Dinar 400% undervalued per IMF in 2009. Wonder what the real exchange rate is currently?

[jupitergirl]

Real Rate listed by IMF for 2009, IMF Public Information Notice 10/34 shows has shown a Real Exchange Rate of 292 Dinar to 1 USD......listed at bottom of page.

Here is IMF PIN 10/34

http://www.imf.org/e...2010/pn1034.htm

IMF Executive Board Concludes 2009 Article IV Consultation with Iraq

Public Information Notice (PIN) No. 10/34

March 1, 2010

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On February 24, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Iraq.1

Background

The Fund has been closely engaged with Iraq since 2003. Initial work focused on providing policy advice, mainly on monetary and fiscal policies, and technical assistance to rebuild essential economic institutions. In September 2004, the Fund approved Emergency Post Conflict Assistance for Iraq, which—in combination with a debt sustainability analysis—paved the way for an agreement with Paris Club creditors. Since then, Iraq successfully completed two precautionary Stand-By Arrangements whose main objectives were to achieve macroeconomic stability; promote growth; and continue the process of structural reforms.

Substantial progress has been made since 2003, despite the difficult security situation. Inflation has been reduced to single digits, the international reserves position has improved markedly, and direct fuel subsidies were eliminated, while the pension system was put on a sustainable footing, which created room for priority spending on investment and the social sectors. Several steps have also been taken to strengthen public financial management, improve transparency in the oil sector, and rebuild capacity at the central bank, and the authorities have initiated the restructuring of the two largest state-owned banks. In addition, important advances have been made in attaining long-term debt sustainability. In 2004, Paris Club creditors agreed to reduce Iraq’s external debt by 80 percent in net present value terms. Also, bilateral debt agreements with several non-Paris Club creditors have been concluded, although this process is yet to be completed.

Iraq’s economic performance was strong in 2008, aided by record oil prices and improved security. Oil production rose to 2.3 million barrels per day (mbpd), the highest level since 2003. As a result, real GDP is estimated to have grown by 9½ percent in 2008, up from 1½ percent in 2007. Crude oil export receipts reached $61 billion in 2008—65 percent higher than in 2007—and the current account recorded a large surplus. The government budget registered a lower-than-expected surplus of 1½ percent of GDP in 2008. This reflected a significant increase in government spending that more than offset the higher-than-budgeted revenues. This increase in government spending reflected in part a large wage adjustment to compensate for the erosion in real wages that had taken place in previous years.

Following the strong economic performance in 2008, more recently the Iraqi economy has been seriously affected by the drop in oil prices from their peak levels in mid-2008. Also, oil production and export volumes have not risen as much as planned due to insufficient investment; production reached 2.4 mbpd. As a result, Iraq’s external position weakened in 2009, with oil export proceeds falling to $39 billion and both the external current account and the overall balance of payments shifting into large deficits. With oil export receipts accounting for about 85 percent of government revenues, the lower oil prices had a similar impact on the government’s budget, which is estimated to have recorded a deficit of over 20 percent of GDP in 2009. The CBI’s international reserves fell by almost $7 billion in 2009, to about $44 billion by year’s end, reflecting the use of government deposits at the CBI to finance the budget deficit. Growth is estimated to have slowed to 4 percent in 2009, even though oil production improved towards the end of the year owing to efforts to address infrastructure bottlenecks.

Iraq’s longer-term economic outlook is strong as oil prices and production are projected to increase markedly in the coming years. However, based on conservative oil price assumptions, the external current account and the overall balance of payments are expected to remain in deficit in 2010 and 2011. Similarly, Iraq’s fiscal position is projected to record significant, albeit declining deficits in both years, before returning to a surplus position in 2012. Financing the budget deficits in 2010–2011, would require additional financial support to fill a financing gap projected at almost $5 billion, even after mobilizing substantial amounts of domestic financing and utilizing the recent SDR allocation amounting to the equivalent of about $1.7 billion.

Against this background, the authorities have designed an economic program for 2010–11 that aims to maintain macroeconomic stability during the period of political transition (parliamentary elections are scheduled for early March 2010) and deepen structural reforms, particularly in the areas of public financial management, the financial system, and oil sector transparency. In support of this program, the authorities have requested a new Stand-By Arrangement from the IMF in the amount of SDR 2,376.8 million (about $3.6 billion). This amount, together with disbursements from the World Bank under a Development Policy Loan and support from some donors, is expected to cover the financing gap for 2010–11. An important objective of the authorities’ fiscal program is to contain current spending in order to gradually reduce the budget deficit and make room for additional investment. Specifically, current spending in both 2010 and 2011 will be kept broadly unchanged in nominal terms at 2009 levels. At the same time, given the urgent need to improve infrastructure and basic public service delivery, a significant increase in capital spending is planned for 2010, following an underexecution of the 2009 capital budget due to administrative capacity constraints associated with security incidents that affected the Ministry of Finance towards the end of the year. Monetary and exchange rate policies will continue to aim at keeping inflation low in 2010 and 2011.

