Iraqi Economist's Take on the IQD

[drj]

I have made friends with an Iraqi economist through a mutual friend.  He lives in Baghdad, his name is Omer Alobide.  Here is his Facebook page...https://www.facebook.com/omer.alobide.9

 

I recently asked him about his take on the IQD and here was his response.   He feels that the IQD will not increase in value.  Granted, this is just one Iraqi economist and it is just his opinion alone.   Am I going to sell my IQD as a result?  No, I have always stated that I am in this venture until the end...good, bad or otherwise.  I am simply sharing what I information that I have from someone in Baghdad.

 

My dear friend, Dr. Johnson, since 2007, the Iraqi dinar has kept to the stability in the exchange rate against the US dollar until 2014 that mean since control ISIS  terrorist to some Iraqi cities so  the budget began witnessing deficit and the reason is the military spending to fight the terrorist ISIS and reduced oil exports that It is the main source of hard dollar currency, and that the decline in oil exports are caused by several factors, including: decline of oil prices in world markets as well as control ISIS terrorist on the border outlets in Iraq and refineries, so the oil ministry began export oil at $ 10 per barrel, as well as ISIS control over the oil areas in Syria Libya.. from here seemed to decrease oil imports, which is the main source  to finance the budget, that the Iraqi Ministry of Finance sells dollar to the Central Bank of Iraq and the latter uses the dollar, which he got from the Ministry of Finance to feed the Iraqi market for foreign currency and required by individuals for various purposes, including travel and import and compactness, so when oil imports decrease  the Iraqi Central Bank fell to pumb  the dollar  so it seemed the Iraqi dinar exchange is deteriorating against the dollar due to increased demand for the dollar in the market and lower supply than price, but at the moment  returned dinar stabilized at a price of 1200 dinars to the dollar, but my expectation that the dinar exchange rate will return to deteriorate again in return the dollar because of lower oil prices and lower oil exports.

[docneedles]

Thanks for an honest post. When you read the tv transcripts, it says exactly the same, so he is not alone.

 

The IMF said 2 days ago that Iraq would have to sell their oil at over $100 a barrel to balance the 2015 budget. Well, it is currently running at $48, so that is not going to happen.

 

I think 2015 is a transition year and  2016 will be a rebuilding and stabilizing year. 

[eburt]

Hmmm very interesting to say the least - thanks

[VIZIOIRAQI]

Hey hold on to your Dinar your going to really need it soonly!

[MyLadiesDaddy]

It just goes to show that Dr.Shabibi's plan to

Propagandize the public has worked. If it's the same as

stated on TV,then it's being believed by the general population.

And as your friend states, the demand for the dollar has

increased.

So why is it again that every country on earth forgave Iraq

80% of their debt?

[davis411]

you got that lgd

 

wish someone would forgive 80% of my debt

[drj]

It just goes to show that Dr.Shabibi's plan to

Propagandize the public has worked. If it's the same as

stated on TV,then it's being believed by the general population.

And as your friend states, the demand for the dollar has

increased.

So why is it again that every country on earth forgave Iraq

80% of their debt?

 

First of all, LGD, you are absolutely correct, I know 6 other people that live in Iraq and all of them have said the same.  The public has most likely been filled with propaganda.  I do not remember Dr. Shabibi's plan but I will take your word for it.    Why has every country forgiven 80% of Iraq's debt?  I don't know other than I can only assume that they know that there are bigger things coming.  Someone negged you for your post, I don't know why, I thought that you gave some great insight, so I evened you out. 

[drj]

What I found interesting was that if you look at the profile picture of my friend, Amer, on Facebook, I believe that he is standing next to Dr. Mohammed Saleh.   Here is the link again...https://www.facebook.com/omer.alobide.9

 

Does it mean anything?  Probably not but I found it interesting.  

[TrinityeXchange]

True there is no way the IQD increases in Iraq's current condition. However if the political and daesh issues get resolved, in comes foreign investment and a bustling private sector. This will appreciate the currency's value. Unless it is purposely devalued.

[millionaire in training]

Thanks for sharing your story with us.   Much appreciated.     

[drj]

True there is no way the IQD increases in Iraq's current condition. However if the political and daesh issues get resolved, in comes foreign investment and a bustling private sector. This will appreciate the currency's value. Unless it is purposely devalued.

 

Things are certainly headed in the right direction!

[sandfly]

THANKS BUT I'LL KEEP MINE

[Freedomwish]

I'm going all the way to the end with my Dinar until the fat lady sings..........or screams, hums, hip hop raps, busts a move, whistles, getting jiggy with it     

[Benjamin NutnYahoo]

Pretty much common knowledge to most even though scamming gurus with links to dinar sellers and who make profits from call in internet calls will have you believing it will revalue every weekend, and tell you once or twice a year that Iraqis are dancing in the streets because it already revalued but we just can't see it yet. Or they will tell you that others have already been paid but if we keep our mouths shut we will someday get paid too.

