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Tuesday, August 4, 2015

Special OOTW Chat & Article   Part 2 of 2

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Special OOTW Chat & Article   Part 2 of 2

TODAY WE SAW A GREAT PRESS RELEASE FROM KEYWORDS - AN ACTION PLAN FOR ASSIGNING VALUE TO THE IQD!  OOTW 

Article being referenced:

Financial crisis: devaluation of the Iraqi dinar is it the solution?

Ali Mohsen Keywords    [Image: 492732.jpg?width=400&id=100]

Governor of the Central Bank of Iraq     05/08/2015 (00:01 pm) 

The financial crisis currently faced by Iraq, which can be extended to the next few years will inevitably require a serious and profound measures to spare the country a real risk has ridden the economic, social, security and services by circumstances, if it is not addressed articulated plans and successful solutions. 
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The development of solutions and plans should not stems from one fact or one factor is the low price of oil source, because starting from that alone does not get us to the processors and attractive solutions touches the essence of the problem and the challenges of the immediate or future.

The state budget has been exporting large deficit even with revenue rising significantly (depending on the oil price rise), and spending, who met those revenues did not contribute to the development of the productive base and the infrastructure and services in proportion to the growing resources,

but he was spending a reason to commit the state high fixed costs can not dislodge or reduced, especially in the massive recruitment is the product, and in the financing of self-financing bodies and public sector companies.

In the creation of entities and new ministries despite the expansion of the formations provinces based on the principle of administrative decentralization, accompanied by (easy flux of resources) neglect of non-oil revenues from fees and wages tax and other, and the acquisition of corrupt them (for example,

pays the merchant importing container (Alkuinter) 4 Thousands of loyal Customs dollars (private sector), pays the Savior equivalent to a thousand dollars in fees for customs authority and the rest (3) thousand dollars obsessed by it and a group of staff in the customs of colluding with them to change, adapt and documentation of goods imported).

Thus, if we want to hold your breath in the hollow in the joints of the State in my income and expenditure, we will find serious and destructive phenomena miss out on the country's chances of development and growth and optimal use of resources.

On the basis of these facts should not be thinking about the easy solutions that have the country and citizens victim imbalances and deficiencies and poor management, use and lack of planning, oversight and accountability, and tinkering with all that or cover it up again By do not address the root of the problem.

You must be launched solutions to diagnose phenomena and glitches in the expenses and revenues of the state, which if not addressed by the real, the oil resources no matter how grown up you will be unable to achieve a balance and achieve economic and development goals of the public budget,

and continues the drain of resources trends do not check real accumulation in expansion of economic activity and the reduction of unemployment and social welfare and human development, and continues to expand into new obligations on the State serve as the basis and foundation for real crises when oil revenues decline.

The proposal to reduce the value of the Iraqi dinar against the US dollar, which some posed today as a means to cover the deficit in the state budget (by paying a higher value of the dollar, which buys the Central Bank of the Ministry of Finance and thus sell the dollar at a higher price in the market –

the proposed 1500 dinars), this proposal is undoubtedly a proposal followed by some countries for objective goals, in most cases, it is to encourage the country's exports where they become worth less in foreign currency shall be priced at a global competitor.

In the case of Iraq is the proposed solution easy and direct increases the amount of the dinar, which you get the Ministry of Finance against the dollar, but a solution from our point of view holds many cons on the one hand, on the other hand does not help to address the root of the problem chronic,

but not suited structural imbalances, and Aicod to re-spending and government revenue structure in the macroeconomic framework, but would be a way to cover the reality with all its anomalies and serious imbalances, so we have exhausted all means of reform first, in order to keep spending paths and revenue on the basis of incorrect, before to resort to other solutions.

In any case, the proposed reduction rate of the dinar against the dollar mired with many of the observations and cons can highlight the most important as follows:

a. The reduction in the exchange rate of local currency, which is taken by States usually associated with the availability of the following (Policy Terms, conditions is available in the case of Iraq):

A-requires a flexibility in demand for imports, which means that the increase in the exchange rate for foreign currency will lead to reduced demand for imports (due to the high price tag), and this flexibility is available to the absence of national production base, leading to a negative result ,

where higher amounts spent in national currency on imported goods and thus increase the demand for foreign currency, leading to further deterioration in the balance of payments.

