ScottyG & Others Share Opinions On ISIS & Oil: Iraq's Perfect Storm -- Analysis
JaxJags: This was sent to me by ScottyG................and he too states that this person's opinions are based on some dated info.
Here are Scotty's thoughts..........."There are several observations that are quite interesting.
First is the budget is supposed to be based upon $40 p/b oil.
Second is the point about the need for bond sales to support the country. (Gee where have you heard that from before?)
It sounds like with the newly achieved stability of the CBI (thanks to the removal of Maliki and his knuckleheads) with Shabibi re-established as Gov. that they are pushing forward.
Third is the increased production of oil I am told that our source at the top of Exxon indicates that production is up to 5 mbp/d with the possibility of it rising to 6 this year. The article indicates it is only 3.3."
As for my opinion.......Abadi continues to speak about going forward..........the latest.........."opening up for foreign investments." I can not image the world coming into Iraq and investing without the CBI changing the status of the IQD and with the change in status a reality rate.
High-Five: They should recover as much of the Maliki Mafia's stolen money as they can find. ASAP Also, they should make every effort to play very nicely with Saudi Arabia who just reopened their embassy in Iraq.
KJWayne: To me ,this is just another nay sayer stating his OPINION about a subject that he doesn't really know about. Shabbi,as far as I know ,is not back in the cbi and the re have been NO articles that have said anything at all about the CBI giving ANY of the reserves to the government.
Abadi is pulling this train in a straight a line as he can with all the baggage that was on it. He is trying to remove bad baggage as he goes. In the end we will win. Stay the course and flush this article.
Phillyman: This does not bother me at all. Does it change anyones mind on the forum? I doubt it. We are here to stay and see how this investment plays out. Just last week Iraq Business News posted a bloggers opinion about the IQD scam and even gave opportunity for people to vote their opinions.
As far as I know, Kirk Sowell who is respected in his knowledge of the Middle East does not touch speculaion about the currency. Should we bring up the American Contractor?
This is an exciting stretch we are in with so much on the table right now. Looking forward to seeing how the current events play out.
Mike: The Foreign Policy Research Institute has been around since the early 50's, and the author, Frank Gunter, is an economist with a Phd from Johns Hopkins. I wouldn't shoot the messenger, he's no dummy.
I haven't heard anything about the budget moving to $40 a barrel either, the latest reports are setting the budget at $60 a barrel. Also, Iraq is pumping 3.3 million barrels a day with hopes of reaching 4.0 mbpd in 2015. This is no real surprise, Iraq lost half of it's revenue when the price dropped and all we've heard out of Iraq are austerity measures and budget cuts.
Okieday: URL for his Faculty page at Lehigh, including links to previous articles. He's a retired Marine corps colonel.
Phillyman: Agree Mike that the messenger should not be attacked. But, he certainly is one who has from his incredible knowledge base come out with all types of scenarios. I would ask why so many countries are pouring resouces and military into Iraq? It would be interesting to read his response to that question.
Mike: Agreed, Phillyman and RD, I'm in this until the end. We've all known that things are tough for Iraq right now, I want to see how they deal with it before I do anything
Tumbletrav: Not that it matters to me or anyone else here, but I'd be curious to know if he owns any IQD?
Rissas Dad: tumbletrav, another un-answerable question in dinarland. Wouldnt matter either way honestly, but would be curious to know.
Mike, if there is any positive for me, at least the direction is clear and its the right direction. The last eight years, not so much. IS has delayed things but was perhaps neccessary to erode Maliki's position. The drop in oil prices may have delayed things too. So be it. They will get there.
High-Five: Statement at the End of an IMF Mission on Iraq Press Release No. 14/560
December 9, 2014 End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion.
A staff team from the International Monetary Fund (IMF) led by Carlo Sdralevich visited Amman, Jordan from December 2−7, 2014 to conduct discussions with Iraqi Minister of Finance Hoshyar Zebari, Central Bank of Iraq (CBI) Deputy Governor Zuhair Ali Akbair, and other officials from the ministries of finance and planning and the CBI to assess the country’s recent economic developments.
Discussions focused in particular on the impact of the double shock of the Islamic State of Iraq and Syria (ISIS) insurgency and the decline in oil prices. At the conclusion of the visit Mr. Sdralevich issued the following statement:
“Iraq’s GDP is expected to contract by about 0.5 percent this year largely because of the economic effects of the ISIS insurgency. We estimate non-oil growth to have deteriorated since the start of the conflict due to the destruction of infrastructure, impeded access to fuel and electricity, low business confidence, and disruption in trade.
