The Dutch Disease and Iraq’s Foreign Exchange Rate. By Dr.Zeki Fattah*
First, the Dutch Disease phenomenon doesn’t fully explain Iraq’s foreign exchange misalignment, nor is it the cause behind Iraq’s poor economic performance.
Unlike corona virus which is the same in developed and developing countries, and calls for the same treatment in both; the Dutch Disease phenomenon calls for different type of treatment in developing countries from that in developed countries.
This is because the exigencies on the ground in developing oil-exporting countries do not support the mechanism described under the Dutch Disease; therefore, the phenomenon cannot be used as a directive for policy measures in these countries.
For example, given the exchange rate, and, because of unemployment and disguised unemployment, movements of production factors are neither constrained nor do they produce the effects postulated under the Dutch Disease in these countries.
Second, Iraq’s economic failure is caused by a combination of external and internal factors; including war damages caused by ISSIS, irrigation water problems, fall in oil prices, lack of foreign investment, economic mismanagement, corruption, socio-political instability, and a bloated public sector chronically pursing ineffective economic policy.
These problems cannot be dealt with by manipulating the country’s exchange rate.
They call for stability, sound economic policies, suitable and effective development strategy that can engage the country’s institutions and production forces in creating wealth and generating taxes.
Copyright IEN, 13. May 2021Iraqi Economists Network–بكة الاقتصاديين العراقيين