The decision to reduce the dinar: to treat treatment or to stop the collapse

Dr. Muhannad Talib Al-Hamdi

Articles

Muhannad Talib Al-Hamdi *

Riot police were sent to protect the headquarters of the Central Bank of Iraq in central Baghdad, before the announcement of the devaluation of the local currency, fearing the outbreak of popular protests. The Iraqi government’s decision to reduce the value of the dinar against the US dollar by nearly 20% caused an uproar in the Iraqi street.

 

The Central Bank of Iraq statement regarding this reduction indicated, “It must be emphasized here that this change (reduction) in the value of the Iraqi dinar will be one-time only and will not be repeated. “The central bank will defend this rate and its stability by supporting its foreign exchange reserves, which are still at stable levels,” the statement added .

 

The bank blamed poor economic policies over the past decade. He said that he “has no choice but to intervene” because poor economic planning and financial policies on the part of Iraqi politicians have led to the transformation of Iraq into an oil-exporting country only, with the bulk of state expenditures directed to pay money to the bloated public sector.

 

Unofficial estimates indicated that the successive Iraqi governments that followed the formation of the first Iraqi authority after the invasion in 2003 were responsible for the disappearance of about a quarter of a trillion dollars, which were allocated to reforming the health, education, electricity and public services sectors.

 

The Iraqi government reached this decision after it was unable to pay the salaries of its employees for two consecutive months, and had to borrow from the Central Bank of Iraq and other internal parties . The government sells oil in US dollars, which it uses to buy Iraqi dinars from the central bank to finance salaries and public services. Reducing the value of the local currency against the dollar means that it will get more Iraqi dinars from the central bank.

 

Years ago, the Central Bank of Iraq fixed the exchange rate of the Iraqi dinar against the US dollar, which is 1119 Iraqi dinars per dollar. Despite the emergence of a parallel black market selling dollars at a higher price, the difference was within the permissible margin of economic maneuver. However, recent months have witnessed many fluctuations in the exchange rate, due to the Coronavirus pandemic and the accompanying global financial crisis, and the decline in Iraq’s oil revenues after reducing the volume of its oil exports .

Although the CBI is independent, the government pushed for the cut, the largest in Iraq since 2003, to enable it to pay dinar-denominated salaries to more than four million government employees. The decision to devalue the currency angered public sector workers. Many fear that the weakening of the dinar, as well as the proposed budget plans to cut salaries and impose taxes, will amount to harsh wage cuts.

Popular reaction:

The decision of the Central Bank of Iraq to reduce the value of the dinar sparked a state of panic among Iraqis, many of whom rushed to exchange offices to buy dollars, and to supermarkets to buy and store supplies .

 

Several hundred demonstrators gathered in the famous Tahrir Square in Baghdad, to protest against the sudden decline in their purchasing power and urged the government to reconsider its decision. A young protester held up a banner reading “Before the dinar, the government must collapse.” Particularly among the demonstrators were numbers of seniors and retirees critical of the measure that greatly reduced the value of their pensions .

 

Hundreds of protesters also gathered on Monday in the city of Kut, where merchants said they would now have to reduce imports because they are paying in US dollars for the products they buy from abroad. Agri-food dealers and wholesalers in the city of Nasiriyah raised their prices by 20%, according to an AFP correspondent. In Basra, the head of the local branch of the High Commissioner for Human Rights, Mr. Mahdi Al-Tamimi, confirmed that the price hike came as a shock to consumers.

 

The curse of oil or its blessing:

The second-largest producer of crude oil in OPEC is completely dependent on oil exports, and Baghdad’s revenue has in fact been cut in half due to the collapse in oil prices. This left the government unable to cover its costs. The International Monetary Fund expects that Iraq’s fiscal deficit will widen to 20% of GDP this year .

 

The decline in oil revenues has put pressure on the Central Bank of Iraq’s foreign currency reserves, which the World Bank said had fallen to about $ 50 billion by last September, forcing the government to borrow heavily to pay salaries. The size of the public sector in Iraq has more than quadrupled since the invasion in 2003, and the government has simply become the largest employer in the country. But she was late in paying the salaries of employees and retirees in November, causing social unrest .

 

With the World Bank predicting that the poverty rate will rise sharply with the shrinking of the oil-dependent economy, the financial situation of Iraq, exhausted by wars and corruption, is so dangerous that Iraq is in talks with the International Monetary Fund for support . Sajjad Jiyad, a fellow at Century Research Institute from its office in Baghdad, says that the devaluation “sends a signal to the International Monetary Fund and others about the extent of despair the situation has reached and that Iraq is ready to take some of these painful steps,” meaning the march towards more financial austerity. .

