Thread: Iraq/Dinar News. 09/05 to 01/14/07

A sudden rise of the dollar exchange rate in Iraq
Because of holiday
Source : Middle East-24 / 10 / 2006



Varied in the dollar exchange rate between the American Central Bank of Iraq and domestic markets, especially after the official stopped the auction to sell currencies to convene for a period of ten days because of Eid al-Fitr. The observers of the currency market that any appropriate punctuated by public holidays and special continuing for several days is expected to raise the value of the American dollar against the Iraqi dinar but the difference is limited only in the most serious cases of 1500 dinars to the dollar, because such increases in the view of some speculators will be temporary, They fear from the Iraqi Central Bank by stopping safety valve of the Iraqi dinar and the market. Even the view that the bank market rose as the case already before this year and a half it would go a vacation to begin offering large amounts of hard currency on the market and directly and at prices lower than the price of this transaction and believe more speculators nervous about keeping large quantities within their bags due to the risk of loss. But dealing in the market on the basis of supply and demand, this means that speculators small dealers with any citizen would have very high profits for this reason any of supply and demand. And the expectations of market prices between the observer that the dollar exchange rate in the auction, the central place in the Central Bank of Iraq finally began to retreat before the Iraqi dinar, as the bank began raises huge amounts of dollars because of the need of local government to criticism, especially as the volume of government consumption increased recently and this requires secure Sarvia T. through the auction. Finally, the supply has increased from $ 35 million to $ 60 million per day. The Bank has begun daily canteen in his possession at 1470 dinars to the dollar after the dollar in 1477. As in the markets believe that dealing with citizen not affected sudden decline in rushing to raise prices with the increase and the same moment, and it is expected to increase demand during these ten days, which would not be attended by the Central Bank of Iraq, but is disproportionately strong. And the last formal meeting of the bank, among the auction manager in the bank that the rate at which the yacht by the auction sale was 1470 dinars to the dollar, Before the bank at the auction, according to the desire of buyers and the sale of 43.8 million at the same prices and the quantity sold in cash to banks and clients to 18.690 million in 1470 and the rate of addition to a difference of 11 points prices and profitability ratios. The quantity sold for money out of Iraq was $ 25 million, at 1470 dinars. This means that the amounts of money went on sale quantities of banks and this is due to the increased demand for conversion, especially after the increased need to acquit the companies collaborating with the outside world and the start of the reconstruction phase in Iraq.

http://64.233.179.104/translate_c?hl...px%3Fid%3D2384

Originally Posted by zipper

Sen Jack Reed is discussing the situation in Iraq on CSPAN 2 right now

C-SPAN

Liberalization Strategy For Iraq's Oil-Hostage Economy
Alternative To Oil Power Dominance And Neo-Liberal Subordinate Economic Policy (Part 2/2)
By Sabri Zire Al-Saadi

--------------------------------------------------------------------------------

24 October 2006 (Middle East Economic Survey)
Monetary Policy And Oil Production

It is indisputable that maximization of crude oil production is required in the short and medium term as oil revenues are essential for financing public expenditures and imports10. This policy is also in line with the interests of both the oil consumer and OPEC countries, regardless of the pricing factors of oil exports in global markets. But while the macroeconomic policy and oil production should be consistent in order to rationalize the allocation of resources, especially oil revenues, for increasing economic growth as well as providing social services and public utilities, the present monetary policy and especially the FXR have misled economic efforts.

In Iraq, while dependence on oil revenues has been increasing, the contribution of non-oil sectors to investment, imports, and public finance has been deteriorating for more than three decades. The post-war experience has also shown that mismanagement of public finance and widespread corruption, as well as the application of irrelevant economic policies, have contributed to the prevailing miserable socio-economic and political situation11. A significant irrational aspect of the post-war experience has been the provision of (indirect) subsidies for financing increasing imports that have eroded a substantial share of oil revenues, and the elimination of the state’s support for non-oil potential exports. These policies have added to the weakness of indigenous industrial and agricultural activities. In fact, the hasty liberalization of foreign trade imposed by the orders (Laws) of the former CPA and the resulting FXR led to negative interactions with the interests of nascent domestic industries and agriculture. It has been claimed, however, that the new FXR maintains economic stability, and the apparent stable (fixed) exchange rate of the ID/$ reflects a sound monetary policy12. This affirmation needs more examination to expose the real cost of utilizing oil revenues which would justify the demand for considering oil production policy as an integrated part of the state economic strategy and government policies.

