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Sandyf & Kaperoni On Article XIV and Article VIII 7/29/19 DinarDailyUpdates?bg=330099&fg=FFFFFF&anim=1

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Sandyf & Kaperoni On Article XIV and Article VIII 7/29/19

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Post by RamblerNash on Mon Jul 29, 2019 10:26 pm

sandyf   @future Iraq continues to avail itself of the transitional arrangements under Article XIV, Section 2 but no longer maintains any exchange restrictions or multiple currency practices subject to Article XIV, Section 2, and currently maintains one multiple currency practice (MCP) subject to Fund approval under Article VIII, Section 3.1
 
The MCP was identifies in 2012 and is one of the main concerns of the IMF. A primary function of the IMF is to protect its membership and suppliers into Iraq are not being paid the correct amount as there is no mechanism in place to ensure invoices are paid at a rate within 2% of the of the official rate.

sandyf    I made this post some time ago.
@Zig, to be fair Kap has never said Art 8 was required to change the rate, the greatest devaluation in history was Myanmar under Art 14.
 
Article 8 is a guarantee by the central bank that the currency will be redeemed and most entities look for that guarantee, but it is not essential. There are several Art 14 countries in this area and currency moves from one to another without a problem
 
Most of what he says is right but a bit of an issue with some things. His interpretation of "rapidly appreciating rates" is a bit wayward, probably for obvious reasons. The IMF woulds see fractions of a percent as "rapidly appreciating" and at that it would be many years to see any significant change.
 
Also his explanation on the MCP wasn't quite right, this is how the IMF define it as applied to Iraq.
 
"The MCP was originally identified by the IMF in 2012 and continues to remain in place, even though the various measures limiting the availability of foreign exchange have evolved and changed.
 
The MCP arises from the official action to limit the purchase of foreign exchange, with no mechanism to ensure that exchange rates in the official auction and in the market do not deviate from each other by more than two percent. The average spread between the official and market rates was around 10 percent in May 2015. (CR No 15/235)
 
Kaperoni   There is some confusion about Article XIV and Article VIII 

Kaperoni   If you go back and look at a few older Article IV Consultations I believe you will find that Iraq has met Article XIV conditions for a while. In order to transition from XIV to VIII you must meet the conditions of the Article prior to moving to it.
 
Kaperoni   So in this case the IMF states clearly the CBI has one restriction under Article VIII. Therefore, they need to solve that prior to the IMF giving their blessing for acceptance into Article VIII
 
Kaperoni   The once restriction appears to be a combination of the CBI requiring participants in the auction to have a bank account, and also the 2% spread. It does say the IMF is monitoring the situation.
 
It does seem to be something that can be resolved fairly quickly if need be and it will be interesting to see what the IMF says in the future on this since the CBI has meet the 2% spread rule for the past 16+ months.
 
Kaperoni   Article VIII is absolutely necessary to invite investors and capital to Iraq. They will not get much help rebuilding the private sector if they do not do this. Investors want to be able to get their profits out of Iraq and Article VIII is an important step to achieve this.
 
Kaperoni   Parliament is in the process of preparing the 2020 budget. Decribed in the media as "the budget will be different directions next year to represent the government's economic openness to investment and increase financial resources alternative to oil" and "indicating that the budget will create a qualitative boom in the Iraqi economy through drastic changes in public expenditure and investment funds and services."
 
Kaperoni   Clearly this is important to the transition to a market economy. As well as they are building the expenditure into the budget for 2020.
 
An article yesterday stated they will have a 72 trillion dinar deficit. In other words they are building about 70 billion USD extra into the budget that is expected to be funded by foreign investment.
 
Kaperoni   In order for this to succeed, they must pass the laws needed, and open the banking system (Article VIII) for this to work. There is no alternative. The next 6 months will be fun to watch. Goodnight.
RamblerNash
RamblerNash
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