. 9 247. 8 we think that these figures actually understate the amount of foreign investment that has come into bh in the last few years. the cbbh recently initiated a survey of 800 - 900 companies in order to try and get more up - to - date and accurate data on foreign investment into bh. the currency board will continue the presidency of bh has announced that the currency board arrangements will continue as one of the major features of macro - economic policy in bh. this is also the policy of the state and entity governments as set out in the letter of intent they have agreed with the imf as part of the stand - by negotiations with the fund. the most important reason for this is that the policy has produced major economic and social benefits. secondly, the citizens of bh have faced many financial traumas in the past. they therefore value a stable currency and the currency board consequently has a high level of public support within bh. finally, the long term goal of bh policy is to take the economy closer to and eventually into europe. the km is already tied to the euro. it is therefore sensible to maintain this link. the exit strategy for bh from the currency board will therefore be the eventual adoption of the euro as the currency of bh. new board and governor of the cbbh the cbbh law said that after the first six years of operations of the cbbh, a new board of five bosnian citizens would be appointed by the presidency and that one of those five board members would be appointed governor. this was an important transition period for the cbbh and had the potential to introduce a degree of uncertainty and possible instability. the six year date passed on 11 august, 2003. the changes have been implemented very smoothly. the presidency appointed a new board in april. three of the five members already had extensive cbbh experience. with the support of the presidency, the board has appointed the new governor. the new governor is actually the old governor. i have been reappointed until the end of 2004. in order for this to be possible under the cbbh law, the government of bh has accorded me bosnian citizenship, which i regard as a great honor. in addition, the presidency and the cbbh board have already agreed on and appointed the person who will become governor from 1 january, 2005. he is kemal kozaric, one of the current vice governors. the decisions taken by the presidency on the cbbh are

exchange problems and the currency board will be unable to protect the country from those shocks. indeed, it could become one of the victims of those shocks as politicians look for scapegoats to explain the country ’ s economic problems to the people. foreign investment is increasing. in 1999 for example, direct foreign investment was 50 % higher than in 1998 and though we do not yet have figures for 2000, i am sure it has risen strongly again. but while this growth rate sounds spectacular, it is from a very low base. direct foreign investment into bh in 1999 is estimated to have been km 170 million. the current account deficit for that year was km 1. 4 billion. so private foreign investment financed just 12 % of the current account deficit in that year. bh needs to be increasing private foreign investment by around 200 % a year over the next two years rather than 50 % a year if the current economic growth rates are to be sustainable when the official aid flows slow down. this target is possible. the arrival here of foreign banks from austria and croatia shows that there is increased interest from foreign investors. but the climate for private investment in bh is still far from supportive. this applies to local investment as well as foreign investment. there are still problems in the legal system, which is incomplete, the licensing and regulatory systems, which are far too bureaucratic, intrusive and multi - level, and in the financial system, which is still relatively weak. improving the environment for private investment, both local and foreign, is the key economic issue facing this country. it is this that will determine whether bh has a sustainable economy – and whether it is a country in which good students like yourselves should stay to be a part of its future. the banking sector as i said in the last section, a weak financial sector is one of the factors that hampers private investment in bh. the good news is that this gloomy picture finally began to change in 2000. i will mention just a few of the highlights. · first, the payments system underwent fundamental reform. the old state - owned centralised system that had a monopoly was closed. it has been replaced with a modern european - type system with two clearing houses, a rtgs one and a giro one, owned and operated by the central bank and payments are being conducted by the commercial banks. the suppliers we used had put similar systems into place in nine other european countries. but it was done more quickly in bh than anywhere