Use of international financial assistance to improve relations between Baghdad and «Kurdistan Regional Government»

March 18, 2016

Making «the Kurdistan Regional Government» a concerted effort to attract financial aid from the United States and international actors The other, as there is a strong logical framework for the provision of such assistance. P «Kurdistan Regional Government» crucial platform for the Liberation of Mosul are considered, and the Kurds are pro-Western allies have a $ prominent strategy. Understanding carry out economic reforms at a slow pace, but steady and reinforce their participation in the war against al «Islamic state» ( «Daash»).

But while the United States and its partners begin in the coalition (the right) to send emergency financial aid for «the Kurdistan Regional Government» almost bankrupt, this financial pumping, which has a total of probably less than half a billion dollars for 2016, will not only lead to delay collapse Kurdistan's economy probably for a year. And therefore, it should not be reflected Washington's goal to maintain a «Kurdistan Regional Government» steadfast until the liberation of Mosul, but must aim lies in providing pumping much larger than the financial aid that will continue to help the Kurds in the phase that follows. Mention here that the "International Monetary Fund" and other financial institutions are a key to this approach. Such engagement in assistance efforts will not only save Kurdistan, but also will contribute to the promotion of sustainable political and economic relations between the «Kurdistan Regional Government» Iraqi federal government.

The economic future of Kurdistan

At the moment, employs «Kurdistan Regional Government» 1.4 million residents of the region who are of working age, who number two million people, at a cost of 793 million dollars a month. So Erbil plans to reduce that figure to $ 361 million during the six months through salary cuts. And other monthly expenses include subsidies for fuel and electricity (about $ 375 million and this figure is on the decline), and the costs of the war (about 197 million dollars), and the costs of exporting oil (about 70 million dollars). In addition, resulted in a large number of displaced persons and refugees, who arrived to 1.8 million people (compared with the indigenous population of 5 million people) to the degree of economic turmoil is difficult to quantify. Even if the effects of the economic reforms began and manifested costs of the war began to be reduced slowly, it is likely to remain on the «Kurdistan Regional Government» afford monthly expenses worth $ 800 to almost $ 850 million.

In the second half of 2015, the average oil sales in «the Kurdistan Regional Government» $ 629 million a month, according to the Ministry of Natural Resources. It is likely that declining oil prices and unrest pipelines lead to keep yields at these low levels or even contraction over it (for example, did not report oil revenues in the past month, only $ 303 million due to pipeline problems). P «Kurdistan Regional Government» City already $ 25 billion of this debt will continue to increase by about $ 200 million a month if current oil prices stabilized. In the absence of many of the civil servants' salaries in four months, increasing the prospect of strikes and unrest and the accelerated pace of migration. And oil prices unexpectedly did not rise from the current average of $ 40 to $ 60 at least per barrel, would continue «the Kurdistan Regional Government» delays in salary payments and the payment of debt obligations to domestic creditors and the international oil traders.

For its part, the current plan will provide the list to send aid to tens of millions of dollar «Kurdistan Regional Government» some economic comfort and keep the operational capacity of certain segments of the Peshmerga fighters. However, this plan may not allow sufficient time to carry out reforms and the restoration of creditworthiness for «the Kurdistan Regional Government» and re-investment in infrastructure and to avoid instability.

How can international aid that change things?

Contrary to the Government of Iraq, federalism, which has reserves worth $ 50 billion, «the Kurdistan Regional Government» does not have the reserves where he is a quasi-sovereign entity, which means that it can not get the huge financial aid packages from most of the international institutions directly. However, the package that is likely to be provided by the "International Monetary Fund" to Baghdad soon, which may range from $ 6 to $ 10 million, which will be disbursed between the years 2016 and 2018, are designed to help all of Iraq's provinces eighteen, including the three provinces that make up including «Kurdistan region.» Similarly, the modern investment for "the World Bank" in Iraq Cardstania element, such as improving roads, costing $ 255 million, which is funded federal projects and some small projects in the «Kurdistan region» plan.

Is currently being applied, "the observer program by the staff," prepared by the "International Monetary Fund" (a gesture smoothed arrangements backup fully funded), which involved overseeing the implementation by Iraq with the obligations of the budget and ensure that the state conducting the agreed savings without further accumulation of arrears to creditors local and international.