 

But with Iraq dependent on imports, a weakening of the dinar is likely to lead to inflation. Prices have remained low so far, in part because Iraq’s two largest trading partners, Iran and Turkey, have seen a significant depreciation of their currency. “For the general population, there is concern that food prices will rise, as the country still imports most of the foodstuffs,” says Mr. Sajjad.

 

The Minister of Finance, Mr. Ali Allawi, warned that Iraq must take serious measures to reform the expenditures, which were amplified with the use of politicians using public employment to buy votes and loyalties. This month, the International Monetary Fund advised the Iraqi government, in building its budget for 2021, to give priority “to reversing the unsustainable expansion of the cost of salaries and pensions, reducing ineffective energy subsidies, and increasing non-oil revenues .” The Minister of Finance added, “One of the main reasons for the devaluation of the dinar is to push the economic cycle forward and revitalize the private sector and domestic production to avoid severe budget deficits . ” He also said, “What has been done is a preemptive step. Without this step, huge inflation will occur. We will encounter problems that we will not accept .”

 

The minister says the country’s foreign reserves could be depleted within six to seven months if government spending remains on the current track without changing the exchange rate. Without this step, the budget deficit in 2021 could reach 100 trillion dinars (84 billion dollars) . The International Monetary Fund expects Iraq’s economy to contract by 12% this year, more than any other OPEC member state.

 

“The devaluation was inevitable in light of the low oil prices and budgetary pressures facing Iraq,” said Ziad Daoud, an economist who specializes in emerging market studies at Bloomberg. “It is also important to monitor the popular response to the resulting increase in the cost of living and the government’s austerity program, ” he adds .

 

Since the collapse of oil prices earlier this year, Iraq has been suffering from an unprecedented liquidity crisis. The state has had to borrow from the bank’s dollar reserves to pay nearly $ 5 billion a month in public sector salaries and pensions. But oil revenues, which make up 90% of the budget, come in, on average, at $ 3.5 billion .

In a move toward austerity, the state’s proposed budget for 2021 also calls for record spending, projecting a deficit of nearly $ 40 billion. The Cabinet voted on the budget and sent it to Parliament, where it is expected to face strong opposition. But those familiar with the insights of Iraqi politics say that it will eventually pass according to the desire of the leaders of the blocs and the influential political parties.

 

Over the past two decades, corruption has created a double-edged problem for Iraq. Weak, totalitarian Iraqi governments built on the basis of sectarian quotas mean that every major political party runs one or more ministries. They run these bureaucracies not in the interest of the country but as huge patronage networks: corruption machines that suck oil revenues from the treasury and pass them on to their public in the form of jobs, contracts, and other perks. The spread of graft has stifled what was previously owned by the small private sector in Iraq, which means that there are not many alternatives to public sector jobs .

 

Therefore, it is not surprising that there has been a more than fourfold increase in the number of workers in the public sector since 2004, and the government pays 400% more salaries than it was 15 years ago. Thus, the government and its oil revenues became the main engine of the Iraqi economy, which gives the Iraqi people the opportunity to live.

 

The Iraqi economic expert, Mr. Munir Al-Obaidi, said in an interview with Al-Hurra channel that the effect of the devaluation will be negative at the beginning of the stage, which “will continue for six months or a year”, and after that “it will contribute to improving the GDP from different sectors such as the industrial, agricultural and service sectors, because it will increase the activity of these sectors.” “.

 

But Iraqi industrialists say that the talk that the decision to devalue the Iraqi currency will lead to the encouragement of local industry “is too simplistic .” The Iraqi industrialist, Mr. Moataz Kamouneh, said in an interview with the same channel, that “the industry needs infrastructure such as electricity, sewers, water lines, transmission lines, import and export facilities, and all of these are not available .” And he adds that “the raw materials have increased in value after the devaluation of the dinar because it is imported, which means high costs, and the years of Iraqi industrial unemployment have made Iraq lose the advantage of keeping pace with other countries with technology and destroying the old infrastructure .”

 

Is there a hand that extends into Iraq :

The devaluation of the currency, without accompanying economic reforms that the political forces in Iraq refuse to consider, will paralyze imports, undermine savings and increase hardship. If the United States government is willing to provide some aid, it is likely that many other countries will also participate. International financial institutions such as the World Bank, the International Monetary Fund, the Gulf states, and even some European and East Asian countries are expected to provide some funds .

