KTFA:

Samson:  Which is the savior of the Iraqi economy ... internal or external financial diversification?

13th December, 2020

The consequences and effects of the past years of financial and economic mismanagement of Iraq are still continuing, and building the national economy on a single financial resource has increased these consequences as the rentier resources are directly affected by any crisis that may occur on the global level, as the black gold market is directly linked With political, security, health and other events, and oil prices are rapidly collapsing, as happened in 2020, when only a few days remained;

Oil prices plunged to about $ 10 in the middle of the year, and then stabilized between $ 30-35 per barrel. Here was the end of the beginning for the Iraqi economy.

The continuous fluctuation of crude oil prices has weakened the Iraqi government's ability to pay monthly salaries and ruling expenses and its resort to the internal borrowing law that the House of Representatives voted last month to pay monthly salaries until the beginning of next year, paralleled by parliamentary statements of the government’s inability to pay the salaries of January of next year due to the lack of Sending the government of Mustafa Al-Kazemi to the federal budget, where the House of Representatives says through the Finance Committee that "the draft budget, if it reaches parliament, needs 45 days to read and amend it, and then the parliament begins to vote on it."

Do we need loans?

Gold loans, which are long-term loans accompanied by easy payment facilities for the implementation of projects, the condition of productivity, but does the Iraqi economy need it at the present time and with the start of the new year or going to diversify the financial resources is better for the Iraqi economy?

Mazhar Muhammad Salih, the financial advisor to the prime minister, Mustafa Al-Kazemi, told Mawazine News that “real internal financial diversification remains the one who has priority, but going to external diversification such as sovereign wealth funds comes as savings that are difficult for the economy, especially rentier, to absorb them immediately in internal projects due to many obstacles." He attributed the reason for this to "the lack of absorption capacity, so diversification is taking place, meaning those surpluses or sovereign savings are being invested in flexible economies with advanced financial markets and strong activities that need financing, and profits when achieved are transferred to the local economy."

The need to diversify public debt instruments in a way that contributes to entering the wheel of investment, contributing to development, moving and maximizing the market capitalization, and withdrawing the mass of the public to be a partner in slimming its size and bridging its gap according to the assertions of economic researcher Ola Al-Tamimi to / Mawazine News /.

Al-Tamimi pointed out that "this matter requires the issuance of a new type of public debt bonds bearing the investment, development, not savings, character, because the Iraqi economy, according to Al-Tamimi today, is in need of a specialist in public debt to lead and draw up its policies in light of the successive governments’ pursuit of a single path in financing a gap. (Revenues / expenditures) are represented by resorting to domestic (government) and external borrowing and the first task assigned to this specialization is “diversification of public debt instruments.”

Salih parallels Al-Tamimi by responding to her opinion that “saving is definitely an investment tool and comes opposite to hoarding, which means a leakage in the income cycle and a weakening But the reality of saving that does not go to investment remains, which also leads to the so-called paradox of thrift, a society that enjoys surpluses, but they will be eroded with the passage of time due to weakness in their investment and their maximization, as is the case in our country today through the forms of hoarding and uninvested savings. Saleh added:

“Nevertheless, when the desired savings matches the desired investment, the saving equation will inevitably be shifted towards growth through investment financing.”

I have posted on this place how to create a government-sponsored development fund that can issue bonds to the public and create leverage that allocates its flows to investment projects for the private sector and not Change it, as Saleh says." Financial advisor that he can bondholder (and adds as a religion) that converts to the winner (shares as equity) in the fund converted bonds is called a hybrid method that works perhaps under Islamic Sukuk systems."

Case Allaigbn are prevalent in customer behavior as evidenced by the cash leakage money leakage Out of the banking system, from the cash issued to circulation, it lies 85% in the form of hoardings in the quarters of traders, investors and individuals in homes." This is due to the fear and uncertainty of political and economic conditions and policies volatile and loss of confidence in financial institutions and markets the risk of loss Awalkhosarh, confiscation and fraud."

Everyone's looking for certainty certainty and the availability of the certain guarantees in the recovery and avoid the risk of loss of liquid financial wealth with investments surrounded by doubts. After the trauma suffered by the economy The Iraqi government and the great tremor that the current government faced, there is no longer any excuse or room for procrastination by not setting effective policies and solutions.

The country's financial policy cannot be managed by the method of borrowing, and this method will make Iraq a bankrupt country in the event that the march is prolonged in this direction, as the central bank looms short "Sharp has started to affect the financial stock, and if that stock is exhausted, alarms will ring and then biting the windows will not help."   LINK

MilitiaMan:  More data to support they are gearing to go out to external markets with and international exchange rate.

They are moving to an external debt source of financing in where it creates more investments and creates more jobs for SMEs.

By doing so it will support the new market economy and with a better likelihood to be successful in doing so.

 Iraq has plenty of youths to fit the model.. imo This looks very good.. "Prices that return to normal?" Would that imply they are about ready to go back to the glory days?

They say they are going to delete the three zeros from the exchange rate or at least change it during this fiscal year. They also tell us the Dinar is to converge with the Dollar, too. 1:1 in country.  imo ! MM 

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"Association of Private Banks: The Central Bank supports small and medium enterprises" FA #486

He pointed out that "the Central Bank of Iraq has its tools in managing monetary policy, and at the present time there is great pressure on the dollar that led to its rise in the parallel market," expecting that "the central bank and during the coming period, will absorb this crisis, and prices return to normal

LINK

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"Given that developing countries are typically characterized
by an abundance of labour and therefore have comparative
advantages in labour-intensive sectors, promoting industries
and adopting technologies that are in line with a country’s
comparative advantage would lead to creation of more job
opportunities, rising wages, particularly for lower-wage
workers, and improvement in economic equality. Under such
a comparative-advantage-following (CAF) strategy, workers
would have more access to training and on-the-job learning
opportunities, which in turn helps to advance human capital
accumulation. Unlike the CAD strategy, the CAF strategy
has the additional advantage of not requiring Governments
to distort product and factor markets in order to support
otherwise non-viable firms. Without the distortions, small
and medium-sized enterprises have greater chances to
develop. Another advantage of the CAF strategy is that it
generally does not entail preferential loans, trade barriers,
currency intervention, and other policy measures that
are needed for supporting uncompetitive firms. Adoption
of such a strategy therefore results in more favourable
external balance and fiscal conditions, and hence better
macroeconomic stability"

https://www.un.org/development/desa/en/wp-content/uploads/2020/07/RECOVER_BETTER_0722-1.pdf

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FINAL ARTICLE #447

An economist calls for deleting the three zeros from the dinar to strengthen the local currency

November 30, 2020  

Economic expert Raad Twig called , the central bank to delete the three zeros from the dinar to strengthen the local currency.

Twig said: It is known that the monetary mass in circulation is about 60 trillion dinars, which is not available at the Central Bank of Iraq, the banks and the public, and it is a large monetary block compared to the economic transactions of the Iraqi economy and that a large proportion of this block suffers from compactness and therefore this does not help the Central Bank of Iraq in drawing a policy Effective cash calling on  the central bank to delete three zeros or gradual deletion of zeros to make the value of the dinar appear at a higher value and that the processes of evaluation and monetary balance will be formed quickly in the market economy. "

He added: The monetary mass can become approximately 15 to 25 trillion dinars, and the value of the new dinar converges to the value of the dollar, which facilitates the process of calculation and allows small and new denominations of cash to appear in the money market.   LINK