Iraq's current monetary crisis: bubbles or fleeting appearance of a deeper economic crisis?
Iraq's current monetary crisis: bubbles or fleeting appearance of a deeper economic crisis?
On: Sun 05/13/2012 14:16
Karim Mustafa / Iraqi economic
Crisis has highlighted the current exchange rate and the need for a short pause to reflect on the conditions of the Iraqi economy. There is no doubt that the monetary crisis is a reflection of explicit crisis experienced by the overall economy memorandum imbalances structural deep. That Altekz to external causes (smuggling hard currency to Iran, Syria and others) is not sufficient in itself to interpretation, although his health partially, and in this regard, we note that the attacks foreign-oriented areas soft and porous, but why not go on offense to other markets such as markets saturated with hard currency Gulf?
As these markets and their economies stable organization to a large extent, the slumbering soft-oriented economy and the market is organized, and in this case is the Iraqi market is the target.
Therefore, it is necessary, refer to the most important structural imbalances suffered by the Iraqi economy. And the need to refer to it lies in the interpretation based on the processors Bmdyatea short, long-term.
1 - the real economy crisis, this sector has stagnated since 1991, influenced by the devastating effects of war and economic blockade. And the fact that the government sector was the dominant influence of these factors were very large did not witness any development of the two types of government activity, but only a limited effort on the purpose of maintenance. The private sector continued Vachttmarath was marginal also has not seen a remarkable development. Exacerbated after 2003 as the government sectors are broken down almost completely and moved toward Alastosmara private profit is the fastest and front-commerce. Reflected on the volume of domestic production and employment.
2 - the deterioration of the agricultural sector and especially after 2003.
3 - result as stated in the points above and to coincide with increased fulcrum of the Iraqi economy on oil exports as a source hardly be lonely for the provision of foreign exchange and transformation of the economy (the Iraqi society) to yield economy progressively enhanced with distinction continuous rise of oil prices.
4 - the rule of consumerism in the society and its transformation on the consumption of excessive and Tbaziri compensation for the disadvantaged situation before 2003 and the rule of view seek to offset the consumption patterns Gulf, European and as quickly as without the link is supposed evolution of the real sector and in a gradual and again he was a reflection of the economy of rent-seeking.
5 - disturbance of trade is probably not seen any economy another example, even a statistically sheer facing the development of administrative controls leave with import fierce resistance at all levels, not to mention import duties lax too. And careless, enhanced the trend towards excessive consumption. In the absence of export activity ( excluding oil) based on the deterioration of the real sector, reinforced by the rule of the pattern of rentier economy.
6 - chaos fiscal and monetary: this is not something novel, but that the previous government and from its understanding that the country was owned by a purely have not been a budget to any serious discussion and expenditures were made according to the desire and recommendations (Leader = planned) without considerations of sound economic and without any room for discussion . The monetary sector Vostend to let market forces determine the exchange rate. After 2003, despite the adoption of the budget discussion and approval within the framework of the parliament continued to exchange outside of the budget and very large amounts (see the statements that Chalabi has not been denied) has not been to our knowledge to provide the final accounts for many years. Adoption of the budget deficit continued to clear without serious question and the search for the fate of retained surpluses in the sense that Almizaineh acknowledges a deficit in the end is called a surplus, and the important question of what is over and where the surplus went this surplus and its impact on economic activity ... Etc.. In the monetary area, and despite the relentless pursuit of the Central Bank, the continued proliferation of offices and shops, money exchange without any deterrent or an officer and a proliferation of private banks to some extent questionable and continued to finance the import outside frames banking and the greater the face of capital flight, and others.
7 - other sectors linked to the economic situation is in crisis, for example Mstasalh recall rashly Alterbahwaltalim sector of higher research and development, the scale of values, community infrastructure, the problem of water, housing .... etc..
As for the economic policy which is supposed to be starting to perceive imbalances and then seek to address them we note that the perceived fundamental, and perhaps only, is the rejection of a planned economy and a shift towards a free economy, and in that the negligence is clear of the fact recognized by all the deterioration of the Iraqi economy over 3 decades, requires treatment. and looked at the policies of the transition to a free economy as if the only sling and adjusted for any imbalance (we recall here the visions Friedman cash), ignoring the economics of growth.
Each successful experiences after World War II was based on two basic branch, including policies and programs. The first is to develop insights overview of the community wants, anywhere he wants under the sun, is only the role of the affected mother wants to be an active participant, you wanted to be educated their property to the corner of science and technology or remain in the oppression of ignorance, do you want to turn into the industrial society developed or remain an agricultural community, do you support balanced growth or balanced growth, do you support the strong push, do you develop alternative energy sources or remain dependent on oil refineries, and many others. A whole (vision) of what should be the community, some call it the national feeling or national, or challenge, or a sense of pride, or Orientalism and future planning, the vision is simply the sum of all these concepts.
