The devaluation of the Iraqi dinar eliminates the profits of the Shiite parties’ banks

The devaluation of the Iraqi dinar eliminates the profits of the Shiite parties’ banks

12-21-2020

BAGHDAD – The Iraqi political parties affiliated with Iran launched a sweeping attack on Sunday against the government of Prime Minister Mustafa Al-Kazemi, after it decided to reduce the value of the Iraqi dinar against the US dollar, to overcome one of the most dangerous crises in the country’s history.

And the Al-Kazemi government proceeded to this step after it was unable for two consecutive months to pay the salaries of employees, forcing it to borrow from the Central Bank of Iraq and other internal parties.

The government sells oil in US dollars, which it uses to buy the Iraqi dinar from the central bank in order to spend on salaries and public services, which means that the rise in the value of the dollar will enable it to obtain larger amounts of Iraqi dinar from the central bank.

And the Iraqi Ministry of Finance announced, on Sunday, that the official exchange rate has become 1450 Iraqi dinars per US dollar instead of 1119.

Although this decision will harm employees in the short term, as about a third of their salaries have evaporated, it deals a major blow to some Shiite parties affiliated with Iran.

These parties have banks that monopolize the process of buying dollars from the central bank and reselling it on the black market, taking advantage of a large profit margin that translates into millions of dollars on a daily basis.

The Islamic Dawa Party led by Nuri al-Maliki expressed his anger at this decision, warning that “the procedures of the Ministry of Finance and the Central Bank to change the exchange rate of the Iraqi dinar against the dollar will negatively affect employees, the poor and others.”

Although the Dawa Party squandered during the two terms of its leader, Nouri al-Maliki, about a trillion dollars of exceptional oil revenues at the height of the rise in oil prices, due to the purchase of political and popular loyalties and an unprecedented expansion in the number of state employees and security agencies, which led to widespread political, financial and administrative corruption, mismanagement and the domination of families Against the state, except that he used a Quranic text “Do not eat your money unlawfully among you” to open his attack on the Al-Kazemi government, indicating that “this economic policy will not lead the country to a safe haven, or dismantle the stifling economic crisis that has become crushing many segments of society, and it will result from it. Imbalances at all levels.

And unofficial estimates indicate that the successive Iraqi governments that followed the formation of the first Iraqi authority after the occupation in 2003 are responsible for the disappearance of about a quarter of a trillion dollars, which were allocated to reform the sectors of health, education, electricity and public services.

For his part, Qais Khazali, leader of the Asaib Ahl al-Haq militia, took advantage of the wave of popular anger against the government to share with Maliki’s party his anger against it, indicating that “what is currently going on and in more than one file, the most important of which is the Central Bank, Faw Port and mobile phone companies is the biggest theft in broad daylight, and unfortunately. The individuality of political and public action before it is not as required.

Al-Khazali, like Al-Maliki, has a bank that participates in the monopoly of buying dollars from the central bank and selling it on the black market, to achieve huge daily profits.

The decision to reduce the value of the Iraqi dinar against the dollar eliminates the profits of these banks by up to 100 percent, if market indicators continue to stabilize, as happened on Sunday.

Khazali tried to mobilize politicians and public opinion against the government. “The continued transformation of the economic situation from bad to worse portends catastrophic situations that will affect the country as a whole, and the citizen will be the first victim in it,” said the militia leader, who is classified on the US terrorism list.

While calling on “the forces and personalities to take the required position, as issuing statements and statements without taking practical steps at the level of Parliament and putting pressure on the Council of Ministers will not be sufficient,” Khazali called on the masses “to express their rejection of what is happening now and stand against it, otherwise matters will reach What does not have consequences ”.

Despite the attempt of Maliki, Khazali and other Shiite leaders who insist on implementing Iranian policies to the fullest extent in Iraq, to ​​absolve themselves of the consequences of the great economic collapse that Iraq is witnessing, observers say that the Iraqi street is aware of the nature of the movement by the parties and the damage to their interests.

