Latest from MOUNTAIN GOAT 1/18/16

Today’s News

Today is Monday January 18th 2016 and yes we have officially entered the third week of the new year already and still no RV.

I totally expect to see more and more articles come out very soon talking about the Iraq currency reform and the “project to delete the zeros”. But first parliament must get this  “basket” of laws completed, as I  explained in my last news letter. We know that parliament is coming back into sessions tomorrow Jan 19th. I believe they will roll up their sleeves and get to work.

So today I want to bring you the news of the IMF mission to Iraq in reaching an agreement on a Staff-Monitored Program (SMP).

What is the SMP?

SMP defined - A member’s Staff Monitored Program is an informal and flexible instrument for dialogue between the IMF staff and a UN member country on its economic policies.

The SMP for Iraq was approved by the IMF Managing Director just 6 days ago but it was written mostly throughout the year 2015 and finalized in November 2015. The mandates did not all of sudden hit Iraq from the IMF but Iraq has been closely working with the IMF on this SMP, as we can see the progress since June 2015 already in these many Abadi reforms. Now we know where many of these reforms came from and they were not just “good ideas” from Abadi and his council of ministers.

The IMF has published news of the SMP under the “Staff-Monitored Program-Press Release; and Staff Report”  Publication on January 12, 2016. Yes – just days ago! This is what we will talk about today. This is the official news on this SMP. Here is the link.

http://www.imf.org/external/np/sec/pr/2016/pr1604.htm

But remember this news is months old already as this MOU was from November 2015 the IMF delays its news by months for public consumption. Most of the time many of the tasks are already completed or well underway by the time we get the news.

I highly recommend everyone read this document to better understand the state of the economy in Iraq. I will make my points as to the currency reform in this regard.

Here is the link:

http://www.google.com/url?url=http://www.imf.org/External/NP/LOI/2015/IRQ/122215.pdf&rct=j&frm=1&q=&esrc=s&sa=U&ved=0ahUKEwifrJXKwrPKAhWJVD4KHT01BaUQFgglMAM&usg=AFQjCNFEN94HXeBMwJIslfPcxYdRhebjog

So a “Letter of Intent” in Memo of Understanding (MOU) was sent to Iraq from the IMF. This memorandum of understanding talks about conditions on the intent of Iraq that they “will” meet certain conditions and talks required of Iraq according to the SMP. It is about all aspects of their economy but I will focus, of course, mainly on the parts dealing with the monetary reform.

When you open the MOU please go to section namely “C. Foreign Exchange Policy”. This is the juicy part and the golden nuggets for today.

 I quote from the MOU – “The government will gradually remove remaining exchange restrictions and multiple currency practice (MCP) with a view of eliminating exchange rate distortions. Such a move towards acceptance of the obligations under Article VIII of the IMF’s Articles of Agreement will sent a positive signal to the investment community that Iraq is committed to maintain an exchange rate free of restrictions and MCPs for current international transactions and thus create a favorable business climate”.

So the further explain what this quote from above means I first set the groundwork since many of you still do not fully understand how the economy of Iraq functions today. I will need to explain further how Iraq’s currency now works. Iraq is now under the UN charter and is a member nation. This is why it was so important and imperative in the summer of 2013 to get out of the majority of sanctions from the war. Under the UN charter member states do not necessarily get to have a global recognized currency unless they meet all the necessary mandated banking practices, investment and currency rules. The IMF has been doing business with member nations for a very long time and have these rules down to a science. So in the process of establishing these the needed laws and procedures to comply with the IMF mandates, Iraq was put under Article 14 Transition Agreements of the UN charter which is the intermediary state prior to moving to Article 8 (which is the general monetary policy obligations of a member nation).

