Iraq’s current cash crisis: bubble or fleeting appearance of a deeper economic crisis?

Posted 12/05/2012 07:11 AM  Mustafa Karim *

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 porous, otherwise why not go on offense to other markets saturated with hard currency such as markets Gulf? 
As these markets, organization and economies largely stable, the slumbering oriented economy is soft and the market is organized, and in this case 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 – a crisis of the real economy, has seen this sector stagnated since 1991, influenced by the devastating effects of war and economic blockade. and the fact that the public sector was dominant, the influence of these factors was a very large did not witness any qualitative development 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 the economy yield an increasingly privileged enhanced to appreciate the constant 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 that the reflection of the economy rentier. 
5 – chaos trade is probably not seen any economy another example until 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 Activity exports (excluding oil) based on the deterioration of the real sector, reinforced by the rule of the pattern of economic rent-seeking. 
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 yet been subject to the budget to any serious discussion was expenses are according to the desire and recommendations (Leader = planned) without sound economic considerations 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 related to economic situation suffer from a crisis Mstasalh hurriedly mention for example the education sector and higher education, 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.
every 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 future and planning for it, that vision is simply the sum of all these concepts. 
and the second thing is the role of the state, in contrast to sheep (laissez-faire, let him pass) classic and the alleged neutrality of the state, capitalism did not arise only in the embrace of the welfare state and the protective and directed capital accumulation has not been established, but the initial 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 . 
outstanding example 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) guiding and 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 interference limited 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 strife sectarian. 
 understanding of the business it’s own way and considered creative chaos foster capital accumulation first (read enrichment rapid regardless of any ethical standard) and achieved remarkable successes, a few of them and a limited range also represents effort creative, while the majority Vagmeh on trade fugitive not to mention corruption. 
state became servant to venture capital and uncontrolled rather than become a servant of capital creative and creative Almnumei of national wealth and binoculars for employment. 
reflected in the fiscal policy concentrated primarily on operational expenditure, especially government employment, and the times the other was the justification for that concept 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. 
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 deliberately led to stop working despite the fact that its facilities capital condition good or can be rehabilitated. There is no limit now 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 plans for five-year or decimal because of the absence of (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, lack of flexibility 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 electric power and high 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 brings us to the monetary policy. 
the basis of 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 builds his expectations, plans and behavior based on the monetary policy is known and stable, and hopes that the central unable to address the imbalances of timely in a 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 a market economy. These functions constituted a significant burden on a central, but he faced bravely and succeeded in the exam in general, although bumps here or there. 
the form of an auction currency cornerstone in the work on the stability of the dinar exchange rate, but the development quietly in the direction of an ongoing towards improving the rate of the dinar to be arrived at the current price (1166 dinars / dollars) and this policy was considered a means of curbing the powers inflationary. 
met with currency auction general acceptance, 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 has producers conditions produce the best . 
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 deficit would have been higher if not rise in oil prices and rising production. 
despite the fact that this policy is consistent with the recommendations of the International Monetary Fund, but it seemed desirable 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 faced economic situation Rcodaa real terms did not provide the government sector in the rehabilitation sectors productivity did not provide the new investments distinct qualitative and minimum and shrank the productive sector sector. 
This coincided with the continuing chaos in the exchange market, and we mean mainly private banks and banking offices where spread hundreds of offices is approved that do not keep any records are not subject to any any controls or censorship, which led to the continuation of capital flight abroad. 
seems to be prevailing idea behind raising the value of the dinar is a surplus in the balance of payments 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 exchange rates of the dinar high. 
that the continuation of this trend will increase the pressure on the reserves of the central 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 nature of the rentier economy also increases the risk of heart in the case the 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 only indicator of what you can do speculative international and recall here that speculation on the pound which was led by an individual (George Soros) and speculation that hit Tigers Asian. 
include 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 whatever completely. 
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. 
that approval starting this fact should be translated into corrective policies, as well as information campaign centered and wide to demonstrate the expected impact in reducing the exchange rate on domestic production and thus employment, can and must be accompanied by fiscal policy and the commercial backer of the domestic production. 
no doubt that the public, if the touch and is convinced of the benefits of the policy New ease of his opposition, particularly if it is satisfied that the reduction will impact positively on employment. 
and starting we need to determine the exchange rate and the average higher than the price announced by the central and defend it and then direction calmly to adjust the more radical. 
that this treatment immediate and Maissahabha of the organization of import and market foreign exchange and other will not bear fruit in the long run radically, but passage of the vision of a comprehensive national of the Iraqi economy. 
we can Nacher that (the problem stagnant real economy) is aware clearly by the most prominent researchers of the Central Bank (see the studies published on the Bank) and there are approaches analytic solid and processors proposal worthy of consideration. It is unfortunate that these approaches are analytic does not reflect the opinion of the Central or his policies, but reflect only the perspective of researchers. 
that the publication of studies on central signals the existence of convictions internal need for reform, but not translated into (policies) applied indicates the presence of pressure is stronger than the 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. 
of Here we recall its knees Dates Asian, constant pressure and growing on China to revalue its currency, flooding the markets of the Gulf of weapons and consumer goods, entertainment, and wars of the Middle East multiple … 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 trade policies – cash to absorb surpluses of future cash through the deepening nature of rent-seeking – the consumer of the Iraqi economy.