Executive Board Assessment

Directors commended the Iraqi authorities for the progress in rebuilding its economy under extremely difficult security and political conditions. While the medium-term economic outlook remains favorable as oil prices and production are expected to increase in the coming years, major challenges lie ahead. Large fiscal and balance of payment gaps are projected for 2010 and 2011, caused by the lower oil receipts and infrastructure bottlenecks. Directors also noted considerable risks associated with security problems, oil price volatility, and capacity constraints. They welcomed the authorities’ strong commitment to consolidate macroeconomic stability and advance the structural reform agenda, particularly in the areas of public financial management and the banking sector. Directors underscored the importance of steadfast implementation of the economic program, which would help unlock much needed resources from other donors and multilateral development banks.

Directors considered that the 2010 budget, based on conservative oil price assumptions, is consistent with the program’s objectives. They highlighted the need to contain current spending, in particular through rationalizing the government wage bill and streamlining the in-kind Public Distribution System and transfers to state-owned enterprises. This would create room for targeted social safety nets and for essential investment and reconstruction projects, including improving public service delivery and infrastructure in the oil sector. Directors encouraged further reform efforts aimed at improving budget preparation and execution through developing a medium-term budget framework, and broadening the revenue base by introducing a general sales tax.

Directors welcomed the authorities’ continued commitment to strengthen governance and improve transparency in the hydrocarbon sector. Completion of the oil metering system would help facilitate the full reconciliation of oil flows with financial flows between the state-owned oil companies and the budget. Directors congratulated Iraq on becoming a candidate for membership in the Extractive Industries Transparency Initiative. They encouraged the authorities to establish a successor arrangement for the Development Fund for Iraq with the similar standards of transparency and accountability.

Directors supported the central bank’s objective of aiming monetary and exchange rate policies at keeping core inflation in single digits. They called on the authorities to remove the remaining exchange restrictions under Fund jurisdiction. Directors also encouraged the central bank to fully implement the recommendations of the previous safeguards assessment and looked forward to its update. The need to preserve central bank independence was particularly emphasized. Further steps are necessary to strengthen reserve management, banking supervision and prudential regulations, and the AML/CFT framework.

Directors welcomed the authorities’ good-faith efforts to conclude debt agreements with the remaining official and private creditors. They encouraged the authorities to continue to work with non-Paris Club creditors, with a view to securing debt relief on terms comparable to those of the 2004 Paris Club Agreement.

While welcoming Iraq’s participation in the General Data Dissemination System, Directors called for continued efforts to improve the quality, coverage, and timeliness of macroeconomic statistics.

Iraq: Selected Macroeconomic Indicators, 2007–10

2007 2008 2009 2010

Est. Proj.

Oil and gas sector

Total exports of oil and gas (in billions of U.S. dollars)

37.7 61.7 38.9 48.4

Average crude oil export price (in U.S. dollars/barrel)

63.0 91.5 56.5 62.5

Crude oil production (in millions of barrels/day)

2.0 2.3 2.4 2.6

(Annual percentage change)

Output and prices

Real GDP

1.5 9.5 4.2 7.3

Non-oil real GDP

-2.0 5.4 4.0 4.5

Consumer price inflation (end-of-period)

4.7 6.8 -4.4 6.0

(In percent of GDP)

Investment and Saving

Gross domestic investment

19.8 28.1 28.1 31.5

Of which: non-government

4.1 2.0 3.7 4.1

Gross national savings

32.5 43.2 8.7 10.5

Of which: non-government

7.1 15.4 11.3 2.9

(In percent of GDP, unless otherwise indicated)

Public Finances (cash basis)

Government revenue (including grants)

83.7 84.3 76.5 75.4

Of which: Oil revenue

74.0 77.6 68.0 67.0

Expenditure

74.0 82.6 99.0 94.5

Of which: Current

57.7 56.4 78.4 67.0

Of which: Capital

15.6 26.1 24.4 27.5

Budget balance (including grants)

9.7 1.7 -22.6 -19.1

Primary fiscal balance

10.5 2.2 -21.7 -18.0

Non-oil primary fiscal balance

-53.4 -64.7 -78.7 -74.2

Total government debt (in billions of U.S. dollars)