Article 14 is a training period also for the member nation to learn and establish the necessary monetary obligations it will be subject to later. The key I am  trying to explain to you is nations just don’t suddenly move to Article 8 they must EARN it and it takes some time to learn and implement the global practices. But when the IMF sees they are fit and ready they will move into Article 8 and they will move the dinar to the global exchanges at that time. Would you take the training wheels off your kids bike if you knew he/she was going to crash and get hurt? No- you would first gently help the kid in the learning process and one day, if they do not request it on their own, you will take off the training wheels, but still only if you see their progress in riding the bike warrants the risk and the likely hood of crashing and burning is minimal.

So you see many of you want to know what the hold up to the RV is. There is no holdup except Iraq is not ready. I hope that after today’s news letter you can better understand this statement.

Your inquiry (as to what is the holdup) only comes from these so called intel “gurus” who keep pumping you with this nonsense that the RV will happen any day/ every day and should have already occurred and I quote from one of the calls I listened to – “ it is a marvelous Wednesday and I don’t know why we still sit here without an RV”. 

So to explain further first I have to add that Iraq is under a “closed economy”.  What does this mean?

It means they are shut off from the rest of the global economy. Yes – they can import goods to survive and they can export oil for revenue but currently (because they do not yet have their currency on the international exchanges) they must pay their bills in foreign currencies namely the currency of origin (but the US dollars is mostly used a common denominator too smooth over these business transactions). They can not by law use Iraqi dinar to buy goods or services with the outside world (at least not until they are in Article 8). These payments are handled mostly by the CBI state banks use the mechanism of the CBI auctions bring their dinars and purchase US dollars for this purpose.

In the future Iraq, when the dinar is on the global exchanges, will conduct these foreign trade   transactions under the World Trade Organization (WTO) using the World Bank. Thus the need for the CBI money auctions will go way because all these currency trade payments can them be made in the dinar and they will no longer have the need to convert to US dollars (the currency media of exchange) first and use the CBI for this purpose. So right now because they are using the CBI this opened them up ripe for corruption in these auctions in the rate category.

Do you remember the articles we read a year ago on the WTO seminars conducted with Iraq?  This was their education on banking process and interfacing with the World Banks, setting them up for the future.

So let’s make some connections here from what I just said. Now you understand more fully these auctions and why they conduct them and their usefulness. Also I want to point out that the major push now is for Iraq to diversify their economy. We have read countless articles on this topic.

How will they export their goods from Iraq once they diversify? Instead of payments for IMPORTS they will have too receive payments from international venders for their EXPORTS. So how will they interface with these international venders/wholesalers/companies who come to Iraq to buy goods?

How will they accept their currency and what rate will apply in converting it from the foreign rate to the dinar rate unless they have a stable rate?. Otherwise the value of the dinar will fluctuate like it now is and we know this is now part of the problem since Iraq is moving to a global economy and this is part of the transition pains. Currently Kurdistan trades at one rate, Baghdad trades at one rate and the CBI auctions off at another rate. This must be all standardized, stable rate. Without being on the global exchanges it is very difficult to standardize it since this would be the place to go for the rate. The best they can do it try to stabilize it over a period of time and prove to the IMF they can control their currency of their “closed economy”.

How can they interface with the rest of the world if they do not yet have a currency of their own that is tradable with the international community? So can you see the change that has to happen and why?

Many of us are disappointed that this sudden and prolonged drop in oil prices has hurt Iraqi economy and thus feel it is effecting ans slowing down the process of getting the RV done.

But I totally believe it is having just the opposite impact. In fact this economic downturn is like making the child take the training wheels off the bike and learn to ride the bike independently. The drop in oil prices is forcing / facilitating/ pushing the diversification efforts ahead.  We all should know Iraq by now and these middle eastern people do not do anything on time and have a warped sense of time compared to westerners.

Now you know the ultimate outcome of this diversification process for Iraq as far as we are concerned in getting our RV and being able to go to the bank and exchange our dinar, thus with a significant increase in the rate.

So when Iraq finally is forced to get the currency back on the global exchanges, the speculator and investor factors will drive the increase in the rate. But here is the clincher - the IMF must first significantly raise the value before popping the currency back out to the global exchanges. Why?

