Devaluation of Iraqi dinar deals blow to pro-Iran Shia parties

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Qais Khazali

Qais Khazali

Iraqi political parties affiliated with Iran launched a fierce attack on Sunday against the government of Prime Minister Mustafa al-Kadhimi, following its decision to devaluate the Iraqi dinar against the US dollar in order to overcome one of the most serious crises in the country’s history.

The government came to this step after it was unable to pay the salaries of its employees for two consecutive months, being forced to borrow from the Central Bank of Iraq and other internal parties.

The government sells oil in US dollars, which it uses to buy Iraqi dinars from the central bank in order to finance salaries and public services. Devaluating the local currency against the dollar means that it will get more Iraqi dinars from the central bank.

The Iraqi Ministry of Finance announced, on Sunday, that the official exchange rate has become 1,450 Iraqi dinars per US dollar instead of 1,119.

Although this decision will harm employees in the short term, as about a third of their salaries has evaporated, it also deals a major blow to some Shia parties affiliated with Iran.

These parties have banks that monopolise the circuit of buying dollars from the central bank then reselling them on the black market, reaping in huge profits in the millions of dollars on a daily basis.

The Islamic Dawa Party led by Nuri al-Maliki expressed anger at the government’s decision, warning that “the procedures of the Ministry of Finance and the Central Bank to change the exchange rate of the Iraqi dinar against the dollar will negatively affect employees, the poor and others.”

In its statement, the Dawa Party seemed to have conveniently forgotten that it had, during the two terms as prime minister of its leader Nouri al-Maliki, squandered about a trillion dollars of exceptional oil revenues at the height of the rise in oil prices. It spoent the money on buying political and popular loyalties and on an unprecedented increase in the number of state employees and security agencies, which led to widespread political, financial and administrative corruption, mismanagement and the domination of certain families on the state.

The irony was that it chose to open the said statement with the Quranic text “do not consume one another’s wealth unjustly” to launch its attack on Kadhimi’s government, indicating that “this economic policy will not lead the country to a safe haven, or dismantle the stifling economic crisis that has begun crushing many segments of society, and that will create imbalances at all levels.”

Unofficial estimates indicated that the successive Iraqi governments that followed the formation of the first post-2003 invasion Iraqi authority were responsible for the disappearance of about a quarter of a trillion dollars, which were set aside for reforming the sectors of health, education, electricity and public services.

For his part, Qais Khazali, leader of the Asaib Ahl al-Haq militia, took advantage of the wave of popular anger against the government’s decision to join in on Maliki’s party campaign, pointing out that “what is currently going on in more than one file, the most important of which is the Central Bank, Al-Faw Port, and mobile phone companies, is the biggest theft in broad daylight, and unfortunately, the political and public reaction to it is not as tough as required.”

Monopoly

Khazali, like Maliki, has a bank that participates in the monopoly of buying dollars from the central bank and selling it on the black market, reaping huge daily profits.

The decision to devaluate the Iraqi dinar against the dollar eliminates these profits by up to 100%, if market indicators continue to stabilise, as happened on Sunday.

Khazali tried to mobilise politicians and public opinion against the government. “The continued transformation of the economic situation from bad to worse portends catastrophic situations that will affect the country as a whole, and the citizen will be their first victim,” said the militia leader, who figures on the US terrorism list.

While calling on the country’s “forces and personalities to take the required position, as issuing statements and statements without taking practical steps at the level of Parliament and putting pressure on the Council of Ministers will not be sufficient,” Khazali urged the masses “to express their rejection of what is happening now and stand up to it, otherwise matters will lead to undesirable consequences.”

Maliki, Khazali and other Shia leaders insist on implementing Iranian policies to the fullest extent in Iraq, in order to ​​absolve themselves of all responsibility in the consequences of the great economic collapse that Iraq is witnessing. But observers say that the Iraqi street is aware of the real motives behind these parties’ moves and of the damage to their interests.

Sarwa Abdul Wahid, a former Kurdish lawmaker, said that “the attack on the government must be directed at the parties in power since 2003, because they are the ones who brought the country to this impasse.”

She added that if Kadhimi is guilty of anything, it’ll have to be of “receiving power at the wrong time, as he has no way for finding solutions.”

Iraqi employees found themselves threatened with losing about 20% of their salaries due to the financial deficit revealed by the country’s 2021 budget. This deficit prompted the government to propose reducing the value of the local currency against the US dollar, in order to collect higher dinar returns that would enable it to meet public expenditures.

Years ago, the Central Bank of Iraq fixed the rate of exchange of the Iraqi dinar against the US dollar of 1,119 Iraqi dinars to the dollar.

Despite the emergence of a parallel black market selling dollars at a higher price, the difference was within a permissible margin of economic manoeuvring.

However, recent months have brought many fluctuations in the exchange rate, due to the COVID-19 pandemic and the associated global financial crisis, and to the decline in Iraq’s oil revenues after reducing the volume of its oil exports.

Apex of crisis

The crisis reached its apex in the country as the government found that its coffers were empty when salaries were due last September, forcing it to sign a law authorising internal borrowing, and thus threatening the country’s reserves of hard currency meant to protect the value of the local currency.

It was clear that the government needed to look for solutions other than borrowing, which cannot be resorted to again due to its potentially disastrous effects on the country’s economy.

Iraq needs about 40 billion dollars annually to cover the salaries of employees, retirees, and all those who receive fixed monthly payments from the government. The proceeds from the sale of oil are not enough to cover the government’s payroll needs.

Moreover, when the totality of these proceeds goes to salaries, it won’t be possible for the government to provide subsidised services in the areas of health, education, municipalities, electricity, potable water, sewage, and others.

It seems that the solution of devaluating the local currency found by the Iraqi Ministry of Finance, headed by veteran economist Ali Allawi, will indeed deduct from the salaries of employees but without announcing it as such. Local economists estimated this reduction to be about 20%

The budget bill, which carries the new exchange rate, had been suspiciously leaked to the media, causing the exchange rate to rise on the black market.

Following the leak, the authorities were completely confused. While the Ministry of Finance criticised the leak, saying that it will make assessing the merits of the 2021 budget difficult, the Finance Committee of the Parliament immediately called on the government to introduce rapid amendments to protect the vulnerable classes, those living on welfare, workers in the private sector, and deal with inflation and provide the necessary food items made available through the ration card.

The new draft budget law stipulates a set of proposals aimed at obtaining the largest amount of funds for the public treasury in any way possible, including “imposing a 10% tax on services provided by malls, major markets, women’s and men’s barbershops, and massage, cosmetic and beauty centres”.

The draft budget also proposes imposing a sales tax of 20% on gasoline and jet fuel and 15% for kerosene, and imposing an airport fee of 25,000 Iraqi dinars per ticket on international flights and 10,000 dinars per ticket on domestic flights.

The draft budget also included an appendix explaining the process of deducting part of the allocations granted to employees for purposes of risk, subsistence, transportation, clothes and others.

Representatives in the Iraqi parliament said that the government stole from employees in two ways, first by reducing the value of the dinar and secondly by deducting part of the allocations.

On Sunday, forty Iraqi MPs submitted a request to the Presidency of Parliament to question Finance Minister Ali Allawi, on the background of the devaluation of the dinar against the dollar.

Parliamentary sources said that the interrogation request was signed by Shiite deputies whose parties own banks that directly benefit from trade in hard currency in local markets.

Source » thearabweekly

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