The value of the Iraqi currency and economic structural imbalances
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The value of the Iraqi currency
Economic imbalances and structural
D. Kamal Al-Basri and professor harmful Sbahi
Iraqi Institute for Economic Reform
The article seeks to study fluctuations in the value of the Iraqi currency and interpretation of structural imbalances and the weakness of the application of the vocabulary of good governance and other behavioral factors.
And concludes that the following factors may have led to increased demand for foreign currencies and a lack of supply: External political, and weak business environment, economic, and fiscal policy, and the lack of political and economic stability,
and weak capacity of local production, and the improvement in the rate of per capita income was a factor is the other, weak governance and the rule of law, and the decline of family remittances from abroad,
and the growing presence of money transfer companies and brokerage firms (parallel market), and the emergence of areas of trade at border crossing points.
Progress thanks to Dr. Ahmed Hamdi Husseini, for his participation in the preparation of this paper
The value of the Iraqi currency and economic structural imbalance
Article seeks to examine the value of the Iraqi currency fluctuations and interpreted structural imbalances and weak governance application vocabulary and other behavioral factors.
1. Structural imbalances
Derive the Iraqi currency recovered from the content of the economy, and it can not study the stability of the value of the currency away from addressing the economic reality.
Currently, the economy suffers from weakness in its components essential, and boils down to the reality of the Iraqi economy through the reflection in the components of GDP in 2011 accounting for the different sectors to the GDP as follows: Oil 54.74% and agriculture 4.15% and the industry was approximately 1.83% .... Etc. It is clear that the adoption of the Iraqi economy on the oil sector.
We have increased the value of gross domestic product at current prices from 53 499 to 211 310 000 000 Iraqi dinars for the period 2004-2011, for the same period increased the value of gross domestic product at current prices excluding oil from 22 691 to 95 822 Mlyardinar.
The problem is that when oil revenues are much bigger than the financial returns obtained from taxes, the government will usually have at their disposal a significant financial asset gain easy (not achieved at the expense of the financial resources of the citizens).
This phenomenon will be encouraged in the absence of democracy (in its fullest sense) to give the government ample space to act with public money are inefficient, and examples of this resort to governments to adopt:
1) economic policies sterile in its effects: represented an increase of salaries and wages away from the accounts of labor productivity, and expand in the creation
of employment for non-productive purposes, which caused them inflated prices,
and pursue a policy of supporting non-economic updated deformation in the structure of the economy and market indicators, and the trend towards spending unproductive political In essence, aims to connect the citizen power.
2) spending policies is economic: represented activities have no economic justification such as grants, aid, and open circles foreign diplomatic, cultural do not add real value to the economy or to the citizens, and this is at the expense of the areas of economic urgent relate to the dignity of the citizen.
A result of all the foregoing, the private sector in these countries enjoy the presence of a weak and marginal, because it does not enjoy the support (as is the case in the public sector), which is concentrated in the areas of economic and commercial service.
The absence of the real role of the private sector means the absence of creativity and speed of adaptation to the needs of the market and provide workers outside the framework of the public sector.
The uniqueness of the public sector production and the absence of private sector competition lead to the continued deterioration of the efficiency of the production of public sector infrastructure to require government intervention and the protection of the public sector through financial support and protection of customs policy (currently the rate of annual subsidy of $ 3 billion).
Thus, the government is working to protect the productivity of inert institutions at the expense of the citizen who finds unchanged obliged to buy goods or services at a higher price and the quality is poor.
This usually sacrifice and also emphasizes global experiences do not lead in the short term and do not run to the improved performance and efficiency of the production of the public sector.
The absence of a political role of the private sector to prevent citizens earners and salaried employees of the government belonging to the directions of the government, and undoubtedly it would affect the independence of the individual from the government and then the breadth yard independent civil society organizations.
The government's move in those contexts leads ultimately to split into two factions citizens of different users, and others.
Because of limited job opportunities that can be created by the public sector, the government seeks to create jobs by strengthening the role of the security by increasing the number of employees of the police and army and take advantage of the surplus cash in the purchase of arms and military equipment.
That encourages the growth of military capabilities to deal with internal disputes and external militarily, and then pre-empt any signs of growth and development in absolute terms.
On the other hand the adoption of oil revenues on the price of oil to the global market presents economies of those countries to the waves of the tide, which is reflected by the sharp fluctuations in oil revenues (as Invert in planning the federal budget from 2008 to 2009.