In contrast, as most of the oil infrastructure is in the south of the country and beyond the reach of ISIS, and taking into account the output of Kurdistan Regional Government (KRG), oil production should reach 3.3 million barrel per day (mbpd) in 2014, up from 3.1 mbpd in 2013, with exports remaining at 2013 levels of 2.5 mbpd.
Next year, growth is projected to rebound to about 2 percent as oil production and exports increase further, helped by the recent agreement between the central government and the KRG on oil exports from KRG and the Kirkuk oil fields. End-October year-on-year inflation was 0.9 percent outside the conflict-affected provinces.
“The central bank has maintained the peg with the U.S. dollar. The spread between the official and parallel exchange rates narrowed to 2.6 percent in September, thanks to steps taken by the CBI towards the liberalization of the foreign exchange market.
Nevertheless, high imports, combined with declining oil revenues and lower government sales of foreign exchanges to the CBI to finance government spending, contributed to a decline in international reserves from over $77 billion at end-2013 to about $67 billion at end-November.
The government also tapped the Development Fund for Iraq (DFI), the balances of which have now been transferred to the CBI; the DFI declined from $6.5 billion at end-2013 to about $4 billion in November.
“The government expressed its commitment to present a draft 2015 budget to parliament soon. Lack of parliamentary approval of the draft 2014 budget has triggered a fiscal rule that has partly limited spending this year.
However, off-budget spending, particularly on security, has boosted the deficit, which will likely reach about 5 percent of GDP.
The staff team discussed with the ministry of finance the challenges related to formulating the draft 2015 budget, which is intended to address the ongoing exceptional spending pressures and the strong decline in oil prices.
As projected financing in 2015 will be limited, we expect the government deficit to decline to less than 2 percent of GDP.
“The IMF will continue to support Iraq through policy advice, technical assistance, and training. The 2015 Article IV consultation discussions with the authorities will take place in the coming months.
“The IMF mission would like to thank the Iraqi authorities for their cooperation and the open and productive discussions.” http://www.imf.org/external/np/sec/pr/2014/pr14560.htm
High-Five: For me, at least, it is important to consider all legitimate information - - whether positive or negative. There seems to be a lot of encouraging info about contracts that have been signed with companies eager to invest in Iraq. The effort to develop the natural gas industry is also encouraging.
If I remember right, that could bring about 5 billion of revenue. Abadi is making great strides mending fences and bringing not only the country of Iraq together, but also improving relations with neighboring countries. Abadi is working to facilitate non-oil development which is criticial to economic stability. Great progress has been made against ISIS.
We also have to consider that Najib said that the deletion of zeros project is "excluded" from the currency in 2015. "there was a project and plan but not short-term," pointing out that "this plan can be implemented within two years or more." Saleh also recommended a delay in the project.
What I'm trying to determine is - - - Has the deletion of the zeros project been delayed or not? I haven't seen any further articles specifically about currency reform. Maybe I've missed it.
Brule: From a speculator's standpoint, isn't that what they would want us to think?
Tumbletrav: I remember seeing somewhere, either here or on DinarUpdates.com, that the price per barrel when Saddam went out of power was $31...I just found this: "From the mid-1980s to September 2003, the inflation adjusted price of a barrel of crude oil on NYMEX was generally under $25/barrel. Then, during 2004, the price rose above $40, and then $50." Courtesy of Google search.
Mike: Everyone should take ten minutes and read this opinion piece. He provides one of the clearest explanations about how the currency auctions work and how the CBI maintains a balance between petro dollar revenues and domestic expenses.
He also points out how damaging the falling oil prices are, not just for the near term, but for the long haul. I don't like the idea of returning to a lower dinar value that he talks about at the end, but this guy completely understands the current economic conditions that are in Iraq.
JaxJags: Like COLD Water Dropped On You You are correct, Mike. After 4 years of chasing this investment........this is the first person that has ever been able to clearly and completely explain how the CBI uses auctions to move the monies from the GoI and to and from the street.
Mike: Yep, and he showed how the CBI lost the $10 billion in the reserves. It had nothing to do with Maliki, Turki or Alak pillaging the funds, it was more to do with falling oil prices and the imbalance between revenue and expenses.
He also brought up the importance of maintaining the spread between the street and official rates. Nowhere in the article did he talk about increasing the value of the dinar as a solution to their problems, he infered that the price should drop to 1450 or go to the fixed peg they used in 1930-1949. Yikes. I'm looking forward to hearing what others think about this.
