Basically… Iraq applies to the IMF for a funding/loan arrangement. They are required to present a very detailed look at their economic situation and what their plans are in the future.
From the IMF web site
Stand-By Arrangements (SBA). The SBA is designed to help countries address short-term balance of payments problems. Stand-bys have provided the greatest amount of IMF resources. The length of a SBA is typically 12-24 months, and repayment is normally expected within 2¼-4 years. Surcharges apply to high access levels.
Iraq or any country can request an arrangement with the IMF… it is done with a “Letter of Intent”. “The following item is a Letter of Intent of the government of Iraq, which describes the policies that Iraq intends to implement in the context of its request for financial support from the IMF. The document, which is the property of Iraq, is being made available on the IMF website by agreement with the member as a service to users of the IMF website.” 2004 letter http://www.imf.org/External/NP/LOI/2004/irq/01/index.htm
End of 2005 letter to IMF. There is a ton of info here. http://www.imf.org/external/pubs/ft/scr/2006/cr0615.pdf “Monetary policy will continue to be based on the framework of a de facto exchange rate peg. The exchange rate peg has proved a valuable anchor of stability for Iraq. Although inflation has been volatile (mainly reflecting periodic supply shortages), it has been on a downward trend. Apart from temporary pressures in the spring and early summer of 2005, moreover, the peg has not been seriously tested, and the CBI has been able to maintain it while still accumulating international reserves. In part, this is because of the prohibition on net lending to the government, which ensures that the money supply can only increase through increases in international reserves. The program includes a ceiling (performance criterion) in 2006 of zero new claims by the CBI on either the government or private sector.15.” Note this line…. ensures that the money supply can only increase through increases in international reserves."
Revaluing the dinar to 1:1 would be the same as increasing the money supply 1277 times. So unless they can increase international reserves 1277 times… well… they say it wont happen.