Financial crisis: devaluation of the Iraqi dinar is it the solution? 8/5
05/08/2015 (00:01 pm) - The number of readings: 266 - Issue (3422)
Financial crisis: devaluation of the Iraqi dinar is it the solution?
Ali Mohsen Keywords
Governor of the Central Bank of Iraq
The financial crisis currently faced by Iraq, which can be extended to the next few years will inevitably require a serious and profound measures to spare the country a real risk has ridden the economic, social, security and services by circumstances, if it is not addressed articulated plans and successful solutions. The development of solutions and plans should not stems from one fact or one factor is the low price of oil source, because starting from that alone does not get us to the processors and attractive solutions touches the essence of the problem and the challenges of the immediate or future. The state budget has been exporting large deficit even with revenue rising significantly (depending on the oil price rise), and spending, who met those revenues did not contribute to the development of the productive base and the infrastructure and services in proportion to the growing resources, but he was spending a reason to commit the state high fixed costs can not dislodge or reduced, especially in the massive recruitment is the product, and in the financing of self-financing bodies and public sector companies. In the creation of entities and new ministries despite the expansion of the formations provinces based on the principle of administrative decentralization, accompanied by (easy flux of resources) neglect of non-oil revenues from fees and wages tax and other, and the acquisition of corrupt them (for example, pays the merchant importing container (Alkuinter) 4 Thousands of loyal Customs dollars (private sector), pays the equivalent of the Savior thousand dollars in fees for customs authority and the rest (3) thousands of dollars and is obsessed by a group of staff in the customs of colluding with them to change and adapt documents and goods imported).
Thus, if we want to hold your breath in the hollow in the joints in my state income and expenditure, we will find serious and destructive phenomena miss out on the country's development and growth opportunities and optimal use of resources.
On the basis of these facts should not be thinking about the easy solutions that will be a victim of the country and citizens bugs and shortcomings and mismanagement, use and lack of planning, oversight and accountability, and tinkering with all that or cover it again by not address the root of the problem.
Must be launched solutions to diagnose phenomena and glitches in expenses and revenues the state, which if not addressed by the real, the oil resources no matter how powerful you will be unable to achieve a balance and achieve economic and development goals of the public budget, and continues the drain of resources trends do not achieve a real accumulation in expansion activity Economic and reduction of unemployment and social welfare and human development, and continues to expand into new obligations on the State serve as the basis and foundation for a real crisis when oil revenues decline.
The proposal to reduce the value of the Iraqi dinar against the US dollar, which some posed today as a means to cover the deficit in the state budget (by paying a higher value for the dollars purchased by the central bank and Ministry of Finance and thus sell the dollar at a higher price in the market - the proposed 1500 dinars), this proposal is undoubtedly proposal is followed by some countries for objective goals, in most cases, it is to encourage the country's exports where they become worth less in foreign currency shall be priced at a global competitor.
In the case of Iraq it proposed a solution easy and direct increases the amount of the dinar, which you get the Ministry of Finance against the dollar, but a solution in our view holds many cons on the one hand, on the other hand does not help to address the roots of chronic problem, but not suited structural imbalances, and Aicod to re government spending and revenue structure in the macroeconomic framework, but would be a way to cover the reality with all its anomalies and serious imbalances, so we have exhausted all means of reform first, in order to keep spending paths and revenue on the right basis, before they resort to other solutions. In any case, the proposal to reduce the rate of the dinar against the dollar mired with many of the observations and cons to highlight the most important of which can be as follows: A-The devalue the local currency, which is usually taken by States are associated with the availability of the following (policy conditions, conditions are not available in the case of Iraq):
A-requires a flexibility in demand for imports, which means that the increase exchange rate for foreign currency will lead to reduced demand for imports (due to the high price tag), and this flexibility is available to the absence of national production base, leading to a negative result, with high amounts expended currency National on imported goods, thereby increasing the demand for foreign currency, leading to further deterioration in the balance of payments.
(B) that there is a significant volume of national exports, so that the resulting decline in national commodity prices (including the equivalent in foreign currency) for export because of the reduction of the national currency exchange rate, an increase in exports, and this is verified in Iraq, where almost country does not issue something, not because of price competition, but because of the lack of diverse production base in key sectors such as agriculture, industry, energy ... etc., where industry and agriculture is a low proportions in the components of GDP (agriculture 4.5%, industry 1.83%).
