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Iraqi-Egyptian meeting to discuss the mechanism of reopening Rafidain branch in Cairo 14/10/2019 Economy News _ Baghdad An Iraqi delegation has held an extensive meeting with the Egyptian delegation to discuss arrangements for reopening the Rafidain branch in the Egyptian capital, Rafidain Bank said Monday. "An Iraqi delegation comprising the Undersecretary of the Ministry of Finance and Director General of Rafidain Bank Khawla Taleb Jabbar and a number of officials in the relevant departments and authorities discussed in a meeting in Baghdad with an Egyptian delegation represented by the Assistant Foreign Minister," the bank's media office said in a statement. "The mechanism and conditions for the reopening of the bank's branch in Cairo," he said. He added that the two sides discussed the settlement of indebtedness between the two countries and the elimination of all obstacles and problems facing it and the two sides exchanged different views on the outstanding issues that hinder the opening of the branch, pointing out that the two sides stressed the need to accelerate the completion of this important event of interest. And benefit both sides and the public interest. " Rafidain Bank is one of the main government banks with branches in neighboring countries in addition to Lebanon.
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With the Terms of Trade Shocks happening to Iraq, the plan of privatizing the country has become all the rave. Not a new concept and as a matter of fact the plans of privatization has been in the works heavily since 2004. Now I will not waste time building a case but please know that I form my opinion from much of the research out there (if interested I can share the sources), instead I will get straight to the point here. !The true test of Abadi's intent to privatize Iraq will be whether or not he promotes the Corporatization and Privatization of Iraq's key state-owned banks namely Rafidain & Rasheed! Regardless of what you read or hear or think, this is what needs to be watched for in the news. The World Bank performed a financial sector review of Iraq and listed "Medium to Long Term Task(s)" for the Ministry of Finance & CBI to pass into law these bullet point items as part of the economic liberalization effort: ■ Clarify the mandate of the specialized state- owned banks, and consider consolidation and conversion into a development banks with increasing their capital, which will not take deposits. ■ Ensure state-owned banks work according to commercial principles and on a level playing field. Early corporatization of state- owned banks should be considered a key element. ■ Over time the authorities should consider gradual privatization of the key state-owned banks. Why is this important? Because research has proven that as long as the banking structure is managed centrally (i.e. by government) whether fully or partially, a market economy is smothered. It is like finally being given a Lamborghini but a governor is placed on the engine limiting its top-off to 75mph. What is more, control of the banking structure will do just as bad if management is concentrated (a sleight of hand trick governments will attempt to retain control). Many are wondering what impact this might have on an RV. For those who believe value will be added to the currency once it is unpegged from the dollar, you should understand that moving to a flexible exchange regime has its risks. Those risks are high if the financial sector is not well structured and configured to properly absorb fluctuations and shock in the market. State owned or partially owned banks do not absorb shock well because their political and relationship interest get in the way of forming sound financial policy. For example a consistent problem with state run banks is loaning to bankrupt businesses to help them stay afloat because the owners of the businesses are your friends. Another common issue is with state run banks maintaining managers too inept for the job but appointed because of some personal affiliation. Whereas Privatized banks often change management and scrutinize lending practices to ensure the bank's efficiency at conducting business. Fully privatized banks without government intervention are more profitable. And so I am not here to argue against an overnight RV versus a gradual rise in value from an overnight exchange regime change. I am opining that Abadi will face the decision of his life - whether or not to fully privatize the key state owned banks. Remember that these key banks have been groomed for privatization and it is documented in the World Banks playbook for Iraq. For instance when you see articles about E&Y and other 3rd party financial firms coming into Iraq, typically it is not for existing private banks like Bank of Baghdad or North Bank, these banks are not ready to carry the load of an economy like Rafidain & Rasheed. The focus has always been to ensure the readiness of Rifidain & Rasheed Banks to properly privatize and handle the coming market economy because they are Iraq's financial powerhouse and dwarfs all other banking entities. Recall articles like these from yesteryear: "The acting Finance Minister, Ali Yousef Shukri (pictured), is reported to have held a meeting with a representative of the World Bank to discuss the restructuring of the state-owned banks in Iraq. According to the report from NINA, the discussions related particularly to the Rasheed and Rafidain banks." Well this IS the plan and a MAJOR cog in the engine for successful privatization of Iraq's economy. Can the GOI find within itself to relinquish its control of the money power and liberalize its banking sector? PS. The concept I am presenting is not new for developing economies. This is where many of them struggle when attempting to make that change from a socialist, government-centric economy to a true market economy. This is the story of Egypt who adopted a very similar reformation plan as Iraq (the similarities are incredible really) from the World Bank but when time came to execute on the banking component, the government would not fully comply with the plan and fully privatize its state owned banks. Egypt floated its currency in 2003, like any market-type economy should, but the long term effects have been troubling.
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