Impact Iraq: Can the Country Save Itself from Global Economic Crises?

The industrialized world continues to struggle through a prolonged economic crisis. An Iraqi commentator in Berlin considers the impact of this on Iraq and how the country might avoid negative effects of a global recession. in this article from Niqash.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

The Euro zone’s debt crisis, the US recession, a slowdown in growth and sharp fluctuations on global markets for stocks, currencies and raw materials: all of these indicate that the world may be facing the worst prolonged economic contraction since that which swept the world’s industrialized countries after World War I.

The question is: what impact will all of this have on Iraq?

At first glance, the answer seems easy. Iraq shouldn’t suffer too much. Iraqi banks don’t hold Greek bonds and don’t much care whether Greece is bankrupt. And as long as they are preoccupied with trying to find solutions to pressing intractable domestic problems, such as power shortages and corruption, Iraqi decision makers are not thinking a lot about what is happening inside the US or European economies.

But such disconnectedness is hardly a good sign. It is an indication that much of the Iraqi economy is not linked to the global one. And this disconnectedness is also seen in Iraq’s financial markets – more specifically in the banking sector and on the Iraqi stock market – which haven’t been able to attract much foreign investment.

Additionally because Iraq is so dependent on oil exports for its national income, the country is exposed to global market fluctuations. Any changes in oil price have an impact on the federal budget. And because, in light of a weak private sector, the Iraqi government is the main driver of the local economy – among other things, the government is the biggest employer in the country – any impact on the federal budget will have an impact on the local economy.

In light of this dependence on oil, the Iraqi government should be thinking about how to build up some financial reserves in case of unexpected developments.

12 Responses to Impact Iraq: Can the Country Save Itself from Global Economic Crises?

  1. Mark 5th December 2011 at 21:39 #

    Why can't we get the true story about the Iraq Dinar? We have heard from guru's all over, and from neysayers all taking their stance on htis issue. Is it safe to assume with what is expected, predicted and fortold in biblical writings, that Irag is to become one of the weathiest countries on earth and is postured at this moment and has been moving in the direction for the last 8 years. There are suppositly quite few investors who have made a fortune in the currency markets, why are the neysayers so intend on running this investment down? I have read more plus from economic experts to say that this is going to happen, and all I have heard from the negative is their opinions. Can someone who really knows what is going on step up and with facts and proof of their facts come forward and enlighten all of us.

  2. Stew 5th December 2011 at 22:56 #

    Mark... If Iraq currently had 30 billion dinar in circulation, and each one was worth $1, and I tried to convince you that the dinar was a great investment and was going to revalued any day now to $1000 to $3000 per dinar.
    What would your response be to that?

  3. JC 6th December 2011 at 23:17 #

    Stew: Your example seems to be wild but it can be true. Iraq owes money to many countries and if they try to pay them back at the currant rate they would still be broke. Iraq needs to revalue and have an increase in oil exports to off set the money. If you buy oil with USD the conversion would be in the billions. The economy needs to be conversing in amounts that everyone can understand. Not 50,000 for a gallon of milk. It is going to take a drastic move to bring everything into order. In the big picture not many people believe that it could happen so the ones that do will benefit and the others will just fall into place.

  4. dinarholder 7th December 2011 at 00:31 #

    The people that really know what is going on are the ones telling you it is a scam. The investors that make a fortune in currency markets are the ones sitting there trading all day long, they didn't make that fortune from buying one currency and sitting on it cause they thought it was going to revaule at 3,000 times it's current rate. And rv "any day now" ??? don't you mean any MINUTE, at least that is the rumor I'm hearing now.... "any day now" is so last year. I hate to be a pessimist but I've been invested in this for over a year now and with all the research I've done the only place I'm finding positive news is from dinar dealers and dinar message boards, which just happen to be supported by the dealers.