(C) that result in a reduction of the national currency exchange rate to reduce production costs, and which is the basis of wages, and this is not available or possible in the circumstances of the political, social and security of the country.
2. In contrast to the report by some of the gentlemen of the proposed terms of the amount can be calculated provided the budget of the exchange rate difference, which was appreciated by 15 trillion dinars, the correct account in the light of the actual amount of dollars purchased by the central bank of the Ministry of Finance (excluding financial repayments of obligations in dollars, such as oil projects and power, defense and foreign repayments with the assumption that all other ministries and projects for Initiating an obligation to the dollar with that assumption is unrealistic), the correct amount can be made available for this year to exceed 5 trillion dinars and next year will be up to 10 trillion dinars in the best prospects, and this difference - who will pay the price of Iraqi citizens - it can be supplied from other alternatives and those alternatives not only provide large sums of money, but achieved important economic and financial purposes in the short and long term.
On the other hand, the fulfillment of financial obligations to the oil companies will contribute to the increase in revenues, with the addition of every 100 thousand barrels of oil extracted and the source increases revenue by about $ 2 billion (assuming the price of a barrel to $ 50). There is considerable scope for increasing oil production as well as gas if what has financial obligations file management for the benefit of companies producing oil and gas.
3. The proposal put two prices for the disbursement of the dinar, one low and one high allocated to cover essential needs (in order not to influence the citizen's task and sectors), such as food, medicine and supplies industry, agriculture and others, the proposal impractical and creates chaos and exploitation and corruption, where the reality of ports and customs authorities can not be to extend proper application of the proposal, and we have experiences in this field, in which the instructions and controls turned into a means of blackmail and corruption and pour all in the interest of the corrupt lead to manipulation and rigging wide operations.
4-The lifting of the dollar exchange rate to 1,500 dinars (as proposed) means reduced purchasing power of citizens by 30%, in addition to cases of exploitation and loss of control over the market, which adds another increase, and this increase in prices is too high under the current circumstances where limited Income for the vast proportion of citizens in addition to high unemployment and poverty rates, as well as Cairo conditions experienced by millions of displaced people living difficult humanitarian conditions and resources barely sufficient to feed life and will be the beneficiary layer of traders and speculators.
5. The damage to raise the exchange rate and therefore the general price price is paid citizens with low-income equally borne by those with high incomes, which increases the phenomenon of large class differences, in the absence of tax policy reduce those differences, and make changes in the price structure and other pour in interest that layer.
The absence of the function of tax policy in the redistribution of income through taxation, according to real incomes to be re-distributed to citizens with limited income and poor through various services and means of support, this absence deepens the risk of lowering the exchange rate of the dinar.
6-The lifting of the exchange rate of the dollar by 30% mean reduction of assets and foreign investment value of such proportion that have been paid in dinars purchased in dollars at the time, but even the business sector of the Iraqi count found and investments denominated in dollars (for psychological reasons, historical and economic), which generates serious repercussions of fears and concern and hedge.
The impact extends to the level of citizens who are used to assess their assets and their properties and their property on the basis of the dollar, leading to raise Akiemha the national currency, and holds a clientele for it to rise, such as property buyers for residential or commercial purposes.
7. The lifting of exchange rate policy when they follow to serve as a tax on Local-income as in the proposed increase, must be accompanied by a re-look at the direct and indirect taxes toward mitigation or reduction, it is not logical to impose taxes along with the price increase exchange where it means a reduction of per capita income or purchasing power from both sides, and it should be noted here that the government has decided to apply the Tariff Act starting from 01/08/2015 in addition to increasing the tax on employees' salaries and imposing a new tax on their allowances, which means carrying the majority of citizens ( who are employees) a double financial burden not commensurate with the status of living of the citizens, in addition to government guidelines apply the electricity tariff and the gradual lifting of fuel subsidies and other measures.
The 8-gradient trends in financial and monetary decisions is an important and necessary but not to take this into account and take a big surprise decisions at high rates creates a negative impact on economic activity and the business environment.
The devaluation of the exchange rate of the dinar by 30% - as proposed - is a very high percentage confuse all economic conditions in all sectors.
The central bank this year has increased the dollar, which buys of Finance from 1166 to 1180 dinars price, can continue amendment proportions depending on the circumstances do not confuse the situation.
We believe that the possible solutions to address the financial challenges facing Iraq are in the following frames (without going into the details of each proposal): - 1. comprehensive reform of the tax authorities, and that can save billions of dollars a year, with the assignment of customs collections in all ports to international companies specialized in the investment framework.