The second thing is the role of the state, unlike the sheep (laissez-faire, let him pass) and classical neutrality of the alleged of the state, did not originate capitalism only in the embrace of the welfare state and directed the garrison has been established capital accumulation first, but conquests and colonialism led by the (state). Apart from this intellectual luxury not seen the historical development experience in his only state-sponsored and active role, whether direct investment and / or router. It has become recognized in the literature of the International Monetary Fund and a lot of intellectuals (Sitaglz and school Alkinsah in general) that the state has a role hardly be decisive not only in developing economies but also in the global economy as a whole, without breaking down the capitalist system and exposed to the crisis of devastating and likely without him to keep a developing country on the recession .
Notable examples of the impact of these factors and their role in the success of developmental experiences point to Japan, China, Korea, Malaysia, Singapore, India, Brazil was launched in the last experiment and even Dubai.
Back to the economic policy in Iraq
Nacher, starting to the absence of (the vision) and the guiding directed and as mentioned I understand (the vision) as a transition to a market economy and neglected everything else and concluded (wrongly) that the role of the state should be neutral and limited intervention in the areas of disgruntlement. Not Nhz opportunities to sit together to discuss our vision for the future Iraq.
Had a justification is possible to understand in the first years of Maaldja where accumulations of the past and the state's involvement in fighting the scourge of terrorism and sectarianism and promote national peace. But that is no longer a concept, especially after the dwindling terrorist threats and reverse the risk of sectarian strife.
Understanding of the business it's own way and considered creative chaos develops initial capital accumulation (read rapid enrichment regardless of any moral standard) and achieved impressive successes, a few of them and a limited range also represents a creative effort, while the majority Vagmeh for unrestrained commerce to mention corruption.
Become a state servant to venture capital and runaway instead of becoming a servant to the creative capital and creative Almnumei of national wealth and employment for the binoculars.
Reflected in the fiscal policy concentrated primarily on operational expenditure, especially government employment, and again had a concept of justification to attract unemployed and lift them out of temptation, crime and terrorism, but for how long? State can not continue employment is not required nor possible.
We have not seen so far, the best of my knowledge, that is a real project that most of the wealth and employment, but that the productive sector owned by the state has suffered from neglect led to the deliberate stopped working capital, although its facilities in good condition or can be rehabilitated. So far there is no plan for what we want from the projects this year and what we want in the coming year, and so in other words do not have five-year plans because of the absence or decimal (the vision).
Although the budgets of previous years have included a deficit of "catalytic" as it is understood Keynesian, the impact on the real economy was very limited for various reasons, notably the failure to achieve the spending plan, the inflexibility of the productive sector not only because of the lack of energy surplus, but because of external factors such as security and the lack of energy Electrical and rising local wages, etc., and also because of the extremely high marginal propensity to import associated with high value of the dinar against the dollar, which leads us to monetary policy.
Based on the strategy of the State, means the monetary policy by providing the appropriate environment to achieve economic goals envisaged through the monetary instruments accepted. In order to lead the Central Bank of the desired role away from volatility and narrow political fancies, dating to give him the independence from the executive branch of the state. Thus, the business sector and plans to build expectations and behavior based on the monetary policy is known and stable, and hopes that the central unable to address the imbalances of timely and predictable manner and ensure that his work (effectively and efficiently).
Faced Central since 2003, significant challenges and serious was mainly with the problem of accumulated debts of Iraq, relationship with international institutions, the relationship with international banks, organization and development of the domestic banking system, replace the currency, control of the exchange rate, to respond to the requirements of the new economic policy and the transition to market economy. This Almhamchklt a significant burden on a central, but he faced bravely and succeeded in the exam in general, despite hiccups here or there.
Auction currency form the cornerstone of the work on the stability of the dinar exchange rate, but quietly and towards the development of continuous improvement towards the dinar to be arrived at the current price (1166 dinars / dollars) and this policy was considered a means of curbing inflationary forces.
Met with an auction currency generally accepted, especially by employees of any owners of limited income as long as the purchasing power of their salaries go up constantly as well as the acceptance of business / importers for obvious reasons, but the production sector has been affected negatively to this policy which is no longer able to compete with imported goods which have their producers produce the best conditions.
