Iraqi dinar currency and the Federal Budget of 2015
There is much anticipation for the upcoming Iraq government budget meetings. There are several different committees reviewing the budget to see if it will work for the year 2015. There is a budget deficit of 23 Trillion dinars and to cover the shortfall the Iraqi government is adding a tax to the Iraqi people. In my last post, I outlined what exactly those taxes will be for them. The Iraqi population is not used to paying taxes, and this is needed to help with the 2015 budget deficit. The Iraqi government will be seeking a loan from the International Monetary Fund (IMF) of several billion dollars. There are problems with the budget, and it is going to be sent back to the Council of Ministries to be cut and negotiated again. The next official meeting of the parliament is on Wednesday, January 7, 2015 and do not be surprised if postponed to a later date. The budgets of 2012 and 2013 if you remember were not completed until March.
Iraq Government to Collect Taxes from the People
Unfortunately, collecting taxes from the Iraqi people will be problematic for the government because of the corruption. For an example, a state tax collector employee who goes to an Iraqi residence to collect taxes for the usage of government-run electricity. The tax man hands an electricity bill to the owner of the home and is expecting payment for the electricity used for the previous month. There is no credit card payment, bank check, and no Paypal either. The tax collector writes a bill for an example $100 and collects the money from the residence owner. The tax collector re-writes the bill for $75 and pockets the other $25. At the end of the day, the tax collector turns in the adjusted receipts. The tax collector will also give some of the money to his supervisor who wants his cut also. This is just one example of how the corruption occurs when you have cash only system. Moreover, now the government wants to start taxing the people, I just don’t think it is going to work the way the government thinks it will. There is no paper trail when you have cash only society.
Iraq and the IMF reports
In early December 2014, the IMF closed its Baghdad office. The IMF has been working in Iraq shortly after the invasion in 2003 and has decided to close the Baghdad office. The IMF still has a location in Amman, Jordan. The Amman office is a few hours away by plane if the IMF is ever needed back in Baghdad for further meetings.
The IMF did not complete the 2014 Article IV Consultation because the government failed to pass the budget in 2014. The IMF is currently working on the 2015 Article IV Consultation for Iraq. The IMF has notified the Iraqi government that the 2015 Article IV report would not be published while the government is still working on a budget.
Iraqi Private Banks
The private banks in Iraq are trying to step up to the plate and work on getting the private sector working on projects. There are several thousand projects in Iraq that have stopped because of lack of funding. The government would like the private banks to merge and be larger banks with more capitalization. No Iraqi bank has yet to merge with a large western bank. Iraqi citizens do not trust the banks in Iraq with the exception of the two state-run banks. Even then, it is still not there with Iraqi’s rushing to deposit their money in the bank. The government is considering legislation of Deposit Insurance just like the FDIC in the western world.
The Kurdistan Regional Government (KRG) signed an agreement with the central Baghdad government authorizing them to export oil. The KRG has permission to export a certain amount and report to Baghdad. The KRG has agreed to the conditions set forth in Baghdad, however, the KRG may not be following the agreement. The Ministry of Finance (MoF) Hoshyar Zebari, brought up concerns that the KRG is not allowing the central Baghdad government to oversee the exports of the KRG oil. Minister Zebari said KRG has not referenced Baghdad in their exporting of oil, and this will lead to loss of confidence between the parties. The KRG not involving the central government would be a threat to the recent oil agreement. The KRG government does not like for central government representatives to be in the KRG overseeing the oil exports. The KRG does not like transparency when dealing with the central Baghdad government and its oil.
In recent media reports, the Islamic State has been going into Erbil and buying business or developing business there. The funds are coming from the proceeds from oil smuggling or other criminal activities by the Islamic State. The Islamic State is trying to destabilize Erbil by conducting business in Erbil. The KRG should be watching this carefully as sleeper agents would be a threat to the area.
The Iraqi government is worried about the worsening cash crisis. When people are not noticing any movement in business, they resort to holding onto cash and quickly convert the IQD (Iraqi Dinar) to U.S. dollar. Dollars are easier for transactions and more comfortable to carry in cash only society. The Central Bank auctions are noticing high records of dollar sales to banks and currency exchange stores.
Prices for goods in Iraq are rising. You can now buy a liter of fuel for 1,000 IQD or $1. When there is fear of the economic downturn in Iraq people start to not spend money on things they do not really need. They spend money on things to survive from day to day. The security is on everyone’s mind, and it affects business in Iraq.
Sunni Delegation Heading to Washington D.C.
Next week there will be a Sunni delegation that will be in Washington D.C.. They will try and convince the U.S. politicians to give support to the Sunni groups in Anbar. They would like to receive weapons and logistical support. The Baghdad government has been holding off in giving any aid to the Sunni groups. The Iraqi government has a fear that if you give the Sunni groups weapons to fight the Islamic State then what happens after they are eliminated. The fear is that maybe the Sunni groups would point the weapons at the Baghdad government after the Islamic State is destroyed. The Baghdad government has been asking the U.S. to provide the guns for the Sunni groups. It is unclear if the U.S. would follow through with the Baghdad request.
The Islamic State according to reports in social media has opened its first bank in Mosul. The Islamic State bank is now issuing gold, silver and copper coins to conduct business in the Islamic State caliphate. This is not confirmed, and no other western media have reported on this as of yet. I created a short video about the Islamic State coins and how they were distributing written brochures to educate the populace on the new gold and silver dinars. You can watch that video on the American Contractor YouTube channel.
The Islamic State still controls large areas of Tikrit. The Iraqi Army was able to secure and place an Iraqi flag on top of the east gate. The Iraqi army is preparing to enter the city of Tikrit and conduct military operations against the Daesh or Islamic State.
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