103.1 95.6 90.2 33.8

(Annual percentage change)

Monetary Sector

Base money

73.9 54.5 0.1 13.5

Currency issued

31.2 36.3 13.4 15.2

(In billions of U.S. dollars, unless otherwise indicated)

External Sector

Merchandise trade balance

13.4 20.8 -1.9 -2.4

Exports of goods

37.8 62.0 39.3 48.8

Imports of goods

24.4 41.2 41.3 51.2

Current account

7.2 13.1 -12.8 -16.8

Current account (in percent of GDP)

12.7 15.1 -19.4 -21.0

Total external debt (in percent of GDP)

181.0 110.5 137.1 42.1

Central banks gross reserves

31.5 50.2 44.3 44.0

In months of imports of goods and services

7.7 11.9 8.5 8.1

Memorandum Items

Nominal GDP (in billions of U.S. dollars)

57.0 86.5 65.8 80.3

Local currency per U.S. dollar (period average)

1,255 1,193 1,170 ...

Real exchange rate 1/

280.7 342.5 292.0

[fnbplanet]

Great Find!

[ronscarpa]

Great post JupiterGirl, Thanks...Be Blessed...!

RON

[Poker]

Good find, puts in up to approx 3 cents. Just need a digit or two more.

[gregp]

You give new meaning to "good homework"! Great research!

[jg167]

Good find, puts in up to approx 3 cents. Just need a digit or two more.

An exchange rate of 300 dinars per dollar is 1/3 of a cent per dinar, not 3 cents per dinar. And indeed 1/3 of a cent is a rate they could RV to reach, maybe (in my view of course) up to a full penny or so.

[RanidPA]

Jupiter,

Thanks for posting this excellent piece of info. I defnitely view this as positive news and a 'strike' against the LOP crowd.

[Amber Williams]

awesome find!! thanks!

[chevysmemaw]

Great Find!

Why are we happy about this? Please explain...I'm being sincere

[TimS]

now here we finally have some good info.....nice post but that's from 2009....it's got to be at least double that today based on exports and oil prices. but none of it matters unless that gov gets off it's arse and does something for their own people instead of themselves

[Deltori]

Good stuff thanks Jupitergirl

[Dalite]

Why are we happy about this? Please explain...I'm being sincere

Three Cents, as this IMF info indicates, or 6 cents as TimS suggests to show the improvements since the IMF data was compiled, even up to the Ten cent mark that Ali predicted before disappearing.

Any of those would be far more desirable to happen before a RD.

The CBI has the reserves to cover those amounts, without a lot of fancy footwork, and it would quickly draw in a lot of large bills.

It won't address the past inflation that added the zeros, but maybe Shabibi has another way to deal with that.

Anything north of a penny would make my day..

[jg167_mkII]

I don't see where yall are getting the 3 cents rate from. ~300 dinars per dollar would be 1/3 of a cent per dinar.

[zul]

Nice info Jupitergirl.

I wonder even more now....with the following info that their reserves is now 250 billion.

Iraq, the Iraqi Central Bank announced recently a plan to restructure the local currency by raising the level of the local currency and the development of new categories of paper.

He justified the appearance of the central bank adviser Mohammed Saleh, a move that the Iraqi dinar has suffered through two decades of significant deterioration.

Speaking of the island, Saleh said that the dinar is now behind a structure is not commensurate with the payments system in the country of Iraq, so it is in need of large currency transactions large and small need to exchange for small transactions.

He added that the value of the dinar is stabilizing, especially after the central bank reserves rose sharply and reached to nearly $ 250 billion, offset by the development in the country's oil exports.

LINK: http://aljazeera.net...543C77EF494.htm

[Darin]

Three Cents, as this IMF info indicates, or 6 cents as TimS suggests to show the improvements since the IMF data was compiled, even up to the Ten cent mark that Ali predicted before disappearing.

Any of those would be far more desirable to happen before a RD.

The CBI has the reserves to cover those amounts, without a lot of fancy footwork, and it would quickly draw in a lot of large bills.

It won't address the past inflation that added the zeros, but maybe Shabibi has another way to deal with that.

Anything north of a penny would make my day..

I wonder if the $0.03 was a middle-ground figure, a low-ball figure, or a best-case scenario.

A lot has happened as well since 2009

More investments

More exports

DFI fund release

More debts paid

Economic sanctions lifted

More trade agreements

I wonder if they have a target rate, and they're trying to get the supporting information to equate that target rate prior to R/V?

