The current Iraqi monetary crisis: ephemeral bubble or the appearance of deeper economic crisis

[alan_coaks_3]

5 - 12 - 2012

Current exchange rate crisis highlighted the need for a brief pause for reflection on the conditions the Iraqi economy. There is no doubt that the monetary crisis is a reflection of the overall economy crisis express a deep structural imbalances. external causes that stumping (smuggling hard currency to Iran, Syria, etc.) is not enough in itself to interpretation despite his health partially, and in this regard we note that attacks of foreign-oriented areas soft and porous, but why not go attack the teeth to other markets in currency as a Gulf markets?

As these markets and economies of organization largely stable, flaccid economy oriented attack and unregulated market, and in our case this is the Iraqi market is the target.

Therefore, it is necessary, refer to the most important structural imbalances afflicting the Iraqi economy. And the necessity of referring to lie in interpretation from the wizards short, long-term photo.

1. the crisis of the real economy, the sector stagnated since 1991 from the devastating effects of wars and the economic blockade and the fact that the Government sector ... was dominant, influenced by these factors too has seen any qualitative but merely governmental activity with the purpose of maintenance effort limited. The private sector was vastthmarath and has also continued marginal evolved qualitatively. aggravation after 2003 as governmental sectors were almost completely turning your profit trend alastthmara the fastest and cheapest is trade. Reflected on the size of domestic production and employment.

2. the deterioration of the agricultural sector and especially after 2003.

3. as indicated in points above coinciding with increased Iraqi economy based on the export of oil as a source of almost alone to provide hard currency and economy (Iraqi society) to economy of incomes is an enhanced privilege escalating oil prices continued to rise.

4. rule of consumerism in society and transformation of excessive consumption and dissipation compensation case of deprivation before 2003 and rule look search for equivalent consumption patterns in the Gulf and Europe soon without link supposed evolution of the real sector and sliding again as a reflection of economic rent-seeking.

5. a trading chaos might not have seen any economy last for example even statistically purely administrative regulation process leave import violent resistance at all levels, as well as import duties and non-lenient too., thoughtful, reinforced the trend towards excessive consumption. absence of export activity (excluding oil)-based deterioration in the real sector, strengthened rule of style economy rental.

6. monetary and financial chaos: this wasn't a novel but the former Government from understanding that the country has not been purely property subject to any serious discussion and disbursements are only desire and recommendations (Commander = schema) without sound economic considerations and without any room for discussion. Either the monetary sector, based on market forces left to determine the exchange rate. After 2003 and despite the adoption and approval of the budget debate within Parliament continued extrabudgetary Exchange very large amounts (see Chalabi's remarks that no negation) yet we submit the final accounts for many years. Continued adoption of budgets with a clear deficit without questioning and searching for future serious surpluses recycled meaning that budget deficits and recognizes eventually called a surplus and the important question of why ended with a surplus of Wayne went this surplus and its impact on economic activity. Etc in monetary field, despite the relentless pursuit of the Central Bank, has continued proliferation of offices and shops banking without any deterrent or an officer and private banks to have proliferated dramatically to question outside continued to import finance and banking frameworks has grown the phenomenon of capital flight and others.

7. other sectors linked to the economic situation crisis mstaselh e.g. hastily higher education sector, research and development, societal values, infrastructure, housing, water problem.Etc.

Either economic policy which assumes that proceeds from the recognition of imbalances and seek to address them, note that the primary perceived, perhaps the only, is non-oriented economy and the shift towards a market economy, and the neglect of fact recognized all the Iraqi economy deteriorated over the past 3 decades, necessitating treatment. considered to go to free economy policy as the sole crane of any irregularities and corrected (recall visions Friedman cash) ignoring knowingly growth economics.

All stories after World War II based on the essential branches of policies and programmes. The first is to develop visions for public, community wants anywhere he wants under the Sun, is merely the role of affected or wants to be an active participant, you will want to become literate borrowed empowerment in science and technology or stay in darkness of ignorance, do you want to turn into an advanced industrial society or remains an agricultural society, may support balanced growth or unbalanced growth, do adopt push, Can develop alternative energy sources or remain dependent on oil refineries, and many others. Constitute an ensemble (Revelation) what should be the community, some call it nationalism or national, or challenge, or feeling of pride, or the future planning of Orientalism, the vision is simply is the sum of all these concepts.

