East Africa: Euro Lessons As EAC Eyes Single Currency

Problems that have affected the Eurozone will serve as a lesson for East Africa as the region inches towards a monetary union, a senior East African Community (EAC) official says. Mr Aloyse Mutabingwa, the EAC director of Planning and Infrastructure, told The Citizen that negotiators would make sure that any agreement reached would not plunge the region into problems similar to those dogging the Eurozone.
He said everything would be done to safeguard the EAC from monetary crises similar to those experienced in the European Union.
The Eurozone has been embroiled in turmoil that ranging from stock and bond markets to exchange rates, government spending and tax rates.

The assurance comes at a time when the EAC member states Tanzania, Kenya, Uganda, Rwanda and Burundi have opened negotiations, which could culminate in the establishment of a single currency.
"People should not overstate the risk. In negotiating, we are looking at the best practices in managing the financial sector," Mr Mutabingwa said.
"We are not going to be a trouble zone. We are negotiating a good monetary union, getting it right and learning from others what's right about it."
Mr Mutabingwa added that the EAC economic bloc would ensure that the monetary union safeguarded and strengthened the regional economies.
"The model and governance machinery of the proposed monetary union must safeguard us from problems faced by the EU," he said.
Mr Mutabingwa, who is chairing the inaugural meeting of the High Level Task Force (HLTF) that was launched here on Monday, allayed fears that East Africa would be besieged by problems that have affected other monetary unions.
He said the EAC partner states were committed to the talks because of the sensitivity of the systems that would be put in place to ward off any fiscal or monetary crisis.
"We are dealing with the matter very coherently. Those who are busy analysing Europe in the context of our negotiations are getting us wrong.
"We are moving from an informed point of view. The monetary union is extremely important for us just like in Europe and that is why we stress the governance issues," he pointed out.
He said the negotiations were expected to last 18 months, and that member states were positive about the move aimed at further strengthening of economic integration.
"We are a bit behind time because of delays in passing decisions on the negotiation structure and because of general elections in most of the EA states."
Another senior EAC official, who spoke on condition of anonymity, said it was wrong to draw comparisons between Eurozone problems to what could be expected once the EAMU came into force.
He said only a few countries in the European economic bloc such as Spain, Portugal, Greece and Ireland had problems with the system while Great Britain continued to use its own official currency.
"But the Euro is still going strong and appreciating. People should not overestimate the problem. We are informed and discussing the facts and what generated the crisis there. We have learnt some important lessons," he said.
He added that EAC could also learn from the Economic Community of West Africa (Ecowas) monetary union which has been functioning over the years without major problems.
According to him, under Eamu the central banks would be more powers to regulate and supervise the monetary sector.
"We also need to coordinate our political set up through harmonising our fiscal policies and addressing matters like public debts," the official noted.
When he launched the HLTF on Monday, EAC secretary general Juma Mwapachu said the envisaged monetary union would bring down inflation and boost intra-regional trade.
"By inaugurating this HLTF, the achievement of the third pillar of the EAC integration agenda is within our reach," he said.
He added that the EAC secretariat in Arusha was ready to give full support and commitment to the negotiation process.
Negotiations for the EA Monetary Union comes on the heels of completion of a comprehensive study on the proposed monetary integration in the region.
The study by the European Central Bank (ECB), completed last year, recommended best ways under which EAMU would be set up, including setting up of a legal and institutional frameworks for the proposed union.

Some of the prerequisites for the establishment of EMU include convergence towards a single currency and exchange rates, among others.
The primary rationale for a monetary union is to reduce the costs and risks of transacting business across the national boundaries of countries comprising the monetary union.
And by granting the region a single currency would remove the costs of having to transact in different currencies and the risk of adverse exchange rate movements for trade within EA.
It is envisaged that the EAMU will deepen the integration of EA economies and, in doing so, enhance the benefits which can be derived from the EAC Common Market.