The Iraqi government adopted the White Paper for Economic Reform prepared by the Crisis Cell for Financial and Fiscal Reform in October 2020.
The White Paper is a comprehensive programme that sets out a clear roadmap to reform the Iraqi economy and address the accumulated, decades-old serious challenges that confront it.
The White Paper identified two overarching strategic objectives. The first is to initiate an immediate reform programme to address the budget deficit to create a fiscal space to give time for the process of implementing the other wider reforms over the medium term.
The second objective is to put the economy and the federal budget on a sustainable path, after which Iraqis can decide and choose the economic direction of the country.
The Iraqi government is preparing to begin the implementation phase of its reform program known as the White Paper for Economic Reform.
This phase will focus on the implementation mechanisms and on the fulfilment of the objectives and the vision outlined by the White Paper.
The implementation phase consists of:
- Putting in place governance, oversight, monitoring and evaluation mechanisms to ensure that the reform process is administrated and managed effectively under the direction and guidance of strong and competent leadership which will have a direct link to the Prime Minister, with the aim of equipping the implementation team with the necessary authority to carry out the reform programme, providing vigorous oversight of the implementation process, and ensuring coordination between different governmental institutions
- Translating the vision of the White Paper for Economic Reform into a practical program for delivering 64 projects and for ensuring their implementation in an integrated and coherent manner by specifying detailed procedures for each project, setting a specific timeline for progress and identifying the state entity which will be responsible for carrying out each project.
The White Paper for Economic reform enjoys the support of the international community as reflected by the establishment of the Iraq Economic Contact Group (IECG) whose mission is to provide the support needed for the economic reform process in Iraq within the framework of the White Paper. The IECG includes, in addition to Iraq, the G7 group of industrialised countries, the World Bank, the International Monetary Fund, and the European Union.
Let’s play detective!
It’s All About The “White Paper”.
So, what do we know about the “White Paper” and how can this be used to try to detect a timeframe for the revaluation (reinstatement) of the Iraqi dinar? That is the million dollar question (literally) and the answer lies in understanding the timeframes for the implementation of each category of the White Paper.
When trying to tackle these kind of problems I always like to write down exactly what I know first, then back into where each item may take us. So what do I (we) know?
1.We know that the project to delete the zeros is in the White Paper and is a critical part of the financial reforms.
2.We know that by implementing the project to delete the zeros it will lead to the reinstatement of the Iraqi dinar on FOREX. We then know that this leads us to the bank to exchange our dinar. We can not exchange until the rate is reinstated and OFAC sanctions are lifted off the dinar. OFAC sanctions are put on the Iraqi currency by the US Treasury so to say they are now just waiting to “go ahead” (for almost 7 years now) is a lie, as they must first lift the sanctions. Can they do this simultaneously. Yes and it could happen quickly.
3.We know they just told us in this week’s news August 10th 2021 articles update that they fully intend to implement EVERY item within the White Paper and do it in 5 years. That does not mean it will take 5 years for every item just that they will need 5 years to complete all items.
4.We know that they just told us in this week’s news August 10th 2021 that they are phasing out the implementation and are now chunking our the items in priority. The White Paper anticipates that the short and medium-term objectives and associated reforms will require between 3 to 5 years to implement.
5.We know that over the last decade the CBI has told us multiple times that they were going ahead with the project to delete the zeroes only to “postpone” (not cancel) the project later and set a future date for it. Again the future date gets postponed again. So we know this project is important and is a higher priority item on the White Paper.
So, this draws us to a few conclusions:
1.We must first know the categories and timeframe they are chunking out the implementation of the White Paper, thus getting our hands on the most recent copy of the White Paper.
2.Then follow the news in Iraq to get a handle on how they are implementing it. Of course, having an updated implementation schedule would be our best case. Maybe Iraq might even publish this for us in the near future and so we watch and keep a close eye on the news for it. I will add it to this section on his site, if it does come out. So come back often and check.