.... Just another theory.... But if this theory is correct, I wonder what they're target rate is??

[TFK]

I don't see where yall are getting the 3 cents rate from. ~300 dinars per dollar would be 1/3 of a cent per dinar.

Poster is right. 1 million dinar would be worth about $3,424.66

[Darin]

Looking at currency issued (In terms of US Value)

2007: 31.2 Billion

2008: 36.3 Billion

2009: 13.4 Billion

2010: 15.2 Billion

Total amongst the 4 years, 96.1 billion (In terms of the current exchange rate equates to 111.74 Trillion)

Those #s either must be re-circulated... Meaning, exchanged in & exchange out, or, drawing in worn-out bills for exchange of new.

Otherwise, that is quite a large # for a 4-year span....

Think anyone can clarify better on that?

[FrankenSLI]

Great research!! Thank you! It may not be 10,000% but it still shows gain!! GO RV!!!

[jg167_mkII]

Looking at currency issued (In terms of US Value)

2007: 31.2 Billion

2008: 36.3 Billion

2009: 13.4 Billion

2010: 15.2 Billion

Total amongst the 4 years, 96.1 billion (In terms of the current exchange rate equates to 111.74 Trillion)

Those #s either must be re-circulated... Meaning, exchanged in & exchange out, or, drawing in worn-out bills for exchange of new.

Otherwise, that is quite a large # for a 4-year span....

Think anyone can clarify better on that?

I don't understand it either. The CBI 2009 doc says 21T IQD was "issued" in 2008, so that doesn't quite match the 36B USD worth of dinar either, and in any case they do not show M2 increasing by 50% in 2008, so "issued" can not mean added to M2. Edited August 31, 2011 by jg167_mkII

[Dalite]

Looking at currency issued (In terms of US Value)

2007: 31.2 Billion

2008: 36.3 Billion

2009: 13.4 Billion

2010: 15.2 Billion

Total amongst the 4 years, 96.1 billion (In terms of the current exchange rate equates to 111.74 Trillion)

Those #s either must be re-circulated... Meaning, exchanged in & exchange out, or, drawing in worn-out bills for exchange of new.

Otherwise, that is quite a large # for a 4-year span....

Think anyone can clarify better on that?

I don't know, but I think that would include additional printing to replace "soiled" notes.

In a friend of a friend story, a reliable friend approached an EBay seller for direct purchase, after winning and completing an auction translation.

This seller had an association with one of the larger currency dealers, and they would sometimes combine capital for better purchasing power.

The average lifespan of a Note in heavy use, by their estimation, was 90 days.

I do not know if this is accurate or not, but Iraq is mainly a cash transaction economy. For that reason alone, I would believe currency would be replaced far more often than other economies that use more electronic funds transfer.

I think the 30 trillion seems to be a realistic circulation figure, but all we can do is take the CBI figures and go from there.

[Amber Williams]

do you guys think that this could be a low figure in the beginning and then theyll raise it maybe a week or two afterwards?

[Darin]

Life-span of 90-days???

Wow... I better not touch my IQD too frequently, it may wilter away into dust or something...

You would think they would have an urge to push for digital currency. Get faith in the banks..

Wonder how they'll do that??

[Nelg]

do you guys think that this could be a low figure in the beginning and then theyll raise it maybe a week or two afterwards?

If they do, the heavy hitting investors will own Iraq!

If it comes in at .03 you will have investors purchasing billions of dinar because they know it will go up. Even if it is a controlled float, which it will be, and it goes up just .03 every month for a year, it would be at .39. That's great profit!

[Realdinar]

If they do, the heavy hitting investors will own Iraq!

If it comes in at .03 you will have investors purchasing billions of dinar because they know it will go up. Even if it is a controlled float, which it will be, and it goes up just .03 every month for a year, it would be at .39. That's great profit!

Great point, also I wonder if Iraq will bring it up to .03 and just have it sit at .03 for like two or three years, they seem to not be in a hurry.

[jg167_mkII]

A rate of 300 dinars per dollar is $0.0033 dollars per dinar or 1/3 of a cent, not 3 cents. A rate of $0.03 USD per dinar would be 33.33 dinar per dollar, not ~300 dinars per dollar as the article mentioned.

A steady climb of the exchange rate seems unlikely to me since this would be a constant headache for the import/export business and would just invite speculators. My thinking is that Iraq will RV/RD to something around $1 and then grow the money supply to keep pace with their growing GDP and only make minor tweaks in the exchange rate.

Edited August 31, 2011 by jg167_mkII