[SnowGlobe7]

Thanks for an honest post. When you read the tv transcripts, it says exactly the same, so he is not alone.

 

The IMF said 2 days ago that Iraq would have to sell their oil at over $100 a barrel to balance the 2015 budget. Well, it is currently running at $48, so that is not going to happen.

 

I think 2015 is a transition year and  2016 will be a rebuilding and stabilizing year. 

 

THen why did they not RV when oil was selling at $120 a barrel a few years back???

 

Not arguing Doc but I really have given up on the idea that the oil prices are tied directly to the price of oil....indirectly yes

 

I used to be ok with paying at over $3 almost $4 for a gallon back in the day...i thought this would help Iraq, turns out it just lined the pockets illegally and did not help the people of Iraq at all

[EverCurious452]

True there is no way the IQD increases in Iraq's current condition. However if the political and daesh issues get resolved, in comes foreign investment and a bustling private sector. This will appreciate the currency's value. Unless it is purposely devalued.

I assume you are talking about Dutch Disease (many google refs).  This is a rise in the exchange rates due to a sharp rise in foreign currency inflows.  For a country with a fixed exchange rate this will materialize as inflation so the "real" exchange rate (the number of dinars needed to buy a dollars worth of goods) goes up, but the official exchange rate may remain fixed.  Also I think the amount is at most a few 10s of percent (which is huge for rate movement), and 2nd there is a reason its called a disease, its bad.  Its something the CBI will try very hard to avoid.

[TrinityeXchange]

I assume you are talking about Dutch Disease (many google refs).  This is a rise in the exchange rates due to a sharp rise in foreign currency inflows.  For a country with a fixed exchange rate this will materialize as inflation so the "real" exchange rate (the number of dinars needed to buy a dollars worth of goods) goes up, but the official exchange rate may remain fixed.  Also I think the amount is at most a few 10s of percent (which is huge for rate movement), and 2nd there is a reason its called a disease, its bad.  Its something the CBI will try very hard to avoid.

hi evercurious.  dutch disease is pretty common for rentier states as you mention.  however do some digging and you will find reports that refute the theory of dutch disease.  

[EverCurious452]

hi evercurious.  dutch disease is pretty common for rentier states as you mention.  however do some digging and you will find reports that refute the theory of dutch disease.  

I'm not sure what you mean.  I think history has shown such a phenomenon has occurred when there has been a large increase in foreign investment in one sector (resources usually) with other sectors lagging.  That doesn't mean it always has happened or has  to happen in such situations of course.  But if not that, what mechanism do you propose that has private foreign investment driving up the exchange rate?  Especially in a way that the CBI would not try and prevent.

Edited September 4, 2015 by EverCurious452

[umbertino]

Drj, grazie for sharing..Sounds honest ( awesome quality these days)

 

 

Hey hold on to your Dinar your going to really need it soonly!

11 years into waiting.....Soon........

It just goes to show that Dr.Shabibi's plan to

Propagandize the public has worked. If it's the same as

stated on TV,then it's being believed by the general population.

And as your friend states, the demand for the dollar has

increased.

So why is it again that every country on earth forgave Iraq

80% of their debt?

Wrong assumptions?

Edited September 4, 2015 by umbertino

[MyLadiesDaddy]

May I ask why?

[TrinityeXchange]

I'm not sure what you mean.  I think history has shown such a phenomenon has occurred when there has been a large increase in foreign investment in one sector (resources usually) with other sectors lagging.  That doesn't mean it always has happened or has  to happen in such situations of course.  But if not that, what mechanism do you propose that has private foreign investment driving up the exchange rate?  Especially in a way that the CBI would not try and prevent.

we are talking about iraq right?  which is not even an emerging market at the moment.  the iraqi dinar can't even be used to purchase imports with.  there is no IPP (import price parity) or PPP (purchasing price parity) with the dinar because no one trades it on the open foreign exchange market - there is no demand for it.  the dinar today is worth something in-country but the cbi will not allow the dinar to enter the country from outside which also prevents demand.  

 

that being the case, and lets say there is some truth to dutch disease, i can't see how it would apply to iraq.  so let's say iraq gets its new economy off the ground and the country becomes a hotbed for direct foreign investment.  there becomes a major demand for the iraq dinar.  non-iraqis are investing in capital markets (stocks & bonds), buying property, touring the country, investing in infrastructure projects, etc.  the cbi & goi have a decision to make whether or not they will allow the currency to explode upwards through a float exchange regime, keep the currency pegged to the usd and maintain the rate (inflation), keep the currency pegged and appreciate the rate.  

