What does passing the HCL and budget have to do with the RV?

[Calijim]

I've read a lot of people on the forums writing about the HCL and budget having to be passed before the RV.Can someone offer a reasonable factual explanation? .NO GURU SPEAK OR B.S. PLEASE!

[rulesforrebels]

Until Iraq exits sanctions, ie how they got downgraded from Chapter 7 to Chatper 6, until they completely exit sanctions and join the IMF there will not be a revalue and thats not really disputable. As far as an rv or overnight explosion in value personally I feel it would be a gradual increase not an overnight pop and nowhere near the levels many people are talking but if those conditions are met I would see it comming up in value.

[Nelg]

There are more competent people who can give you a clearer answer, but here is the short version.  The HCL or Hydro Carbon Law relates to the ability and regulations for selling their oil.  Oil is the "black gold" behind their currency.  At the present there are no regulations or standards for the buying and selling of the oil for potential profit.  The HCL is connected to the GOI budget and determines how IQDs are to be distributed to the various groups and how much individuals are to be paid.  

When the HCL is finalized it will give them information as to what the value of the dinar can sustain on the open market.  And, it will give them a fare idea that they will use to revalue the IQD.  

Of course all this is still a speculation.

 

Now, I have primed the pump.  Maybe the experts can come in an make corrections and explain the details.   

[bigwave]

The only thing I can add, and I'm no expert here, is that the Kurds wanted 23% and Bagdaddy was offering 17% and last I read it was at 20% for the HCL split.

 

They just have to sign off on it and get their budget signed off and drink some more tea and take a few vacations and we may see an RV soon.

[Calijim]

Thanks guys for your attempt to answer my questions..

Follow up question for Rules

First of all can you elaborate on what chapter 6 is? And what does Iraq being a member of the IMF have to do with the way they value their currency?

Follow up question for Nelg..

There has to be current standards for selling oil in the marketplace eg the market price. They have been actively selling oil since 2003 in oil for food program and then under chapter 8 and IQD has been distributed to government workers, agency's and from what I read to people through ration cards.

How will passing the HCL give the GOI a value of the Dinar in the open market?

[dinarbeleiver]

Thanks guys for your attempt to answer my questions..

Follow up question for Rules

First of all can you elaborate on what chapter 6 is? And what does Iraq being a member of the IMF have to do with the way they value their currency?

Follow up question for Nelg..

There has to be current standards for selling oil in the marketplace eg the market price. They have been actively selling oil since 2003 in oil for food program and then under chapter 8 and IQD has been distributed to government workers, agency's and from what I read to people through ration cards.

How will passing the HCL give the GOI a value of the Dinar in the open market?

its a final agreement that distributes the wealth amongst every iraqi citizen for the HCL. I'm watching for the move to article 8 of the IMF. That gives the right to Iraq to change its exchange rate regime-the HCL could be the catalyst for this move and I believe that article 8 will result in an RV or a gradual manged increase over time.

[Calijim]

Thanks DB

That answer got me to looking more into this.

I found this article in Al monitor that corroborates your answer

A member of the Kurdish security forces takes up position with his weapon as he guards a section of an oil refinery, which is being brought on a truck to Kalak refinery in the outskirts of Erbil, in Iraq's Kurdistan Region, July 14, 2014. (photo by REUTERS)

Approving a hydrocarbon law is key to Iraq's future

Nouri al-Maliki and the Islamic Dawa Party took office in Iraq eight years ago. Oil revenues topped $41 billion in 2007 and rose to nearly $86 billion in 2013. Oil production ranged between 2 million barrels per day at the beginning of that period to nearly 3 million barrels at its end.

Summary⎙ Print Without an established oil law, Iraq's oil economy will not be able to withstand current and future crises.

Author Walid KhoudouriPosted August 24, 2014

Translator(s)Joelle El-Khoury

Original Article اقرا المقال الأصلي باللغة العربية

Maliki’s government made an important decision to call on international oil companies to invest in Iraq to increase [oil] field productivity. Despite the need for modern technology and management, these two factors were not the main reasons behind the decision. Instead, it was the government's urgent need for additional funds​, given the global financial crisis and the declining oil prices at the end of the last decade.

Maliki's rule will be known as the “post-Mosul ravage” in Iraq's history. He ended his term by failing to repel the “neo-Nazi” invasion of Mosul and the Ninevah province, where mass murders are being committed against Christians and Yazidis. Militias have displaced the region's peaceful population and confiscated their homes after painting on them a letter identifying their religion, just as the Nazis did to European Jews during World War II.

