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[size=39]Raising the value of the dinar .. Will Iraq back down from the decision to reduce the value of its local currency?
Free / Special - Washington
February 18 2022
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[url=https://media.voltron.alhurra.com/Drupal/01live-106/styles/sourced/s3/2022-02/000_DV594866 %281%29.jpg?itok=6b2iTi0M]The Central Bank of Iraq was devaluing the official currency against the US dollar in December 2020[/url]
Free / Special - Washington
February 18 2022
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[url=https://media.voltron.alhurra.com/Drupal/01live-106/styles/sourced/s3/2022-02/000_DV594866 %281%29.jpg?itok=6b2iTi0M]The Central Bank of Iraq was devaluing the official currency against the US dollar in December 2020[/url]
A slight decrease in the exchange rates of the US dollar against the Iraqi dinar in the local markets, on Friday, one day after the Iraqi parliament announced its intention to hold a meeting with Minister of Finance Ali Allawi and Central Bank Governor Mustafa Ghaleb Makheef to discuss the exchange rate of the dollar.
The Iraqi parliament decided to summon the officials based on "the direction of the leader of the Sadrist movement, Muqtada al-Sadr," according to a statement issued by the media office of the Deputy Speaker of Parliament, Hakim al-Zamili, who belongs to the Sadrist movement.
On Thursday, Al-Sadr presented six proposals regarding the dollar exchange rate, including summoning the Minister of Finance and the Governor of the Central Bank under the dome of Parliament, organizing the Iraqi currency market centrally and enacting "some laws that increase the value of the Iraqi dinar exchange rate."
As soon as the recall decision was announced, the selling prices of the dollar in the local market recorded a slight decrease, as the price of the 100-dollar banknote reached 147.5 thousand dinars, compared to 148 thousand dinars the previous day.
The Central Bank of Iraq had devalued the official currency against the US dollar in December 2020, in the first such measure in half a decade, and coincided with a stifling financial crisis afflicting the country as a result of the collapse of oil prices at the time.
The exchange rate set by the Central Bank amounted to 1450 dinars to the dollar, instead of the previous rate of 1190 dinars, which sparked a series of criticisms from politicians, economists and citizens alike.
The Iraqi government attributed the decision to cut at the time to the stifling economic crisis that the country, the second largest oil producer in OPEC, is going through, as a result of the drop in crude prices.
But the recent rise in the price of oil in global markets to record levels not seen in seven years, has sparked controversy recently regarding the decision to devalue the Iraqi dinar and the possibility of reconsidering it.
Iraqi researcher and economic expert Salam Sumaisem says that "any decision to raise the value of the dinar against the dollar may achieve some benefit, but it will not necessarily lead to the return of inflation levels to what they were in the past."
Sumaisem, who previously worked as a consultant in the Iraqi government, added in an interview with Al-Hurra that "the dinar reduction came within an agreement with international bodies, and it lasted for 5 years, and it cannot be easily reversed."
She notes that "unfortunately, the government did not implement the rest of its commitments that it set in the white paper, including diversification of revenues and governance in taxes, fees and border crossings, and it was satisfied only with devaluing the currency."
In October 2020, the Iraqi Council of Ministers approved new mechanisms for economic reform, which it called the "White Paper", which he said includes "hundreds of measures to revive the Iraqi economy" and invest the country's "enormous resources" in the "scientific method".
The "white paper" included proposals, including reducing government salaries by 12-25 percent, lifting government support for some sectors, stopping funding the retirement fund from the budget, reducing government support for public companies, meeting electricity wages "according to international pricing" and increasing customs wages. and taxes."
Advisers to Iraqi Prime Minister Mustafa Al-Kazemi did not respond to repeated calls to Al-Hurra to request comment.
And the professor of international economic relations, Abdul Rahman al-Mashhadani believes that "the government is supposed to review the exchange rates after about a year of making the decision, as a result of the rise in oil prices and inflation in the Iraqi market."
But al-Mashhadani explains in his interview with Al-Hurra that "the review is very difficult at the present time, because it means that we will link the price of the dinar to oil, and this is not correct from an economic point of view."
He adds that "the decision to reduce the value of the Iraqi dinar was not successful from the beginning, because it caused a decrease in the value of the local currency by about 30 percent, and led to an economic recession that resulted in a significant increase in the prices of foodstuffs and others."
Al-Mashhadani asserts that "the current inflation rate has reached more than 10 percent in general, but on the level of some basic commodities, it has reached nearly 100 percent, such as oil, rice, flour and others."
