Originally Posted by
Wm.Knowles
A previous post. But relevent.
Hello everyone. Sorry I have been away for a while. Many good thngs have happen to us in the last few weeks. I realize there are differences of opinion about the removal of currency from the economy, but given the 70% inflation rate that has been posted, I continue to feel the CBI has been/is continuing to remove large amounts of currency from the economy which is exactly what they should be doing in this situation. We predicted last Novemebr that this position would be supported by a “drying” up of the currency due to demand and and the fact that the CBI has not sold any appreciable amount of dinar since November. Soft evidence suggests that banks and dealers are finding dinar harder to get and the street value is over 20% more expensive than the offical exchange rate. A very unusal situation in the world today. Removal of currency from an economy is a textbook intervention to deal with inflation. What makes it difficult to accomplish is that most countries do not have the resources to remove currency. Iraq apparently has the wealth to accomplish this. We have at least one reliable report that inflation is now around 30%. We will need to confirm this with other reports. But if true, then the monetary interventions by the CBI are/is being effective. However, since monetary interventions take a while to move through an economy, any reduction of the inflation rate at this time would be due to interventions by the CBI during 2006, meaning we still may not being seeing the full effect of the dramatic reductions in the monetary base that has taken place since November 2nd. So look for better inflation rates. I think we will continue the theme that a reduction in the monetary base is what needed to happen and is a monetary intervention that the CBI has/is continuing. Exactly what we would want to see in an inflationary situation and prior to a bold adjustment. We still have a currency that is undervalued and an artificial rate that lacks purchasing power for the iraqi people. Supply and demand factors will continue to operate and demand may continue to advance since the currency is approaching a 13% increase in value. All of the world now nows about this rise in value. When conbined with the political issues, HCL, FIL, WTO membership, Budget, and the unexplained payment of 52B to the world bank, these factors taken together places us in the very best position we have ever been to see this currency rise and rise fast, i.e. bold adjust. Thank You.
Most of the IMF's lending falls into three different categories:
* Stand-By Arrangements are designed to deal mainly with short-term balance of payments problems. The IMF's largest loans fall into this category. In 1997, the IMF introduced the Supplemental Reserve Facility, under which it can quickly provide large loans with very short maturities to countries going through a capital account crisis.
* The IMF introduced the Extended Fund Facility to help countries address balance of payments difficulties related partly to structural problems that may take longer to correct than macroeconomic imbalances. A program supported by an extended arrangement usually includes measures to improve the way markets and the supply side of the economy function, such as tax and financial sector reforms, privatization of public enterprises, and steps to make labor markets more flexible.
* Under its Poverty Reduction and Growth Facility, the IMF provides concessional loans—loans with an annual interest rate of 0.5 percent and a maturity of 10 years—to its poorest member countries. The majority of the IMF's loans now fall into this category. In 2005, it approved the establishment of the Exogenous Shocks Facility, under which it can give lowincome countries that are not receiving funds under the Poverty Reduction and Growth Facility, and that are suffering a balance of payments problem because of a shock beyond their control, quick access to funds on a concessional basis.
The IMF also provides Emergency Assistance to countries coping with balance of payments problems caused by natural disasters or military conflicts. The interest rates are subsidized for low-income countries.
The Trade Integration Mechanism allows the IMF to provide loans under one of its facilities to a developing country whose balance of payments suffers because of multilateral trade liberalization, either because its export earnings decline when it loses preferential access to certain markets or because prices for food imports go up when agricultural subsidies are eliminated.
Hello everyone. Dispite our previous dicussions about that separatness between the CBI and the GOI we seem to lose site of the fact that monetary policy is not dependent on politicians and the GOI. Laws such as the HCL, WTO, FIL are very important to Iraq as a whole, but, the CBI has ben effecting monetary policy in Iraq for a couple of years now without regard as to what laws are being passed or the security situation or what anything else happens. As we have said before, most Americans would be surprised as to how independent our central bank is ( FED Reserve System). Since the CBI is patterned after ours, it is poor thinking to believe that there is a lock step relationship between anything the GOI does and the monetary policy of the CBI. Therefore, to assume that any law, the HCL, the FIL, the SBA etc. has a direct and lock step relationship with the monetary policy of the CBI denotes a lack of understanding of central bank policies and how modern central bank policies are in effect. The confusion of today is unwarranted. The CBI continues to remove vast amounts of dinar from the economy and apparently has a tareget rate that they are striving too. 7 trillion or more? Soon, we will find out. But, to get too excited about the opnions and the misinformation we are recieving, would be premature. The economic fundamentals are still in our favor and despite the whinning and negativism, its all works for us. So, slow down, take a deep breath and have another drink. Thank you.