Iraqi Dinar Discussion Board

[Arctec]

The effects of raising interest rates on Iraqi dinar
The effects of raising interest rates on Iraqi dinar
Translated by IRAQdirectory.com - [16/02/2007]


A prominent Iraqi economic warned that “increasing the interest price decided by the Iraqi Central Bank, among other procedures to raise the purchasing power of the Iraqi dinar, would keep investment away”. Considering this procedure “a misguided policy because it is an economically sensitive method that might lead to the fall into the so-called liquidity trap”.

The economical academic, Ismail Ubeid Hammadi, explained that any definite form for establishing an economic system in Iraq “has not been shaped yet”, pointing out that “this is due to the absence of a clear vision about Iraq's political system”.

He described most of the procedures followed in this matter as “autocratic and partial, and do not achieve the desired objectives of the change”. He said: “We want a balanced change which does not harm the country’s interest and economy”. He pointed to the need to “a constitutional amendment, since can not build a developed economy without transparent and clear laws that determine the course of economic changes”.

As for the best way to deal with inflation, which hit record numbers in Iraq, Hammadi said: “we can not deal with inflation except by increasing the supply of produced goods in the market; as for using the liquidity trap, this will mean stopping the increase of production capacities and foreign investment which will also be affected”.

He pointed out that the Iraqi Central Bank “was taking recommendations of the International Monetary Fund which confirmed that the dinar is less in value than the dollar”, considering that “Nothing confirms this trend and the lesson is not in the formal strength of the Iraqi dinar but in its strength against other currencies”.

About the 2007 budget’s distributions, he said: “current expenditure forms the biggest part of it and this is not good, we need the investment side to restore the economy's recovery”.