1ST Week of August in Review – By Neo (post at Dinar Speculator)
To begin with it is important to illustrate that in any country not just Iraq, both fiscal and monetary policies are comprised of different components and controls that have one common purpose. That purpose or objective is economic stability and growth by controlling the money supply plain and simple.
Fundamentally the dynamics of the money supply in Iraq are really not that far different than any other country when these policies are applied to achieve a purpose. Iraq’s Fiscal Policy or those measures employed by the government to stabilize the economy, specifically by adjusting the levels and allocations of taxes and government has thus far been minimal due to the liquidity environment, lack of transparency, and of course let’s not forget good governance!
To date, we have seen many articles about currency in circulation in country as well as currency held by foreign countries and folks like us. That being said we have to maintain our focus on not only the CBI, but the government making judgments about the health of the economy, and negotiating and implementing fiscal measures in an attempt to influence the economy in a desired way as well.
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Monetary Policy in Iraq - monetary policy tries to achieve the same objectives as fiscal policy by controlling the money supply! The strategy here is adjusting the country’s money supply by buying and selling debt, changing credit restrictions and lastly changing the interest rates by changing the reserve requirements. We all have seen this just happen in the last 90 days where the private banks cried foul on the increase of banks money supply requirement. We watch the CBI exude policy changes in the monetary policy every week with its auction activities central to controlling inflation by the aggregate demand. The hardest thing imo that keeps this gyroscope from spinning on a relatively even axis is that while these mechanisms are typically easy to control, the fly in the ointment is that this economic model has and is being flooded with tremendous influx of petro dollars and massive debt forgiveness without a equitable mechanism to “spread it around” if you will to all the Ministries and agencies within the government that have a price on your head. This is like winning the lottery and having to manage the proceeds with seven red headed step children and a host of illegitimate relatives that both hate and love you!
Why do we wait on the RV?
Because there is often not a consensus on the expected effect of fiscal policy in any particular economy, let alone Iraq, the short term benefits might be to delay or reduce a measure like the currency rate, that is ultimately not proven to be effective and perhaps is counterproductive to the intended outcome. Stop here for a second and ask yourself this. Does Iraq and its architects to engage the global economic community have an “intended outcome?”
The benefits of fiscal policy in both the short and the long term are that it is at times, the only known method to effect change in the economy when the monetary policy has failed to effect the desired change.
In either scenario we only look at the facts. And the conclusions we must draw at this stage are likewise equally compelling. They clearly stated the problem from multiple vantage points and expressed their desire to resolve it also from multiple vantage points. We saw just last week the awesome article that stated “the process of restructuring, which will begin this week” then in the last few days we see this three year implementation suggested. Would you say these comments are couched in something other than a definitive plan? I certainly expect that these delays as we perceive them are nothing more than the requisite time required to completing both monetary and fiscal objectives to affect the “intended outcome” plain and simple.