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Central Bank reserves and surplus State budget and coordination required

Date: Thursday, 26-04-2012 12: 21 am
Dr. Abbas Fadel Mehdi
Iraqi economists network


Whirlwind media have raised attempting to enter the Prime Minister's Office in details the work and functions of the Central Bank to increase speculation on dinar.

And which contributed to heightened speculation is scientifically unjustified remarks and one economist close to statistically Prime Minister about the need for foreign exchange reserves deductible, regardless of whether or not the possibilities of constitutional, legal and economic angles.

Such statements are considered in content, timing and outgoing references close to encourage speculators to bet on the deterioration of the exchange rate and lead them to more speculation, and this regardless of the role of States bordering Iraq to sell dinar to buy the dollar within the Iraqi market.

That a Central Bank to his current professional financial stability policy for Iraq by reducing essential for external debt saddled the Iraqi economy in the deposed regime, which the Central Bank has been able, through coordination with the Ministry of finance, external debt reduction to Iraq from about 220% in 2006 to what is estimated at about 37% only 2011 is one of the great achievements that monetary policy through professional management in the Central Bank.


The success of the policy of the Bank in currency stability through the stabilization of the exchange rate and maintain the transparent management of foreign currency reserve and sent confidence in cash position and achieve an acceptable degree of economic stability after years of hyperinflation which crush capacity purchasing power of Iraqis in previous years did not conform and attempts and tireless weaken the role of Central Bank monetary policy.

And animate as practised in economies economic nearly 20 countries under my previous international advisers in United Nations development planning that such attitudes aimed at weakening the role of the Central Bank to become catalysts for our national currency speculators to buy dollars and sell dinar, and is the opposite of what we want our esteemed Prime Minister at this critical stage.

Secondly, it must be noted here within this context that the reserve estimates as Iraqi IMF report issued in March 2011 were not exceeding 7.5 months of imports of goods and services 2011. And expectations of the report of the International Monetary Fund reserve ratio down to the number of months of import to 6.9 month in 2012.


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I thank fellow Iraqi economists network Dr. Walid khaddouri and Dr. Ali Mirza for their remarks on the origin of this paper value sent to colleagues in the network of economists Iraqis on 14 April 2012.

IMF – Second Review Under the Stand-By Arrangement, Request for Waiver of Applicability, Extension of the Arrangement, and Rephasing of Access, March 4, 2011, Table 10, p.25

The same source above, Table 7, p.22

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Despite the prospect of high volume up more than the expectations of the International Monetary Fund in its report referred, but such figures do not indicate the magnitude of the reserve in comparison with the size of the economy depends on oil import mainly for hard currency, it is potential cyclical economy threatened by decreases in oil prices as well as problems and threats to close the Strait of Hormuz if things are more strained between neighboring Iran and the United States.


Brent prices have fallen over the past few weeks from approximately 128 dollars per barrel to about $120,000, which requires caution, it can lead to worsening of the financial and economic crisis the euro zone expectations for international speculators bearish oil markets could lead to noticeable decline other prices on the international level.

As is known, the hard currency Iraq outcome is a function of export prices and quantities, and therefore the budgets of the State and the stability of the Iraqi dinar will require a prudent balance between economic policy imperatives of expansion in investment spending and stimulate production and demand for productive employment and maintaining price stability (dinar).

It must be noted here that the frequent allusions to the large reserve to Iraq ill-conceived references from some economists to quantify as Hafidh wrote nearly two months ago in his Institute magazine "dialogue" and entitled "what about backup ”?


In addition to Mr. Abdul Hussein Al-Anbuge article a few days ago on the subject has become the political arm impact on trends in the country's Central Bank to weaken the role of the Iraqi economy requires higher reserve ratio to imports to 15 months as a minimum.

Thirdly, the colleague Dr. Ali Mirza in written intervention within the Iraqi economists network to higher probability of a "genuine surplus accrued" to the Ministry of finance as a result of not spending allocated prior years even though budgets had planned deficit.


This actual state budget surplus (no programmer) was known and anticipated at this stage where oil revenues and prices much higher than assumed by the financial budget for 2011 has already Dr Hussain Shahristani and referred in a statement to the marked increase in oil prices over the past year, the Iraqi source.

There is no doubt that the history of fluctuations in world oil prices should become a catalyst for caution, what may be a fiscal deficit in the year or another year of surplus may turn to reverse.

Thus, a surplus of Mali actual 2011 budget (not projected), webaghalb event also accumulated a surplus of Mali from previous years ' budgets should limit calls from some ill-advised use of Central Bank reserves, but we demand of national economy Affairs officials to improve the management and professional and efficient public sector spending and investment and solve basic constraints that bound breakthrough industrial and agricultural activities with significant impact on the operation of the unemployed. It must be noted here, that the Bank's success

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Have agreed with me on this for Dr. Ali Mirza when our cured for this command.