(b) that there is a significant volume of national exports, so that the resulting decline in national commodity prices (including the equivalent in foreign currency) intended for export due to the reduction of the national currency exchange rate, an increase in exports, and this is verified in Iraq,

where almost the country does not make something, not because of price competition, but because of the lack of diverse production base in key sectors such as agriculture, industry, energy ... etc., where form Industry and Agriculture proportions in low GDP components (agriculture 4.5%, industry 1.83%).

© reducing the lead of the national currency exchange rate to reduce production costs, including wages are based, and this is not available or possible in the circumstances of the country political, social and security.

2. Unlike the report by some of the gentlemen of the proposed terms of the amount can be calculated provided the balance of the exchange rate difference, which was appreciated by 15 trillion dinars,

the correct account in the light of the actual amount of dollars purchased by the central bank and Ministry of Finance (excluding repayments Financial commitments in dollars, such as oil, electricity, defense, foreign and reimbursements assuming projects that all other ministries and projects for Initiating an obligation to the dollar with that assumption is unrealistic),

 the correct amount can be made available for this year to exceed 5 trillion dinars and next year will be up to 10 trillion dinars in the best the possibilities, and this is the difference - who will pay the price of Iraqi citizens - can be supplied from other alternatives and those alternatives not only provide large sums of money, but check economic and financial task purposes in the short and long term.

On the other hand, the fulfillment of financial obligations to the oil companies will contribute to the increase in revenues, where the addition of every 100 thousand barrels of oil extracted and the source increases revenue by about $ 2 billion (assuming the price of a barrel to $ 50). There is considerable scope for increasing oil production as well as gas if what has financial obligations file management in favor of the companies producing oil and gas.

3. The proposal put two prices for the disbursement of the dinar, one low and one high allocated to cover essential needs (in order not to influence the citizen's task and sectors), such as food and medicine supplies Industry, agriculture and others, the proposal impractical and creates chaos and exploitation and corruption, where the reality of ports and customs authorities can not be to extend the application of a sound proposal, and we have experiences in this field,

in which the instructions and controls turned into a means of blackmail and corruption and pour all in the interest of the corrupt lead to operations manipulation and rigging wide .

4-The lifting of the dollar exchange rate to 1,500 dinars (as proposed) means reduced purchasing power of citizens by 30%, in addition to cases of exploitation and loss of control over the market, which adds another increase, and this increase in prices is too high under the current circumstances where the limited income of the vast proportion of citizens in addition to unemployment and high poverty rates,

as well as Cairo conditions experienced by millions of displaced people living humane difficult circumstances and resources barely sufficient to feed life and will be the beneficiary layer of traders and speculators.

5. The damage to raise the exchange rate and thus prices the public pays the price citizens with low-income equally borne by those with high incomes, which increases the phenomenon of large class differences, in the absence of tax policy reduce those differences, and make changes in the price structure and others are in favor of that layer.

The absence of the function of tax policy in the redistribution of income through taxation, according to real incomes to be re-distributed to citizens with limited income and poor through various means of support and services, this absence deepens the risk of lowering the exchange rate of the dinar.

6. The lifting of the exchange rate of the dollar by 30% mean reduction of assets and the value of investments Foreign such proportion that have been paid in dinars purchased in dollars at the time, but even the Iraqi business sector is calculated found and investments denominated in dollars (for psychological reasons, historical and economic), which generates serious repercussions of concern and hedge fears.

extends the impact to the level of citizens who are used to assess their assets and their properties and their property on the basis of the dollar, leading to raise Akiemha the national currency, and holds a clientele for it to rise, such as property buyers for residential or commercial purposes.

7. The lifting of exchange rate policy when they follow to serve as a tax on Local-income as in the proposed increase, must be accompanied by a re-look at the direct and indirect taxes toward mitigate or reduce them, it is not logical to impose taxes along with the increase in the exchange rate as it means a reduction of per capita income or purchasing power from both sides,

and it should be noted here that the government decided to apply the law tariff starting from 08/01/2015 in addition to increasing the tax on employees' salaries and imposing a new tax on their allowances,

which means carrying the majority of citizens (who are employees) a double financial burden not commensurate with the status of living of the citizens, in addition to government guidelines apply the electricity tariff and the gradual lifting fuel subsidies and other measures.

8. The gradient in the direction of fiscal and monetary decisions is an important and necessary but not to take this into account and take a big surprise decisions at high rates creates a negative impact on economic activity and the business environment.

The devaluation of the exchange rate of the dinar by 30% - as proposed - is a very high percentage confuse all economic conditions in all sectors.

