November 7th, 2015
there is a manifestation of three indicate the recession or the current economic downturn in Iraq .fmadlat growth in real GDP is still estimated at less than 1% and the total unemployment is about 28% of the total labor force, especially among young people, while the inflation is the most surprisingly, since under the annual inflation basis without 2% despite the exchange rate volatility, which has increased its landing to 12% compared to the official rate stable and fixed the exchange rate for reasons Takidah imposed by Article 50 of the Federal Budget Law for 2015, which obliges the Iraqi Central Bank to restrict sales of foreign currency ceiling specified for no more than $ 75 million in each working day. Was removed after Article 50 above the Federal Court's decision recently released this year which led to the rise of the Iraqi dinar exchange rate and its recovery rate to be close to the official rate and the margin is currently only 5% in the exchange market, especially during the fourth of July weekend 2015. In the face of widespread Tying between the manifestations of the recession and its variables three (high unemployment, low growth and deflation), the Iraqi economy has become surrounded by monetary phenomenon very strange which is closer to the phenomenon of a liquidity trap Liquidity trap which mark it strong cash demand for the dinar and the dollar together behavior, which was born correlation between the exchange rate and the overall level relationship prices through real positive interest rate Taataaks a relationship with what was the case in times of inflationary nineties. The relationship between the exchange rate and the general level of prices is very strange and almost Today precautionary Hedge in the evolution of Monetary same market behavior over the transition from the trap of liquidity in dinars to trap liquidity in dollars.
To refer to the economic crisis experienced by the country in the nineties of the last century and during the deterioration of oil current account Day the budget was fed leverage alternative-strong automatic cash release (via the expansion of domestic public debt-funded vouchers Treasury in exchange for cash release and then rising aggregate demand rates), the availability of domestic liquidity excessively that time has strengthened the case of escape from the criticism towards the goods for fear of carrying negative real interest It is what can be called the internal Baltazahm Crowding in. Thus, the structural forces generated inflationary expectations (and in particular the forces of surplus operations - and I mean profitability and rentier) owns behavior influential in moving that vehicle or cash medium of public financial ability to finance the budget to inflation or by monetary issuance superior to face Aotaweid inflationary effects of the deterioration of the exchange rate Iraqi dinar value of money and foreign direct transition to the relative prices of basic commodities and all others, especially food which constituted 62% of the family budget expenditures. Thus the inflationary expectations generated by the exchange market turn into a strong inflationary actual Aahrha general level of prices rising once the growth of local public liquidity through government borrowing cheap (ie cheap monetary
policy).. If the hyperinflation conditions in the nineties of the last century, at the very least is the product of the forces of structural management of the exchange rate has a function of generating inflationary expectations of the interaction of the foreign exchange market and the dominance of foreign currency to induce growth in the levels of liquidity funding promised deficit through monetary issuance as a vehicle or mode inflationary lead to a decline in the internal value of money and then the general level of prices rising (ie, the case of Escape of cash goods into) the state of the current recession in which the Iraqi economy lives and the crisis of liquidity and the tendency towards a liquidity trap as a behavior monetary demand (as well as the high autonomy of the Central Bank of Iraq) have all made reference real interest rates positive price contrast to signal the general level of prices in finding a relationship relational and feedback effects between inflationary expectations and the Iraqi dinar exchange rate.
So can not get rid of the current liquidity trap without a price. And that the price is high real interest rates down even if the benefit is cost Alfrsah to relocate to trap liquidity last foreign currency (the case with today is a relative escape from owning Goods few foreign goods superiority and cost-effective to keep the currency as a commodity with a high payoff carries the impact of wealth and leaked from real interest rate positive high) rise in the dollar's value is the price of compensatory to give up the high return of real interest expected about the high degree of liquidity trap Dinars (after an absence of inflationary expectations, which has been replaced by real interest rates positive high expectations).