He points out that "the return to the old exchange rate will not lead to the return of prices to their previous era" for reasons including that "traders will not venture back to the old prices, considering that they will be afraid of the government's fluctuating decisions, and the lack of guarantee that it will not return and take a similar decision to reduce the value of the dinar again."
Al-Mashhadani says that any decision to raise the value of the Iraqi currency "will lead to a new economic stagnation in the market, and make many traders refrain from importing, and thus lead to a shortage of materials that will cause prices to rise again."
She added that "the government and the central bank will work to fix the new rate that is in line with the requirements of the reform."
She pointed out that "the government will immediately support the affected sectors and the poor through measures that include increasing social welfare allocations in the general budget in order to compensate for the possible rise in the prices of some imported goods."
Even if the old exchange rates are returned, this should be done gradually, according to Al-Mashhadani.
Al-Mashhadani says that "the decision to devalue the currency from the beginning was supposed to be gradual, by devaluing the dinar little by little until the desired goal was reached, but they suddenly raised it, causing a defect."
In addition, Al-Mashhadani believes that the government could have reduced the damage caused by the devaluation of the dinar by "transferring half of what it obtained from the exchange value change, to support the weak and poor classes, so that they can face these changes."
He points out that "changing the exchange rate is the last remedy, and the government should not offer it unless there is a coverage of its negative effects by supporting agriculture and industry so that there can be local production capable of covering the local market."
Al-Mashhadani calls for "structuring the Iraqi economy in a way that allows isolating the exchange rate from the gross domestic product, and not to resort to this decision whenever oil prices fall."
In this context, Sumaisem says that "the Central Bank is the only party capable of taking the decision to change the value of the currency."
Sumaisem, who had a role in writing the Central Bank of Iraq law, adds that "the central bank must adhere to monetary policy, and its first objective is to achieve economic stability that is achieved through the exchange rate."
On the other hand, a member of the Finance Committee in the former parliament and current MP Jamal Seydou confirms that "there is currently no decision to reduce or raise the value of the Iraqi dinar."
Sido adds to the "Al-Hurra" website that "there is talk of measures to reduce corruption in the currency auction process and to control the prices of materials in the market."
He asserts that "it is not within the authority of the government to take such a decision, but the matter is subject to the central bank exclusively."
Commenting on a question about the possibility of raising the value of the Iraqi dinar against the US dollar, Seydoux said, "This issue is very unlikely."
He concludes by saying that "the move to devalue the local currency was good at the time, but it is bad now, because it greatly affected the market and the Iraqi citizen" alike.
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The Iraqi parliament decided to summon the officials based on "the direction of the leader of the Sadrist movement, Muqtada al-Sadr," according to a statement issued by the media office of the Deputy Speaker of Parliament, Hakim al-Zamili, who belongs to the Sadrist movement.
On Thursday, Al-Sadr presented six proposals regarding the dollar exchange rate, including summoning the Minister of Finance and the Governor of the Central Bank under the dome of Parliament, organizing the Iraqi currency market centrally and enacting "some laws that increase the value of the Iraqi dinar exchange rate."
As soon as the recall decision was announced, the selling prices of the dollar in the local market recorded a slight decrease, as the price of the 100-dollar banknote reached 147.5 thousand dinars, compared to 148 thousand dinars the previous day.
The Central Bank of Iraq had devalued the official currency against the US dollar in December 2020, in the first such measure in half a decade, and coincided with a stifling financial crisis afflicting the country as a result of the collapse of oil prices at the time.
The exchange rate set by the Central Bank amounted to 1450 dinars to the dollar, instead of the previous rate of 1190 dinars, which sparked a series of criticisms from politicians, economists and citizens alike.
The Iraqi government attributed the decision to cut at the time to the stifling economic crisis that the country, the second largest oil producer in OPEC, is going through, as a result of the drop in crude prices.
But the recent rise in the price of oil in global markets to record levels not seen in seven years, has sparked controversy recently regarding the decision to devalue the Iraqi dinar and the possibility of reconsidering it.
"limited interest"
It is noteworthy that the decision to reduce the value of the Iraqi dinar was taken when the price of a barrel of oil in international markets ranged between 40 and 50 dollars, compared to its price today, which reached more than 90 dollars.Iraqi researcher and economic expert Salam Sumaisem says that "any decision to raise the value of the dinar against the dollar may achieve some benefit, but it will not necessarily lead to the return of inflation levels to what they were in the past."