 

what the cbi & goi will do is a secret but we can speculate.  you appear to believe they will maintain the peg at the current rate of 1166:1.  my speculation is this:

1. according to world bank and imf playbook, there is an intent to float the dinar and not keep it pegged to the usd
2. the disease from "dutch disease" revolves around exports becoming too expensive and import purchasing power driving domestic firms out of business - but iraq is a frontier market without any serious domestic firms and its main export (oil) is strictly inelastic [oil prices will sell at its fixed price regardless of a country's exchange rate].  you first must have an established market for it to become diseased.  iraq would love to have that problem but as of today it is a non-issue and will be a non-issue up until its domestic markets starts really churning.
3. iraq's current account surplus stands tall against other gcc nations however its currency isn't even in the same ball game as theirs.  

i can go on with MY speculation on the dinar and why it is that I believe appreciation is coming to the bottom-of-the-barrel iraqi dinar but those 3 points alone are a mouthful.  my speculation is subject to change but from what i see now and especially with reforms on the way, "isis in iraq" becoming less and less a focus item, corruption and anti-money laundering being addressed to peak foreign investment interest, investment laws being changed in foreign investor favor, international capital market access a new reality (custodian banks big bay-bay!!).  what is there NOT to like about iraq??!  if there was ever a country about to undergo extreme transition from frontier to emerging market.....how can iraq not be a consideration?!  

 

sorry evercurious but we will have to agree to see things differently on this one.  i wouldn't miss out on this speculation for the world.  

[EverCurious452]

we are talking about iraq right?  which is not even an emerging market at the moment.  the iraqi dinar can't even be used to purchase imports with.  there is no IPP (import price parity) or PPP (purchasing price parity) with the dinar because no one trades it on the open foreign exchange market - there is no demand for it.  the dinar today is worth something in-country but the cbi will not allow the dinar to enter the country from outside which also prevents demand.

Right, the same Iraq that was listed in the article on domestically denominated bods from emerging markets which I think you posted.  IPP is a measure it always exists.  PPP is more of the value of a measure, i.e. does a bicycle in Iraq cost the same as a bicycle in Jordan taking the exchange rates into account.  You say it doesn't, I don't know.  Do you have any data that shows this?  Of course there is no demand for IQD outside of Iraq as there is no broadly based exports for anyone to buy.  Oil is bought by far to few entities to impact this even if Iraq sold their oil in IQD (those few buyers would just convert using Iraq banks and there still would be no external demand).

 

that being the case, and lets say there is some truth to dutch disease, i can't see how it would apply to iraq.  so let's say iraq gets its new economy off the ground and the country becomes a hotbed for direct foreign investment.  there becomes a major demand for the iraq dinar.  non-iraqis are investing in capital markets (stocks & bonds), buying property, touring the country, investing in infrastructure projects, etc.

Note that this is all activity in Iraq, this does not point to an external demand for IQD. Dutch Disease is just a rapid influx of foreign currency causing higher local prices which makes things more expensive so it makes it harder for an export sector to compete. Usually its the resource sector (oil for Iraq) that gets the influx, but it could be the oil sector which suffers here. Oil will become more expensive for Iraq to produce due to higher domestic prices for everything. That's speculation of course, but that's what we're doing.

 

the cbi & goi have a decision to make whether or not they will allow the currency to explode upwards through a float exchange regime, keep the currency pegged to the usd and maintain the rate (inflation), keep the currency pegged and appreciate the rate.

what the cbi & goi will do is a secret but we can speculate. you appear to believe they will maintain the peg at the current rate of 1166:1. my speculation is this:

according to world bank and imf playbook, there is an intent to float the dinar and not keep it pegged to the usd

"explode upwards", what by 10%? 20%? Are you thinking this effect, even if you are correct is going to be 100s of percent?

Where is this intent of the world bank and IMF to float the IQD spelled out? As far as I know there is no OPEC country that floats its currency as it makes exchange rate instability too much of a risk and the primary goal of central banks, including the CBI, is "exchange rate stability" (quoting from the first sentence of The CBI page on cbi.iq).

 

sorry evercurious but we will have to agree to see things differently on this one. i wouldn't miss out on this speculation for the world.

No apologies needed, I'm here to get other's point of view, so thanks! If you want to try and profit from Iraq's future I think there indeed might be big profit (and certainly big risk) in investing in Iraqi companies in various ways (be very careful), but not in the currency. Its not in Iraq's interests to have their currency appreciate and you want to be placing your bets on things that both could happen and that Iraq wants to happen.