So this is all we know for now. This White Paper will progress over the weeks and months. Pay attention to read my newsletter. Please, please stay away from this intel guru bullshit.
Here We Go! Just In – As Of Aug 31, 2021
Hello everyone! It is a good day for IQD investors! I want to continue my series on the White Paper. It has been a couple weeks since I updated this section. Now we are getting a good flow of news information on the implementation of the provisions on page 50 that talks about going back to the global currency exchanges (FOREX) for the IQD.
Let review the following two recent articles: (yes, this is progressing forward nicely!)
THE IRAQI FINANCE MINISTER SUPPORTS THE FLOATING OF THE CURRENCY
Finance Minister Ali Abdul Amir Allawi confirmed on Thursday that he supports floating the currency in a flexible manner.
Allawi said in response to a question by Shafaq News Agency, “The Iraqi currency is floating, but the central bank intervenes from time to time until it places it within a certain bar, for example, plus minus 5 percent.”
He added, “Personally, for me, the best kind of flotation is flexibility in pricing so that the price is not sacred as it was before when it entered people’s minds without change, and thus economic problems accumulate and explode.”
The Minister of Finance continued by saying, “There must be some kind of flexibility; it is not the flexibility with which you lose control over it, but the flexibility that stabilizes the price and setting a range of 2 to 3 percent for both parties.”
Allawi pointed out that “the central bank’s policy is to maintain this price and put the gap between the official price and the market at an acceptable level,” noting that “it has also proven that the stability of the exchange rate is important except in the case of economic indicators that push you towards change.” Floating the currency is fully or partially liberalizing the currency exchange rate so that the government or the central bank does not interfere in determining it directly, but rather it is automatically released in the currency market through the supply and demand mechanism that allows determining the exchange rate of the national currency against foreign currencies.
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PROPOSAL TO DIGITALLY REINTRODUCE SMALL DENOMINATIONS
The expert in economic affairs, Dr. Hussein Al-Khaqani, suggested to the Central Bank to digitally reintroduce small denominations, which would provide sums for the public, after amending the digital banking system.
Al-Khaqani said that {small cash denominations, which are less than 250 dinars, if they are collected and accumulated annually, the citizen will get good savings from them, instead of wasting them on buying goods that are not worth their real value.
The 250 dinars. He pointed out that the records of government departments used to contain parts of the 250 dinars currency, but they were settled and made into the currently circulating cash denominations, as imposed by reality, transactions and the public’s acceptance of them.
(When I read this article my mind goes back to a couple years when I told you that the CBI was slowly going to introduce the small category notes “gradually” and that when the 250, 500 and 1000 notes were accepted and the time was right, they would begin yet even more smaller category notes. Remember? This is what the CBI told me back then. This was their plan they were working towards. Now is the time. We do not know exactly what notes will be next but we know the 100 & 50 note follow next in line. Or they could just issue all the remaining lower denominations notes and fils at once. What notes and fils are left? Go to the menu bar and click the link for “lower denominations”. I list them all there. What will they do?
So with the Dec 2020 devaluation the dinar is no longer worth 1/8 of a penny rather it went down to 1/6 of a penny. How can they issue dinar notes that are even lower when the dinar today is worth as little as 1/6 of a penny? Just saying….
……something BIG is about to happen…….
Remember when a 25,000 note was worth about $25 USD? Yes, a 1:1 if you dropped the 3 zeros. Now its worth about $17. That change in December made a huge difference in the rate. ) Remember what they do in Iraq is different than what we get outside of Iraq. So be patient and let the RV happen in Iraq first. It will flow over to FOREX eventually as our rate.
News Just in February 2, 2022
All my comments are in RED italic throughout. Please read them carefully. Iraq is giving us a short background, context and objectives of the White Paper and then goes into a more detailed, up to date status as to where it now stands. This is very good information because it is the White Paper that is going to get us the reinstatement of the Iraqi dinar. Then we go to the bank. Get it? During and at the end of this article I give my 2 cents and comment on how I feel about what they have said about the progress of the White Paper. It is very informative and will give my readers a different perspective to think about. I am almost certain I am hitting the nail right on the head as to why we have not yet seen the reinstatement/RV.