As touched the structural forces generated inflationary expectations previously, In other words, the structural forces and most of the forces of surplus operations, estimated day rate of 83% of the total income forces, has become does not hold a function poignant and generating expectations Altdkhmayh as long as the vehicle liquidity almost absent, but it has in the envelope deflationary current (generating function to the expectations of high real positive interest rate). and that part of the backlash in the low exchange rate of the dinar, comes inevitably of the cost of the collection of liquidity in dinars to buy foreign currency .utalma that this backlash going on in the form of interest rate (which represents the cost of financing the purchase of foreign exchange in Iraqi dinars), the downturn in the overall level will probably to longer-term. As the phenomenon of the volatility of the actual exchange rate will continue to be concerned and subject trap domestic liquidity and rising real interest rates, a situation which has renamed metaphorically high Palmzahmh under deflation Super Crowding Out.
2- shrinking public liquidity and polarization: with falling oil revenues than the average Monthly increased to $ 8 billion in early 2014 to a monthly average did not exceed 4 Milirdolar, which restructured government spending so as to ensure the current budget's basically about the stop investment projects due to a failure to approve the budget year 2014 while the investment budget for 2015 may Arthnt projects Payment term agreements, particularly the new ones, a process that is still under way, let alone stop the majority of ongoing projects and stumbled dues contractors and contractors. In the face of this financial distress CBI gave a catalytic program by about 17 trillion dinars, which shares through open market operations of the resolution is an important aspect of bottlenecks bank liquidity and enabled the budget to borrow Treasury vouchers and other loans across the market. With total domestic public debt amounted to about 25 trillion dinars.
However, the phenomenon of a liquidity trap is still high as the private decreased consumer spending indicators or Ahli for high rates amounting to 14% of GDP to about 4% of that output. Which means that individuals waiting to put cash their income to refrain from exchange and stick function high cash demand moved to the high level of last influenced by nominal interest generated by the rise (outer overcrowding factor and low expectations Allatdkhmah) and that the matter here to cash balances of individuals (liquidity trap) as the accumulation of surplus consumer unspent and are hedged by the face of the case of uncertainty about future income and the growing cash balances to individuals through virtual real interest expected, and I can call this phenomenon a metaphor (Bmgulwb the cost of welfare as a result of inflation and addressed by Professor Martin Bailey economy in the famous discussed in the year 1956) as how great the case of austerity that have undergone forth the general budget for more than a year of expectations of a liquidity trap in the economy given that public expenditures are inherent GDP and did not say is the other 55% of that output. As for the Iraqi banking system it is the other underwent sharp and for the behavior of high demand in the cash and then enter into a liquidity trap is different. Higher government Valaguetrad which sucked most of the stimulus program of the Central Bank referred flows to him earlier and dominated the bulk of bank liquidity available, has been around for government banks to a large investor in government securities in exchange for a mile weak in the granting of credit even to meet with high interest rates or high fit and genuine interest that are subject to state Allatdkhm . Thus, the cost of credit has become high due to high interest by the (outer scramble) while private banks shrank to high liquidity and liquidity by about a stomach for external conversion. And that the interest and the cost referring to obtain foreign currency became requires the transfer of the cost of bank interest to foreign currency as the price to give up a liquidity trap in Iraqi dinars and transferred to trap liquidity Last but foreign currency, while adding bank tax trusts amounting to 8%, which is currently suspended, which promised at the time as a Tax external converter like the Tobin tax (Tobin Tax). It is a precautionary mainly in the behavior of speculators from the risks distributors.
In light of the foregoing, the three traps liquidity Liquidity traps subject to it macroeconomic function which handles highly vulnerable to monetary request expectations of a positive real interest trap liquidity individuals snare of liquidity as a State-owned banks enjoy sovereign liquidity trap and finally liquidity of private banks that enjoy the royal family for the forces of liquidity.
(*) Economic adviser to Iraqi Prime Minister
[You must be registered and logged in to see this link.]