Good decision EAC tenders study on monetary policy Written by DANIEL SAID Saturday, 05 July 2008 THE BUSINESS WEEK ARUSHA, TANZANIA - The East African Community (EAC) has floated a tender seeking to engage a reputable firm or a team of consultants to undertake a comprehensive study on the proposed EAC Monetary Union. The EAC announced last week (July 2) that those qualifying for the consultancy job must have "extensive and hands on knowledge about the process leading up to the European Monetary Unification." Currently, negotiations are ongoing on a protocol for the establishment of an EAC Common Market by January 2010. "Article 5(2) of the EAC Treaty stipulates "…the Partner States undertake to establish among themselves and in accordance with the provisions of this Treaty, a Customs Union, a Common Market, subsequently a Monetary Union and ultimately a Political Federation…" As per treaty, a protocol on the establishment of the EAC Customs Union was concluded in March 2004 and went into effect in January 2005. This is in line with the EAC Treaty that intends to "remove all exchange restrictions on imports and exports within the community, maintain free market and adjust member countries' fiscal policies and net domestic credit." It is also an implementation of the instructions of the sixth Extra-Ordinary Meeting of the Summit of EAC Heads of State who ordered for the need to fast track the establishment of an EAC Monetary Union by 2012. The Summit decided that a strategic framework to fast track the establishment of a Monetary Union should be developed for consideration by the next meetings of the Council and Summit. As part of the earlier process of implementing these decisions, in October, 2007 the Economic Affairs Sub-Committee of the Monetary Affairs Committee (MAC) met in Entebbe to develop a strategic framework which could fast track EAC Monetary Union in 2012. The Sub-Committee discussed the convergence criteria and time frame, the model protocol and institutional structure of the EAC Monetary Union and harmonization of macroeconomic statistics. A monetary union is a situation whereby several countries have agreed to share a single currency amongst them. For example, all member states of the EU are expected to participate in the European Economic and Monetary Union (EMU). So far, up to 15 have adopted the euro as their currency. The first manifestation of a monetary union is a common currency; therefore, the strategic framework must include a monetary policy by the five Central Banks that will serve to ensure that the unified regional currency will be stable in order to foster further economic and financial integration among partner states. However, there are challenges to this noble goal. In his opening remarks at the MAC extra-ordinary meeting on Fast Tracking EAC Monetary Union to 2012 in Kampala on January, 23, 2008, the Governor, Bank of Uganda, Prof. Emmanuel Tumusiime-Mutebile told the MAC that "the success of the EAC monetary union will depend on the establishment of the EAC currency and single monetary policy, sustainable macroeconomic convergence among partner states and a balanced policy mix between fiscal, monetary and other economic policies." Present was the EAC Secretary General Ambassador Juma Mwapachu, and Central Bank Governors for Kenya, Rwanda, Burundi and Tanzania. He said that a "meaningful monetary and financial integration can be achieved only with a sustainable convergence of economic fundamentals, particularly price stability and sound fiscal, monetary and structural policies." However, Mutebile cautioned his fellow governors that "short of that, it may even be counterproductive to try to artificially forge a monetary union." Said Mutebile: "A durable monetary union depends on a high degree of sustainable convergence regarding price stability, sound fiscal and monetary policies, exchange rate stability and convergence of long-term interest rates in the region." Despite all these efforts, all is not well in the EAC business community who complain of tax disparities, nuisance roadblocks and bad Customs regulations among the Partner states. The executive director of the East African Business Council, Mr. Charles Mbogori said last week that there were unnecessary restrictions among member states, which affect land-locked members like Uganda, Rwanda and Burundi. He cited the recent decision by the Tanzania government to ban maize exports saying that was not in the spirit of the EAC.