Economic Development and the Future of the White Paper in Post-Election Iraq
In the summer of 2020, the Iraqi government introduced a roadmap and an economic constitution, known as the White Paper, with the World Bank, the IMF, and the G7 support and blessings. The document sought to re-visit and re-evaluate the future of the Iraqi economy, re-think economic and financial sustainability in the short and long term, and most importantly, start a conversation toward changing the culture and the public perception around the country’s economic structure, the role of the state, and natural resources dependency. This information below briefly examines some of the main projects introduced in the White Paper and the obstacles in implementing them. It also discusses what has been achieved after more than a year since this economic roadmap was introduced and what possible pathways the new government must take to address its economic and environmental fragility.
The Context and Objectives
While the White Paper has been a project in discussion for several years, the economic and political legitimacy issues and health crises of 2019 have exposed the fragility of the Iraqi economy and the dire need for short and long-term reforms and structural changes. Popular protests that erupted in central and southern Iraq in October of 2019 reflected the collapse of the legitimacy of the ruling elites, the deterioration of services, and the high levels of poverty and unemployment. It also highlighted the state’s inability to address demographic changes, chiefly as the population grew by 53 percent from 26.3 million in 2004 to an estimated 40.2 million in 2020.
The crises escalated as Covid-19 brought the global economy to a screeching halt, impacting crude oil consumption levels and bringing down the price of Brent crude to a low of US$ 25.57 in April 2020. [ii] A collapse in oil price had a devastating impact on the Iraqi rentier economy as oil revenues constitute more than 99 percent of exports, 85 percent of the budget, and 42 percent of the GDP. [iii] Covid-19 also exposed the weakness of the country’s infrastructure and the depth of corruption, especially in the healthcare and education systems, leading to a tragic loss of human lives [iv] and years of development. [v] The combination of these crises and the state’s lack of ability to respond effectively to them caused Iraq’s GDP to shrink by 11 percent during 2020, leaving around 5.5 million Iraqis [vi] at risk of poverty and a youth unemployment rate of around 25.2 percent.
Amid these events, the Iraqi government adopted a roadmap of economic reforms, known as the White Paper, prepared by the Crisis Cell for Financial and Fiscal Reform. The White Paper introduces 64 projects [vii] and suggestions. Instead of a detailed plan with clear steps, it suggests short, and medium-term objectives completed between 3-5 years to create financial sustainability for a long-term economic change. The White Paper seeks to finance the budget deficit and address the severe fiscal crisis due to the oil price collapse in the short term. The White Paper suggests several steps to reduce the deficit from 20 percent to 3 percent of GDP and salaries from 25 percent to 12.5 percent. These suggestions include collecting electricity tariffs, recovering Iraq’s stolen money, reforming Pensions Fund, increasing revenues from customs and taxes, and re-examining the dollar’s exchange rate against the dinar.
The second objective is to create a medium and long-term sustainable path to address the economy’s structural issues. These include modernizing and rehabilitating the financial sector, developing the non-oil sectors, diversifying the economy by supporting agricultural development, supporting local industries, and creating a welcoming environment to attract foreign investment. It also includes addressing issues of limited human capital by developing education and health institutions and basic infrastructure. The White Paper also addresses climate change, water management, clean energy, population growth, and natural resource management.
In short, these combined policies seek to address the crisis of the burgeoning public sector that is draining Iraq’s budget and diversifying the state revenues away from oil dependency. If adopted, these suggestions can protect the country from external economic shocks due to changes in the energy market. They can develop a long-term sustainable economic structure that can withstand changes in the global economy and climate change while also addressing human rights, quality of life, and access to resources for the larger population. They are necessary for economic stability and essential for political stability.
Where Do We Stand?
