BAGDAD (AP) – Iraq’s central bank announced on Saturday that it would devalue the Iraqi dinar by over 20 percent in response to a severe liquidity crisis sparked by low oil prices.
Riot police were deployed outside the central bank headquarters in central Baghdad before news of the devaluation sparked protests. A leaked draft state budget bill for 2021 caused a sensation on the Iraqi streets last week when it confirmed plans to devalue the dinar.
The new rates represent a dramatic reduction from the previous official rate of 1. 182 IQD. It is the first cut in exchange rates the Iraqi government has made in decades.
In a statement, the central bank set the new interest rate on the dinar, which is pegged to the U.. S.. . Dollar at 1. 450 IQD on sale to Iraqi Ministry of Finance. The dinar becomes 1. 470 IQD to the public and to 1. 460 IQD sold to other banks.
The devaluation increased the chances that the dinar will weaken further in the street. The rate is already at 1. 400 IQD per U increased. S.. . Dollar on Saturday, down from 1. 300 IQD in the last week, at exchange offices.
« I stopped exchanging money, » said Abo Abed, who works on a money exchange in the capital’s Karrada district. He turned down a customer with a $ 100 bill, saying he could only get at the old price of 1. Sell 300 IQD. « Who knows, tomorrow it could be 1. 800 IQD. « »
Since an oil price crash earlier this year, Iraq has grappled with an unprecedented liquidity crisis. The raw-exporting country had to borrow from the bank’s dollar reserves to pay the nearly $ 5 billion monthly fee for public salaries and pensions. The oil revenues, which make up 90% of the budget, brought in an average of $ 3. 5 billion.
Efforts to introduce reforms met resistance, and to date the government has borrowed internally to pay the state bills.
Devaluation would give oil-rich Iraq, which imports almost all of its goods, more dinars to make urgent payments. However, setting a new interest rate was a delicate balancing act to meet the government’s liquidity needs without affecting the average Iraqi.
The Treasury Department is responsible for assigning wages to public workers, the largest workforce in Iraq and one of the most angry with the new currency measures.
The bank justified the devaluation by stating that it was the result of « intensive consultations » with the prime minister, the finance minister and the legislature, and stressed that the depreciation of the dinar was a one-off event.
« It must be emphasized here that this change (depreciation) of the Iraqi dinar will be unique and will not be repeated, » the statement said. « The central bank will defend this price and its stability with the support of its currency reserves, » which it continues to keep at a stable level.
The bank blamed bad economic policies over the past decade. She said she had « no choice but to intervene » as poor economic planning and financial policies by Iraqi politicians have turned Iraq into a raw exporting state, with most of government spending going to pay for a bloated public sector.
The devaluation drew the wrath of public sector workers. Many fear that a weakened dinar, as well as plans proposed in the budget to cut salaries and introduce taxes, will lead to wage cuts.
The proposed state budget for 2021, while a step towards austerity measures, also calls for record spending with a deficit of nearly $ 40 billion. A cabinet meeting to vote on the law has been postponed to Sunday.
Legislators will be voted on from there, a challenging task as the cuts ahead of next year’s national elections are considered extremely unpopular.
« It will be very difficult (to pass), » said lawmaker Zarqawt Shamseddine. « To convince MPs to vote for this major bill, the government needs to show that it has other plans . . . Increase revenue. That’s the strategy. « »
Prime Minister Mustafa al-Kadhimi called for early elections a year ahead of schedule in June 2021, in line with the demands of anti-government protesters.
Iraq, Iraqi dinar, central bank, finance
World news – CA – Iraqi central bank devalues dinars by 22% in public anger – The Mainichi
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