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The Financial Operations Of: Lifting All The Barriers Imposed On The Central Bank Of Iraq After Its Actions Against Money Laundering 


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  • 2 weeks later...

This might be old news, but I thought I should post anyway.

 

IMF:ARTICLE VIII Exchange Arrangement

 

SECTION:

RELATIONS WITH THE FUND  - Page 3 ( at the end of the PDF )

 

"Iraq continues to avail itself of the transitional arrangements under Article XIV, Section 2 but no longer maintains any exchange restrictions or multiple currency practices subject to Article XIV, Section 2, and currently maintains two exchange restrictions and one multiple currency practice (MCP) subject to Fund approval under Article VIII, Sections 2(a) and 3." 

 

 

Download PDF ( December 13, 2016 ) 

Iraq: December 2016 First Review Of The Three-Year Stand-By Arrangement And Financing Assurances Review, Requests For Waivers Of Nonobservance And Applicability Of Performance Criteria, Modification Of Performance Criteria, And Rephasing Of The Arrangement Press Release; Staff Report; And Statement By The Executive Director For Iraq

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Article VIII provides in Sections 2 and 3 that members shall not impose or engage in certain measures, namely restrictions on the making of payments and transfers for current international transactions, discriminatory currency arrangements, or multiple currency practices, without the approval of the Fund. The guiding principle in ascertaining whether a measure is a restriction on payments and transfers for current transactions under Article VIII, Section 2, is whether it involves a direct governmental limitation on the availability or use of exchange as such. Members in doubt as to whether any of their measures do or do not fall under Article VIII may wish to consult the Fund thereon.

 

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Iraq has to make the decision to the move to article VIII.  They have been enjoying the protection of article XIV since 2003.  The IMF has been pushing Iraq to meet all article VIII requirements, yet Iraq still is still not in compliance (Section 2, and currently maintains two exchange restrictions and one multiple currency practice (MCP) subject to Fund approval under Article VIII, Sections 2(a) and 3." )

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16 minutes ago, danielchu said:

well if article is the standard we go by then its easy to assume we have 2 more years to go with an three year stand-by arrangement!

Not so sure about that. 2016 was the first review of the three year stand by agreement. It didnt say the standby agreement started in 2016. Its when the first review was.

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IMF Team Reaches Staff-Level Agreement on 2nd Review of SBA with Iraq

June 5, 2017

June 5, 2017

The Stand-By Arrangement aims to restore fiscal and external balance and to improve public financial management while protecting social spending.

  • The Iraqi authorities and the IMF mission have reached agreement on a supplementary budget for 2017, objectives for the 2018 budget, and strengthened procedures to keep expenditure under control
  • The SBA aims to restore fiscal and external balance and to improve public financial management while protecting social spending.

The Iraqi authorities and an International Monetary Fund (IMF) team reached a staff-level agreement on the second review of the Stand-By Arrangement (SBA) that was approved by the IMF Executive Board on July 7, 2016 (See Press Release No. 16/321). The SBA aims to restore fiscal and external balance and to improve public financial management while protecting social spending. Iraq completed the first review under the SBA on December 5, 2016 and received a disbursement of SDR 0.46 billion (US$0.6 billion) (See Press Release No. 16/540). Completion of the second review will release a further disbursement of SDR 0.6 billion (US$0.8 billion).

Mr. Christian Josz, Mission Chief for Iraq, issued the following statement today in Amman:

“The Iraqi authorities and the IMF team have reached agreement on a supplementary budget for 2017, objectives for the 2018 budget, and strengthened procedures to keep expenditure under control. Both the supplementary 2017 budget and the 2018 budget will keep the fiscal consolidation, necessitated by the fall in oil prices, on track, while protecting social spending.

“Once agreed prior actions have been implemented, the IMF Board could consider the second review of the SBA in August.

“During the discussions, the team met with Acting Governor of the Central Bank of Iraq (CBI), Dr. Ali Mohsen Ismail Al-Allaq, Deputy Chief of Staff of the Prime Minister, Dr. Naufel Al-Hassan, Chairman of the Board of Supreme Audit, Dr. Salah Noori Khalaf, Acting Deputy Finance Minister, Ms. Taif Same, Deputy Minister of Planning, Dr. Qasim Enaya, Deputy Minister of Electricity, Mr. Abdel Hamza, Financial Adviser to the Prime Minister, Dr. Mudher Saleh, and officials from the ministry of finance, Central Bank of Iraq (CBI), the Board of Supreme Audit, the ministry of oil, the ministry of planning, the ministry of electricity, and a representative from the Kurdistan Regional Government. The team would like to thank the Iraqi authorities for their cooperation and the open and productive discussions.”

 

https://www.imf.org/en/News/Articles/2017/06/05/pr17207-imf-team-reaches-staff-level-agreement-on-second-review-of-stand-by-arrangement-with-iraq

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. Found this piece on another site.  I think this explains it pretty well.

What this means is that Iraq is continuing to try to comply with Article VIII and avail itself from the current transitional arrangements under Article XIV. But unfortunately at the time of this report they had 8 violations or restrictions preventing them from moving to Article VIII. Once of which is described as MCP or Multiple Currency Practice which is a result of the currency spread exceeding 2% and a violation of Article VIII. Here is a the actual statement describing the violation below…
“The MCP arises from the absence of a mechanism to ensure that the official exchange rate and the market exchange rate do not deviate by more than 2 percent.”


It is very clear that a condition for Iraq to move to Article VIII is that they comply with the 2% rule. That rule is very clear that the Official Rate (CBI rate) and the Market Rate cannot exceed 2%.
This is soooo important, why? Because until they comply with the conditions set forth for Article VIII, the CBI will never be allowed to transition to Article VIII.


