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Dr. Abdul Hussain Al-Anbuge *: Iraqi Central Bank reserves was growing increasingly structure .. budget imbalance

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Dr. Abdul Hussain Al-Anbuge *: Iraqi Central Bank reserves was growing increasingly structure .. budget imbalance
- PUBLISHED IN 08/26/2015
Abdul Hussain Al-Anbaki-CBI PDF reading scrutinizing Economic Assessment report for the financial statements of the Central Bank of Iraq for the year 2012 prepared by the Company under the (Ernst Young) - where the report has not issued the latest ...
Abdul Hussain Al-Anbaki-CBI PDF

In reading scrutinizing Economic Assessment to determine the financial statements of the Central Bank of Iraq for the year 2012 prepared by the Company under the (Ernst Young) - where the report has not issued the latest after - it becomes clear that the central bank's foreign exchange reserves was significantly grow in the years of financial prosperity and underdevelopment service years, but the balance sheet suffers from a significant structural imbalance is the other, which diagnosed a defect clear in reserve management and ways of investment and investment priorities and the manner of the country needs to contribute to macroeconomic policy system all and meticulously crafted to finance development needs and diversify the economy and reduce the leakage of foreign exchange from income cycle, so it was a decade of lost development joined the previous contracts, and could be dealt with the following themes:

First, the budget imbalance ..aguetsada structure and not an accounting:

There is no problem on the balance sheet of the Central Bank in terms of the structure of organized formal (accounting tab), but the problem lies in the deformation of the relative importance of each type of asset (the rights of others) as well as the deformation of the relative importance of each type of liabilities (non-upon rights), which an imbalance economic and deformation clear, in the sense that they are not in line with economic logic, especially in a country suffering from developmental gap needs to be supported by fiscal expansion expansion of cash to bridged through investment, and the task of the relative choice of the types of assets and liabilities is shown from the purview of monetary policy management in the country , and the disruption of the budget indicates an imbalance of monetary policy accordingly.

Disruption of assets structure:

Figure below shows clearly distort the assets structure where we note the dominance of held-to-maturity investments to reach more than 60% of the central bank's assets in 2012 and represents the Bank's investment government bonds foreign may be retained until the maturity date being plunged into (a trap waiting for payment) that you get when falling government bond prices to the lowest of the purchase time issue price-statement, on the sale of loss - as a result of affected Bartdadat the contraction in Western economies by the financial crisis - so have the bearer keep them until the payment due remains to reap the benefits of it, an indicator of poor investment and the weakness of flexibility in switching to other assets or do Baltnqad (liquidated).

The other important point is that it represents up to 60 trillion dinars of between (80 trillion dinars) be repaired yet to credit risk, as it appears from the report, this means that the bulk of the money invested repaired yet risk.

Well Central Bank did on the subject of risk management conservatively when deemed eligible for the issuance of securities purchased by party, should not be less credit rating from (AA-), but we wonder at the same time, what makes the central bank invests (41 trillion dinars) from Total (73 trillion dinars) in US government bonds that befell the first in the Bank's investments - as it appears in the report - despite the fact that its credit rating dropped from (AAA) to (AA +) and became comes after England and the Netherlands because of the financial crisis and the worsening of the US public debt to the limits almost swallows its gross domestic product.

He got the decay in property and equipment and other assets in the asset side, while there is a modest percentages represent balances with central banks up to (17%) as well as with other banks (commercial or developmental) less than (16%) and that we could use in the financing of development in Iraq, It represents a modest contribution from the face of the central bank to support the development assuming it deposited with Iraqi banks, but if deposited with foreign banks, it supports development in these other countries and inevitably overshadowed by Iraq.

Deform the structure of assets in the balance sheet of the Central Bank (relative importance of each is present)

The disruption of the structure of liabilities:

Liabilities structure in the figure below shows a distorted image that the central bank distancing himself from supporting development in Iraq, where the currency exporting trading more than 43% in 2012 and deposits of public and private local banks has more than (42%), meaning that both dominate more than 85% of liabilities and only (15%) of all other aspects.

Night investment was for a day or day and after long conversations about negative impact Islam did not abolish the central bank, but extended-running-to-month, but it still represents a safe haven trade and specialized civil and governmental banks to reap the benefits without trouble and without the need to practice risk management, which made the banks' deposits with the Bank Central dominates more than 42% of the central bank liabilities, and the liability will be the nature of the relationship to the movement of money confined in a closed circular frame between those banks and the central bank without the need to exercise credit to finance the development of the thirst for the development of a country, got some improvement in recent periods as a result of the reduction interest paid for deposits night, which means adhering to retreat by banks.