This includes monitoring whether «the Kurdistan Regional Government» get a share of the proceeds, which are likely to be interpreted by Baghdad as a 17 per cent of the actual net revenue per month after deducting the huge expenses sovereign (and I mean that, for the affairs of defense and parliament and other federal institutions ).

However, in order to claim their share of the federal and packages international aid budget, should «Kurdistan Regional Government» to resume the transfer of 550 thousand barrels of oil a day to the Federal marketer of oil, as agreed in the budget. And then Satmah "International Monetary Fund" to Iraq to see that the cuts agreed between the two sides in the budget, nor does it once you reach its objectives through the deduction of the share portion of the country, namely «the Kurdistan Regional Government», the spending plan.

In the context of oil prices and the levels of the Iraqi export the current, can «Kurdistan Regional Government» expect to get perhaps $ 350 million a month in exchange for the provision of 550 thousand barrels of oil per day, in addition to an additional $ 150 to $ 270 million a month in aid packages to Baghdad, "international Monetary Fund" and other institutions and countries such as Germany and Japan. Kurds also can grant some freedom to export any excess oil out of proportion adhered to, which amounts to 550 thousand barrels per day. The net result could be better for the «Kurdistan Regional Government» from complete dependence on independent exports for the next period spanning two or three years. Even better yet, this arrangement would be support from the international monitoring system, which is the first agreement of its kind for the Kurds since the United Nations gave them a share of 17 per cent of the oil-for-food revenues in the nineties.

In all likelihood, the main challenge will lie in to this kind of agreement reached in obtaining the approval of Baghdad. The central government has sought for years to prevent «the Kurdistan Regional Government» of oil export independently, but since 2014 I realized that bear the burden of «KRG» employees, who number 1.4 million employee is sincere drain the federal budget. Currently, Baghdad Taatbjaj economic distress were experienced by «the Kurdistan Regional Government», which is worse than that of Baghdad itself only because the state was liquidating reserves at a rate that would Istnvdha in full within the next year or so if this process continues. The Kurds returned to the revenue sharing process and give them a part of the international aid packages is not the option you prefer Baghdad, and that «the Kurdistan Regional Government» undergoing an internal political crisis strenuous that will make it difficult for the Kurdish leaders provide general concessions to Baghdad. Thus, there is a need for effective mediation.

Implications for US Policy

The United States should seize this opportunity to bridge the gap again between Baghdad and «Kurdistan Regional Government», and help them to reach a tentative agreement on a common economic policy for the oil sales and international assistance and customs issues. With the US and international fixed mediation, the two sides have recognized the benefits to be Akzbanha in the middle of the road to re-integrate their economies, even if this merger temporarily. This in turn could encourage a broader cooperation in the long term.

The benefits are clear for «the Kurdistan Regional Government». International Mediation can help the region to get a fair share of imports, reserves and packs aid worth billions of dollars obtained by the federal government, while the terms "International Monetary Fund" and the process of its own monitoring may help officials «Kurdistan Regional Government» to fix the economy and restore confidence public revenues collapsed region and spend. In addition, the presence of a better relationship with Baghdad can come back at the end of other benefits to Erbil, such as airspace control and get support quasi-sovereign loans.

As for the benefits to Baghdad, they are more accurate, but very convincing. Vtjdid efforts to resolve disputes with «the Kurdistan Regional Government» may intensify international support for immediate delivery of aid, "the International Monetary Fund," as well as other aid packages. And it will put the issue of Kirkuk divisive force aside when international negotiations and control the parties to stop the fighting on the oil-rich region. These and other developments may also encourage Kurds to ask Turkey to withdraw its military base controversial in Bashiqa, which is located near the Mosul area under the authority of «the Kurdistan Regional Government». For his part, can Iraqi Prime Minister Haider al-Abadi to rely on the cooperation of Kurdish commitment to the reform plans. In the long term, Baghdad may give assurance that Washington will consult with them always in the American Kurdish affairs.

The benefits to the United States are not considered less important, namely: to maintain the route of the Mosul attack, and ease the tension between the two main allies, and increase American influence in Baghdad and Erbil, the Kurds and the rescue of the economic collapse. As is the case with respect to "plug connector", some additional efforts will now be much less costly than dealing with the situation after the disaster.

Michael Knights
The Washington Institute