Rissas Dad: Mike why do you assume its not being read by the responders on this post. In your opinion, what would you have us do? Get on here and say he's right we're all screwed?
Put your dinar up and forget about it or sell it while you can? You know I respect you to the highest degree but what do you want us to say? Its over?
All who bought dinar are dumbasses and got taken? I'm not going to ring my hands and break out into a sweat because some expert writes an article no matter how much he "gets" whats going on in Iraq.
Its not like any of us hasnt considered the fact that we may have made a bad call here. Its been a possibility since day one. Im not discounting in ANY way what he has said, there just isnt anything I can do about it. I'm not selling just as you. What happens happens, I'm not going to loose sleep over it regardless. I've made bigger mistakes even if the whole thing blows up to nothing in ten years.
Mike: Wow, no RD, I didn't think that at all. I never understood how the auctions worked and this was the first article I read that explained it. I was looking for more comments, not doom and gloom, and nope, I'm not going to sell. I
don't think the article's all bad, it had tons of good stuff in it regarding what Iraq's going through. The last thing I would do is tell someone what to do with their dinar's. Not trying to work anyone up, I just wanted their thoughts on what the economist was saying.
HandOverFist: In the above article, Professor Gunter talks about the exchange rate of the dinar depreciating.
" If either or both of these events occur, then there will be a loss of confidence in the ability of the CBI to maintain the current exchange rate of 1166 Iraqi Dinars per US Dollar. Anticipating a depreciation of the dinar, speculation against this currency can be expected to increase. The CBI and GoI have few options to curb this speculation and prevent a loss of the nominal anchor of the Iraqi economy – its stable exchange rate."
We have always understood that the dinar is at a "programmed rate" and is worth much more than 1166. How is it possible to depreciate a programmed rate that is already ridiculously low?????
The professor is talking as if 1166 is the TRUE worth of the Iraqi dinar.
I believe a floating exchange rate can go down with a bad economy in the country, but a programmed rate would have to be intentionally changed. Would lowering the exchange rate help the Iraqi economy enough to mitigate the fact that it would make them look like total morons?
BeastMaster: I guess I would comment, just like everyone else that has ever posted anything about the dinar is just because it's interesting, and well written, doesn't mean it is correct.
You mentioned that no one has ever been able to explain how the auctions work. You read this and it sounds good, so that's it? He has all the answered? Agree it should be read because all info should buy by no means does this person have all the answers.
HandOverFist Is Gunter thinking that Abadi is like Maliki????? Maybe he's not as up-to-date as we are.
"A more long-term solution to the country’s loss of reserves and accompanying exchange rate crisis would be a return to using a currency board such as the one that provided Iraq with a stable exchange rate during the tumultuous period of 1930-49. Unlike the CBI, the former Iraq currency board guaranteed full dollar convertibility of dinar notes and coins only.
This immunized the currency board from the speculative attacks that are often the downfall of fixed exchange rates such as Iraq’s. However, the adoption of an orthodox currency board can be expected to face serious political opposition since it would reduce the GoI’s ability to divert financial resources in order to favor particular economic sectors or to benefit friends of government officials."
Rockstar: Thank you HOF very well thought out and said. There is no way they will be lowering the programmed rate IMO.
Skylimit: Blah-blah-blah, a currency's value is based on confidence which is partially based upon the underling strengths of the country. The US is bankrupt according to every GAAP accounting principle but remains (for now) in demand.
Iraq's currency strength will not only be determined by her assets but by the confidence and support of the BIS, World Bank, US coalition and the other ME countries willing to trade in a newly revalued dinar. Worrying anout $10 billion here or there to determine value is ridiculous.
Their currency's value will be determined by the longer term expectations of their economic success supported by one of the largest resource bases for their population size in the world.
Swimmer: Thanks for nailing this Sky. You always do.
Phillyman: I still don't understand why numerous countries and companies are pouring resources into Iraq if some of the scenarios discussed were probable. Is it possible that they are well aware of scenarios mentioned by the writer but also have other advisors that present a different scenario to them?
I have always wondered why every dinar in existence was not aquired by smarter people then me if an RV that would benefit us was so imminent and certain. Opposing thoughts that would frustrate me if I dwell on them. I still think the next few weeks will be very telling for our investment. Praying it all ends soon.
Oldwazhisname: In part, why shouldn't we expect the dinar to depreciate? We are seeing it in nearly every other currency, at least relative to the dollar and in some respects more. Many of the major currencies have depreciated relative to the USD by 20% in the last 6 months.