 

Iraq crisis is a liquidity crisis. Iraq will need money to prevent the collapse of its financial system, which may lead the country into a spiral of violence that its borders do not contain. If the United States pledges to provide a certain amount, perhaps one billion dollars, it will be possible to assemble a package of up to 5 billion dollars to help Iraq in cooperation with other countries. The idea of providing one billion dollars to support the emergency budget for Iraq may seem very difficult at the moment. But this should not be seen as such. The United States should have learned over the past 20 years two important lessons about this part of the world. First of all, what happens in the Middle East does not stay there. And second, one ounce of prevention is better than a pound of cure, as Washington’s tragic policies toward Iraq, Syria and Libya have shown.

 

* Professor of Economics and Political Science, Kansas State University, USA.

 https://economy-news.net/content.php?id=23295

13 private banks are facing court for entering the currency auction without customs permits

2020/12/24 13:00

The number of Walter readings 66

Section : Iraq

Baghdad / Al-Masala: The Rusafa Investigation Court, which is competent to look into issues of integrity, money laundering and economic crime, decided, Thursday, December 24, 2020, to take legal measures against thirteen banks for violations of entering the currency auction without submitting customs permits that support entry of goods, tax accounting, and suspicions of fraud Related documents.

The Media Office of the Supreme Judicial Council stated in a statement received by Al-Masala that the aforementioned court decided to bring in the authorized directors of the violating banks due to their breach of the due diligence procedures imposed by the Anti-Money Laundering and Terrorism Financing Law No. 39 of 2015.

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The President of the Republic approves the law on financing the expenses of the parliamentary elections

12/24/2020 17:26

The number of Walter readings 44

Section : Iraq

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Baghdad / Al-Masala: The President of the Republic, Barham Salih, approved, on Thursday, December 24, 2020, the law for allocating and financing the expenses of the House of Representatives elections.

While anticipating the law, according to a statement issued by his office, Saleh said that the approval comes as a prelude to holding early, fair and fair elections, with the aim of making the elections a success and enabling the Independent High Electoral Commission to prepare for the elections.

The president’s approval came after the law reached the Presidency of the Republic from the House of Representatives after it was voted on in the House.

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Parliamentary finance: raising the price of the dollar was directed by the International Monetary Fund and the World Bank and with the knowledge of political blocs, not the government

2020/12/24 16:20

The number of Walter readings 282

Section : Iraq

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Baghdad / Obelisk: Member of the Parliamentary Finance Committee, Magda Al-Tamimi, revealed, Thursday, December 24, 2020, that the IMF and the World Bank faced Iraq by increasing the price of the dollar and reducing the currency, and it was not a special decision by the government, noting that this matter is with the knowledge of political blocs.

Al-Tamimi said in a statement followed by the obelisk, that a previous meeting was held between her and the Chairman of the Committee Haitham al-Jubouri and the Vice-Chairman of the Committee Muthanna al-Samarrai on the one hand and the World Bank on the other hand, and they indicated that the process of reducing the dinar against the dollar is the last financial reform solution that Iraq will take, and that it must proceed with financial reforms according to periods They reach long-term solutions and not temporary solutions within an annual budget.

Tamimi said that their opinion changed and it was agreed with Iraq to reduce the dinar against the dollar, and this matter was reported to the political blocs by the Finance Committee.

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A request to raise the exchange rate to 1600 dinars against the dollar … and two alternative official proposals

2,409 Policy 12/24/2020 16:22

Baghdad Today – Follow-up

Two measures that could have saved more money than the difference in the exchange rate of the dinar against the dinar were revealed by an economist, who pointed out that the Ministry of Finance requested that it be set at 1600 dinars to the dollar.

Economic expert Nabil Al-Marsoumi said – a televised statement that “the difference currently visible between the central bank and the market rate will continue until the budget is passed due to the state of uncertainty and uncertainty because everyone is waiting for the position of the Iraqi parliament on the 2021 budget, and what happens in terms of the difference between the official exchange rate and the exchange rate is caused by speculation and reaping.” Through it the exchange offices are huge sums and may be less severe soon. ” 

He added that “some believe that the decision to raise the exchange rate of the dollar is technical and was done through the central bank, although it is political and was made by a government decision from the Ministry of Finance,” pointing out that “the Ministry of Finance wanted an exchange rate of 1600 dinars against the dollar, and the government and parliament contributed to determining the exchange rate and some The parliamentary statements throw more uncertainty and lead to repercussions in the market. ”

And he talked about government financial decisions in a deeper way, saying that “the timing of the recent government measures is very wrong. There is no country in light of the Corona crisis and the global recession that has devalued its currency and deducted from the salaries of its employees. All countries have a layer of quantitative management packages and injected funds and aid to the public and private sectors.”