Also affected the state budget, as the state must spend a larger amount of hard currency for the same amount of the Iraqi dinar and coincided with the rise in operating expenses are rising, which led to the continuation of deficit financing is not as a policy blueprint, but the result of the status quo with reference to the size of the deficit would have been higher if not rise in oil prices and rising production.
Although this policy is consistent with the recommendations of the International Monetary Fund, but it seemed desirable for the government to please the general public under the conditions of political and social inflamed.
Continuation of this policy has strengthened consumer trends in Iraqi society and thwarted investment in the real sector and the economy faced a situation where a real Rcodaa did not provide the government sector to rehabilitate productivity sectors did not provide a qualitatively distinct new investments and the minimum and the private productive sector shrank.
This coincided with the continuing chaos in the exchange market, ie mainly by private banks and banking offices where there are hundreds of offices is approved that do not keep any records are not subject to any controls or any control, which led to the continuation of capital flight abroad.
It seems that the prevailing idea behind raising the value of the dinar is the balance of payments surplus driven by high oil prices without regard to the exclusion of the oil sector will show a huge deficit in the mezzanine of trade and payments will show to what extent Asstrae the recession in the real sector.
We can say that this is no longer acceptable angle of macroeconomic analysis and leave deep scars and an escalating over a long time. The productive sector should be re-active and can not be in the light of the high exchange rates of the dinar.
Continuation of this trend will increase the pressure on the central reserves is necessary and ensure the economy as a whole is no doubt that betting on a continued increase in oil revenues represent the consecration of the rentier nature of the economy also increases the risk of heart in case of emergence of new trends in energy markets.
There is no doubt that the increasing integration of the Iraqi economy to the global economy increases the exposure and makes it his presentation of the speculation and crises and the current crisis index only what you can do international speculation and speculation on the recall here Sterling led by the individual (George Soros) and speculation that hit the Asian tigers.
The objectives of the central (to stabilize domestic prices, maintaining the financial system fixed (f) promote development and job creation and prosperity) and seems to be the central activation of the second part of the objectives and play a bigger role in guiding advice and guidance to the Government as this part no matter altogether.
We believe that the current exchange rate is high and the Iraqi dinar denominated in more than its true value, but the opposite direction will face resistance and opposition Shididtan by the citizens, importers and can therefore understand on offense severe central bank and its cadres after the high price of the dollar in the market is no doubt that the reflections and speculations political.
Starting to admit that this fact should be translated into policies, as well as corrective information campaign centered and wide to demonstrate the expected effect of reducing the exchange rate on domestic production and employment and therefore can and must be accompanied by fiscal policy and the commercial backer of the domestic production.
There is no doubt that the public, if the touch and is convinced of the benefits of the new policy will reduce the opposition, particularly if it is satisfied that the reduction will impact positively on employment.
Starting and we believe the need to identify the exchange rate and higher than the average price announced by the central and defend it and then be quiet trend to a more radical modification.
This treatment of immediate and Maissahabha regulation of import and foreign exchange market and the other will not bear fruit in the long run, but radically passage of a comprehensive national vision of the Iraqi economy.
We can Nacher that (the problem of the real economy recession) clearly aware of the most prominent researchers before the central bank (see the studies published on the Bank) and that there are analytic approaches and treatments solid proposal worthy of consideration. It is unfortunate that these analytic approaches do not reflect the opinion or policies of the Central, but reflect only the perspective of researchers.
The publication of studies on the central site indicates the presence of internal convictions of the need for reform, but not translated into (policies) applied pressure indicates the presence of a stronger central prevent it.
Claim that the Western view and its institutions like the IMF in particular, tend to handle and recycle surplus cash and re pumped into the economies of European and U.S. to address the crisis and recessionary conditions of the economies of the world's first. Any economic zone (or country) succeed in the formation of economic surplus means the other hand the growing trade deficit in another place (America basically and Western Europe in general), which requires work to absorb the surplus through trade policies and / or cash - financial, or wars and local conflicts.
From here we remember dates Asian knees, continuous and increasing pressure on China to revalue its currency, flooding the markets of the Gulf of weapons and consumer goods, entertainment, and multiple wars of the Middle East ... etc..
As long as the resources of Iraq have been much greater after 2003 and in the absence (Revelation) sound economic reform - Social is the duty of international institutions is to impose trade policies - cash works to redirect the surplus and absorbed not only in the short term any absorption of the surplus now, but seek to consolidate the policies commercial - cash to absorb future cash surpluses through the deepening nature of rent-seeking - the consumer of the Iraqi economy.
Consensus is the absence of leadership-Margaret Thatcher
Concentrated power has always been the enemy of liberty.