Since the White Paper was introduced, comments from Iraqi officials seem to indicate that it achieved impressive results during its second year. They emphasized the short-term goals, such as overcoming the financial collapse and achieving a cash surplus by reducing the price of the Iraqi dinar for financial liquidity. The decision strengthened the government’s financial position, reducing the deficit in the general budget, and helping the Central Bank raise its foreign exchange reserves.
Yet, the government doubled the social security net to protect the country’s most vulnerable, economic experts argued, that devaluating the dinar against the dollar only reduced the deficit and did not create any form of protection for the poor and middle classes. On the contrary, the devaluation of the dinar has affected low-income groups, increased prices for imported goods and other services, and increased inflation rates, especially for food supplies, construction, and real estate.
Another sign of the White Paper’s success is the optimistic prediction by different financial institutions of growth numbers for the Iraqi economy in 2021 compared to 2020. The World Bank predicts a 2.6 percent growth; the IMF gave a more optimistic 3.6 percent. In comparison, Iraq’s Ministry of Planning went as high as 14 percent, considering the economy’s overall improvement due to policy changes.
However, none of these numbers are a good indicator of a healthy economic recovery, nor is it a sign of the effectiveness of the White Paper. In reality, these numbers reflect the increase in oil prices globally to nearly US$ 70 a barrel (now over US$ 90) after it hovered around US$ 38 a barrel last October, the slow global economy, and the energy market recovery. An increase in Iraq’s economic growth for 2021 is primarily due to external factors outside state control.
Furthermore, added revenues from the oil price rise are still primarily used for essential goods and services to close the demand gap within the country. These resources are not being used to grease the investment and industrial development wheel, as the White Paper suggested. A closer look at the non-oil sector reveals that the main non-oil sector contributors to the country’s overall GDP are related to the financial and services sector, all of which can’t be exported. As a result, there was no significant progress toward diversifying the economy away from its oil dependency. (not a good thing)
The New Government’s Priorities
If the objectives of the White Paper were implemented correctly, the current increase in revenues can lower unemployment and poverty levels and help diversify the economy. Such a shift would protect Iraq from future external market shocks like the global economy witnessed in 2019 and 2020. Even though these are long-term objectives, there are no clear signs of steps taken since the summer of 2020 to achieve progress in that direction. Devaluating the Iraqi dinar has caused outrage among the population and triggered debates among experts. Iraq’s economic system requires fundamental re-thinking around its fragility and dependency on oil prices and developing better institutional mechanisms that can functionally address possible changes in the energy sector and climate security.
This can be done in several ways, and the new government must prioritize three objectives. Many resource-rich and oil-driven economies have developed Sovereign Wealth Funds, which take advantage of natural resource revenues, especially during an oil price boom, beyond unproductive operational spending to create a post-rent productive economy. (we recently read multiple articles stating the need to start this Sovereign Wealth Fund) However, institutional capacity must be developed for a project of this level to be effective. This includes, but is not limited to, addressing the question of corruption and bureaucratic inefficiency on the state level and within the legislative system, which requires cooperation and transparency. (this is why Sadr is working so hard to ensure the Iranian crooked politicians are out of the govt as a result of this election. They are also going to prosecute over 250 inditements)
However, given the hybridity of the system, the localization of authority, and the current political climate, in which political elites are more pre-occupied with short-term gains and monopolizing access to resources and power, how effective the new government can be in ensuring accountability and centralizing a consolidated effort toward economic development remains to be seen. (this is not a good statement for us, this is not look good! There is still lots of work to be done.)
Another urgent priority for the new government is climate and water security, a primary obstacle hindering the roadmap detailed in the White Paper. As temperatures rise in the region – also in Iran and Turkey, where the Tigris and the Euphrates generate – and the Iraqi state’s limited ability to negotiate with neighboring countries effectively, Iraq faces a water crisis of unprecedented magnitude. For example, a United Nations report [viii] stated that in 2020-2021 Iraq experienced the second lowest rainfall in 40 years, leaving tangible effects across the country. The water flow rate in the Tigris and Euphrates rivers decreased by 29 percent and 73 percent, respectively, due to the construction of dams in neighboring countries and climate change.
