Bankruptcy .. a postponed fate for Iraq

by **Rocky** Sat 09 Apr 2022, 2:07 pm

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Bankruptcy .. a postponed fate for Iraq

by Rocky Sat 09 Apr 2022, 2:07 pm

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SATURDAY, 04-09-2022,PM 9:32
KARAR AL ASADI

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By: Dr. Bilal Khalifa
The state’s bankruptcy means that it has become unable to pay its debts or fulfill its other financial obligations, such as paying the price of imported goods and commodities, in addition to its inability to pay wages and salaries, and it cannot conduct its economic affairs without assistance from others.
It can also be defined economically as "the crisis in the balance of payments".
The bankruptcy of the state will be followed by the collapse of its currency and banking system, which may have a severe and long-term impact on the productive economy and its financial position.
Bankruptcy occurs if a country finds itself unable to pay for its imports due to its lack of hard currency, it usually resorts to the International Monetary Fund or to other countries to borrow the necessary amounts, but if it fails to do so, it will not be able to import the necessary goods and services, which is a dangerous possibility. very.
Examples of state bankruptcy
1 - Spain
Spain in the sixteenth century went bankrupt 4 times due to military spending to protect its trade with America. In 1820, several countries, including Latin America, went bankrupt due to their entry into the bond market in London.
2 - Iceland
The banking system in Iceland was liberalized in 2001, allowing major banks to borrow huge amounts to finance economic expansion projects. However, these banks quickly faced the collapse that occurred in the American financial sector in 2008. Icelandic banks found themselves unable to finance their debts, until their debts multiplied tremendously, amounting to several times the country's gross domestic product. The result was the fall of the three largest Icelandic banks, the country found itself in recession, and its economy contracted by 10% for two full years.
3 - Argentina
The Argentine economy was considered one of the best Latin American countries ever during the 1990s, but something happened that pushed it to collapse in 2001. The reason for the bankruptcy is the peso to the US dollar, to get the public debt out of control, in light of the rampant corruption, and the matter came to the point that the country found itself by In 2001, when unemployment touched 20%, then the state announced the largest default in its history.
4 - Russia Russia
's economy was affected by the Asian financial crisis that struck in the second half of the 1990s. The demand of many countries for Russian oil decreased, which caused a problem for the country in terms of its ability to pay its debts. The ruble crisis in 1998 caused the Russian stock market to lose 75% of its value, and inflation reached 80% as investors fled the market.
5 - Mexico
Mexico's debt has increased dramatically due to the massive fiscal expansion programs of the Luis Echeverria administration, in the wake of the oil shock of the late 1970s and deteriorating economic conditions. The Mexican peso depreciated by 50%, but during the first two years of the crisis the country was able to pay its debts. But it was not able to withstand much, and the country became after that unable to pay its debts to the International Monetary Fund and the loans of the United States of America.
6- Lebanon
Two days ago, the Lebanese government and the Governor of the Central Bank of Lebanon announced the bankruptcy of the Lebanese government, as the Lebanese economy has been dying for two years until it reached the point of declaring its bankruptcy. Bank interest rate, lack of public income, price inflation, and the collapse of the value of the national currency.
There are also other reasons that are the mistakes of the country’s economic policies, especially the financial and monetary policies, the artificial support for the value of the lira, the instability of the exchange rate against the dollar, financial and political corruption, the smuggling of state-supported goods, and the US blockade of the activities of Lebanese banks that have a relationship with Iran
The main causes of bankruptcy:
1 - the inability of the state to pay its debts in whole or in part. That is, you cannot pay the debts necessary for the operation of the state and do not pay the interests of the debts, for example, and it occurs at the end of long years of debt and budget deficits.
2 - Changing the government, in cases of revolutions, for example, and the new government's refusal to commit to the previous debts of the "corrupt" regime, such as what happened during the French Revolution.
3- The collapse of the state: because of its loss of a war or its division into several countries, for example, and here the religion moves to the new regime or the new countries that have replaced it geographically.
4- Excessive government spending and the decline of the most important industries in the country.
5- A sharp decline in public revenues.
6- Because of the issuance of new laws that frighten the financial markets, capital will withdraw from the country. (Monetary and the World Bank)
7- Decreased collection of taxes and fees as a result of exemptions and corruption.