Maliki’s rule has ended and the Iraqis still remember what they learned in history books about the Mongol invasion of Baghdad — the burning of libraries and bloodshed, the capturing and selling of women in the slave markets, just as the Islamic State (IS) did in Mosul. History will not forget that the Iraqi army did not defend Mosul's population, nor will it forget the rampant corruption, as the robbery and loss of billions of dollars has become normal.

Maliki has threatened the Iraqi people with opening “the gates of hell” if he is removed from power. It is as if this post is reserved for him and his heirs eternally. Since oil is the mainstay of the Iraqi economy, the first thing that comes to mind is the absence of an oil and gas law in Iraq since 2003, which is normal in light of political differences and the absence of a new social contract. Is Iraq a federal state as stipulated in the constitution or a centralized state? Is there any political will for real coexistence — with middle-ground solutions and understandings that take into account the views of other parties in the state — or is there a tendency for some, especially the Kurds, toward independence from Iraq?

The Iraqi people have not given their final answers to these questions, despite the 2005 constitutional referendum. The Iraqi oil industry has suffered from the absence of a social contract between political leaders. Although oil revenues reached $10 billion a year, it is not enough to build a stable modern state in the absence of an understanding among officials on whether the state is centralized or federal. With no clear contract, oil officials will not be able to rationally manage their sector without this understanding between politicians and their parties.

In fact, the disputes that have prevailed over the country’s politics for the past years — adding Iraq to the group of failed states — resulted from delays caused by a fruitless political polemic. The debate has prevented the parliament, since 2007, from passing the oil and gas law, which attempted to resolve the distribution of privileges and responsibilities of the sector between the federal Ministry of Oil in Baghdad and the authorities in the provinces and regions. The dispute over oil also resulted in the possible division of the country, the exploitation of its weaknesses and its invasion by terrorists.

The draft law is clear. It confirmed that the ownership of oil and gas was for the whole Iraqi people in all regions and provinces. It also suggested forming a federal council for oil and gas that included officials from the federal government and the provinces and regions, and made the necessary state-level, oil-related decisions through coordination and negotiations between the federal oil ministry and the provinces.

In many of its provisions, the draft reiterates tasking federal authorities with the planning and implementation of oil production in the country, on condition of negotiating and coordinating with the different sides. Such responsibility imposes the presence of a responsible and open government that negotiates with the parties and transfers to them the allocated funds on time, without monopolizing them in Baghdad. This also means that the parties should specify exactly what they want from Iraq. Do they want to exploit Iraq’s natural wealth, then leave? If this threat resurfaces every time the dispute escalates between Baghdad and Erbil, it will be hard to develop the Iraqi oil industry and stop threats from reaching other regions. Conflicts and perhaps international tribunals would be the only alternatives in such a case.

Iraq must learn from two experiences. The first is the experience of the Council for Reconstruction in the 1950s. At that time, oil revenue was allocated to well-studied reconstruction and infrastructure projects instead of salaries of employees and pensions. Furthermore, [oil revenue] failed to provide electricity and water for citizens, as is currently the case. Second, Iraq is a country that is almost closed geographically and needs a foreign policy that shields it from wars and conflicts with neighboring regions. The country cannot bear the burden of halting its oil exports for long.

It is understandable that disputes regarding the oil law happen, given the conflicts of interest. However, it is inexcusable to keep inviting global oil companies and increasing production in the absence of this law. This means that Iraq will face many problems in the foreseeable future, whether internally, like the division of the country, or legally due to disputes with the oil companies. The absence of the oil law is as serious as the dissolution of the Iraqi army. They are both pillars of the country, albeit each with a different role.

If the Iraqi governments keep bickering over the the same issues and following the policies that have been around since 2003, the only solution would be to change the regime rather than these policies. The doors of hell might then break loose, and this is what Maliki has always feared.

Read more: http://www.al-monitor.com/pulse/business/2014/08/httpalhayatcomopinionwalid-khadouri4161316d8a7d9.html##ixzz3Hv8QiAaZ

[10 YEARS LATER]

Opening The Door to Hell for Maliki would be a darn good thing. . . then slamming it shut behind him as he walks thru; locking it and then throwing the key away.

