Hussein Atwan *: comment on the article, a professor Hatim George Hatim marked "the stability of the Iraqi dinar against the dollar," Is it really a developmental necessity.


First / stability of the dinar exchange to achieve price stability in the price of the Iraqi economy.

Achieving price stability gateway for economic growth. Central banks have been taking price stability a primary objective seeks through monetary policy different Bodoadtha to provide an enabling environment for economic growth, and this is provided by a relatively monetary policy in Iraq, but the fiscal policy is disciplined as well as a lack of coordination between the two policies were the reasons bases in disability economic growth in Iraq wheel, since the structure of the general budget of the country and generated over the past years and dominated by consumerism rather than investment, a significant expansion in the command that brought the Iraqi economy to the limited available capacity to produce goods and services, both viable and non-tradeable point of aggregate demand, and thus general budget turned into a source for generating price distortions in the joints of the Iraqi economy all.

That monetary policy's commitment to the stability of the Iraqi dinar exchange rate to achieve price stability and price stems from the degree of transmission of the impact of exchange rates Exchange Rate Pass-Through to the domestic price depends on economic factors (macro and micro). This means that the degree of impact the amount of transmission differs depending on the circumstances of countries and different economic sectors.

It stated in the original article "that the stability of the dinar against the dollar does not guarantee price stability in the Iraqi economy. Starting the stability of the price of the dinar against any other foreign currency does not mean only the stability of laboratories which turned into local currency prices of imported goods from the foreign country concerned. This means that the stability of this factor does not preclude import price changes that occur in other countries. "

It can be said in this regard that the high levels of inflation (price changes that occur in other countries) is one factor of several other factors affecting the degree of transmission of the impact of the exchange rate to domestic prices. There is the price of supply and demand flexibility, affecting the degree of transmission of the impact of the exchange rate to domestic prices, as the decline in domestic demand for flexible flows, the city raises the degree of transmission of the impact of the exchange rate to domestic prices. Another factor is the share of imported goods and services in the main consumer basket expressed Pal (CPI), the larger the share rose this high degree of transmission of the impact of the exchange rate to domestic prices. The above-mentioned factors are present in the Iraqi economy.

Moreover, there are partial factors, such as the strategy adopted by the issuing company. Market share may be priority goals even at the expense of margins, as well as the company's operations converter output, any transition from the purchase of raw materials from the local market to be imported from abroad, depending on the prices of those inputs.

All of the above means that the levels of inflation (price changes that occur in other countries) is not the only factor affecting the degree of transmission of the impact of the exchange rate to the price of domestic goods and services, as well as link this factor inflationary environment of the exporting country and the relative stability of its monetary policy. If the latter succeeded by targeting a specific inflation levels that will not stimulate producers (exporters) to increase their prices as a result of the high cost they have as long as they are convinced that monetary policy is able to maintain price stability [1] .

As for non - tradable goods trading and its impact on the formulation of price stability as stated in the original article, it can be said that there is a paradox in the Iraqi economy, where Iraq has become imports and dramatically services, skills and requirements of service (such as the widening of the medical services that were available locally, Corporate Services security and the purchase of housing outside of Iraq, and the establishment of foreign companies implementing housing projects and bring labor and building materials, as well as supplies and infrastructure fundamentals and requirements and many of the skills). All these services and requirements are a large part of goods and services are not tradable than in Iraq but turned into goods and services that are tradable satisfy the total demand through heavy import [2] , and therefore they took the subject to the law of one price. This is born inflationary pressures and a constraint on price stability in Iraq caused by the growth of government spending, and in particular the operational Apartment in the general budget, as well as the sharp decline in the production of goods and services , non - tradeable able to compete with their counterparts from imports, which requires intervention in the market exchange constantly to maintain price stability.