The central bank has increased this year, the dollar exchange rate, which buys of Finance from 1166 to 1180 dinars, and can continue to amendment depending on the circumstances at rates not confuse the situation.

We believe that the possible solutions to address the financial challenges faced by Iraq are in the following frames (without going into the details of each proposal): -

1. Comprehensive reform of the tax authorities, and that can save billions of dollars a year, with the assignment of customs collections in all ports to international companies specialized in investment. Frame

2. Stimulate and activate tools and market domestic debt, through the issuance of bonds and traded in the market, which is a source basis for funding in most countries of the world, given that the central bank proposed to the government and the national bond issue worth 5 trillion dinars and local bonds, dollar futures against the dinar worth $ 5 billion, The government agreed on it has been assigned versions Bank manages on behalf of the government and will soon in the market.

3. A comprehensive survey of real estate State (land and buildings), leased and vacant Akiemha and revenues from rental or leasing or other, to study them and take appropriate action on the lease, sell or invest, to maximize possible resources of exploited economically and efficiently.

4. Ending the financing of the state budget for the bodies self-funded (according to the laws) within a period not exceeding 5 years, any funding or support rate reduced by 20% annually until the departure of its funding or grants her from the general budget, note that the current annual allocations to those bodies and agencies amounting to trillions (JD).

5. Activation of what is stated in the General Budget Law for the year 2015, of allowing the government deferred payment projects worth $ 5 billion, to be strategic projects (limited in number and wide service) and managed a higher committee and a high degree of transparency.

6. The application of tariff electricity consumption, taking into account the gradient in wages to focus on high consumption and to develop suitable for the consumption of the poor and middle-class wages, knowing that all accounts suggest the possibility of achieving an amount of $ 6 billion a year if they were those tariff application.

7. Reconsideration of support policies (such as ration card, fuel ...) so that went to the poor and limited income groups.

8. Activating the strategic promotion of the private sector which was approved by the government and keep track of their content carefully and diligently a task and accurate strategy and placed center after studies and discussions between all the parties of the government and the private sector and specialists.
9. Identify a number of major investment projects per year (for example, 10 projects), presented to the investment with a package of incentives and privileges and a sufficient amount of guarantees, and assume a higher committee formed by the Council of Ministers to identify and promote these projects and supervise the stages of delivery and provide all means of support to them. 

10. The resolution of public sector companies file a private money-losing ones, which have undergone studies and proposals and plans of years ago and it has become very necessary to the completion of self-determination, taking into account not damage the rhythm of the workers. 

11. Benefit fast loans provided by the CBI industrial, agricultural and real estate sector, which amounts to 5 trillion dinars, where -With Alosv- not fired yet for the government's delay in the necessary instructions to launch determinants mode, note that the central bank also allocated $ 

1 trillion dinars to finance projects Small private banks through lending. 

12. The need to resolve lagging government projects that have been paying large sums them without complete file, much of which has been included for years, and we see the need for the Council of Ministers to form a committee to review the situation of these projects and ways to accomplish or re amounts, as we see it is necessary to be not insert delete or replace projects only through submission to the Council of Ministers, and be the first choice for the implementation of investment by the private sector first. 

13. Seek to get support and help countries that share Iraq in its attitude towards terrorism by moving them to finance Iraq's reconstruction fund, and is a national team of the three presidencies liaise with these countries and encourage them to contribute to the mitigation of the destruction and devastation caused by terrorism. 

14. Development of a medium-term plan, to restructure the government and higher authorities and local administrations, thus alleviating the administrative sag and reduces costs and increases the efficiency and productivity, and poses for the national team purpose of professionals as well as academics and international consulting firms, that studies and proposals are not subject to political considerations or interests contradict and goals of that plan. 

15. Reconsider system of supervision and inspection and integrity in the light of the experience of the past years, and to identify strengths and weaknesses in their work and ways to improve their roles, leading to a real and effective and efficient for the phenomena of corruption fight. 

Here, we refer to we have given some time ago to the Cabinet a proposal to abolish offices of inspectors general, and replace it with one office be at the national level, and represents the Council of Ministers arm in control and is associated with the Prime Minister, the executive power tool to be in control of themselves, and without subjecting it to the impacts and pressures of the ministries and departments which shall control, as we suggested characterization or tasks for the work of that office selected aspects of mission and essential without immersion in the details or the tasks that are the responsibility of the internal or external control devices.

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