[TrinityeXchange]

 Its not in Iraq's interests to have their currency appreciate and you want to be placing your bets on things that both could happen and that Iraq wants to happen.

and this my friend is the crux of your speculation and what i pick up on from your postings.  your intent appears to dissuade dinar speculators from believing in an rv.  and so to go back and forth with you over a speculation is pointless.  you apparently don't believe the currency will appreciate.  why are you here?  what is your intent or point being made?  if i didn't believe it i most certainly wouldn't be spending my time on a site like DV neither would i go to a site that believes the opposite (energy waster).  i would spend time pursuing other investments.

 

here are my last points.  i see not need to continue further since we do not agree.  the bonds are the beginning of a frontier to emerging transition.  imports are purchased in usd....this is why there is such demand for the usd and why there is no ppp between the dinar and other currency.  the iraq economy is still dollarized.  if oil was purchased in iqd instead of dollars, IMMEDIATE game changer in iraq's favor...did you seriously write what you did???  wow!  not demeaning you but i question whether or not you have done any homework.

 

dutch disease does not just mean higher prices making exports hard to compete.  dutch disease overly strengthens the currency's value to a place where the exchange rate discount importers enjoyed from buying your goods is erased.  it is strictly an exchange rate factor.  oil will not become more expensive to produce with the appreciation of the dinar's rate.  IOC's will be paid the same contractual rate only it will be less expensive with a stronger dinar to pay them.  

 

my friend i am not disrespecting you, but you clearly have a lot of study to do.  for you not to have read any of the world bank or imf reports on iraq cover to cover or even, the plan to reform iraq's economy, the strategic framework agreement with the united states, or the official project plan to rebuild iraq where the intent for the market is clearly stated....it is difficult to match wits with you.  not that i have the energy to do that anyway.  

 

i have come to the place where i am done debating with people.  i am not here to convince anyone of anything.  i simply share my beliefs and information from my studies.  eat the meat and spit out the bones of my posts.  but i will not enter into a debate over whether or not the iqd will revalue.  because at the end of the day NO ONE knows the intention of the CBI.  and so we speculate.....

[EverCurious452]

and this my friend is the crux of your speculation and what i pick up on from your postings.  your intent appears to dissuade dinar speculators from believing in an rv.

You state your views and say your are not here to persuaded anyone. I state my views and you presume I am here to persuade people. That's not fair. I do not understand how an RV (beyond around 15%) is possible no matter what decisions are made in Iraq as, like any pegged currency, the exchange rate is limited by the sizes of their foreign reserves and the money supply. Others seem to think that is wrong, so I would like to understand why they think that and how they think it could happen.

 

imports are purchased in usd....this is why there is such demand for the usd and why there is no ppp between the dinar and other currency.  the iraq economy is still dollarized.  if oil was purchased in iqd instead of dollars, IMMEDIATE game changer in iraq's favor...did you seriously write what you did???  wow!  not demeaning you but i question whether or not you have done any homework.

You always buy imports in the currency of origin, and USD can be exchanged for anything at foreign banks. The demand for dollars is beyond imports, which is why the CBI tries to limit auctions to be for imports and why dollars sell at the retail level for 10-20% more than the official CBI rate. If the economy was "dollarized" USD would not command such a high price at the retail level.

Now a handful of buyers (a few dozen maybe?) buy oil in USD from the GOI, the GOI exchanges the USD for IQD at the CBI and the GOI spends it locally. The other way, that same handful of buyers exchanges their USD for IQD (either at the CBI or at downstream banks, essentially the same thing) uses the IQD to pay the GOI and then the GOI spends that as before. I see no game changer.

 

my friend i am not disrespecting you, but you clearly have a lot of study to do.  for you not to have read any of the world bank or imf reports on iraq cover to cover or even, the plan to reform iraq's economy, the strategic framework agreement with the united states, or the official project plan to rebuild iraq where the intent for the market is clearly stated....it is difficult to match wits with you.  not that i have the energy to do that anyway.

I have reviewed them (cover to cover? no). I see no mention of an intent to float the dinar. Again why does no OPEC country float their currency? Because in economies dominated by oil (which Iraq will remain for many decades) it leads to exchange rate instability which is what central banks try very hard to avoid.

 

i have come to the place where i am done debating with people.  i am not here to convince anyone of anything.  i simply share my beliefs and information from my studies.

And again, thanks for sharing your views. I think you're wrong, and you have a similar view of me, that's all fine.

Edited September 4, 2015 by EverCurious452

[TrinityeXchange]

I come on the site here to reinforce my belief by like minds. If I want to hear why an rv is impossible I would listen to 99% of the population who mock us speculators. For you to create a new account for the sole purpose of debating with speculators is dumb and a waste of both our times. There is literally nothing I could say to dissuade you and vice versa. So what is the point here? For us to go back and forth seeing whose economic Johnson is the biggest??

I believe your thinking is flawed as you think as mine. Quit wasting our time.