And the second thing is the role of the State, contrary to myth (let him work, let him pass) classic and the alleged neutrality of the State, capitalism did not arise only in the embrace of the sponsoring State directed and the garrison had been established first capital accumulation by conquests, colonialism led by (State). Aside from this luxury historic intellectual experience of modern development we have seen only the welfare State and its active role, whether direct investment and/or router. And it has become recognized in the literature on International Monetary Fund, many intellectuals (sitghalz school alkenzet generally) that State almost crucial role not only in developing economies but also in the world economy as a whole and without breaks down the capitalist system and exposed to devastating crises and likely without developing State to remain stagnant.

Notable examples of the impact of these factors and their role in the successful experiences of development refer to Japan, China, Korea, Malaysia, Singapore, India, Brazil in its last and even Dubai experience. Return to economic policy in Iraq

We indent starting to lack (Revelation) guiding and addressed as we understand (vision) that the transition to a market economy and is visibly beyond concluded (wrongly) that the role of the State should be neutral and limited intervention in narrow areas. Not declared with opportunities to sit together to discuss our vision for Iraq's future.

It was therefore possible justifications to understand it in the first years of the State maalga last accumulations and dedication in the fight against the scourge of terrorism and sectarianism and promote national peace. But this is no longer understood especially after dwindling terrorist threats and reverse the threat of sectarian the fighting.

Understanding business to own as creative chaos develops first capital accumulation (read rapid enrichment regardless of any moral standard) and achieved successes, few and limited range also represents creative effort, predominantly it caused uncontrolled trade much less corruption.

State servant of venture capital and the mess instead of becoming Maid of capital for the development of creative and innovative national wealth and binoculars for recruitment.

Reflected in concentrated mainly on fiscal policy, operational expenses and especially public employment, again understandable justification was to attract unemployed and lift them from the temptation of terrorism and crime but for how long? The State cannot continue employment is not required nor possible.

We have seen so far, as far as I know, any project most of the wealth and real employment, but that the productive sector owned by the State has suffered negligence led to stops working although its capital is in good condition or possible rehabilitation. There is no plan to go far from the draft this year and that we want him in the coming year, so in other words we do not have a five-year plans due to absence or decimal (vision).

Although the previous years ' budgets had included a "catalytic" as it is understood alkenzi the impact on the real economy was very limited for a variety of reasons, most notably the failure to achieve planned spending, the inflexibility of the productive sector, not because of the absence of excess capacity but due to external factors such as security and the lack of electricity and high local wages and others, and also because of the very high marginal propensity to import linked to rising dinar against the dollar and is what leads to monetary policy.

From General State, strategic meaning of monetary policy by providing adequate climate to achieve desired economic objectives through monetary instruments. In order to lead the Central Bank the desired cycle away from narrow political whims and volatility, handshake device independence bonus for State Executive. Thus, business plans and builds expectations of behaviour based on known and stable monetary policy and hoped that Central unable to address imbalances instantaneous way predictable and guaranteed work (effective and efficient).

Central since 2003 has faced great challenges and dangerous mainly to debt overhang on Iraq, relations with international institutions, the relationship with the World Bank, organization and development of the domestic banking system, replacement of currency, exchange rate control, respond to the demands of the new economic policy and the transition to a market economy. these tasks constituted a considerable burden on the central device, but faced with courage and succeeded in the exam generally despite hiccups here and there.

Currency auction form the cornerstone in stabilizing the dinar but quietly towards the ongoing evolution towards improving dinar that arrived in the current price (1166 JD/dollars) this policy as a means of curbing inflationary forces.

Currency auction was generally accepted especially by any owners of limited income as long as the purchasing power of salaries rise continuously as well as acceptable business/importers for obvious reasons, but the production is adversely affected by this policy is no longer able to compete with imported goods which producers produce better conditions.

Also affected by the General State budget, the State spend more currency to get the same amount of Iraqi dinar and coupled with rising operational expenditures are rising which led to continued funding disability not as planned, but the result of the policy of fait accompli with reference to the size of the deficit would be larger if higher oil prices and increased production.

