Iraq Chapter Seven and the IMF
Everyone would like to see for the most part Iraq get out from under Chapter Seven Resolutions as soon as possible. As I’ve mentioned in previous newsletters and commentary Kuwait has a major problem with releasing Iraq from Chapter Seven. Last month in May, the Iraqi government had a few setbacks just before negotiations with officials from the United Nations (UN) and the International Monetary Fund (IMF).
First, PM Maliki had announced that he was going to start a cabinet shuffle and replace a few cabinet members and you had the Iraqi Parliament with there quest to question several Iraqi government ministers such as the Trade Minister and Oil Minister and other Ministries.
PM Maliki knew of the allegedly corruption problems of the Trade Ministry office and I am sure PM Maliki wanted to fix the problems with his Trade Minister Abdul Falah al-Sudani. You remember that in March security officials went to the Trade Ministry office and attempted to serve arrest warrants before it was foiled by the Trade Ministry’s own armed guards. Then in mid May Trade Minister al-Sudani was trying to flee to Dubai and possibly back to the U.K. since he is a holder of dual passports and was arrested and now out of jail after posting a $42,000 bond.
Then you had the problem with Kuwait who made it known that they wanted Iraq to remain under Chapter Seven until Iraq makes good on the war reparations and retrieving back Kuwaiti property. This is still unresolved and both parties will continue talks.
All that I have mentioned ties into the IMF loan and in a indirect way the Chapter Seven and I will give my commentary and analysis on both.
My prediction still is the IMF loan that is reported to be somewhere in the 5-7 Billion dollars will be only after the Treasury Bills (3-5 Billion usd) is approved by the Iraqi Council of Representatives (COR). The Treasury Bills will be sold by Central Bank of Iraq and buyers will only be from the Iraq banking sector. The Treasury Bills will pay 2 percent interest and will have a life of one year.
The Iraq COR will decide the actual amount whether it will be 3 Billion USD or more or less we will just have to wait and see what happens. Then you will see the IMF loan come into play and progress through the Ministry of Finance and Central Bank of Iraq officials and eventually the COR.
I am going to start talking about some of the stipulations that the IMF will possibly place on the Iraqi government that has been reported in either open source or from my network of professionals if and when they accept the IMF loan.
Structural Reforms to the Monetary and Economic Policies
Privatization of State Owned companies
Food Subsidies (Ration Card)
Restructuring of State Banks
You already know about the Central Bank of Iraq (CBI) just recently changed the interest rate from 9 to 7 percent. This was a signal to the Iraq banking industry to start generating loans to the Iraqi business and individuals instead of hosting the banking capital inside the CBI and earning interest with out any risk to the banks capital. If this move by the CBI does not create the activity it is trying to obtain it will most likely adjust the interest rate again. Some may think this is all done in agreement with the IMF as part of the SBA loan conditions. Remember those benchmarks?
The Privatization of State owned business could possibly be another stipulation from the IMF for Iraq to receive the SBA loan. This will prove difficult for the Iraqi government considering this is an election year and the Iraqi government would be hard pressed to stop the subsidies of the government workers. Even though the State owned enterprises have or most have been closed for several years the Iraqi government still continues to pay the salaries of the Iraqi workers who are currently not working. The Iraqi government refuses to fire the former State owned workers.
The Ration Card is another complex problem for the Iraqi government and I will explain my perspective on this. As you know the Iraq government Ministry Trade has sole responsibility for the ration card and its distribution to the Iraqi people. All Iraqi’s have a ration card some have
more than one ration card and I’ll explain but first let me give you some background info.
The former Ministry of Trade al-Sudani, was arrested as you know and was replaced by the Premier PM Maliki since then the now acting Trade Ministry is the State Minister for Parliamentary Affairs, Safa al-Din al-Safi, and now is learning the affairs of the Trade Ministry.
The Iraq Ministry of Trade has oversight over various imports, including food staples, automobiles, and construction materials. The Iraq Trade Ministry also is responsible for the program to provide monthly food items for Iraqi’s, things like sugar, rice, milk, tea, cooking oil, and soap and all at deep subsidized prices.
Under the old Trade Minister there were frequent shortages, food that had been sitting for long term and distributed long after the food had expired and inedible or unfit for consumption. This would cause outrage with the Iraqi people. Now you see why they had problems at the Iraq Trade Ministry.
Each Iraqi uses the ration card to obtain these items in the following increments. You thought you had it rough in the good ole USA look at this list.
4-5 liters of Cooking Oil
2 kilos of Sugar
5 kilos of Flour
3-5 kilos of Rice
½ kilos of Salt
300 grains of Tea
3-5 kilos of Powdered Milk
2 kilos of Laundry Detergent
2 bars of Hand Soap
1-2 kilos of Beans
Each Iraqi Ration card holder after picking up these items that I have listed pay 25,000 Iraqi Dinars or $15 US Dollars.
This is each Iraqi’s security net and they collect these rations each month. I made a statement earlier that some Iraqi’s have more than one ration card. Let me explain this if you have a family of six people and all will have a ration card. At the height of the conflict say four people in your family fled to Syria for safety reasons and the other two members stayed.
The other two members that stayed inside Iraq collected the other four family members that fled to Syria rations for the month. The reason which is very common is that you have to maintain the ration card by getting the rations every month because if you stopped using it then that
person will be dropped from the rolls of the ration program. And to get back on the ration program is very hard.
Now the security so they say, has been better then last year and the other four members that were living in Syria decide now to come back home to Iraq. Now they still have their active Ration Card and can continue receiving the rations each month without having any disruption in receiving their monthly items thanks to the other family members continuing to receive the items.
Now if the IMF in regards to the SBA loan program had a stipulation for the SBA loan to reduce the subsidies of the ration distribution program how hard do you think that will be considering Iraq is still suffering from high unemployment, electricity for 2-4 hours a day, no water, and basic services. I am not saying it is not possible just very tough to do especially in a election year.
It will be awhile before Iraq can raise the standard of living for the people of Iraq and even if they do get the IMF loan it will still be only a third of the budget deficit. The IMF loan at the end of the year or into 2010 and before that the International Compact donors give there reconstruction funds in October 2009. I will keep updating the important Iraq dates at the top of the newsletter.
IRAQ OIL MINISTER
As you know the COR has been wanting to question the Oil Minister Hussein al-Shahristani, in front of the Oil and Gas committee of the Council of Representatives. To ask questions about the allegedly oil corruption and the lack of Iraqi oil exports in the last several years. And most likely questions about the first round bids which would be announced at the end of the month.
The Oil Minister will appear for his questioning session by the Oil and Gas Committee next week on Tuesday, 23 June, where he will answer questions from the committee.
The questioning is just in time before the announcements for the first round bids on 29-30 June. As I have said in the last newsletter do not be surprised if the bid announcements are postponed to a later date.
The Russians are engaging the Iraqi government on all levels and want to be assured that they will be obtaining Iraq Oil Contracts just like in the old Iraqi Regime days. They are a permanent member in the UN Security Council and they most likely will vote no in the lifting of the Chapter Seven from Iraq. They are using this as leverage against Iraq.
Iraq can afford to wait till the end of the year when the Chapter Seven officially expires. Either the resolutions will expire or be extended into 2010 and it all depends on the oil contracts. If you have problems with the Oil Ministry officials this could create delays in ever passing a agreeable Oil and Gas Law and the issuing of new Oil Contracts.