By utilizing oil’s comparative advantages, public investment for the construction of infrastructure and petrochemicals and basic industries was the major factor for economic growth and employment during the period 1953-80. At present, using oil revenues to finance intensive public programs for rehabilitation of manpower and the implementation of a wide labor intensive public works program is also essential for dealing with the socially explosive unemployment problem and improving the labor market environment. If successfully performed, the task of building the required free trade and industrial zones, seaports, transportation and communication network through the IDRC, and improving the productivity of manpower would help the private sector to expand its investment capacities. Here lies the crux of the matter. In Iraq, the requirements and policies for the expansion of production (physical and manpower) capacities are very different from the policies dealing with the likely variations of short-term business cycles as practiced by developed countries. Therefore, monetary policy should be considered as a complementary part of the fiscal and public investment policies rather than a superior factor that influences the aggregate demand. Obviously, this proposition is in contrast to the present monetary policy which assumes that economic stability and private investment are necessary and sufficient conditions for economic growth; ie the independent CBI restricts the likely expansion of government fiscal policy. As Iraq’s experience has shown, inefficient public enterprises during the 1970s, 80s and 90s misused public financial resources and benefited from the easy credit facilities provided by the government which owned the commercial and investment banks.

But it is also misleading to stipulate that economic stability, ie controlling inflation and the fluctuation of foreign exchange rates, can be achieved without exploitation of the generous oil revenues. In addition, the present FXR has inferiorly linked the domestic interest rate to the US rate, determined by the US monetary authorities. What domestic economic factor justifies this policy? And why is the interest rate on ID deposits in domestic banks (12%) more than twice that for investment in dollars (5.25%) under fixed rate of ID/$? Who are the beneficiaries from the difference? Does this policy really help to check the inflation hike (70%)? Also, with a static policy, the weak (strong) US$ in the world market would induce more government spending and lead to more excess (insufficient) money supply. Does this practice support the sterilization of foreign currency flow? Unfortunately, neither the MOF nor the CBI has taken the trouble to explain these ambiguous monetary policies. In this context, it is essential to highlight the current mismanagement of the oil cash revenues by the MOF and CBI13, especially when the post-war Law of the CBI does not permit the public to question the monetary authorities’ crucial decisions14. In a democratic Iraq, it is hard to understand how the authority glorifies the accumulation of foreign reserves as if the economy were in good shape and was the result of the application of sound economic policy. Is it not a deception of public opinion on the part of the policy makers and advocates?

The NDS ascertains clearly two main issues; first, the national economy has two main characteristics: high dependence on the oil sector and imports, and an insignificant contribution of non-oil sectors and non-oil exports to GDP; secondly, oil revenues are the main source of public finance15 and, therefore, constitute the principal source of money liquidity. Analysis of the GDP composition reveals that the government’s consumption and investment demand and imports are the dominant factors that stimulate production and exports. It also constitutes the main source of money liquidity and foreign currency. Since the role of the private sector is limited in terms of its contribution to GDP and public finance, its influence in determining money liquidity is limited too. However, while the NDS appraised the independence and performance of monetary policy, it did not mention how nascent industries and agriculture activities would increase their productivity and competitiveness vis-à-vis the dumping of cheap imports and increasing cost of production. Also, while oil revenues are the main financial source of NDS, its passive policy towards the unemployment problem and the provision of public services can not be justified. Indeed, the inconsistency and shortcomings of NDS’s objectives and policies reflect the irrelevancy of the applied macroeconomic policies16. The effectiveness of the fiscal and monetary policies, however, does not mean that they are efficient and progressively leading to increase economic growth and employment and liberalize the economy from its high dependence on oil.

Efficiency Price Of Oil Production And FXR

In Iraq, there are many domestic and international economic, political, technological, and physical factors that determine crude oil production. Three main issues are of significance: first, the absorptive capacity of the national economy and the ability of the authorities to expand non-oil production capacities while maintaining economic stability; secondly, oil production should satisfy the need of energy’s consumer countries; and thirdly, in determining the level of investment in oil industry, ie expansion of production capacities and reserves, there is always the possibility of non-oil energy alternative – at least in the long run – and the uncertainty associated with the production peak of the existing oil aquifers. Such factors influence optimal production and the national investment decisions in oil industry.