8 - The monetary policy and the World Bank is very dangerous in the event that borrowing and borrowing is requested from it, because it dictates harsh conditions in exchange for those funds. Even the renaissance of Malaysia, despite its need for funds at the time, refused to borrow from the World Bank, because many countries consider this a trap, and that His policy is to control the economies of the world. After bankruptcy, governments need recovery and rescue plans with debt and international aid. These procedures are usually carried out under the tutelage of primary cash, and thus their goal is achieved through economic control, which is the easiest way to put pressure on governments through the people.
Effects of declaring bankruptcy
First: Effects on creditors:
The disappearance or loss of all or part of the money they lent to that country or the interest on those debts, and usually there are negotiations in which they recover some of those funds. The loss may reach 75% of their money, as happened with Argentina.
Second: Consequences for the State:
Positive: The decrease in the State's expenditures towards creditors, as it stops paying their dues.
Negative: Destruction of confidence in the country means that no new loans can be obtained from the money market.
Third: Consequences for citizens:
1 - The groups most affected by the harm are workers in the government sector in its various forms, the public sector, business and investment, and workers in the state, because they have salaries and wages that will not be spent in this case, and the state avoids reaching this point by liquidating the workers gradually.
2 - The labor market itself will be affected by the terrible inflation that will occur, and consequently the supply of labor will increase and wages will decrease.
3 - Tax facilities open to major investors with an increase in the imposition of taxes and royalties - stamps and services - on all citizens.
4 - Lack of control over prices and the increase in inflation.
5 - What happens in the state happens to the citizens, meaning they will reach a point where they declare bankruptcy as well! The end result becomes very poor and bankrupt citizens, and the state will terrorize them by dividing them into debts.
Steps to avoid bankruptcy
Before reaching the point of bankruptcy, the state resorts to taking very difficult measures such as:
1 - Increasing taxes
2 - Reducing public expenditures
3 - Stopping employment in the public sector
4 - It may also resort to friendly countries or international institutions such as the International Monetary Fund or Paris Club to lend her and save her from the difficult financial situation.
Next steps for bankruptcy
1 - The state's declaration of bankruptcy represents a good opportunity for it to escape the grip of creditors, as some countries are taking bold steps to save their economy, possibly by nationalizing some companies and banks.
2 - Some countries may also resort to official bodies such as the International Monetary Fund, which undertakes the task of evaluating the country's economic conditions, and grants it economic facilities on its loans, provided that it follows the economic plan that it has set for it to get out of its crisis.
An approach between bankrupt countries and Iraq
1 - The share of the Ministry of Defense for the year 2019 is more than nine trillion Iraqi dinars, and the amount allocated to the ministry for the year 2021 is about ten trillion Iraqi dinars. We noted that Mexico was the most important reason for its bankruptcy is the military spending and this is achieved in Iraq.
2 - As for Iceland, the reason for bankruptcy is to allow banks to borrow in huge amounts to finance projects, which is also happening in Iraq, but the situation here is worse because the borrowing is for fake projects and with fake guarantees, and what is worse is to exempt borrowers from repayment because the most important borrowers are senior politicians in Country.
3 - Argentina, the reason is that the local currency is pegged to the dollar, and that Iraq's semi-official currency is the dollar, so that one of the parliamentarians calls for distributing the salary in dollars.
4 - Russia, caused by the economy being affected by global events and crises, and Iraq is now better similar to Russia, even the simplest things and goods are now affected by the Ukrainian crisis
5 - Mexico, as a result of global financial and economic shocks was the main cause of the increase in inflation and this is what happened now, where inflation also occurred and has reached more than 20% and things are getting more and more.
6 - Lebanon, as we explained above that the reason is the country’s wrong economic policy, and this is present and clearer than Lebanon, as well as inflation, debt and unemployment. We note that all the causes of bankruptcy in Lebanon are in Iraq, but the only thing that pushed Iraq’s bankruptcy now is the high price of oil.
Result
1 - Iraq is a rentier country and that world oil prices directly affect the Iraqi economy, and this we have clearly experienced during the Corona pandemic, and that if oil prices did not recover, Iraq would have declared bankruptcy.
2 - The reasons for bankruptcy are all available and we are approaching them day after day.
3 - The effects of failure in the economic policy are clear without the government providing solutions, and even the solutions proposed by it (the White Paper) contradict it and work against it.
4 - Bankruptcy is inevitably coming, and this is what the late great economist Dr. Chalabi predicted, and also this is what the current Minister of Finance, Dr. Allawi, said.
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Established in 2006 as a Community of Reality

Bankruptcy .. a postponed fate for Iraq

Bankruptcy .. a postponed fate for Iraq

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