2. stimulate the tools and market domestic debt, through the issuance of bonds and traded in the market, which is a source basis for funding in most countries of the world, given that the central bank proposed to the government and the national bond issue worth 5 trillion dinars local dollar and bond futures against the dinar worth 5 billion dollars, the government agreed to do so has been assigned versions Bank manages on behalf of the government and will soon in the market.
3. a comprehensive survey of real estate State (land and buildings), leased and vacant Akiemha and revenues from rents or leasing or other, to study them and take appropriate action on the lease, sell or invest, to maximize possible resources of exploited economically and efficiently.
4. termination of financing the state budget for the bodies self-funded (according to the laws) within a period not exceeding 5 years, any funding or support rate reduced by 20% annually until the departure of its funding or grants her from the general budget, note that the current annual allocations to those bodies and agencies of trillions (JD).
5. activation of what is stated in the general budget for the 2015 law, from allowing the government deferred payment projects worth $ 5 billion, to be strategic projects (limited in number and wide service) and managed a higher committee and a high degree of transparency.
6. Apply tariff electricity consumption, taking into account the gradient in wages to focus on higher consumption and a consumption suitable for poor and middle classes wages, knowing that all accounts suggest the possibility of achieving an amount of $ 6 billion annually if the application of those tariff.
7. reconsider its support policies (such as ration card, fuel ...) so that went to the poor and limited income groups.
8. activating the strategic promotion of the private sector which was approved by the government and keep track of their content carefully and diligently a task and accurate strategy and placed center after studies and discussions between all the parties of the government and the private sector and specialists.
9. identify a number of major investment projects per year (for example, 10 projects), presented to the investment with a package of incentives and privileges and a sufficient amount of guarantees, and assume a higher committee formed by the Council of Ministers to identify and promote these projects and supervise the stages of delivery and provide all means of support.
10. resolve the public sector companies file a private money-losing ones, which have undergone studies and proposals and plans of years ago and it has become very necessary to the completion of self-determination, taking into account not damage the rhythm of the workers.
11. quick to take advantage of loans provided by the CBI industrial, agricultural and real estate sector, which amounts to 5 trillion dinars, where -With Alosv- not fired yet for the government's delay in the necessary instructions to launch determinants mode, note that the central bank also allocated
(1) trillion dinars to finance small projects across the lending private banks.
12. The need to resolve the lagging government projects that have been paying large sums them without complete file, much of which has been included for years, and we see the need for the Council of Ministers to form a committee to review the situation of these projects and ways to accomplish or re amounts, as we see it is necessary to not It is inserted, deleted, or replaced only through projects presented to the Council of Ministers, and the first to implement the first choice of investment by the private sector.
13. seek to get support and help countries that share Iraq in its attitude towards terrorism by moving them to finance Iraq's reconstruction fund, and is a national team of the three presidencies liaise with these countries and encourage them to contribute to the mitigation of the destruction and devastation caused by terrorism.
14. development of a medium-term plan, to restructure the government and higher authorities and local administrations, thus alleviating the administrative sag and reduces costs and increases the efficiency and productivity, and poses for the national team purpose of professionals as well as academics and international consulting firms, that studies and proposals are not subject to political considerations or contradict the interests and goals of that plan.
15. reconsider system of supervision and inspection and integrity in the light of the experience of the past years, and to identify strengths and weaknesses in their work and ways to improve their roles, leading to a real and effective and efficient to fight the phenomena of corruption.
Here we refer to we have given some time ago to the Cabinet a proposal to abolish offices of inspectors general, and replace it with one office be at the national level, and represents the Council of Ministers arm in control and is associated with the prime minister, to be the executive power tool in the control of the same, and without subjecting it to the influences and pressures ministries and bodies which shall control, as we suggested characterization tasks or to work that office selected aspects of mission and core without immersion in the details or the tasks that are the responsibility of the internal or external control devices.
Re: Financial crisis: devaluation of the Iraqi dinar is it the solution? 8/5
What good is Alak been not worthy of being central bank GOVENOR ,BUT HE IS NOT IN FACT NOTHING MORE THAN A PROXI ,STILL??? WHY STILL IS ABADI , LETTING HIM REMAIN?? That my question?????I know some of you will comment its Mailki keeping him from removing Alak ,im not too sure !Abadi , worked closely for finance commitee with MAILIKI , SOMETHING JUST SEEMS FISHY HERE!