Now I am going to move into another area. The question has been asked once they comply with the 2% rule, how long must they sustain that for? Here is the answer from another IMF document…
“The exchange rate may fluctuate within narrow margins of less than ±1 percent around a central rate, or the maximum and minimum values of the exchange rate may remain within a narrow margin of 2 percent for at least three months.”
So there you have it..at least 3 months or 90 days.
So the question is…when will the CBI be compliant with the IMF so they can transition?


We get an answer earlier this week with the IMF Press Release titled…
Statement at the End of an IMF Mission on Iraq
The following paragraph is below…
“The central bank has maintained the peg with the U.S. dollar. The spread between the official and parallel exchange rates narrowed to 2.6 percent in September, thanks to steps taken by the CBI towards the liberalization of the foreign exchange market.”


This is very telling and many would probably overlook it..but the IMF is telling the CBI..you were not in compliance in September 2014 because you exceeded 2%. In fact, they state it clearly… “The spread between the official and parallel exchange rates narrowed to 2.6 percent in September”
2.6% is not good enough, but clearly better than past months for sure. Since they stated the month, we can visit the CBI website and look at the daily currency auctions for the Market Rate (which is posted daily).
We see that during the month of September, 2014, two rates were reported by the CBI for Market Rates 1203 and 1206. Meaning the Market Rate was 1203 dinars to $1 . And at another point during the same month the Market rate fell even further to 1206 dinars to $1.
According to the IMF during the month of September, the spread between the Official Rate (1166) and the Market Rate (1203) and (1206) is at 2.6%. Because this number is beyond the 2% threshold we can say with certainty that at the end of September 2014, the CBI is not in Article VIII compliance.
If we continue to review the CBI daily auctions we can see that the Market Rate fell November 30th, 2014 to 1197 and the CBI has sustained that number for the past 11 days. We can reasonably conclude if 1203/1206 was 2.6% then a reduction to 1197 would at or about 2% according to the IMF.
So we have a starting date of November 30th, 2014 that the CBI is in Article VIII compliance with the IMF.
And we can then apply the 3 month or 90 day minimum requirement to this date and see that the very soonest the IMF would allow the CBI to avail itself and accept the obligations under Article VIII would be February 28th/March 1st 2015.


* I remind everyone that the CBI must sustain this rate for the entire 3 month period with limited fluctuation as the IMF states.. “The exchange rate may fluctuate within narrow margins of less than ±1 percent around a central rate, or the maximum and minimum values of the exchange rate may remain within a narrow margin of 2 percent for at least three months.”

 

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23 minutes ago, presence said:

doesn't the removal of multi-currency practices in Iraq essentially mean that they will

be off the dollar? Am I missing something here, or is this as almost as huge of a release as possible prior to change in rate? 

 

I agree - no more dollar , no more auctions, no more 2 percent

 

The MCP arises from the official action to limit the purchase of foreign exchange, with no mechanism to ensure that exchange rates in the official auction and in the market do not deviate from each other by more than two percent.

Edited by DWS112
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26 minutes ago, presence said:

So, doesn't the removal of multi-currency practices in Iraq essentially mean that they will

be off the dollar? Am I missing something here, or is this as almost as huge of a release as possible prior to change in rate? 

 

Where do you see that the multi-currency practices have been removed?

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On 7/3/2017 at 11:32 AM, bkeiller said:

 

Good Poker players ain't goanna tip their hand, because they are too busy counting cards and psyching the other players out ...

Edited July 3 by bkeiller

 

Whether it is poker or chess or life ... this is true... :)

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49 minutes ago, Floridian said:

How/when will we know if Iraq is in compliance of the "2% for 3 months" in order for them to be in article VIII?  

 

As I understand it, they cannot RV without being in article VIII.  Is this correct?

They have been at 2% or less for over 5 months I thought! JMHO The MCP have not stopped, they are still having auctions! We need those to stop!

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1 minute ago, Artitech said:

They have been at 2% or less for over 5 months I thought! JMHO

 

I really would like to see it in writing.  Once in a while, I go over to Kaperoni's board and he's always insisting that they have not been able to hold the 2% for 3 months and therefore, not able to go into Article VIII or get off the peg.  I had forgotten about this being a stipulation.

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38 minutes ago, Floridian said:

 

I really would like to see it in writing.  Once in a while, I go over to Kaperoni's board and he's always insisting that they have not been able to hold the 2% for 3 months and therefore, not able to go into Article VIII or get off the peg.  I had forgotten about this being a stipulation.

Trust we would like to see a lot in writting Thayne are not... were sure they are not being Completely Transparent...but enough for IMF and WB and educating their people...

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Thanks DWS112, for responding to inquiry. The process, and the rules and regulations regarding how the CBI functions and does what it does have been well established, and from my perspective, they do what they say they will, albeit not always timely.

 

Now, however, it seems that the regulations and influences on the CBI and Iraq that have been influenced by the IMF, WB, multiple countries in the forms of international aid are starting to come through clearly. There are obvious reasons as to why the world's interested in Iraq and those interests started long before 2003 (if other countries around the world experiencing genocides had Iraq's wealth, they too would probably get the interest of the US and other developed nations.)

 

Floridian, I don't think it's blatantly said anywhere in the above post that the MCP practices have ceased, but rather, the above article certainly highlights and mentions what is to come; I take this article as 'a warning' so that people won't be surprised when the latter events do unfold. 

 

 

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  • yota691 changed the title to The Financial Operations Of: Lifting All The Barriers Imposed On The Central Bank Of Iraq After Its Actions Against Money Laundering 
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