 

Iraq will do just fine with him out of the way.

[Nelg]

Good evening Calijim.  Most of my Sundays are filled, so I am just now getting back to posting an answer.  I'm glad you found the article above.  It has some good things in it. Below are some of my thought from articles I have read, along with some basic economies that seem to apply. Have a great evening.  

 

Basically the CBI decides the fixed exchange rates and they may turn out to be accepted by the financial markets.  The markets can also reject the rate and the IQD will not be traded. Such a situation exists today. 

The three basic determinants fix the rate of exchange:

1.    variables on the real side of the economy; that is, what exports and imports and how do they (will they) influence the demand of the IQD at real transactions. A rising trade surplus will increase the demand for the IQD by other countries. A trade deficit will weaken the IQD.  Therefore the NTB (Net trade balance) affects the value of the currency.  If there are products of value being traded or held by Iraq that is of great value, then the IQD will also have value. They can “back up” the value of the dinar.  Iraq is running over with oil (black gold) and they are boasting their stores with metals (yellow gold) as well. 

2.    variables on the monetary and financial side; or the purchasing power of the IQD compared to the rest of the world currencies.  Good hamburger costs $4 USD and that will take 4,664 IQD, making the exchange rate 1: 1166.  When the rv takes place the buying power will change and the forex markets will adjust to permit the functioning of the global price.  When this happens it influences interest rates, inflation rates, and balance of payments. 

3.    past and expected values of the same currency base on the power of the currency at the time of devaluation. The activities of forex specialists and investors may turn out to be extremely relevant to the determination of market exchange rate also thanks to their interaction with the CBI.  Limitation and positive feedbacks give rise to “herd behavior.”  Fears and confidence in the IQD’s value fluctuate depending on the level of trust they have in the currencies value.  Trust is high, value will rise; trust is low, value will fall.  So once the IQD hits the market we will not see a stable one price for the dinar. JMO.

In March the CBI purchased an additional 36 tons of gold to held stabilize the IQD against foreign currencies.  Now they own a large amount of gold as well as having a tremendous crude oil base.  Just with the amount of gold Iraq moved into 15th place in annual purchases on just that one purchase!  But, despite purchasing all that gold and increasing its “gold” base by 120%, and having all the oil reserves, Iraq has not RVed the IQD.  But the CBI really doesn’t need to increase its gold or oil (which accounts for Iraq’s vast wealth that has grown since the end of the war in 2003) to stabilize the dinar.  The Gross Domestic Product (GDP) in Iraq was worth 222.88 billion US dollars in 2013. The GDP value of Iraq represents 0.36 percent of the world economy. GDP in Iraq averaged 42.58 USD Billion from 1960 until 2013, reaching an all time high of 222.88 USD Billion in 2013 and a record low of 1.70 USD Billion in 1960. Here is the link with much more information:  http://www.tradingeconomics.com/iraq/gdp 

Despite all this, many believe that the progress is not being reflected in the value of the dinar. 

But the CBI does not need to buy more gold to increase the value of the IQD.  Ten years of oil wealth would be enough to justify an upward revaluation of the dinar.  When the CBI decides to revalue the currency, it doesn’t need more oil or gold to do it.  They already have that covered. 

JMO but I think they have been keeping the dinar low in order to stimulate business activity and create jobs, which would further fuel the economy.  And, with the addition of additional gold combined with additional oil production and sales (governed by the HCL) this will back the CBI’s printing of additional money, which keeps interest rates in check (the more money on the street, the lower the interest rate). Once the budge and the HCL are initiated, I believe we will see a better chance for the CBI to revalue the dinar to a higher rate.  

[wbuse984]

Nice analysis Nelg...very much appreciated...agree with your opinions as well...again, thanks

[stealthwarrior]

ISIS is the problem with any kind of RV at this time.until they are removed from Iraq,there will not be an RV.

[Nelg]

ISIS is the problem with any kind of RV at this time.until they are removed from Iraq,there will not be an RV.

Or at least controlled to the extent that ISIS is not a dominate threat.  At the present their controlling of cities like Mosul make them influential enough to be a power.  The lasted bombing of an ISIS meeting will set them back, but not for long.  Tribal wars are political fodder for the tribes and men who want power.  Short on negation skills, impatience with the political process, and culture make a continued terrorist struggle inevitable.  But that has been the case since 900 a.d.  It is their way of life.