WHY IS THIS BUDGET SO IMPORTANT?
There are two more steps in the budget. They debated it already. They voted yes on it already. Mausum signed it into law already.
Next they will publish it in the Gazette it and lastly, they will start to disperse funds to the ministries.
If there is to be monetary change (RV) this year, IMO it should come before they start to disperse the monies meaning we are close.
If they don't RV the currency this year it is my opinion they will hurt their economy because taxes, tariffs and raises in electricity will not be counter balanced and it will be punitive to the citizens.
Taxes and tariffs and unpegging from the program rate are the tools the CBI needs to control the exchange rate and inflation in a new monetary regime.
Shabibi told the IMF at a meeting in 2008 just before he froze the rate because of a one year challenge. The IMF challenged him to prove he could support the rate and hold it steady at 1170 while still controlling inflation using the only tool available to him at the time, the auctions.
We know that tariffs and taxes have been on the table since 2010. They were voted in but never enacted because Maliki never wanted the CBI to have them. Without these tools there can be no RV so Maliki shut these tools down every time the CBI lobbied to get them going..
This budget approves and implements these tools and it has been pretty much understood that these tools are draconian without an improvement in the exchange rate.
There must be a counter balance or they will hurt the citizens. The sequence of events concerning the change of monetary regime started in 2008 with the strategic study. In its findings it recommended that Iraq could support an exchange rate of 1.13 dinars to 1 USD.
After the study results came out Shabibi met with the IMF. At that time the IMF told Shabibi to hold the rate (freeze it as a test) for 12 consecutive months while controlling inflation.
This was a test to demonstrate his abilities using the auctions as his only tool. Shabibi successfully held the rate at 1170 and controlled inflation all through 2009 and in January of 2010 is when the banner declaring Iraq would re-denominate its currency by the end of the year.
This to me indicated Shabibi had the green light to change the exchange rate or for those of you that still question this, he had permission to commence monetary change..
At that same meeting in 2008 with the IMF,Shabibi was asked how he would control the rate and inflation in the future. He told them he would need basically three tools in the future to control inflation and the rate. The exchange rate itself is one and tariffs and taxes are the other two.
For the very first time we see that those tools will be available through this budget.
This budget if for no other reason finally opens the possibility for the CBI to control the exchange rate and inflation without the absolute dependency on the auctions.
Once there is a new exchange rate the auctions should begin to taper off as their usefulness will quickly wane. Remittances, a major part of the auctions, will be the first to go as the banks should start to conduct international business through LOC's backed by the CBI.
The CBI stated months ago that they would stand behind LOC's written by the banks and that they would be the bridge on the funds, allowing the banks to make these LOC's without violating the 25% rule on reserves.
In other words the CBI would be funding the LOC's allowing these banks tov conduct business they themselves could not afford to do on their own.
Cash sales the other part of the auctions, will probably continue to operate until Iraq is dollarized, then this part too will more than likely disappear as OMO will be absorbed into the banking system rendering the auctions of no more use. It is then they will do away with the auctions completely.
It all starts with an RV and taking the currency international but as we see they have laid the groundwork and all those little pieces necessary to insure success have been done, some recently, some months and years ago.
THIS BUDGET JUST SUPPLIED THE TOOLS THE CBI HAS NEEDED AND FOUGHT FOR SINCE 2010. tlar