Sumaisem, who previously worked as a consultant in the Iraqi government, added in an interview with Al-Hurra that "the dinar reduction came within an agreement with international bodies, and it lasted for 5 years, and it cannot be easily reversed."
She notes that "unfortunately, the government did not implement the rest of its commitments that it set in the white paper, including diversification of revenues and governance in taxes, fees and border crossings, and it was satisfied only with devaluing the currency."
In October 2020, the Iraqi Council of Ministers approved new mechanisms for economic reform, which it called the "White Paper", which he said includes "hundreds of measures to revive the Iraqi economy" and invest the country's "enormous resources" in the "scientific method".
The "white paper" included proposals, including reducing government salaries by 12-25 percent, lifting government support for some sectors, stopping funding the retirement fund from the budget, reducing government support for public companies, meeting electricity wages "according to international pricing" and increasing customs wages. and taxes."
Advisers to Iraqi Prime Minister Mustafa Al-Kazemi did not respond to repeated calls to Al-Hurra to request comment.
And the professor of international economic relations, Abdul Rahman al-Mashhadani believes that "the government is supposed to review the exchange rates after about a year of making the decision, as a result of the rise in oil prices and inflation in the Iraqi market."
But al-Mashhadani explains in his interview with Al-Hurra that "the review is very difficult at the present time, because it means that we will link the price of the dinar to oil, and this is not correct from an economic point of view."
He adds that "the decision to reduce the value of the Iraqi dinar was not successful from the beginning, because it caused a decrease in the value of the local currency by about 30 percent, and led to an economic recession that resulted in a significant increase in the prices of foodstuffs and others."
Al-Mashhadani asserts that "the current inflation rate has reached more than 10 percent in general, but on the level of some basic commodities, it has reached nearly 100 percent, such as oil, rice, flour and others."
He points out that "the return to the old exchange rate will not lead to the return of prices to their previous era" for reasons including that "traders will not venture back to the old prices, considering that they will be afraid of the government's fluctuating decisions, and the lack of guarantee that it will not return and take a similar decision to reduce the value of the dinar again."
Al-Mashhadani says that any decision to raise the value of the Iraqi currency "will lead to a new economic stagnation in the market, and make many traders refrain from importing, and thus lead to a shortage of materials that will cause prices to rise again."
gradual return
In a statement issued in conjunction with the decision of the Central Bank of Iraq to reduce the value of the Iraqi dinar, the Ministry of Finance promised that "the decision to adjust the exchange rate will be for one time only and will not be repeated in the future."She added that "the government and the central bank will work to fix the new rate that is in line with the requirements of the reform."
She pointed out that "the government will immediately support the affected sectors and the poor through measures that include increasing social welfare allocations in the general budget in order to compensate for the possible rise in the prices of some imported goods."
Even if the old exchange rates are returned, this should be done gradually, according to Al-Mashhadani.
Al-Mashhadani says that "the decision to devalue the currency from the beginning was supposed to be gradual, by devaluing the dinar little by little until the desired goal was reached, but they suddenly raised it, causing a defect."
In addition, Al-Mashhadani believes that the government could have reduced the damage caused by the devaluation of the dinar by "transferring half of what it obtained from the exchange value change, to support the weak and poor classes, so that they can face these changes."
He points out that "changing the exchange rate is the last remedy, and the government should not offer it unless there is a coverage of its negative effects by supporting agriculture and industry so that there can be local production capable of covering the local market."
Al-Mashhadani calls for "structuring the Iraqi economy in a way that allows isolating the exchange rate from the gross domestic product, and not to resort to this decision whenever oil prices fall."
In this context, Sumaisem says that "the Central Bank is the only party capable of taking the decision to change the value of the currency."
Sumaisem, who had a role in writing the Central Bank of Iraq law, adds that "the central bank must adhere to monetary policy, and its first objective is to achieve economic stability that is achieved through the exchange rate."
On the other hand, a member of the Finance Committee in the former parliament and current MP Jamal Seydou confirms that "there is currently no decision to reduce or raise the value of the Iraqi dinar."
Sido adds to the "Al-Hurra" website that "there is talk of measures to reduce corruption in the currency auction process and to control the prices of materials in the market."
He asserts that "it is not within the authority of the government to take such a decision, but the matter is subject to the central bank exclusively."
Commenting on a question about the possibility of raising the value of the Iraqi dinar against the US dollar, Seydoux said, "This issue is very unlikely."
He concludes by saying that "the move to devalue the local currency was good at the time, but it is bad now, because it greatly affected the market and the Iraqi citizen" alike.
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