Sun. PM KTFA Thoughts/News Articles 4-25-21

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KTFA

Don961 » April 25th, 2021

Iraq and the internal and external debt crisis

 Sunday 25 April 2021 06:44  Asaad Abdullah Abd Ali

The external debt of Iraq continues to rise annually and in a frightening manner, which is a very dangerous indicator for the future of Iraq. The collapse of oil prices, and the cost of the war that Iraq is waging against ISIS, in addition to its debts inherited from the era of the Saddam regime.

In this article, we will try to clarify what the sovereign debt is, what is happening in Iraq, and what is the future of our country if it continues with this approach?

•Question: What is sovereign debt or public debt?

It is the money that the government borrows from individuals and institutions in order to face emergency situations, and to achieve various goals, when public revenues are not sufficient to cover the public expenditures required by these emergency situations, such as war and hyperinflation, and to finance development projects, and to face normal current expenses, until taxes are collected , As the collection dates may not completely coincide with the dates of current expenditures. 

Also, they are debts owed by sovereign governments, and most of these debts take the form of non-negotiable bonds, treasury bills for about three months, or negotiable bonds.

The size of the state’s public debt is determined by calculating the ratio of public debt as a percentage of the country’s GDP.

•Sovereign debt crisis

When we ask about the sovereign debt crisis, it can be said: It is the government’s failure to service its debts denominated in foreign currencies, due to its inability to procure the necessary currencies to pay its obligations under the sovereign debt, and most of the world’s governments are keen not to fail to pay their obligations towards their sovereign debts, and that Keen to preserve its credit rating in the borrowing market from deteriorating, because the government stops paying, investors in international markets lose confidence in the government of this country, and they avoid participating in any tenders to buy its bonds in the future, more than that, the reaction of investors Not limited to those who hold state bonds, but also financial panic extends to the rest of foreign investors in this country who do not hold these bonds. 

A kind of economic blockade takes place by major international companies and major investors, with the withdrawal of those present inside the country, which means a large case of foreign currency leakage outside the country, which means the collapse of the local currency, as everyone refrains from working in such an unreliable country.

•Iraq’s debts to 2048

Member of the government program follow-up committee, Hazem Al-Khalidi, said in a press statement: “The draft budget in which the House of Representatives voted on a number of its paragraphs in which many foreign loans have been proven, which burden Iraq and rob the rights of future generations.” Loans We will pay Iraq to pay off debts until 2048, the last payment if other loans are added. “It is clear that the future of Iraq is in great danger due to the failed administration of the country by the alliance of parties.

This means mortgaging the future of previous generations due to the recklessness and corruption of the political class, as its own interests precede the interests of the country, and this is the misfortune of Iraq since a class of thieves and corrupt people took control of the government.

•Domestic debt swelled after 2014

In a seminar in 2017 held by the Progress Institute for Development Policy, which was supervised by MP and former Minister of Planning Mahdi Al-Hafez, and it was attended by experts and specialists in financial and economic affairs, the financial advisor to the former Prime Minister, Dr. Mazhar Muhammad Salih, spoke about important details related to the Iraqi debt file, as he revealed Noting that Iraq “succeeded in 2004 in writing off about 100 billion dollars from its debts due to the signing of the Paris Club agreement.” And Saleh indicated that the Paris Club agreement is “a standard agreement to resolve the sovereign debts owed by Iraq to 65 countries, including 19 countries within the Paris Club and 46 countries outside it.” 

But he says: “The internal debt after 2014 increased from 10 billion to 46 billion dollars, thus bringing the total debt, both internal and external, to about $ 110 billion, including the outstanding Gulf debt until the end of 2016.

Most of today’s debts are the result of political action after 2004, and this indicates the successive failure of governments to manage the state.

The most important question: Who benefits from the internal debt? The answer: They are the same parties that plundered the treasury and caused an increase in the external debt. They are the ones who lend the government with great interest, as they eat from both sides, dispel the external debt and lend the government the internal debt!

Who pays the debts of the Kurdistan region?

We can ask about the loans of the Kurdistan region, and whether they will be included in the public debt of Iraq? The President of the Kurdistan Regional Government in northern Iraq, Masrour Barzani, announced at the end of 2020: “The region’s debts amounted to 27 billion dollars.” The negative effects of the outbreak of the Corona virus and the decline in oil prices globally. “

The relations between Baghdad and Erbil witness multiple political, security and economic disagreements, among them is how to manage the oil wealth, as the region exports oil separately, intersecting with its agreements with the Iraqi government.

The question here is who bears the region’s debts? Is it in the neck of the region, as for the Iraqi government?

•Bankruptcy of states

There are no specific regulations governing the state’s bankruptcy process, as is the case for companies, which are often forced to fill out a bankruptcy form, in order to then take the necessary legal measures to liquidate the company. As for countries that fall into a sovereign debt crisis, they often resort to trying to manage Foreign exchange through its own methods first, and if it fails, it will either resort to informal institutions such as the Paris Club, which is an informal institution representing a gathering of creditors from the rich countries of the world, which was established in 1956 as a result of the talks that took place in Paris between the Argentine government and its creditors. The club has the task of restructuring the sovereign debts of countries, easing the burden of some debts, or even canceling some of these sovereign debts, as happened when the club canceled all of Iraq’s debts in 2004. 

Often the club’s decisions are based on a recommendation from the International Monetary Fund, but the country’s political decision becomes dependent on the IMF.

•Asylum for the International Monetary Fund

The state turns to international official institutions such as the International Monetary Fund, requesting assistance in paying its debts, so the Fund evaluates the state’s conditions, and if the stoppage of payment is due to emergency circumstances, for example the decrease in the prices of this country’s exports, then it concludes with it a so-called Standby Agreement, according to which The state shall grant cash facilities in foreign currencies in the form of a specified percentage of its quota with the fund, without imposing measures on the state to correct its economic and financial structure. 

But if the stoppage of payment is due to a structural problem related to the weakness of the state’s revenue structure, poor pricing of public goods and services, or the inadequacy of the process of evaluating the exchange rate of its local currency … etc.

The fund, in this case, stipulates that the process of providing assistance to the state (including that which will be provided by the Paris Club of course) is linked to the need for the state to follow a structural reform program that includes a set of proposed measures that the state should follow, so that it can reform its general budget structure, reduce the deficit in its balance of payments, and improve Its ability to borrow and repay in the future.

That is, the country falls into the captivity of the International Monetary Fund, which imposes its will on governments, and its intervention becomes widespread.     LINK

Iobey777 » April 25th, 2021

The last paragraph is Very Telling! “To follow a structural reform program” interesting! Just FINISH it CBI!

Source: Dinar Recaps

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