He believed that “raising the exchange rate to reduce the budget deficit, according to what the government sees, is unsuccessful, because it will not provide more than 4 billion dollars for the budget, and this could have been covered through two measures presented by the Ports Authority and rejected by the Ministry of Finance.”

He explained that “the two procedures require that customs duties be collected from imported goods upon opening documentary credits, and that fees are collected when granting import licenses, even according to the financial obtained the same value of the money it wanted by reducing the value of the dinar and ending the problem of money laundering.”

He pointed out that “raising the dollar exchange rate will not support the local product for three reasons, the first of which is that most of its requirements and raw materials are imported from abroad, and because there is dumping of goods in neighboring countries in Iraq, and thirdly, the cost of production in our country is double the cost in those countries.”

He pointed out that “reducing the exchange rate of the dinar and imposing taxes on salaries reduced its value in some segments by 50%, because the reduction included 25% of the salary and the exchange rate difference, which reduced its value by 25% as well.”

And a member of the Parliamentary Finance Committee, Jamal Cougar confirmed, yesterday, Wednesday, that the House of Representatives has the power to cancel or amend the article on tax deduction, as well as with regard to deducting employee salaries allocations. 

Cougar said in an interview singled out by (Baghdad Today), “Parliamentary Finance will study the draft federal budget law for the country for the year 2021 accurately and amend the loopholes if they are contained in the draft law.” 

He added that “Parliament has the power to cancel or amend the article on the deduction of part of the employee allocations or with regard to tax deductions.” 

And that “the high rates of deductions, we will work to reduce them, provided they do not affect the employee significantly.”

Last Tuesday, the reporter of the Parliamentary Finance Committee, Ahmed Al-Saffar, spoke about the most prominent remarks on the 2021 budget bill, and while noting that the budget is inconsistent with the country’s economic reality, he suggested returning the bill to the government.

Al-Saffar said, in a televised interview, which she followed (Baghdad Today): “Until now, the 2021 draft budget has not been sent to Parliament, which will need 4-5 days to study the project legally, after which the project will be transferred to the Finance Committee and we may use our powers to reduce spending.”

Al-Saffar added, “This budget is inconsistent with the financial and economic situation in which the country is running, because it has high spending of 150 trillion dinars, according to the leaked version, which is very exaggerated,” noting that “most of the paragraphs of the leaked draft are confirmed today that they are the same final draft.”

He continued, “The price of a barrel of oil on which the budget was built is illogical because it was $ 42 while the current price of a barrel was $ 52,” explaining that “reducing the exchange rate of the dinar is supposed to be supported by a competitive local product, which is not there, and thus the prices of imported goods have risen.” Covering the entire market. ”

The reporter of the Finance Committee in Parliament confirmed that “the 2021 draft budget, and in case it does not comply with the government program and the economic reality, will be returned to the government,” indicating that “we need 30-45 days to study and approve the project if there are no internal and external political interference, and it may disrupt it. More”.

He suggested that “Parliament will not accept the passage of more loans in the 2021 budget,” reiterating his call for the need to “reduce public spending and raise the price of a barrel of oil in the budget, because each dollar can add one trillion dinars annually.”

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The central bank auction continues to decline and is witnessing a rare event

Time: 12/24/2020 12:29:12 Read: 7,111 times

{Baghdad: Al Furat News} The Central Bank of Iraq’s dollar sales continued to decline for the third consecutive day.

According to the bank’s daily bulletin on the currency auction, the total sale for the purposes of strengthening the funds abroad (transfers, credits) amounted to 76 million, 600 thousand and 801 dollars, which is the total sales, while the bank did not sell any dollar in cash.

Yesterday’s foreign currency auction sales were $ 77 million.

The Central Bank sells dollars for the sums transferred to bank accounts abroad at a price of {1460} dinars per dollar, and cash sales at {1460} dinars per dollar, in implementation of its recent decision to raise the exchange rate.

The central bank’s sales on Thursday, Wednesday and Tuesday indicate that it contradicts the statements of the Central Bank’s governor, Mustafa Ghaleb, who said earlier that the bank “will double the sale of the dollar to exchange companies,” indicating that “the abundance of dollars will make it stable in the market.

The exchange rate of the dollar in Baghdad rose today to 1420 dinars.

Ammar Al-Masoudi

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The President of the Kurdistan Region sends a special message to Christians on the occasion of Christmas

Kurdistan Region

Nechirvan Barzani

Christians

Christmas

2020-12-24 07:07

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Shafaq News / The President of Kurdistan Region, Nechirvan Barzani, on Thursday, congratulated the birth of Jesus.

