The central bank's strategy and the possibility of a course correction

The central bank's strategy and the possibility of a course correction

Dr.. Haider Hussain Al Tohme 104 2016-03-19

Center for Strategic Studies

Rely on the recovery of oil prices in the global markets to provide funding for the budget and the economy is fragile pillar threaten the overall economic activities in Iraq, especially with the harbingers of recession global economy and weak expectations about the return of prices to levels before breaking down under the continuous dumping of oil markets.

The continued price fall in oil prices to double burdens on the national economy, in conjunction with multiple internal burdens, the most important security and political turmoil. However, the adoption of prudent economic policies have turned challenges into opportunities to restructure the economy and break away from the rentier model of growth for the benefit of the diversification of the productive base and promote economic growth and stability and sustained.

It is the responsibility of monetary institution in Iraq is very dangerous and complex strategic task, begin to find alternative outlets for external financing, without affecting the price stability that the country witnessed in years. The monetary authority as practiced other pivotal roles, the most important building developed financial and banking system and sound acts as a bridge financing, investment and enhance the stability and growth of the overall economy.

In the context, the Central Bank of Iraq has recently adopted a new framework and a contemporary of the direction of monetary policy over the years (2016-2020) through the adoption of effective strategies include urgent solutions and other medium and long-term aims to establish the confidence of the Iraqi economy and provide possibilities for economic advancement and overcome the current financial crisis. Control strategy have been derived from the revelation of public policy of the state aimed at building a free market-based principles of competition and enable the private sector to play a role in economic development based economy.

The main features of the strategy of the central bank

Disclose the central bank's strategy for a new approach in the conduct of monetary policy operates within the framework of stimulating the economy and strengthen the financial and monetary stability so as to ensure the prosperity of the Iraqi society and supports the advancement and upgrading the financial sector in general and the banking system in particular, to provide outstanding banking services by focusing on creating a sound infrastructure and strong, commensurate with that seen in the current phase of challenges, according to a strategic perspective reflects the vision and aspirations of the Central Bank in the medium and long term.

And generally can be summed up the most important features of the main objectives upon which the new strategy, and follows ([1]):

- Adjust the money supply through the structuring of interest rates and reduce the role of the exchange rate to sterilize liquidity operations.

- Microfinance medium and funding support to enhance the dynamic sector of small and medium enterprises as they represent a major force driving the national economy, generating employment opportunities.

- Development and introduction of control systems and payments systems operate as tools to enhance the durability and stability of the banking system.

- Promote financial inclusion thoughtfully through improving the access of banking services to all segments of Iraqi society, and to provide the necessary infrastructure, and dissemination of financial and banking culture.

- Expanding the scope of prudential supervision and update instructions and controls and the development of financial and administrative rules and regulations and instructions.

- Laying the foundations and controls necessary to protect the financial and banking institutions clients from fraud and abuse and ensure the quality of services provided and standards.

- Promote monetary and financial integration among all financial and banking institutions, including capital markets, institutional investors and insurance companies.

- The infrastructure of the Central Bank of the development and introduction of new sections and committees specialized support commensurate with the challenges and developments of the current stage.

The central bank's strategy: the importance and the chances of success

Receding oil supplier flows Bodh revealed deep structural imbalances suffered by the Iraqi economy, caused by decades of mismanagement and wars and excessive addiction to oil in the financing of the budget and the economy. These imbalances have had a significant role in highlighting the importance of economic policies in the correct rentier pattern of growth and the reduction of the negative role in the development of economic sectors in favor of the oil sector's growth.

In this context, it is expected that the monetary policy role of the center in the debugging process and to find an alternative model that fits the new orientations for economic reform; in view of the monetary institution's role in providing needed to finance government activities and finding suitable for the growth of the umbrella across maintain financial and monetary stability and the development of financial institutions and financial alternatives banking and the form in which the private sector can take off, with the side of caution in a tight design and regulatory legal system that frames the work of the banking system in the country and increase the transparency and quality of performance.

However, although the contents of the new strategy of the pillars and objectives attractive is consistent with the reform programs and the aspirations of the elites, but the fears are concentrated in the extent of the Iraqi Central Bank management's ability to achieve the desired objectives in light of the disintegration of state institutions and the fragility of the security and law and the spread of financial and administrative corruption and the dominance of the political parties at all economic centers in the state, including the Central Bank of Iraq.

* Center for Strategic Studies / University of Karbala