Chapter 13: Fiscal, monetary, and exchange rate policy
Compared to the governments of most developing countries in 2012, the GoI was in an enviable position. With high world oil prices and steadily increasing crude oil exports, the government expected a 26 percent increase in total revenues. In fact, one of the problems facing the GoI was that it literally could not spend money fast enough. With respect to monetary and exchange rate policies, the country had maintained a steady exchange rate for almost three years. This greatly contributed to the CBIs reputation for professional management. But the future may not be as bright. As discussed in Chapter 8, Iraq’s financial markets are moribund as a result of state bank dominance and inadequate regulation on financial intermediation. The equity market is in its infancy and extremely shallow. Also, Iraq is still a two-currency economy – ID and US dollar. Both the inefficient financial markets and dollarization substantially limit Iraqi monetary and exchange rate policies especially when faced with substantial hard currency loss. In addition, there is increasing evidence of large-scale capital flight although not yet large enough to be destabilizing.
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