Finally, the oil revenues of the States usually benefit including the cities over the countryside, and this is what causes the case of migration from the countryside to the city, but no doubt that this migration is usually in short period of time resulting in bottlenecks sharp due to insufficient supply of services in relation to demand and to the social and economic problems are multiple.
and Aaktefi the impact of this case on the level of services available in the city for more than a weak contribution of the countryside in the agricultural and livestock production and for changes in the fertility of the land and which lead to heavy losses.
fact, what progress we can find him credibility in the Iraqi economy, especially during the period of time 1968 - 2003, no doubt that the effects of these policies and nature has not changed radically, because of the political pressure and the menu reflected the weakness of political will for change.
2. The market value of the Iraqi currency
Released in 1930, the first law by issuing a special Iraqi dinar as the currency, and in 1932 was the issuance of the Iraqi dinar and the dinar = 3.3 pound sterling, In 1958, the dinar has been disengagement with the pound was linked to the U.S. dollar on the basis of the dinar = 3.3 U.S. dollars.
During the period from 1932 up to 1990 have been issued emissivity of 12 dinars, and after 1990 were printed in the local currency printing presses Mesopotamia and multi-exchange rate, and after 2003 were printed issuing new currencies of the dinar, and became a floating exchange rate throughout.
Figure (1) illustrates the exchange rate of the Iraqi dinar against the U.S. dollar at the official central bank (currency auction) and in the parallel market (the local exchange market) for the period from January 2011 to February 2013.
Source: Central Bank of Iraq
Is the local currency is part of the sovereignty of the state and so are reflecting the amount of economic well-being, and plays the exchange rate played an important role in the economic activities of the States, whether that activity commercially or investment, where occupies the exchange rate hub in monetary policy, where it can be used as a target or a tool,
a as well as an indication of the competitive state of the components through its impact on economic growth, such as investment and the degree of openness to international trade and capital flows, and the evolution of the financial sector.
And knows the exchange rate: the ratio is obtained on the basis of foreign exchange swap national currencies. The exchange rate is determined according to the law of supply and demand, the more the demand, the price of the currency and the lower the demand for less price.
There are two types of drainage systems used by States to determine the value of its currency:
Fixed exchange systems: are installed currency exchange rate either to a single currency is characterized by certain specifications Kalqoh and stability.
Or to a basket of currencies from key trading partners currencies, currencies or constituent unit of Special Drawing Rights, or Althmnah metals such as gold and silver.
Flexible exchange systems: characterized by its flexibility and usability of the amendment on the basis of certain criteria, such as economic indicators.
The tracking system floating-orbit state where the authorities to modify the frequency of exchange rates on the basis of the level of its reserve of foreign currencies and gold.
Or use the free float, which allows for the value of the currency to change up and down according to the market, this system allows for the economic policies liberation from the constraints of the exchange rate.
Itathersar exchange first measures the central bank which represents the key management in the state to identify and manage monetary policy so as to contribute to the achievement of economic goals that are looking her state,
and secondly commercial banks and money transfer companies where intervene in the market to execute the orders of their clients or for its own account,
where these centers collect customers and their orders Palmqasat banking, and thirdly brokerage firms and brokers who are active are compiled Omer purchase or sale of hard currency for the benefit of several banks or other traders away from transparency.
Factors affecting the currency in Iraq
Recently and over the past few months, decreased the value of the Iraqi dinar against foreign currencies, reaching in some cases the market Parallel 1300 dinars per dollar after it was stable at the rate of 1185 dinars per dollar,
despite the stability of the sales price of the central bank's 1166 dinars with a commission of 13 dinars for transfers any 1179 dinars and 1171 dinars to the sale of the cash and this indicated a high demand for the dollar in the domestic market and that the following factors:
• 1 - External factors: formed a political and economic crises in neighboring countries (Syria and Iran) and embodied in need of these countries to the U.S. currency and foreign currencies.
Who got the local currency is low in those countries and reflected down the price of exports to Iraq, and create windows to attract dollar from Iraq to these countries through transactions alluring to the Iraqis and the same time a source of hard currency to the Iranians and the Syrians.
On the other hand there are social cohesion and family with these countries may also be a port to exit the dollar but it is difficult to predict Bmekdarh.
• 2 - Business Environment Economic represented the result of factors that lead to the escape of domestic capital and the decline of foreign investors, including political instability and the absence of the rule of law in economic transactions.
There is no doubt that the time period that followed the 2008 has seen an improvement in the security situation and then in the inflation rate in the exchange rate. However, the economic environment is still repellent acts do not encourage project planning medium or long term.