And other government institutions are maintains balances of more than (8.3%) to total liabilities, and the International Monetary Fund has receivables (4.7%) while the bonds issued by the Iraqi treasury and maintained by the Central Bank of less than 1% of total liabilities in dire need of a country be to finance, especially when there are urgent projects for the government and need to finance facilitator such as power projects, infrastructure projects and other important this year may stop as a result of the large deficit in the state budget due to declining oil exports and falling prices together, and the growing military spending by the war with (Daash), The Treasury also need short-term financial adjustments to address the cases of fluctuation in oil revenues, which are manufactured by large external variables was not the Central Bank an active role in mitigation.

Deform the structure of liabilities in the balance sheet of the Central Bank (relative importance of each required)

Second, the economic standards are not present:

The problem, then, knowledge assets and liabilities, construction details, and how to exploit and investment funds, both the Central Bank of the rights of others (assets) or the size of the funds deposited with the Central Bank from various quarters the government or banks, representing non-upon rights (liabilities) plus currency in circulation, and the It depends on the speed of trading and movement of funds deposited with the central bank, and its relationship to the assets of the Central Bank in foreign central banks accounts, ongoing or deposit period of time, or investments in other governments secured bonds of first class, or in the International Monetary Fund, or going to the bank accounts , these choices did not take place according to a deliberate economic criteria as shown.

Third: a shared responsibility between the government and the Central Bank:

The size of the deposits of government funds and banks of around 35 trillion dinars, (after deducting legal cash reserve), and with a current accounts government about seven trillion dinars, demonstrates the lack of optimal exploitation of these resources, and here indicates shortening government is evident in the exploitation of the money, meaning that energy capacity for investment is very low, and if we know that the latter is a function of the weakness of the administrative, cognitive, technological and poor business environment and the complexity of the administrative, legislative and logistical and security measures for investment, including government investment, makes the ability of the economy to absorb capital invested in opportunities for productivity profitable it difficult, here are the responsibility of the bank Central in the availability of financial ease in time and space do not remain prisoners of excessive independence that separate him from the concerns of the Iraqi economy and the responsibility of government to facilitate injection and absorption of investments and maximize profitability.

Fourth, foreign exchange reserves and the economy is growing .. asleep:

There are no funds for the exploitation of the central bank on the reserve to cover sovereign Iraqi currency exported. Only recent statements in the second quarter of 2013, the reserve reached 88 billion dollars to cover the exporting currency for trading amounting to about 36 trillion dinars, that is what we need to cover the full currency cover 100% - which is not necessary Valtguetah often be partial in other acceptable economies in the economic literature - It is one kind of covers (foreign exchange) up to $ 31 billion only in the sense that we have to cover the local currency up to two and a half, I do not know why all of this reservation from the central bank, if it meant the face of inflation, inflation does not address the variable one (the cover ) and the economy is asleep and the impact of the real side (production, operating, in, of commodity flow) is Off, which said it can be said that we possible exploitation of part of the surplus funds, amounting to $ 57 billion, through the specialized banks (development) after a restructuring, or through a new development bank, to invest inside Iraq in the economic development process, provided supervision and follow-up and account all the developmental programs that are funded by these banks.

V. Conclusion:

Is an important document and report solid reliable in Alastdal on the problems facing the monetary policy, the report stresses the need to take into account the commitment accounting rules and we believe it is well followed in the central bank.

The problem lies in scrutinizing the economic reading of the numbers and whether the central bank exercised a great choice of priorities and achieve maximizing the College of Iraq for economic gain, rather than maximizing returns the central bank because it is not an isolated island for the Iraqi economy and has a responsibility to support development in it, and today we have positive signals regarding the non-vision towards supporting development the new central bank management.

We see the need to form a committee of specialists to study the points raised in this report and assess the management of the Central Bank reserves manner that achieves the harmony of monetary policy with other macroeconomic policies system, and that is monetary policy an active role in overcoming the financial crisis experienced by the country in light of the war economy and war Srchillh seeking to undermine Iraq's unity, sovereignty and dignity of his people.

We see the need to reconsider the whole monetary policy, especially with regard to auction currency and the dinar exchange rate and financial implications for monetary policy and banking supervision and the style of transfers and management of public debt.

(*)-Economic affairs adviser to the prime minister

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