If not it could devastate the economy of Iraq as cheap money will cause a surge of flow back into Iraq and it could cause a inflationary situation once again. Too much currency in the cycle. I admit I am no economists and do not want to pretend I know too much in this area but we can all see the value must rise to the assets of the country prior to opening the currency up to the public sector in conjunction with the economy. So what rate is the most probable? We know the rate was around $3.22 prior to the first gulf war. If we add on equity for the additional oil wells, the gold mines and realization of the other diversification efforts we can easily see a $4.20+ rate.

So let’s continue with our analysis of this recent MOU between Iraq and the IMF.

If you are in the MOU and reading namely section C Foreign Exchange Policy you also see some other amazing points of interest I need to bring to your attention. It also mandates and states Iraq “will” do certain tasks in the regards to currency reform for it’s foreign exchange policy. To me this is nothing but a huge amazing “WOW” for me since what they are telling us ties together very nicely with many of these recent laws we have witnessed come into reality over the recent past months. We now have the connection we need to these laws. It is all coming together for us. Do you see it?  Mnt Goat kept saying we needed these laws and so now I have to say “I TOLD YOU SO”…..lol…..lol….

So first condition is (was) to mandate that the Investment law be amended. Investors need to be able to transfer their investment proceeds out of Iraq. How will they do this if they realize profits in dinar in country but can’t  only transfer dollars or other foreign currency out of Iraq without a standard rate. Since Iraq is now a closed economy to the rest of the world what rate would they use for the conversion?

This goes right back to what I just talked about above in the question - how can exporters take their profits out of Iraq if Iraq does not yet have an international recognized currency? I believe this necessary amendment may already be done.

I quote from the article – “As a first step the government will by end of -February 2016 amend the Investment Law or issue clarifying implementing regulations, to  remove the limitation of transfer of investment proceeds that given rise to an exchange restriction, as recommended by a recent technical assistance mission of the IMF”.

Next we read about mandated reforms for anti-money laundering and anti-financial terrorism. Wow! Didn’t we witness the implementation by Iraq to meet these mandates by the passing of some recent reform laws too?  Amazing and now we see how these laws all connected to the currency reform process. I hate to say it to all you so called intel “gurus” – BUT THE REFORM LAWS DO MATTER AND WE WILL NOT SEE THE RV UNTIL THE MANDATED LAWS ARE ALL COMPLETED and now you have proof.

Do you all understand now what I have been saying all along for years now is FACTUAL.

NO Hype, NO Rumors, just the FACTS.

Now let us move on to namely section “F. Banking Supervision”.

If you read this section it contains information mandating that Iraq appoint international auditors to conduct  audits of  two out of the three state banks that conduct 89% of the transactions with the outside world for Iraq. Remember Iraq is now a closed economy but must still import 90% of its goods and services as well as export it’s oil. There are other banking practices to that are mandated and I will not review them all here today. But you can read them. I am just trying to make a point. Do you get my point?

Do I have to explain anything more as to why the IMF is doing all this?  They are doing this to review their financial statements to ensure they have sound banking practices since these are the banks that will be conducting the majority of the interface with the WTO and world banks later on. We have witnessed many articles already on these audits and so I believe they are all completed as is much of what they talk about in this section on Banking Supervision. They even come right and tell us this in the MOU.

So what do you think this all in preparation for?

Do I have to spell it our any louder to you…IT IS FOR INTERFACING WITH THE GLOBAL ECONOMY.  Again this all ties into what I talked about before in this news letter DIVERSIFICATION AND OPENING THE IRAQI ECONOMY UP TO THE WORLD’S GLOBAL ECONOMY.

Look at the mandated dates of completion. It is all tying to end of February. Yes – Late February! Do you think this might be important for our analysis of when the RV might occur?

So what dates have I been talking about all along? Late January to early February. So now maybe we must adjust our timeline again to late February to early March? Sorry! To be fair we must adjust based on this recent news we are hearing. But this is also good news because now we see the progress and can understand it. We have never been closer and now see real concrete measures being taken to get this monetary reform done.