The report warned that water resources are heading for a decline of up to 20 percent by 2050. This water crisis led 37 percent of wheat farmers and 30 percent of barley growers to suffer a crop decline of at least 90 percent of the expected harvest, and 37 percent of households lost their livestock in the past six months. Furthermore, Iraq has approximately 44 million dunams suitable for cultivation. As a result of water scarcity this season, only 9 million dunams were invested, all of which have a significant negative impact on the agricultural sector. However, one of the primary goals of the White Paper is economic diversification and the development of the non-oil sector, such as agriculture. Yet, with a worsening water crisis and no apparent solution from the government, the amount of usable land for farming decreases each day.
As the access to land and water gets more challenging, many families seek job opportunities in cities in a wave of climate-motivated mass migration. However, these unplanned and unregulated migration patterns are putting further strain on the already bloated public sector and the collapsing infrastructure of cities. The situation is aggravated by families moving to cities without a support system, and a safety net further puts vulnerable groups like children even more at risk. There are limits to their access to a support system, proper education, and healthcare, which is counterproductive to the goals and aims of the White Paper to invest and develop human capital.
An essential step for the next Iraqi government is to negotiate with neighboring countries to invest in new agricultural technologies that can incorporate new methods that address temperature rise, water shortage, and land rehabilitation. The new government will also need to manage the climate immigrants’ challenges, such as access to education, healthcare, and housing. Moreover, the climate crisis cannot be addressed without addressing its root cause. The third priority is gas flaring, which significantly worsens the climate and increases temperatures. It also forces Iraq to depend on Iranian gas and puts the country under its neighbor’s economic and political whims.
Structural Obstacles
The government’s goodwill cannot overcome some structural issues. There are issues such as the lack of cooperation or awareness among the larger population, localizations and lack of communication between different institutions and centers of power, institutional weaknesses, and lack of resources and expertise. There is a shortage of people in the country who are aware of the social dynamics and the inner working of Iraqi society and its needs. There is a need to implement these plans to change officials and political leadership, which often disrupt economic strategies. Most importantly, there seems to be a lack of political will to move Iraq beyond rent dependency, even as political hybridity, kleptocratic networks, and corruption have been part of the fundamental nature of its system since 2003.
The White Paper does not account for the structural issues associated with the country’s hybrid regime that divides the state and its institutions among competing ethnic, sectarian, and tribal groups rather than expertise. This political system benefits from an established network of patronage and corruption embedded within the rentier economy. Thus, while these economic suggestions can direct the country toward a positive direction, restructuring the Iraqi economy requires re-visiting and reforming of the political structure as well, something that Ali Allawi, Iraq’s Deputy Prime Minister and Finance Minister, acknowledges. The White Paper is a collection of recommendations and a roadmap toward economic restructuring. Even with the 3-5 years deadline, there are no clear strategies or timeline for each step or project to be achieved.
Adding to this, the 2022 federal budget was not passed last year due to political fragmentation, and other economic reforms are more likely to be placed on the backburner for the time being. Without an approved budget, the government spending will be limited to providing public sector salaries and essential services rather than implementing any new projects. It can be said that the previous government laid the cornerstone for economic reform through the White Paper for subsequent governments to complete.
With the political will lacking, the current oil price rise is not expected to be sustained in the long term, as the global energy sector is likely to shift toward clean energy soon. This would be a disaster Ali Allawi recently warned against. The steps that the next Iraqi government will take to address economic, political, social, and climate security challenges will be essential in tackling inevitable economic and political crises. That could mean a humanitarian crisis felt beyond the region.
