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[WINALOT] i just found some really interesting stuff...
[WINALOT] Looks like Iraq is charging different exchange rates to Arab countries than the rest of the world!!
This is very interesting. I was re-reading The Exchange Rate of Foreign Currency in Economic Feasibility Studies ( link http://www.mop.gov.iq/mop/index.jsp?sid=1&id=308&pid=295&lng=en ) , which has been around for awhile. This document explains the difference between the true exchange rate of the dinar, and the "ammended exchange rate". Please read above if you are not familiar with it.
Then I found this....
The Central Control Measures for Adjusting Market Prices on Project Inputs and Outputs
Below are the central controls for adjusting market prices to assess the project inputs and outputs of goods, services and employment, which are used to calculate the net present value and return on investment in the economic analysis that governs investment projects which costs exceed one million dinars in addition to other standards stated in paragraph nine (a) of the instructions
Read More Link on Right.
The central control measures for adjusting market prices for the project inputs and outputs of goods.
The outputs are divided for evaluation purposes in the economic feasibility studies (calculating national profitability) to the following totals using pricing rules defined for each group:
1. Export commodities: these include all goods produced in the project and directed for export.
Pricing rule: evaluate these goods using the export price FOB (FOB) and convert the foreign currency to its equivalent in dinars using the amended exchange rate.
2. Goods marketed locally that substitutes imports: these include what has been marketed locally at the present time in the form of alternatives to imports, meaning that establishing the new project leads to cessation or reduction of importing the same commodity. When there is a direct connection between project establishment and discontinue of importing the same quantity and quality of a certain commodity.
Pricing rule: evaluate these goods using the import price CIF (CIF) and convert the foreign currency to its equivalent in dinars using the amended exchange rate.
3. Basic goods marketed locally: this group includes goods that the state wishes to encourage its consumption such as bread, sugar and other consumer items subsidized by the state in addition to basic infrastructure services such as electricity, water, gas, transportation ...etc.
Pricing rule: the actual price in the local market plus the revealed subsidy. To address cases where there are concealed subsidies (determining the price without the cost of production) the pricing rule is amended by using the actual price in the local market or the cost of production, whichever is greater.
The same way, inputs are divided for evaluation purposes in the economic feasibility studies (calculating national profitability) to the following totals using pricing rules defined for each of them.
1. Imported goods: this group includes all investment and ongoing imported inputs.
Pricing rule: evaluate this group of inputs using the import price CIF and convert the foreign currency to its equivalent in dinars using the amended exchange rate.
2. Locally produced and exported goods: this group includes locally produced inputs, but that usually heading for exports.
Pricing rule: evaluate this group of inputs using the export price FOB (FOB) and convert the foreign currency to its equivalent in dinars using the amended exchange rate.
3. Locally produced and marketed goods: this group includes all locally produced inputs either normal inputs (investment and ongoing), or inputs of basic services such as water and electricity.
Pricing rule: evaluate this group of inputs using the actual price in the local market excluding indirect taxes and add the revealed and concealed subsidies, if any.
4. Goods produced and marketed locally with the existence of excess or limited production capacity:
These goods include all inputs listed in paragraph - 3 - above, but with the presence of excess or limited production capacity.
Pricing rule: evaluate this group of inputs using the cost factors of production. And that is when there is excess production capacity. In the case where there is shortage in the limited production capacities evaluation should be by using the demand price. (This is normally higher than the cost price and reflects the willingness of commodity users for paying).
5. Land: the land where the project will be established is supposed to be evaluated using the shadow price for the land element uttered by the revenue of the alternative opportunity, meaning what the community looses as a result of using the land allocated for the project, in other words, the shadow price for the land element is the marginal production value of the land without the project.
For the difficulty of assessing the marginal production value accurately it is replaced by the value of the land in the local market if it was purchased or by the annual rent if the land was rented.
The same rule applies even when the land is owned by the state and given free of charge to the project.
6. Labor: distinguish between Iraqi and foreign labor used for the project, either during the construction or operating phase.
Foreign labor: foreign labor is handled the same way as imported inputs. For that, calculate actual paid wages in foreign currency or equivalent basis and convert to its equivalent in dinars using the amended exchange rate.
1- Skilled: the average prevailing wage in the market is used.
2- Unskilled: the average prevailing wage in the market for the construction sector is used.
Here is the BIGGIE in this article:
"Pricing rule: evaluate these goods using the import price CIF (CIF) and convert the foreign currency to its equivalent in dinars using the amended exchange rate."
And last but not least.... (this is the one that will REALLY get ya)
Additional Foundations and Standards in Economic and Complementary Feasibility Studies
(Additional or complementary standards that are required to be used, that take into consideration the specificity of the distinguished concept of the overall economic development process adopted by the country).