Given these circumstances, the policy of maintaining optimal production of crude oil is theoretically linked to the state’s overall objective of maximum increase of economic growth, but must be practically qualified by the diversification of production activities and the production capacity peak. However, in view of the present global oil supply and demand conditions, the given analysis should be widened to include the prevailing measures and arrangements that were set to coordinate the oligopoly practice of OPEC countries. That is to say, it is also essential to evaluate the cost-benefit outcome of the collective oil price and production policies of OPEC as well as the likely role of Iraq being (another) swing player in OPEC. Such an approach would not, however, change the basic assumptions that determine the necessary oil production (revenues) which would help to modify the oil production policy and ensure effective macroeconomic policies17. It would only act as a yardstick to limit oil revenues extravagance that leads to the over-relaxation of domestic saving and constrains non-oil exports.

Now, how can then we arrive at such practical strategy and policy that compromises the reality requirements with the theoretical conditions?

It is our understanding that the (estimated) shadow price of oil production would perform this task since it expresses the relationship between the crude oil production level and Iraq’s economic growth conditions. In technical terms, the shadow or efficiency price of oil resources reflects the relative scarcity of oil that constitutes (in the practical sense) the most binding constraint on economic growth and social development. Given the exceptionally high dependence of the economy on oil exports (revenues), the foreign exchange rate of ID/US$ plays a strategic role in influencing (determining) the economic efficiency of oil production policy. Consequently, a new (adjusted) FXR must be established in order to facilitate the implementation of new economic strategy and policies that is based on a national inspiring long-term future vision18.

To justify such a proposition, we should recall the relevant basic theoretical assumptions of free market economy. The optimal distribution of the available resources of any production entity aimed at maximum profit will be achieved by equalizing profit realized from producing and selling one extra (marginal) unit from its production at a certain price with the cost of resources used in the production of this unit valued at efficiency prices, or, when abnormal profit is equal to zero, ie the prevalence of the optimal condition19. However, less efficient distribution or distribution below the optimal level leads to less normal profit. This means that if the optimality condition can not be realized, then the economic activities of the firm will be reduced and therefore utilize less of the available economic resources. Also, the summation of optimal activities of all production entities in a society means optimal distribution of the available resources and hence they will achieve maximum economic growth. However, it is not unknown for state intervention in economic affairs or any disturbance of the perfect competition in the free market mechanism being reflected in the resource distribution pattern at which the prevailing prices would are far away from the real efficiency prices.

In Iraq and elsewhere, the economic, social, and political reality needs a practical and more suitable way than the theoretical mechanism for mobilizing and distributing economic resources. The existence of widespread market imperfections resulting from the prevailing underdeveloped economic and technological infrastructures and social necessities distort the values of real prices. The price of oil is no exception, ie it does not reflect the scarcity of oil resource in relation to Iraq’s main objectives and constraints, where the surplus of the balance of payment is the key factor for economic growth and social development. Theoretically, real foreign exchange is directly linked to optimal crude oil production at which the balance of payment would be at equilibrium or at the level of where full utilization of foreign currency reserves as well as higher economic growth are achieved.

In reality, however, if oil production is less than the optimal (theoretical) level, then public oil revenues should be utilized only in financing infrastructure and public services and utilities. If oil production exceeds the optimal level, then public oil revenues must be utilized in investment projects guided by profit criterion and regulated by free market conditions.

Crucial Economic Policy Changes

The virtue of free market economy, ie optimal mobilization and distribution of resources that maximize economic growth, has been one of the main objectives for Iraq policy-makers since the fall of Saddam’s dictatorial regime. However, actual economic strategy and policies have miserably failed to revive the economy and rebuild the infrastructure, or establish a solid foundation for an efficient market economy despite the huge cost of thousands of human lives, and security, social, political, and financial spending. The mismanagement of the country’s abundant oil revenues, weak government institutions, and widespread corruption are symptoms of this failure. Since the fall of the former regime in April 2003, the growth of agriculture, non-oil industrial activities, and non-oil exports have been almost zero. The substantial accumulation in dollar reserves at the CBI have been generated only by the fortune of oil revenues. Therefore, maintaining the FXR and FER of US$/ID does not reflect sound macroeconomic, fiscal, and monetary policy nor keep up the real value of oil revenues from continuous deterioration resulting from hidden cost of free flow of imports.