    Answer me this: Most claims are that the dinar will be rv'd and will be close to the rate it was before the UN placed sanctions on them so somewhere around $3.20 right?
    When 1 dinar was = to $3.20 it was the OLD dinar and is not the same as the NEW dinar. So tell me, how much old dinar was in circulation?
    and now tell me how much NEW dinar is in circulation now?
    What was the GDP of Iraq then, compared to now.
    And the last question, after reading the above article, can you really say that you belive their currency is undervalued by 3000%

  5. Stew 7th December 2011 at 06:31 #

    The funny thing is, and most people don't realize it. The old Saddam dinars were NEVER worth $3. Never!!!!
    It was the Swiss dinars from the early eighties that were worth #3.
    By 1990 the Swiss dinar had fallen to about 10 cents... and it was about 1990 when Saddam started printing his own money. The Saddam dinars didn't even exist when they had a good rate. Saddam printed up trillions of dinar that had no backing and drove the value down to 3000 dinar per dollar.
    It's amazing that the entire dinar world ignores the "supply" side of the dinar value equation.

  6. Stew 7th December 2011 at 06:43 #

    And... here's JC saying that it's ok for Iraq to have $30 Trillion currency in circulation. Iraq has less than 1/10 of 1% of the worlds economy.
    The whole world only has about $5 Trillion worth of currency in circulation. Take all the dollars, then take all the Euro, Yen, Yaun, Dinar, Pounds, everything... convert the value to dollars... all the currency in the world adds up to about $5 trillion.
    So Iraq with 1/10 of 1% of the worlds GDP can have 6 times more currency than the rest of the wotld combined???????
    I'm guessing those aren't the kind of facts the original poster had in mind.

  7. shane 8th December 2011 at 18:18 #

    the us loaned 7 trillion to us banks alone in the last few years..which the banks basically got at a 3% discount and nade billions off the taxpayer.....

    i don't think many people actually really know what they are talking about

  8. Stew 8th December 2011 at 22:25 #

    Shane... do you think the US printed up currency and sent it t those banks??
    Do you know the difference between currency in circulation, m1, and m2. Obviously not.
    Currently... the United States has appox 1 Trillion dollars in circulation. That's enough for everyone in the United States to have plenty of cash... it's also enough so that people in countries all over the world... take Iraq for instance, who don't trust there own currency and would rather have dollars, it's plenty for all of them too. That's 1 trillion dollars in circulation.
    Iraq has 30 Trillion dinar in circulation. there is practically no need, no demand for dinar bacause no one wants them... except scammed investors. A lot of Iraqis don't even want them. Iraq's economy is mostly oil sold for dollars and euros. The Iraqi economy produces a very small demand for dinar. TINY demand. Yet they have 30 times more dinar than the US has dollars... and people all over the world want dollars.
    Now if you want to talk electronic money... then the numbers are different. M2... the United States has a M2 of about 10 Trillion. Iraq has a M2 of about 60 Trillion. They still have 6 times more than the US even in that comparison. By the way... the US economy is about 20% of the entire worlds economy. Iraqs economy is again... less than 1/10 of one percent of the world economy.
    Any talk of a big RV is scam.

  9. shane 9th December 2011 at 00:00 #

    Perhaps you are right...maybe it is a all a scam, but I do not see how their currency would not re value at all and substantially, and it seems to me that the next couple of months would be a good time if it was ever going to, with US leaving, Chapter 7 being lifted soon and all the wealth in the country..They should be a publicly traded currency at some poin, and for much more than you can buy it for makes sense to me when i look at it that way

