Limited Possibilities of Adapting the Economy of Bosnia and Herzegovina to the External Pressures of the Economic Crisis

Abstract

The economic condition in Bosnia and Herzegovina (BiH) is dependent on the continuous inflow of money from foreign countries. Under the impact of the economic crisis, there is a reduction in foreign donations, remittances from abroad, foreign investments and exports are made more difficult, which threatens its economic and social stability. In this paper, we investigate the influence of external disturbances on the balance of payments of BiH, as well as possibilities of conducting an economic policy which equalizes the real effective and balancing foreign exchange rates. The analysis shows that BiH is open up for an external pressure on the balance of payments since the Central Bank of BiH conducts neither an exchange rate policy nor a foreign exchange reserves policy, and the crisis of the exchange rate and the crisis of the foreign exchange reserves take turns in BiH. In order to reduce the negative effects of the deviation of the real effective and balancing foreign exchange rates, in BiH it is necessary that prices and salaries be flexible and that structural reforms which would increase the competitiveness of domestic enterprises in the foreign market be implemented.