Which led to limited activities on some business and commercial projects yielding profit fast, but I doubt that the percentage of it turning to states last to suffer from the scarcity of liquidity resulting from the impact of the financial crisis that began in late 2008 (was ranked Iraq 165 of 183 countries in 2012)
• 3 - fiscal policy: Previous years have seen high rates of government spending at rates greater than any other country in the world (increased public spending of 34.6 trillion dinars in 2004 to 117.1 trillion dinars in 2012) and most of the pictures is consumer spending,
leading to a rise in spending the outside world (travel, medical services and seminars, and the importation of goods and investments in real estate projects, etc.), as well as led to the rise in the net of the Iraqi currency traded to $ 36 trillion dinars in 2013,
raising the demand for foreign currency, where the value of imports of Iraqi 37.3027 billion dollars in 2010 to 40.6325 billion dollars in 2011 at a rate of change was 8.9%.
• 4 - double the tax policies: and also include the non-application of the customs tariff law and, of course, which result in flooding the market with goods and services payable to the dollar in most cases.
Also, twice as efficient collection of dues check multiplicative ensures additional profits may find their way because of the weakness of bank credit to the Iraqi Authority dollars abroad.
• 5 - political and economic stability: Because that Iraq states touted as a phase transition, and the political and economic stability, we find the percentage of individuals held accounts in foreign banks abroad tend to be of high-ranking officials and wealthy, and increasingly these transfers directly proportional to the rise in oil revenues.
• 6 - double the capacity of local production: the improvement in the rate of per capita income of 1670 dollars to 5400 dollars looking for it to initiate more in terms of quantity and quality.
This factor is reflected in the market through external spending on the import of machinery and new materials or through increased spending on consumer goods overseas.
• 7 - weak governance and the rule of law: it embodies Bagr public money, corruption, and an example to determine estimates for projects with more than their real value, of course, lead and raise the pace of transforming the Iraqi dinar to the dollar.
• 8 - family remittance from abroad: in previous years, there was a significant proportion of the family remittance from abroad are to the inside and on the effect of improvement in the rate of per capita income, but the Iraqi These remittances have now eased to significant extents.
• 9 - money transfer companies and brokerage firms (parallel market): The presence of these companies are encouraged to engage in foreign remittances of cash and which are assets of the pressure on the dollar and was the first to adopt transfers documentary.
• 10 - the low incomes of non-oil foreign currencies due to lower grants and international aid for reconstruction and the decline in the U.S. presence in Iraq Akhas.
• 11 - areas of trade at border crossing points: that the presence of these areas encouraged to pay cash in dollars directly at the border points of contact, thus leading to a high demand direct on the dollar.
Recommendations
That what is happening in the deformation of the structure of the Iraqi economy is a foregone conclusion for the rentier economic policy, is not expected to control the extent of this distortion near.
As the institutional work requires the application of the vocabulary of the adoption of good governance competencies, strategic vision, a sense of responsibility, transparency, ensuring the rule of law, participation and ensure the unanimous acceptance and equality which targets can not be achieved in the near term as well.
Generally the solutions in the monetary policy requires a long time to achieve the desired results, and based on the factors affecting the local currency in Iraq, we find it necessary to divide the solutions and procedures into two parts:
Quick fixes (short-term):
• 1 - to reduce pumping hard currency (cash sales) in the central bank auction and increase the adoption of foreign remittances.
• 2 - to increase cash sales price at auction for the equivalent of central bank selling price in the auction of foreign remittances in order to cancel the profit realized because of the difference between the two rates.
• 3 - buy and sell foreign currency for remittance companies and financial firms to mediate done by licensed banks in Iraq with the aim of reducing the non-compliant transactions of the conditions and procedures adopted.
• 4 - forcing traders and dealers in the areas of trade exchange between Iraq and neighboring countries to deal transfer and financial letters of credit instead of cash purchase.
• 5 - commitment to a transparent auction information and cash transfers and the development of an electronic information system.
Radical solutions (long-term):
• 1 - Review the financial policy of the state and reduce inflation in operational spending.
• 2 - need to speed up plans for banking reform measures in order to facilitate the exchange of the cash.
• 3 - to improve the tax code and work to expand horizontally while reducing tax evasion.
• 4 - activation of the customs tariff law because of its important role in providing incentives for producers with economic advantage, leading to a reduction in the volume of imports as well as improved operating revenues.
• 5 - to improve the business environment in order to raise the economic efficiency of production for companies and institutions of local production that would reduce the imports and increase the intake of foreign currency through exports as well as attract foreign investment.
• 6 - the use of modern electronic mechanisms in the distribution of salaries and the use of banking instruments and encourage savings.
• 7 - can issue a new currency or deletion of zeros from the current currency to have a positive psychological effects on the local currency dealers.
D. Kamal Al-Basri
http://www.albabelyia.net/?p=5959