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Economists: Iraq's economy unaffected by financial crisis unless oil prices sharply drop
13/10/2008 20:55:00

Baghdad (NINA) Although current financial crisis started and mushroomed at the Wall Street in the United States, its repercussions and fallout have taken on an international dimension after the crisis hit major insurance companies and the 4th largest bank in America.

The crisis is still boiling to spread outward affecting international markets and various countries, whether developed or developing ones, which have resorted to precautionary and remedial measures to counter the crisis and its potential outcomes.

In Iraq, reactions on how this crisis is going to affect the economy have differed.

Minister of Planning and Developmental Cooperation, Ali Baban, announced the financial crisis sweeping the U.S. has not directly affected oil prices, but added, It is not yet known what is going to change in the foodstuff and staples market, in view of the speculations and chances taking by the crisis-profiteers.

On the necessary steps needed to avoid expected fallout on the Iraqi economy, Baban pointed out, National economy needs restructuring, and fundamental reforms, by diversifying income sources, and reviving agricultural and industrial sectors, as well as reducing dependency on oil.

Advisor at the Central bank of Iraq, Mudher Mohammad Salih, considered the collapse of the American Lehman Brothers Bank would not constitute a threat to the Iraq's economy because Iraq is not linked to the Euro or the Yen areas.

Speaking to NINA, Salih said, Iraqi oil revenues come to us in Dollars, and Iraq is within the Dollar zone, according to the 1950s and 1960s classifications. Thus the influence of the Dollar crises on us is neutral, meaning that we are not in the Euro or the yen zones.

He added, We are automatically affected by any sharp fluctuations, or severe pitfalls, but during the past 5 years, we enjoy a legal protection through the accreditation of the Iraq Development Fund which helped in sparing Iraqi funds for legal claims emanating from its indebtedness.

He also explained, We must not forget there is a presidential decree protecting the Central Bank of Iraq, as a financial agent of the state looking after Iraqi funds, from any legal claims.

On his part, Dr. Abdul Hussein Al Anbaki, member of the Advisory Board at the Council of Ministers, said the threats of the world finical crisis and its effects on Iraqi economy, would be in a recession taking place in the western economies, which would negatively affect the world prices of oil, on which Iraq depends for revenues to a large extent.

He added, Since the cumulative gross product in Iraq depends on oil revenues by 80 % that would lead to transferring the financial crisis to Iraq.

He went on, the other effects would come through the channels of globalization, represented by the financial markets in Iraq and the region, as this state seems to carry more influences on economies closely tied to the American economy, such as the Japanese economy which has maintains huge trade exchange with the United States, making an economic recession play a role in reducing the demand on Japanese products, and that recession would in turn move on to the oil companies in the countries dependent on oil.

On the means necessary to avoid or at least ease the repercussions of the crisis, Anbaki expressed the belief that the Central Bank of Iraq should review its policies which has been in force for the past two years, especially raising the interest rates which had reached 16 %, in spite of the rise in unemployment, and the recession in the Iraqi economy.

At the same time, Economic researcher at the Mustansiriya Center for Arab and International studies, Sattar Al Bayati, emphasized the Iraqi economy is already suffering from clear structural flaws, and all that it may lose at this stage would be in the fluctuation of oil prices at the world markets as a result of reduced fluidity, and fluctuations in the value of the Dollar, which could lead to slowing growth rates achieved through the oil sector.

He went on, Still, we believe the Iraqi economy will not be affected clearly and tangibly by the repercussions of this crisis which has not taken on a worldwide character till now although this description has already been given it. Additionally, the Iraqi investment activity is still restricted to the local market, in addition to the drop in the value of the foreign investment in Iraq and the limited scope of the Iraqi financial market, or the stock exchange.

On his part, Abdul Sattar Al Sudani, member of the Iraqi Economists Association, expressed his belief that the influence of the financial crisis in the U.S. on Iraq and the other developing countries may appear at a later stage, if the crisis were to lead to a world economic recession.
He emphasized, The current crisis in the United States is one of Banks, not of production, and the U.S. is forced to review its financial and monetary policies, and even the entire capitalist system to avoid a proliferation of the crisis, or a repeat of it in the future.

It is worth noting that the Bloody Monday which saw the conflagration of the world financial crisis led to losses estimated at 2.4 Trillion Dollars, including 150 Billion Dollars suffered by the stocks exchange and funds in the Arab Gulf countries, while the oil prices at world markets dropped to about 80 Dollars per barrel, which may lead to huge losses which will be borne by the Oil producing countries./ End.

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