Sarwa Abdul Wahid, a former Kurdish lawmaker, says that “the onslaught against the government must be directed at the parties of power since 2003 because it is the one that brought the country to this blockage.”

She adds that if Al-Kazemi is responsible for something, then he is “responsible for receiving power at the wrong time, as he cannot find solutions.”

Iraqi employees found themselves threatened with losing about 20 percent of their salaries due to the financial deficit revealed by the country’s budget for the year 2021, which prompted the government to propose to reduce the value of the local currency against the US dollar, in order to collect higher dinar returns that would enable it to meet public expenditures.

Years ago, the Central Bank of Iraq fixed a rate of 1119 Iraqi dinars per US dollar. Despite the emergence of a parallel black market selling dollars at a higher price, the difference was within the permissible margin of economic maneuver.

However, recent months have brought many fluctuations in the exchange rate, due to the Corona pandemic and the associated global financial crisis, and the decline in Iraq’s oil revenues after reducing the volume of its oil exports.

The crisis reached its climax in the country when the government found that its coffers were empty when the salaries of employees were due last September, forcing it to sign a law for internal borrowing, threatening the country’s reserves of hard currency, which is responsible for protecting the value of the local currency.

It was clear that the government should look for solutions other than borrowing, which cannot be resorted to again, due to its disastrous economic effects on the country.

Iraq needs about 40 billion dollars annually to cover the salaries of employees, retirees, and all those who receive fixed monthly payments from the government. The proceeds from the sale of oil provide only an amount close to the wages need.

And if the government spent all oil revenues on salaries, this would mean that it was unable to provide subsidized services in the areas of health, education, municipalities, electricity, potable water, sewage, and others.

It seems that the mentality of the Iraqi Ministry of Finance, whose head is the veteran economist Ali Allawi, has devised a new solution, which will be deducted from the salaries of employees without having to announce it, by proposing an exchange rate for the Iraqi dinar against the dollar far below the current price.

And because the government sells oil for dollars and then buys the Iraqi dinar from the central bank to spend on salaries and public services, the lowering of the local currency exchange rate will enable it to obtain larger sums of money by purchasing dinars from the central bank.

It is noteworthy that the Ministry of Finance proposed that the new exchange rate be 1450 Iraqi dinars per US dollar, instead of 1119, as economists said that this measure means that Iraqi employees lose about 20 percent of the purchasing value of their salaries.

The budget bill, which carries the new exchange rate, was strangely leaked to the media, causing the exchange rate to rise on the black market.

The competent authorities were severely troubled, while the Ministry of Finance criticized the leakage of the draft budget law for the next year, and said it is difficult to understand without studying its merits, the Finance Committee in Parliament called on the government to carry out rapid reforms to protect the vulnerable classes and those included in the social welfare network and workers in the private sector, confront inflation and provide Necessary food items through the ration card.

The new draft budget law stipulates a set of proposals aimed at obtaining the largest amount of funds for the public treasury in any way possible, including “imposing a 10 percent tax on services provided by malls, major markets, women’s and men’s barbershops, and massage, cosmetic and beauty centers”.

The draft budget proposes imposing a sales tax of 20 percent on gasoline and jet fuel and 15 percent for kerosene, and imposing an airport fee on foreign tickets (25,000 Iraqi dinars) and domestic (10,000 dinars) tickets.

The draft budget also included an appendix explaining the process of deducting part of the allocations granted to employees for purposes of risk, subsistence, transportation, clothes and others. Representatives in the Iraqi parliament said that the government stole employees twice, first by reducing the value of the dinar and secondly by deducting part of the allocations.

On Sunday, forty Iraqi MPs submitted a request to the Presidency of Parliament to question Finance Minister Ali Allawi, on the background of the devaluation of the dinar against the dollar. Parliamentary sources said that the interrogation request was signed by Shiite representatives whose parties own banks that directly benefit from trade in hard currency in local markets.

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