In a television debate a few days before Iraqi channel, one of the gentlemen of Deputies was excited to invest European real estate reserve owing to higher dividends over the past 20 years, which reflect a lack of knowledge of the backup job.

The Central Bank reserves primary function is to maintain exchange rate stability and financing imports when financial crises, which require investment of up to tovirakber degree of liquidity of the economy in crisis, solutions and this should be left to the Central Bank and specialized departments as a result of long experience in this area.

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Inflation reduction Central as measured by the index of consumer prices from 27% in 2004 to around 5.5% in 2011 and the relative stability of the dinar are the few successes for economic policy in Iraq after 2003, which were mostly inclined to many flop due to poor financial management agencies, planning and follow-up of implementation of programmes and lack of professional capacity required.


Therefore, if there is a significant surplus in the General State budget, actual, and the Central Bank of the leading legal and constitutional background to achieve an acceptable degree of price stability (dinar), we need to ask here:


(1) does the influential advisers advised gentlemen Mr. Prime scientifically substantiated advice about the necessity and possibility of figures and the results of the use of this reserve, particularly in the light of the cumulative surplus in the General State budget and approved by the House?


(2) whether these admonitions, a weak scientific and statistical evidence, for the benefit of the national economy and to Mr. Prime or creator of the institutional and economic problems without objective justification?!


(3) to Iraqi dinar exchange rate has fallen against the dollar after the crisis emerged to the surface and prompted speculators to buy the dollar?


(4) only cost the earthquake brought about by such interventions which hit the dinar by rise in the prices of imported foodstuffs has especially if the continued climate of instability about money monetary policy in the country and the Government's intention to dispose of this reserve, which showed these enticements and articles some advisers limited experience with the market economy and its interactions?


(5) hwalhagm optimization for backup so that the Monetary Authority to maintain the exchange rate of the dinar, degradation and remembered as Iraqis were still alive when the excesses of the financial authorities to reserve and print criticism without objective criteria to the collapse of the exchange rate to about 3,000 dinars dinar?


(6) you forgot to use the ' gentlemen on reserve by the Government — despite a surplus in its budget of last year — involving such policies under the former regime on society of inflation spiral crush Central and poor classes incomes? You forgot the high index of consumer prices (b 235% p.a. on prices


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Figure calculated from the data consumer price indexes as published by the CSO website. See http://www.cosit.gov.iq

Same ibid

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Fixed to 1993) from 6.3 in 1990 to 2672.9 in 1995 when state money were printed without controls and Mall of Hussein Kamel (ignorance in Economic Affairs) create a bridge in Baghdad floors "with 2 tons of paper" what is common and rolling?


(7) these gentlemen forgot amid enthusiasm "bullish" to justify the use of reserve scourges, which towed it government monetary policy interventions and the resulting high price index for foodstuffs from 5.1 in 1990 to 3167.4 in 1995 (in constant prices of 1993), i.e. that all citizens food prices doubled during half time 621 decade devastating time?


(8) and last but not least, if the honorable gentlemen seek "greater coordination between monetary policy and other correctly and look for careless disposal of Iraqi currency reserve, Vallès them best start first (the same enthusiasm) the revitalization of the work of the private sector and investments and operating it?


Not worth a sector of agriculture, industry and develop the same foot moral (which attempted to they show him finally) when you stand before the interests of "lobby" which contributed to disable tariff act after its release last year?

Alice directing concerns about accelerated tariff activation code for better precision on the Iraqi economy resources that havdat exchange rate from acute deterioration?

Wouldn't it be tariff activation code provided for protection for manufacturers of Iraq and its farmers and stimulating productive activity, which will create many opportunities of productive jobs for the unemployed?

Wouldn't it be running expanding industry and agriculture as a result of the required protection of the most important tools for combating poverty and achieving social and political stability in Iraq?

Therefore, this calls for monetary policy attenuation and weaken its credibility, an ancient Foundation and high transparency through the confidence gained in the home as well as dealers dealers and international institutions abroad, leading to one of the few successes in comparison with the rest of the Iraqi economic management?


Do it all to seize the country's cash reserve capabilities which will attenuate the economic stability and deterioration in the confidence of internal and external monetary and financial reputation Iraq?

Are all acceptable, SIRS, cram, and in the possession of the Ministry of finance will appoint a Cabinet surpluses accumulated in the current deficit (diagram not actual) in 2012 and possibly both or part of future deficits?!!

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Same ibid


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