In Iraq, increasing the contribution of non-oil sectors and private sector to the GDP and public finance is essential for transforming the oil-rentier economy to an efficient market economy. To achieve this long-term target, oil revenues (production) must be utilized to bring about the required economic growth, diversification, and the construction of infrastructure. However, the present policies are not efficient in utilizing oil revenues (production). Increasing oil production is essential, but to ensure macroeconomic efficiency, oil production policy should be linked to the fiscal and monetary policy so far as they reflect the scarcity of oil resources in relation to the country’s need for the reconstruction of public infrastructure. This can be achieved by the application of a flexible FXR aiming for both economic stability and economic growth. Therefore, using oil revenues to sustain a fixed exchange rate of ID/US$ and consequently associate the domestic interest rate to the US one would reduce the economic efficiency of utilization of oil revenues as well as restrict the role of monetary policy.

Essentially, Iraq needs an economic strategy and macroeconomic policies guided by a national long-term vision that aims to increase economic growth, employment, diversification, and the role of private sector, rather than rigid fiscal and tight monetary policies to regulate the (imaginary) short-term business cycle fluctuations through money-supply and interest rates as applicable to developed countries. The following economic policy issues have to be considered:

Reformulation of a macroeconomic policy to maintain both stability and promote economic growth, especially for non-oil industries and agriculture.

A gradual liberalization of the foreign exchange regime, ie the fixed exchange rate of ID/US$.

Gradual, but firm implementation of coherent structural economic reforms.

Limited and temporary import protection measures as well as export promotion incentives have to be taken to support the competitive capacities of infant indigenous industries and low-productivity agriculture.

Provision of investment incentives for the indigenous private sector and foreign corporations.

Initiation of a new economic strategy guided by a national vision, institutionalized through wide economic, social, and political public debate.

Abbreviations

CBI: Central Bank of Iraq

IDRC: Iraqi Development and Reconstruction Council

CPA: Coalition Provisional Authority

IMF: International Monetary Fund

FER: Foreign Exchange Regime

MOF: Ministry of Finance

FXR: Foreign Exchange Rate

NDS: National Development Strategy (2005-07)

GDP: Gross Domestic Product

USAID: US Agency for International Development

ID: Iraqi Dinar

WB: World Bank


Notes:

10. During 2005, Iraq’s cash receipts from export sales of petroleum amounted to $21.914bn. (http://www.iamb.info/auditrep/iambpres123105.pdf.). Total USAID assistance to Iraq from 2003 – 6 September 2006) amounted to $5.004bn (http://www.usaid.gov/iraq/accomplishments/econgov.html).

11. See; Sabri Zire Al-Saadi, “Iraq's Post-War Economy: A Critical Review”, MEES, 5 April 2005, and “Iraq's National Vision, Economic Strategy, and Policies”, Strategic Insight, CCC, Vol 5 Issue 3, March 2006. (www.ccc.nps.navy.mil/si/mar/SaadiMar06.asp).

12. On the claimed economic accomplishments in Iraq, see; US National Security Council, “National Strategy for Victory in Iraq”, November 2005, Republic of Iraq, "National Development Strategy 2005-07", Iraq Strategic Review Board, Ministry of Planning and Development Cooperation, 30 June 2005, CPA, “An Historical Review of CPA accomplishments (2003-04), June 2004, Baghdad, Iraq. (www.cpa.org), and USAID accomplishments in Iraq. (www.usaid.gov/iraq). Critical views of this policy were given in; Sabri Zire Al-Saadi, “Oil Revenues and the Foreign Exchange Regime in Iraq”, MEES, 6 September 2004.

13. The International Advisory and Monitoring Board on the Development Fund for Iraq (IAMB) concurred with the audit reports by Ernst & Young covering Iraq’s oil export sales and the DFI operations for 2005 in which “the audit reports continue to be critical of the financial and accounting systems in place in spending ministries, the US agencies in respect of the outstanding commitments using DFI resources, and the Iraqi administration of DFI resources”. Press release, 10 August 2006. (www.iamb.info). The audit reports highlighted MOF and CBI responsibility for “ ineffective control systems” and “inadequate corporate governance and organization structure” as there is no designated executive and financial controller to direct the DFI’s overall activities at the entity level”. Moreover, there is “no formal authority matrix and authorization (of cash payments) limits. Ernst & Young “Summary of Preliminary Findings for the six months ended 31 December 2005, Pending the Finalization and Approval of the Audit”. (http://www.iamb.info/auditrep/iambpres123105.pdf).