He said in a statement, “It is regrettable that the Kurdistan Region, like the rest of the world, and due to the outbreak of the Covid-19 epidemic, will not witness this year a major ceremony to celebrate the holiday, but there is no doubt that everyone’s hearts revive and glorify the memory of the birth of Jesus Christ. Coming under better and better conditions and conditions. ”

He added, “On this blessed memory, we stress that the Kurdistan Region will remain, as it always has been, the cohesion, pluralism and coexistence of all its components, and the warm home and home of our Christian brothers and sisters will remain. We have all passed together, side by side, many difficult days, problems and crises thanks to our cohesion, unity of ranks and steadfastness. And our sacrifices, and in the same way we will overcome this difficult situation, the epidemic and crises, and that a bright future awaits us. ”

He said, “We reassure our Christian citizens that we will continue and devote all our efforts and capabilities to rebuilding the areas affected by the war against terrorism and erasing the effects of war from them, so that the displaced of them can return to them, carrying safety, life, tranquility and prosperity with them, and they will not be forced to flee again and all their rights are guaranteed.”

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Bourse ends 2020 up 1.58%

The Stock Exchange «Economy News»

Market

Economy News – Baghdad

Today, Thursday, the Iraqi Stock Exchange ended its last trading for the year 2020, up by 1.58%.

The stock exchange traded 739.2 million shares from 26 companies, worth 1.3 billion dinars.

Shares of 7 companies including Al-Mutahid increased by 14.29%, Elaf by 7.14% and Pepsi by 6.41%, while the shares of Dar Al-Salam Insurance Company lost 5% and the Ready-Wear Company by 4.96%.

During the year 2020, the market organized 183 sessions, which is 58 sessions less than last year due to public holidays and the Corona pandemic, which led to the imposition of a comprehensive curfew.

The stock exchange traded 403 billion shares during the year, at a value of 330 billion dinars.

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Iraq announces that plans to target the Green Zone have been thwarted and is considering implementing a military-security plan

Security

breaking

US Embassy in Baghdad

Bombing the Green Zone

Othman Al-Ghanmi

2020-12-24 06:55

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Shafaq News / The Iraqi Interior Minister, Othman Al-Ghanimi announced, on Thursday, that several plans have been foiled to target the fortified Green Zone in Baghdad, which includes the headquarters of foreign diplomatic missions and government sites.

The Green Zone, specifically the vicinity of the US embassy, was subjected to repeated attacks, the most violent of which was last Sunday.

Yesterday, Wednesday, US President Donald Trump accused Iran of being behind that bombing, and issued a strong warning to it in the event of an American killing, amid talk of upcoming attacks by Iran or its followers in Iraq in revenge for the killing of General Qassem Soleimani, with US missile strikes early this year near Baghdad Airport.

In this regard, the Iraqi Interior Minister Othman Al-Ghanimi told Al-Arabiya TV, “We are working with the diplomatic missions to protect them in Baghdad. We are also working on a military security plan to prevent the targeting of the Green Zone.”

He also announced the arrest of one of the rocket launchers at the US embassy.

Sources revealed that the US President Donald Trump’s administration has studied the closure of the US embassy in the Iraqi capital, Baghdad, due to the attacks on the past period. 

The American Axios website suggested the possibility of transferring the American ambassador to Iraq, Matthew Toller, to the capital of the Kurdistan Region, Erbil, or to the Al-Assad air base in western Iraq, in the event that he leaves Baghdad.

This option comes within the options being developed by the US administration to respond to the repeated missile attacks from Iran on the US embassy in Iraq. 

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Dollar exchange rates rise again, reaching 142 dinars per 100 dollars

12/24/2020 09:48

The number of readings 79

Section : Iraq

Baghdad / Obelisk: The exchange rates of the dollar rose in the main stock markets and local markets, Thursday, December 24, 2020.

The Kifah Stock Exchange recorded 142,000 dinars against 100 US dollars, while the exchange rates on Wednesday in the Kifah Stock Exchange recorded 140,500 dinars per 100 dollars.

As for the exchange rate in the local market, it also rose, as the selling price was: 141,000 dinars per 100 dollars.

Iraqis fear that adjusting the foreign exchange rate will have negative repercussions on the poor and those with limited income, while claims are renewed in holding accountable the looters of public money, canceling the privileges of the political class, and reducing the salaries and privileges of MPs.

One of the reasons for the crisis is that previous government eras were preoccupied with political conflicts and consolidating centers of political and economic influence, instead of making development a priority. It also drained public money with unplanned jobs and appointments that represent a convincing lining.

The “dollar auction”, random import operations, and smuggling of hard currency play into the disappearance of large amounts of dollars while the state fails to curb it.

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