Currency auction over burden the Iraqi economy

Currency auction over burden the Iraqi economy

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In the midst of political and economic crisis  in which Iraq faces  today ,  its economy is  facing large challenges that are the largest in its history, starting  from its  structure ,and its  rentier nature and that was the main focus of its successive crises and especially during the past two years because of the collapse in oil prices and slumping later, not to mention the political and security reasons that accompanied the occupation of the territory and vital cities in the north of the country.

Rentier economy in Iraq  depends entirely on oil revenues, which constitute more than 90% of its  revenues , and as a result of crisis of oil prices, the Iraqi economy has received numerous tremors internally and externally that  toppled  its credit rating  to “negative” by the global agency “Fitch” .

We discussed in previous articles the issue of the currency auction in Iraq, and  made it clear the  size of the enormous waste that occured under the currency auction, and how the currency auction exceeded  the revenues of oil, which made us  to shed light on the foreign reserves, and that this auction may exceed to sell some of the foreign reserves of the  Central  bank where   oil revenues   arrived in the first quarter of this year,  to 3 billion and 269 million dollars, while the total central bank sales of the currency in the same period amounted to 5 billion and 821 million dollars, and of course this difference is too large, and raises doubts about the figures where this amount was not for spending on imports because the latter were not the size of the revenue, and some also wondered who was to buy at this auction and for whom?

According to the  inquiry  of the committees of the House of Representatives of Iraq and international reports, it has been wasted and looted the amount of 312 billion dollars over the past years, they are proceeds of oil pumped  by Central Bank of Iraq to the market, most of which had been transferred abroad.  Today after the persistently high exchange rate of the US dollar against the Iraqi dinar in the local markets and the absence of the real role of the Central Bank to address this problem, it seems the Iraqi dinar is in danger of collapse , thus rising inflation and entering into a severe economic crisis. Therefore, the continuation of the central bank  to sell  the dollar in  quantities larger than  Iraq ‘s income from foreign currency as a result of the export of crude oil is a service for the  corrupt , called  by the term “whales” and cost Iraq losses of hundreds of billions of dollars, in addition to the billions that were stolen over the past years.

According to private information obtained by  the Rawabet Center for  Research and Strategic Studies  for a meeting between the number of banks and banking owners in Baghdad in Jadriya and the theme of the meeting was about the dollar and the need to reduce its price on the black market and   number of whales threatened  the  auction  to  issue  a decision to limit the auction  with a limited number of banks , and  some of them  said that they were able to control  all aspects of the state , and the price of the dollar and they are refusing to sell  the dollar  existed in their accounts abroad , and  it was estimated by  one who attended the meeting to amount  $ 350 million exists only in  five people only, or five banks, and according to sources of Rawabet center  , Mr. Prime Minister Haider al-Abadi, is following this issue carefully and that he considers issuing important decisions which exempt officials at the central bank from office and to inform  some of state officials and political parties of  their links to some of the private banks and the prime minister in waiting  to complete the picture  he has , and follow-up if the  operations of sale for the benefit of reliable banks   or not, to take a very critical decisions, including the stop of   number of  banks from entering the auction  till to decide on  lawsuits filed against it .

It is expected that there will be a reduction of the dollar to avoid penalties that may be imposed by the Prime Minister on the banks and those violators. Once again, we will address the subject of an auction  in the Iraqi Central Bank taking in to the consideration  the importance  of   this file  for the Iraqi economy, where the central bank sells in  its daily auction of dollar amounts sometimes exceeding 130 million, mostly in remittances and is priced at 1182 dinars to the dollar.

The thorny issue here, is the difference between the selling price in the market which arrive in the market to 1300 dinars to the dollar, while the exchange rate is sold to partisan  and influential bodies  up to 1182 per dollar, according to quotas, who  in turn sell it at the prevailing price of the market. Here we refer again to the currency auction and its  operations  which constitute  a big burden on the Central Bank of Iraq and the economy in general, which of course is a window to support specific destinations as we mentioned, thus it is considered a real blight on the central bank, and its cash reserves. The data suggest that Iraq’s debt is today 77% of GDP, while the safety ratio of public debt  according  to GDP is  between 60-70%. The estimated loss of Iraq, hundreds of millions of dollars because of the control of mafias and whales  on the market through the monopoly of the currency auction for certain destinations, and dominate them. It is  indicated that the price of US dollar exchange rate in the Iraqi market is  of 1310 dinars , selling price,  while the purchase price  is of 1,300 dinars per one dollar.

As it is known, the dollar is the main engine of commodity markets in Iraq, as the country imports most of its overseas markets . The US dollar was trading in the Iraqi market this week at 1310 dinars, compared to about 1129 dinars to the dollar before the outbreak of war in Mosul, which experts see as a sign of the weakness of the central bank’s policy. This increase is the result  , according to the opinion of the experts , of  the Central Bank’s policy, and the decline of the dinar exchange rate against the dollar caused by the adoption of the central bank of some private banks and not others in an auction   of   the sale of the currency and the weakness in monitoring the performance of these banks. “

Over the past 13 years, Iraq has become an arena for the corrupt,  a group of influential Iraqis have  led the looting of public money of a very large operations, and Iraq’s coffers  have become empty, and this flaw was revealed by the collapse of oil prices two years ago .Large and enormous challenges facing Iraq economically and politically, and the excesses  over  the money of  Iraq and its potential to the benefit of influential figures without supervision or follow-up, which put on the Iraqi government the responsibility  for legislation of a strict law along the lines of other countries, and monitor the work of the central bank and the  auction of the currency, which has  become today as a destructive element of the economy Iraq, as well as accounting for the corrupt  lest  the Iraqi economy to reach to     closed tunnel that can not be returned from  it.

Unit Economic Studies

Rawabet Center for  Research and Strategic Studies