14. CPA” Central Bank Law”, No 56 of 1 March 2004.

15. Republic of Iraq, "National Development Strategy 2005-07", Iraq Strategic Review Board, Ministry of Planning and Development Cooperation, 30 June 2005.

16. Assessment of the NDS policies was given in; Sabri Zire Al-Saadi, “Iraq’s National Vision, Economic Strategy, and Policies”, Strategic Insight, Vol 5 Issue 3 (March 2006), CCC (http://www.ccc.nps.navy.mil/si/2006/Mar/saadiMar06.asp).

17. A mathematical analysis on the issue was given in; Sabri Zire Al-Saadi, “Foreign Exchange Rates and Optimal Crude Oil Production in Developing Oil-Exporting Countries”, ibid.

18. A general definition of the vision was given in; “Iraq’s National Vision, Economic Strategy, and Policies”, ibid.

19. Theoretical analysis of the concept “zero-profit requirements” was given in: Dorfman, R Sameulson, P and Solow, R “Linear Programming and Economic Analysis”, Rand Corporation, Tokyo, Japan, 1958.


This article was written for MEES by economic advisor Sabri Zire al-Saadi, a UN former employee who held senior economic posts in Iraq. Email: [email protected]. Part 1 was published last week.

Liberalization Strategy For Iraq's Oil-Hostage Economy | Iraq Updates

Originally Posted by lndmn_01

Hey, "Charles" told me he was doing this over a month ago so it's been in the works for a while and is not due to any "NEW" information. I figured he was part of the deal with the other company that we saw offering this deal. So, we know they've been planning this for over a month(and from the way he talked a lot longer than that) and if they had this information that long ago someone else would have heard something. I believe it's a scare tactic to get you to buy dinar through them or at least to get your $75 for the "repatriation" fee

I signed up on a dealer site for his email updates on the dinar about 9 months ago. He is VERY well known as he got in on the ground floor of the dinar when the new currency was issued. He's been interviwed by top news mags regarding this investment. Anyway, 3 months ago he contacted me with a bank offer just like this one with a bank in Jordan. The gest of it being kinda like a pyramid scheme. I put my dinar in, bring someone else in under me and I earned a percentage from the amount he deposited...and those he brought in under him and so on and so on. I believe thats probably whats happening with these guys, just trying to earn money off of your deposit. I may be wrong but I don't think so. I think I saved his e-mail, I'll check later on to see.

Cheers!
DayDream

Reed "The future lies in giving people hope in the legitimate government providing for their needs... electricity, trash removal, health care..."

Lawrence Korb, giving report card for American Progress

Things are getting worse and not better
IQ in terms of deaths/attacks is getting worse by the day and certainly worse

security/stability = F and deteriorating
displaced/refugees = 'utter chaos'
Iraq has become a central locus for recruiting and training of terrorists
The hunt for Bin Laden/Taliban is suffering because of the diversion of troops in Iraq
Military Readiness = F: Army and Marines are experiencing severe equipment and people shortages in the non-deployed divisions, rendering us not ready to deal with any developing situation with N. Korea
Governance/Democracy = D- (for US govt) because there is no real sense of governance to the Iraqi person from the Iraqi gov't

SHIITE, they're about to do govt and economics and my TV flipped out!

Originally Posted by shotgunsusie

http://64.233.179.104/translate_c?hl...px%3Fid%3D2384

Could someone translate? I can never seem to decipher these articles in to a simple paragraph like some others can.

They broke away as soon as they started talking about the Iraqi economy.........

crap, it was a local show that timed out, I don't actually get CSPAN or CSPAN2, so I missed the good part. Anyone else catch it?

link on their website isn't active yet either
C-SPAN: IRAQ

anyway, Senator Reed was making a point about how the military can only clear and hold a town or area, but the building after that has to take place and it hasn't been. He used a small town as an example, and stated that if the Iraqi gov't can't do it on a small scale, it seems unlikely they can do it on the large scale 'in an area like Baghdad.'

He also mentioned that the Iraqi gov't is sitting on $12-13billion that is supposed to be used for building and isn't.

Sited problems within the gov't specifically that they must take action beyond proclamations and forming committees, but truly work together to bring the peace, unify, and rebuild; that a serious problem is that there are power brokers within the gov't who are actively working against this. As an example, he cited the Minister of Health is in Sadr's faction - that this individual has been purposefully and systematically denying any plans or funds to provide for health care or building of clinics or hospitals in Sunni regions.

well, that's about the gist of what I caught