Although this policy is consistent with the recommendations of the IMF but it seemed desirable State to satisfy the general public under conditions of volatile political and social.

Continuation of this policy strengthened consumer trends in Iraqi society and frustrated investment in real sector of economy faced a rkodia real state sector did not submit to rehabilitate productive sectors and did not submit to qualitatively distinct new investments and the minimum shrink the productive sector.

Coupled with the continued turmoil in the foreign exchange market, i.e. mainly private banks and exchange offices, where hundreds of unauthorized offices that do not keep any records not subject any controls or control, which eventually led to the continued emigration of capital outflows.

It seems that the prevailing idea behind raise the value of the dinar is the surplus in the balance of payments, driven by higher oil prices without regard to the exclusion of oil sector an enormous deficit appears in trade and payments and weakness will show to what extent the recession in the sector ysshtri.

We can say that this is no longer acceptable from the standpoint of macroeconomic analysis and profound effect and mounting over a long time. Productive sector must revert activity cannot, in the light of the high prices of the dinar.

That this trend will increase pressure on the central reserves are necessary and guarantee for the economy as a whole certainly bet on continually increasing oil revenues consecrate the rentier nature of the economy and increase the risk of crises in the case of the emergence of new trends in the energy markets.

There is no doubt that the increasing integration of the world economy over the Iraqi economy from its appearance and makes it vulnerable to speculation, crises and what the current crisis only indicator can do international speculation and recall speculation on Sterling by an individual (George Soros) and speculation that ravaged Asian Tigers.

Central objectives include (to stabilize domestic prices, maintain stable financial system and promote development and provide employment and prosperity) and it seems that the second part of Central activation and goals play a bigger role in directing play advice and guidance to the Government so that this important aspect.

We believe that the current exchange rate is high and the Iraqi dinar is more than its real value, but the reverse will face severe opposition and resistance by citizens and importers can therefore understand severe attack on the Central Bank and its impact of the rise of the dollar in the market there is no doubt that this political ramifications and speculations.

Recognition from this truth should be translated into a corrective policies and also focused and broad information campaign to explain the expected impact in reducing exchange rate on domestic production and thus employment can and must go hand in hand with a policy of financial and commercial support for local production.

There is no doubt that the public, if touch and is satisfied with the benefits of the new policy would ease opposition particularly if satisfied that the reduction would positively affect employment.

And starting to believe the need to identify the average exchange rate is higher than the stated price by the central defence and then a quiet trend to modify more radical.

This immediate treatment and that accompany her to regulate import and foreign exchange market and others will bear fruit in the long term only a drastically confirm comprehensive national vision of the Iraqi economy.

Can we indent that (the problem of sluggish real economy) clearly aware of before the Central Bank researchers highlighted (see studies published on the Bank's site) and that there were strong analytical approaches and proposed treatments were worthy of consideration. It is regrettable that these analytical approaches do not reflect the opinion or policy but reflect Central only the viewpoint of researchers.

The publication of studies on the central site marks the existence of internal convictions need reform but not translated into (policies) marks a stronger pressure applied from Central prevents that.

Claim that the Western viewpoint and institutions such as the International Monetary Fund in particular tend to deal with recycling cash surpluses and pumped into the US and European economies to address crises and situations alrkodet first world economies. Any economic region (or country) succeed in forming the corresponding mean economic surplus growing trade deficit elsewhere (mainly American and Western Europe in General) which requires work to absorb this surplus through trade policy and/or cash-finance, or wars and local conflicts.

From here we recall their knees dates and the growing Asian, constant pressure on China to raise the value of its currency, the Gulf markets plunge, consumer goods and entertainment, and multiple wars in the Middle East.Etc.

To the extent that the resources of Iraq after 2003 and has grown in the absence of proper (Revelation) for socio-economic reform, the duty of international institutions is to impose trade policies — cash working on redirecting this surplus and absorbed not only the short term any absorption current surplus but seek to consolidate trade policies — cash works to absorb future cash surpluses through deepening consumer rental-character of the Iraqi economy.

My link

Edited May 12, 2012 by alan_coaks_3

[alan_coaks_3]

here the link i forgot My link

[zigmeister]

Thanks Alan.