Conclusions
This paper dealt with the Iraqi government’s roadmap, the White Paper. It addressed the chances of this paper’s success in the Iraqi economy’s radical reforms, its oil-dependent structure, and whether the next government will continue implementing the White Paper-recommended reforms, which international financial institutions supported. The White Paper has two main objectives. The first one is financial and relates to financing the budget deficit. The second objective is to create a long-term sustainable path to address the Iraqi economy’s cumulative structural issues, especially diversifying the economy and limiting its dependence on the oil market and the impact of its fluctuations.
It seems that progress has been made in achieving short-term goals, mainly by devaluing the Iraqi dinar compared to the US dollar, besides the rise in oil prices that reduced the deficit. However, structural solutions still face strong opposition as the political structure is based on political parties’ domination over resources. It is also based on adopting a wide range of policies of clientelism to finance their networks and limit social discontent without providing long-term solutions suitable for enormous challenges such as overpopulation. Other factors such as rampant corruption, bureaucratic obstacles, weak law enforcement institutions, and the mafia-like character of economic and resource management add insult to injuries. They are attributed to the multitude of power centers and the state’s inability to contain violence.
The paper concludes that the lack of political will to deal with these structural flaws is the biggest obstacle facing the implementation of the White Paper. Moreover, the behavior and discourse of the political forces, based on short-term interests, don’t show any seriousness to move in this direction. It is more so considering the political price resulting from liberal and structural reforms due to the weak legal structure and the domination of populist perceptions. While the White Paper needs revision, especially in dealing with the impact of fiscal policies on the poor, its abandonment by the next government without providing an alternative reform map might worsen the existing problems and prevent structural reforms.
(I really hate to say that my conclusion after reading this up to date review of the White Paper is that they have not made much progress and there is still so much to do. But there is still lots of hope! Sadr is attempting to reform the political structure to give Iraq the political basis in which to work from to implement the needed reforms. This review today talks about the corruption many times and so this is why Sdar and al-Kazemi want desperately to address these issue first hand. Do you see their approach? This review today does not say anything about their efforts and their optimistic approach to fighting corruption. It is instead very negative.
Why would they want to reinstate their currency based on just this information? I wouldn’t, but this is not all the factual information either. There is much more to the story than this review today is giving to us. Get it?
So yet another point to make is this – What comes first the chicken or the egg? Do they really need to reinstate the currency in order to make these economic and financial reforms work? I say no they don’t. But I also say that prior to 1990 they were a rentier oil economy and pumped only 1/3 of the oil that now sell. They also did not have the agricultural lands developed and certainly did not have te gold reserves or the high CBI reserves. They also did not have an offer for to join the “silk road” from China and become a major player in the world’s international economy, serving the entire middle east too. However the Iraqi dinar had a rate of around US$ 3 on FOREX back then. So, what happened?
I believe that the IMF, G7 and World Bank are being unrealistic with Iraq and intentionally suppressing the rate, not the value. But why? Is there also corruption in these organizations? Are these organizations also part of this New World Order scenario they are trying to push on the world and thus their form of a Global Reset we keep hearing about? Go listen to Klaus Swabb’s version of the global reset and it will put a chill down your spine. So, Iraq is dealing with many fronts of corruption on different levels. When I read the part about climate change and all that other crap, I see UN Agenda 21/30 written all over it and it scares me. We must also consider all these points too why the IQD has not yet been reinstated. The IMF and World Bank can justify holding up the RV anyway they want, they have the power and control to do it. But is it fair and honest to have these high expectations and let the people of Iraq suffer the way they are doing it? Are they actually creating more instability and never-ending corruption by holding up the reinstatement?
The “silk road” is huge if they decide to go ahead with it, which I believe they will and almost have to. So don’t be too gloomy yet. There is still lots of hope that the reinstatement can happen shortly and I would put my money on the decision to accept China’s multi-billion dollar deal to restructure their economy and rebuilt Iraq as the pivot point to the reinstatement. Let us see what happens shortly here after this government is formed. I do not think much will happen until this is at least acomplished. )
More to follow…..
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