The shift of attention to West Africa comes just weeks after the IMF warned early this year that EAC’s single currency would not result from the same macroeconomic landscape as Europe’s since risks are different.
Experts negotiating rules for unifying economic policies of the five East African Community countries have turned to West Africa for vital lessons on integration as the Eurozone crisis undermines confidence in the Western model.
A taskforce comprising top government officials is touring West Africa to meet representatives of the Commission of West African Economic and Monetary Union (UEMOA) the whole of this week.
“The task force will discuss and share experiences with practitioners from UEMOA to understand the formation and conduct of the monetary policy in West Africa,” the EAC said in a statement.
The 22-member team, the statement says, will visit the National Central Bank of Burkina Faso, the Regional Statistical Centre of the Commission, the Central Bank of West African States and Senegal’s finance ministry.
“The team will discuss the roles of the different institutions, co-ordination of fiscal policies and best practices,” says EAC Secretariat said last week.
The eight-member UEMOA created in 1994 by countries which already shared the franc as a single currency operates like a currency union than a monetary one that EAC seeks to create. Benin, Burkina Faso, Côte d’Ivoire, Mali, Niger, Senegal, Togo and Guinea-Bissau are members.
East Africa’s Monetary Union protocol currently under negotiation not only targets a single currency but also uniform fiscal and monetary regime by end of this year.
The East African bloc borrowed heavily from European Union’s experience to draft its custom and common market protocols. Early this year, the EAC team was back in Europe to study its model for monetary union.
The shift of attention to West Africa comes just weeks after the IMF warned early this year that EAC’s single currency would not result from the same macroeconomic landscape as Europe’s since risks are different.
“Unlike the case with East Africa, the EU single currency plan provided members with access to very large internal and global pool of savings at low rates of interest that allowed some countries to sustain private sector imbalances for a long period of time,” it said.
While European countries integrated their economies to create economies of scale, the rapid pace with which Eurozone has spread among members has lowered faith in such pacts.
The EU experience has also shown that once countries in a monetary union slip into economic recession, individual states — having ceded fiscal and monetary policies to autonomous institutions (such European Central Bank) — are left with little room for manoeuvre.
“The experience of Ireland (EU member) and Iceland (non EU member) shows that monetary union is good thing during boom time but limits individual country’s ability to pull itself out of recession since they have to reach agreement with other members,” Yalman Onaran, a Bloomberg journalist says in his book Zombie Banks published early this year.
The EAC team which began its monetary union talks in January 2011 is expected to come up with a draft protocol before the end of this year. EAC Secretariat says the taskforce finalised negotiations on 72 out of 86 articles in the draft plan.
The taskforce is comprised of ministry officials from each of partner state’s finance, planning and EAC Affairs ministries. Others are from central banks, capital markets regulators, insurance and pensions watchdogs, and statistics offices.
Articles such as provisions on co-ordination of monetary policy and fiscal policies, restrictions on central bank lending to public entities and the restrictions on privileged access to financial institutions have specifically drawn a lot of interest.
Under privileged access to financial institutions, for instance, the five states must clearly state the extent to which governments can be allowed to borrow from national banks to create certainty in the market.
In EU, commercial banks took advantage of the free movement of capital to lend aggressively within the bloc, an anomaly that has been exposed in the eurozone crisis.
In its monetary union talks, the EAC states have been pondering giving the proposed regional central bank some regulatory teeth to enforce cross-border rules.
In absence of supervisory powers to enforce the rules it had set for European banks, (rules being enforced by national central banks), the European Central Bank remained helpless as financial crisis gnawed at key sectors of the economy, argues Mr Onaran in his book. For East Africa, the taskforce is hoping to find answers to some of these questions in West Africa.