All of this means that the conviction of the monetary institution in Iraq and the faith represented by the central bank to stabilize the exchange Dinar- price in light of the financial system severely lacking in depth Demonetizing and financial depth Lack of high bank liquidity and interest rates directed administratively be the usual channels for the transmission of the impact of monetary policy to the real sector effective to a large extent. Thus, the basic tool available before the CBI is to intervene in the foreign exchange market, as the fixed rate benefited the Iraqi economy [3] - provides a relatively stable price reached in the Iraqi economy, and this is what has been achieved over the past years. Which was born a favorable climate for economic growth, but the lack of discipline fiscal policy as well as the lack of security and political stability , preventing access to the development objective.

Second / discuss the objectives of reducing the dinar exchange rate.

1. If the goal of reducing the dinar exchange rate (through the CBI do to increase the purchase price of the dollar from the Ministry of Finance) is to fill part of the budget deficit , it covers only a very small percentage of the budget deficit has this coverage be closer to the illusion of them to the truth [4] . This reduction in the exchange rate will be reflected directly in higher general level of prices.

2. If the aim of reducing the exchange rate (through the CBI do to increase the purchase price of the dollar from the Ministry of Finance, and give up or reduce the defense of maintaining the stability of the dinar exchange rate) is to stimulate agricultural and industrial export activity or import substitution, it can be said in this connection that reducing the exchange rate is the financial MP (fiscal proxy) tariff and positive side to reduce the exchange rate is not to distinguish between the currency demanded for the purpose of consumption , and called for the purpose of investing abroad, but that the reduction in the exchange rate does not distinguish between economic activities that are meant supported by the government through tariff and other activities that the government does not want to support. By this, on the other hand, if the reduced exchange rate aimed at stimulating agricultural and industrial export activity, they must know that their contribution to the expected low. The problem of exports or imports substitution mostly not competitive created by a low exchange rate - and even exaggerate the reduction we are working with trading partners have infinite price cuts Abv- but in:

A financial mismanagement, both the private sector (agricultural and industrial).

B uncontrolled government spending as well as giving priority to notch consumer from the investment and the lack of implementation of the last fully over the past years.

C crisis due to energy costs and security.

D lack of tax and customs Allajmh stimulating.

It all makes reclining on devalue Kalmstagir from the frying pan into the fire, because it will affect the level of well - being humble originally slice fixed incomes, at a time when the government can not do transfers to the victims of the reduction of the poor, and therefore , this target when compared to its impacts and potential proven dwindling, so the reducing the exchange of the national currency , similar to chemotherapy are resorting to in the last options are not in the forefront of being easy to implement [5] .

3. If it was behind the reduction target relative to retain foreign reserves depleted and not through the austerity policy over low exchange rate, it would be so painful and harsh effects on the standard of living of the Iraqi dinar-denominated foreign reserves defending him. Whether or reduction is not as long as the reserves diminish administered Iraq is a disciplined fiscal policy.

I believe that the use of a simple reduction in the near time is ineffective without the other tools and other policies and the goal of maintaining the strength of income as well as targeting inflation ahead of other goals.

The load monetary policy burdens the absence of tax and trade policy, and corruption is rampant and undisciplined fiscal policy for years it is not Mountqa not Palmacol.

All of the above does not mean the sanctity of maintaining the stability of the Iraqi dinar exchange rate , but the stability of the dinar exchange rate urgently needed at least until the creation of conditions necessary for the purpose of reduction measures, the most important (tariff Kmarkip inhibitory for some imports unnecessary, tax and effective policy, and develop a framework to control spending General fiscal policy responds to the circumstances of Iraq 's financial. but to argue against the state 's ability to reduce the budget deficit and stimulate national production and law enforcement, especially the collection of taxes , customs duties and control of the border crossings and adjust the mess this government spending and combat Aisr corruption, it can be said , " Is not the imposition of taxes and the maintenance of border duties rudimentary any State, what if exposed to the crisis, Alice ward off evil progresses?, and the loss of full control over the increase in overall revenues due Tothrenkhvad oil prices, not executed the possibility of increase also will notice, as well as calls for pressure on public expenditure as far as possible " [6 ] (for more details see the article in this regard , Prof. Mahmoud Dagher titled "easy solutions or build a state , " published in the network of Iraqi economists dated 17/02/2016).

(*) Economic Researcher - CBI