to BiH. This has also been known since last year. It is now the only condition that has not been met by the state of BiH. If this condition is not met and satisfied, the IMF Standby will not proceed. Serious delay or cancellation of the IMF Standby will also adversely affect many other donor flows - donor flows that are critical to development of the BiH economy, and ultimately its people.