As much as the matter is attached to the method of evaluating projects, the specificity of the distinguished concept of the overall economic and social development process including the standards connected to the national dimension for investments, the country’s standards and long-term strategic objectives linked to food and national security, strategic industries, transportation projects and joint Arab projects, can be identified as following:
1. Socialist sector is a leading sector.
2. Get the economy from a single economy to an open economy.
3. Contribute to strengthen the country’s military force.
4. Fairness in spatial distribution of investments.
5. Achieving further steps towards the security of Iraq and the Arab nation.
6. Technological development and technology transfer.
7. The Iraqi economy is part of the Arab economy heading towards integration with it to the maximum limit.
The focus must then be aimed at achieving this concept of development practically, through transferring the above-mentioned definition to a set of rules that can be applied in the evaluation and comparison of projects, and the access to the required rules will be gradual and through [illegible] seven points above, as following :
1. The Socialist sector is a leading sector: this means that the allocation of investments in a manner that would make the socialist sector a leading sector and capable of directing national economy as a whole, by economy means and in the direction desired by the state which comes from the size of production sectors held be the socialist sector and types of production divisions it owns, therefore following foundations must be adopted:
a) There are no non-economic restrictions on investment in the socialist sector, for that the responsible entities should not avoid accepting any project that is economically viable under the evaluation standards adopted in these instructions in the socialist sector.
b) There is a minimum investment limit done by the state and affiliated entities in each division of the economic activity divisions and the plan assigns the volume of this limit, and commits concerned entities each according to its specialty by arranging proposed projects that compete under evaluation standards adopted to ensure this level of investment.
c) There are some divisions that are exclusively left to the socialist sector.
2. Moving the Iraqi economy from a single economy to a diversified economy, this principal is a general development one that means expanding and diversifying the divisions of industry and increasing agricultural production towards creating new sources of foreign currency. And reducing dependency on importing and creating new streams for financing government expenditure. There are paths for development that urge reaching the desired objectives in this regard by making the hub of economic activity local as much as possible. The assessment methods (traditional) greatly help in selecting a group of projects that strengthen the trend toward diversifying the Iraqi economy, projects with a higher rate of return in industry and agriculture make the production rate in the non-oil commodity sector to the total gross national product higher, and when using shadow prices especially for foreign currency the higher rate of return for these projects is attached with higher compensation of imports or increase of exports of non-oil source, or both.
In addition to the above this trend can be strengthened by making the minimum required return in production activities of production machines in particular, and industries with innovative technologies less than the rest of the activities. This action is as considering the shadow price of the foreign currency made available through compensating imports or diversifying exports in the basic and heavy industry divisions higher than in other activities, which will increase national economy integration with itself.
3. The economic development to contribute in strengthening the Iraqi military force: this goal also reflects on the evaluation mechanism and that is in reducing the minimum required return in divisions that produce military supplies or help in the producing them, as well as in projects of military uses.
4. Fairness in spatial distribution of investments: preparation of the investment budget in away that ensures reducing disparities between developed and less developed areas in the country. It is known that any evaluated group of projects will be at the end listed in the annual investment plan budget and in the five-year investment plan, and the evaluation is done according to technical methods that become known. As indicated by these instructions. There are also methods for budget preparation that substance is selecting optimal group of projects within the imposed restrictions, the fairness in spatial distribution of investments between areas can be considered another restriction to be added to the restrictions that is fixed beside the objective indicator when preparing the budget. For example, the process of budget preparation is described: selecting a group of projects that make the net present value as high as possible with adhering to several restrictions for example: the total investment amount allocated for all purposes is not more than a certain amount. And the average investment per capita in each province is not less than 50% of the average investment per capita labor required for the implementing projects in the first year of the plan is not more than...... The foregoing means that the evaluation of the project must become part of a wider system which is the evaluation and selection of projects and the budget preparation.
5. The development seeks to achieve further steps towards achieving food security for Iraq and the Arab world: and in this area are different kinds of grains of necessary agricultural commodities that development in Iraq and the Arab world should seek self-sufficiency from and be partial to investment projects that promote grain production. Grain shadow price requires – average dunum yield in the world / average dunum yield in Iraq x CIF price in foreign currency (it is converted to the local currency by multiplying it with the shadow price of the foreign currency).
6. Technological development and technology transfer: as technology in the production method and technological development is the evolution in the production of earlier goods and services, or to develop new products, it will be all expressed as costs and revenues. The assessment methods (traditional) ensure calculating the economic impact of technology for that. But there is an impact of technology thst is not calculated in the project evaluation process which is the dissemination of experience and new skills and these should be considered as imports compensation of skill and foreign expertise is added to net revenues of the project. As for the effects of technology on the environment they should be viewed from two angles: first, the costs of cleaning up the environmental contamination caused by the project technology and these are added to the cost of the project itself if it involves equipment or treatment followed by the project. Second, when preparing the budget constraints add appropriate environmental conditions at the district level, which ensures no to select a group of projects that contradict the minimum terms, whatever the their returns are.
7. The Iraqi economy is part of the Arab economy heading towards integration with it: this principle can be addressed on two fronts first joint Arab projects that should accept the plan where the average return on investment in it is lower than in country projects of similar divisions. Second, the country projects that import inputs or export product to and from other Arab countries. And to strengthen Arab economic integration under the project evaluation mechanism frame, the shadow of foreign currency required to import raw materials from the Arab world is less than that what is used for importing from foreign countries. In return, the price of the shadow of foreign currency, which is aggregated from exporting to the Arab world, is higher than that used to export to other countries. This procedure gradually reflects on projects that promote Arab economic integration. This action may have a positive measure that pushes for similar conduct in other Arab countries.
Re-read the last paragaraph! They are playing "you-scratch-my-back-I'll -scratch- yours" with other arab countries! This is saying that they are charging different exchange rates!!!
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