  10. Stew 9th December 2011 at 01:10 #

    I just pointed out to you that all the oil is sold for dollars and euros. What other wealth are you talking about?
    Why would you think the dinar would be publicly traded? No other oil producing country has a free floating currency. In fact the GCC has stated that even when they all merge to one currency, that they will still have a pegged/managed currency. They hope that eventually, years from now, they will be able to free float the GCC currency.
    Iraq has actually stated that they will not free float the dinar. They have actually stated they will set up a forward market for buying and selling dinar. Gurus were too ignorant to understand that meant the dinar would not be on the forex.
    Iraq has a $80 billion dollar a year economy. At least 80% of that is from oil sale done in dollars and euros. That leaves about $16 billion a year GDP that is dinar driven.
    How much dinar do you think they need for that size an economy?
    They don’t need much… there is a thing called “money velocity”. It’s the number of times a unit of currency is re-used in a year… here is a nice example from wiki…
    If, for example, in a very small economy, a farmer and a mechanic, with just $50 between them, buy goods and services from each other in just three transactions over the course of a year
    Farmer spends $50 on tractor repair from mechanic.
    Mechanic buys $40 of corn from farmer.
    Mechanic spends $10 on barn cats from farmer.
    then $100 changed hands in course of a year, even though there is only $50 in this little economy. That $100 level is possible because each dollar was spent an average of twice a year, which is to say that the velocity was 2 / yr.

    What is your reason for thinking it should RV? Iraq has 30 trillion dinar worth about .001 a piece… that’s $30 billion worth of dinar in circulation. That is WAY WAY more than they need for a $16 billion GDP (dinar demanding GDP) They have too much currency at this point actually. The reason they have too much is because speculators all over the world have bought into this scam and have removed trillions of dinar from the economy and have it in shoeboxes in their closets. The Iraqi government thanks you for participating... or in other words, they thank you for keeping all those dinar from participating.

  11. shane 9th December 2011 at 21:34 # can trade other oil producing countries that sell all oil is based on US dollars..they all sell based on USdollars,but they still have their own currency,and there is still an exchange rate for that currency kuwait,dubai,suadi arabia

    these are not free floating currencies..

    yet, I can go to my bank and buy/sell them,and for much more than what the iraq dinar is currently valued at..comparable to the dollar.

    here are the only free floating currencies

    Will Iraq be on the way to being in the same league with their counterparts in the future?...have they not endured enough to earn that?...they have the resources already we know that,so I don't see why not...they have been declared a sovereign country but won't truly be so until we are completely out and they are out of chapter 7 which should happen in the near future...I am not claiming the millions we all hear about but over time and maybe even soon there should be some decent evaluation and reform that will strengthen their purchasing power and add value to the dinar.. their budget for 2012 alone is 117trillion dinar or about 100 billion with a deficit of 14.5 billion or 17 trillion dinars...This is precisely why there will be reform and a restructuring of their currency. in my opinion..and even if I am completely wrong...big deal..I can take back my dinars at my bank and sell them back...minus the spread I won't lose much....but if it goes the other way....who knows?? if nothing else it helps me stay current on the latest events in the world and is fun to think about

    I think your example is fairly correct but as you say in your example
    :in a very small economy" they are not going to be a "very small economy" by a long shot..look at all the investment,and foreign companies (including US) lining up already with many more coming..Do you really still think we went there because of "weapons of mass destruction crap" of course not you seem far to intelligent to believe this...How about we stay in contact and we will see if there is any change this time next year..with chapter 7 being lifted and the troops gone and them finally being a sovereign Nation...

  12. dinarholder 10th December 2011 at 20:27 #

    "their budget for 2012 alone is 117trillion dinar or about 100 billion with a deficit of 14.5 billion or 17 trillion dinars…This is precisely why there will be reform and a restructuring of their currency"

    quote from article
    "We expect the 2012 deficit to be met by additional exports and firmer oil prices,” he said.
    More than 90% of Iraq’s hard cash earnings are generated by oil exports.
    Akram said the budget was based on an average export level of 2.6 million barrels a day.

    He said the Central Bank adopted what it believed to be a low export figure to ensure that the development plans in the budget were achievable.

    The Central Bank, he said, was aware of assurances by the Ministry of Oil of a substantial hike in oil exports in 2012"

    Though the numbers are different between the 2 articles here's another (i believe the one you got your figures from, showing that anyone can take stuff out of context and make sh*t look like a diamond)

    "Iraq’s 2011 budget was $82.6 billion, based on an average oil price of $76.50 per barrel and 2.2 million bpd in crude exports.

    Iraq also has $4.5 billion in International Monetary Fund loans available should it need additional funds"