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Mustafa Al-Saffar (a pseudonym) lost $ 400,000 in one day, following the decision of the Central Bank of Iraq and the Ministry of Finance to reduce the value of the local currency against the dollar by approximately 20 percent, in a a decision many described as sudden and “bad timing.”
Al-Saffar, who requested that his real name not be revealed, told Al-Hurra that the Iraqi Central Bank calculated the new dollar prices on the old agreements to buy the currency, causing large losses to banks and banking companies, one of which is owned by Al-Saffar. Al-Saffar claimed that “a decision like this cannot be issued overnight. This reminds us of Saddam’s random financial policies. They should have come to the market to make this decision months ago.”
The Iraqi government says that the decision to change the exchange rate of the Iraqi dinar from 1,190 dinars to the dollar to 1,450 dinars is “necessary for economic reform” and that “the reason for the deterioration of the economy is due to years of wrong policies” , according to two statements from the Ministry of Finance and the Central Bank of Iraq.
‘Synchronization problem’
Iraqi economic affairs expert Manar Al-Obaidi says that “the eternal problem in Iraq, especially on the economic side, is at the moment when the decision is made,” adding to the Al-Hurra website that “the crisis is caused by the sudden moment of decision, regardless of the positive or negative points of the process “. Change the exchange rate. “
Al-Obaidi believes that the impact of the devaluation will be negative at the beginning of the stage, which “will last six months or a year”, and then “will contribute to improve the GDP of various sectors such as industrial, agricultural and services, because it will increase the activity of these sectors “.
According to Al-Obaidi, Iraq is ready for the growth of the economic sector, and that “the infrastructure does not need more than a competitive environment, to reactivate hundreds of existing projects, but they are stagnant or not operating at full production capacity as a result of the imported product controls the local market. “
An informed Iraqi government source told Al-Hurra’s website: “The low price of oil and the impact of the Corona pandemic encouraged the government to make the difficult decision,” as he described it.
The source, who requested anonymity, added that “the government’s plan is based on the assumption that the devaluation of the Iraqi currency will make imported products more expensive and give locally made Iraqi products the ability to compete, which will develop the economy. after some time”.
According to the source, who participated in the 2021 budget discussions, “Iraqi large operating expenses in dinars will decrease in real value, leading to the provision of the necessary funds that Iraq needs,” adding that “the government still it is supporting the Iraqi dinar through the currency auction, but the support is shrinking. “
Iraqi industry
In fact, Iraqi industrialists say that the discourse that the decision to devalue the Iraqi currency will lead to the promotion of local industry is “too simplistic.”
Iraqi industrialist Moataz Kammouna told Al-Hurra’s website that “the industry needs infrastructure such as electricity, sewage, water lines, transmission lines, import and export facilities, and all of these are not available.”
And he adds that “raw materials have increased in value after the devaluation of the dinar because it is imported, which means that costs have risen, and years of Iraqi industrial inactivity have caused Iraq to lose the advantage of keeping up with others. countries with technology and destroying old infrastructure. “
According to Kamouneh, the Iraqi state “has been supporting imports for many years, while it should have invested in providing infrastructure and raw materials to drive Iraqi industry forward and control the bleeding of foreign exchange.”
Kamouneh also refers to the “control of the militias and armed groups over politics, the economy and weapons, which gives them a great opportunity to compete and deprives Iraqi manufacturers of any advantage.”
Al-Iraqi, Muhammad Al-Maamouri, an agricultural investor from Baghdad, says that “the government supported the import of agricultural materials and neglected to support local agriculture,” adding to Al-Hurra’s website that there could not be enough Iraqi agriculture to offset the rise in currency prices in a few months. The problem takes years and investment. big”.
Iraqi economics expert Hassan Al-Asadi says that “the correlation of devaluation with the improvement of local industry is true in industrialized countries whose prices of manufactured goods decline while reducing their currency, which encourages their export”.
Al-Asadi added to Al-Hurra’s website: “The step to reduce the value of the Iraqi operation should have been accompanied by other steps, and not just statements to repair the crisis because Iraq is not an industrialized country in which the The idea of devaluing the currency to support the industry is valid due to the absence of the legal framework and the investment environment. “
Al-Asadi believes that “the recent decision of the Ministry of Finance will provide an additional 13-14 trillion Iraqi dinars to cover salaries,” ignoring the decline in the value of these salaries.
Future scenarios
Iraqi economics expert Hassan Shawkat believes that “the government took part in the right decision at a very dangerous time.”
He added to Al-Hurra’s website that “this decision should have been made in 2003 to encourage self-reliance and work at a time when the government has funds to help affected groups get the wheel of the economy moving.”
Shawkat believes that “current conditions are not ready for such a decision,” he added, “but it is an inevitable result that the Iraqi government has not been able to avoid due to errors in economic policy for many years.”
According to Shawkat, Iraq is likely to slide into a major economic recession that will last for years before the economy regains its equilibrium, and this is a “risky issue in an armed and unstable country like Iraq. Wages paid by the state were one of the most important factors in its relative stability. “
Furthermore, “the stability or rise in oil prices may allow the government to take mitigating measures of the consequences of this decision on citizens if the provision of assistance is taken seriously or international loans can be allocated to support the local industry” . Previously, he’s stopped him now, “according to Shawkat.
Shawkat says that “the third scenario is that the owners of capital return to Iraq to invest in it, benefiting from the devaluation of the currency, but achieving this scenario is difficult because the required funds are huge, and the security and control situation of the military make any investor think several times before entering Iraq. “