It is also note worthy that the CBI has come under a TRUST  with the IMF. What does this mean? This means the IMF is the trustee and can legally dictate policy to the CBI and so if the GOI has any intentions of ever progressing out of the economic mess they are now in, they too must go along with these policies. This was all done in secrecy to enable Iraq to obtain the latest round of loans from the IMF. I say kudos to the IMF and it is about time they took more control in helping Iraq. Ultimately Iraq will succeed and now we can see it will be much sooner than later by this recent action. This new trust also ensures Iraq will pay its debts to the outside world and it actually not only very good for us (and getting our RV) but also for the rest of the investors doing business with Iraq. They must pay their debts.

I want to begin my reporting to you today for currency reform news with something that I have been saying all along will begin to trickle in once we reach mid to late January. So here it is right on time. Sometimes this news is almost predictable and that makes it kind of scary, funny in a way. Let’s hope everything else continues too on the predicted path....lol...lol...

If you read the entire SMP you will see that that the IMF states there are three remaining items for Iraq in the movement to finalization to Article 8 of their currency reform program. I am NOT quoting but summarizing them for you.

#1 – Make settlement payments to Jordan ( not sure what these payments are but I did see an article telling recently some payments were made to Jordan)

#2 – Pay foreign investors for their goods and services. Meaning any money to be taken outside of Iraq for this purpose. Remember the suite against the KRG by the oil companies in the international courts for back payment of owed salaries to oil company employees. In other words the IMF wants all these skeletons in the closet concluded prior to moving to Article 8.

#3 – stabilize the market rate vs the auction rate multiple currency practices (MCP). I talked about this issue above and so we see the IMF needs Iraq to be able to control their currency value by 2%. We know Dr Shabibi was able to do this for 11 months back in 2012 and we know the IMF also approved to the go-ahead with the RV for October of that year. But the MOU does not talk about duration as with Dr Shabibi in 2012 the mandate was for at least 90 days. I personally believe they will not be able to ever accomplish this task and in the long run close will be close enough considering everything else. I also believe that if they can just standardize all the rates to one common rate in all parts of the country they will be hugely successful in this mandate.

Now read the recent article below. This just came out over this past weekend January 16th. The SMP was just approved by the IMF on January 15th 2016. Do you get the connection now with what Iraq is doing vs what mandates they need to satisfy by the IMF?

What has Tamami been telling us all along in the committee findings on the audit conducted on these auctions? Did you read my recent past 10+ news letters? I included multiple articles on thus subject matter. Again I will say I have been told by my CBI contact to watch the currency reform and this is where our attention should be focused right now. Not on Iran and the value of the Rial, or on Maliki or even on fighting ISIS.

Article Begins

THE CENTRAL BANK PLANS TO UNIFY THE EXCHANGE RATE OF THE DOLLAR SOLD IN THE AUCTION AND THE MARKET

BAGHDAD / JD / ..
Revealed to the economic and investment commission in Parliament about the government's determination obliging the Central Bank of the consolidation of the dollar exchange rate in the auction sold the domestic market, likely raising the value of the dollar against the dinar in the shadow of the financial crisis in the country.

He said committee member Rep. Najiba Najib told / JD / that there is an urgent need for the government to reconsider the monetary policy of the country, the fact that there is a real rate of the dinar against the US dollar because of the current dinar price of 1,166 is the same as when it was sold for a barrel of oil for $ 111.

She added that the financial crisis facing the country as a result of the drop in oil prices to unprecedented levels require the lifting of the dollar exchange rate against the dinar and will resort to it the government requiring the central bank in addition to the UNIFICATION OF THE EXCHANGE RATE AT THE CENTRAL BANK AUCTION AND IN THE LOCAL COMMERCIAL MARKET, where the dollar exchange rate at auction Central dinars in 1190, while the market in 1240 dinars.

Article Ends