Alaa Al-Hamdani Iraqi researcher
It seems that the decision of the Iraqi Council of ministers to approve the exchange rate reduction from (1450) to (1300) is economic at first glance; due to its connection with the policy of the Central Bank of Iraq, which recommended the reduction, as well as its direct impact on the dollar exchange rate market, which fell significantly in the days following the ratification, however, the economic nature of the exchange rate reduction does not mean that there are no political (1450) before the House of Representatives voted to include it in the 2021 budget.
The decision to raise the exchange rate has been subjected to broad political criticism, perhaps most notably the warning of the current prime minister Mohammed Shiaa al-Sudani when he was a deputy from a “hungry revolution” that may affect the political process when he said in a previous tweet addressing the government of Al-Kazemi: (to the government, colleagues and concerned, enough stubbornness, and pride does not take you to sin, returning the dollar exchange rate to what it was a necessary decision; because the alternative is “hungry revolution”), pointing out that this revolution will be expensive by weakening the achieved price difference.
Previous political and governmental positions
Former prime minister Mustafa al-Kazemi was one of the strongest supporters of the decision to raise the exchange rate, which the previous government said that its approval of this decision came in response to the desire of the Central Bank of Iraq, which insisted on raising the exchange rate with the support of former finance minister Ali Abdul Amir Allawi, but the support was not limited to government and official parties, as there were also supportive political blocs, without their support, the previous government would not have been able to include the exchange rate in the 2021 budget, which was voted on by important parliamentary blocs.
The Central Bank of Iraq, under its previous presidency, justified the decision to raise the exchange rate as an attempt to distance economic policy from political pressures, saying -in a statement raising the exchange rate issued on December 19, 2020-: The dependence of economic and financial policy on the ambitions and concerns of politicians has led to the latest accepted models of financial management in Iraq, and limited the role of that department by distributing oil resources to the requirements of sustaining life, such as salaries and operational requirements. the Ministry of Finance did not address its roles and its leading position in economic affairs, as well as it lacked much economic and financial information that could facilitate it, and the decision-maker in the state should direct the short-and medium-term goals, which calls for active orientation to build economic and financial databases that facilitate decision-making and serve forecasts.
However, this justification does not mean that there is no political support for the decision, which the central bank said it took after intensive dialogues with the prime minister, the Ministry of Finance, and the legislature at the time, indicating that there was a political agreement that encouraged the central bank to take this dangerous decision.
The Kazemi team was a strong advocate of raising the exchange rate, as the spokesman of the former government (former minister of culture) Hassan Nazim said in September 2021: “increasing the dollar exchange rate is an idea that has been under discussion for years, and no previous government dared to take this step because of the dangers and arguments surrounding it,” pointing out that “the Kazemi government was bold to take this decision because it is in the interest of the Iraqi economy, and the reform economic vision of the Ministry of finance, as this idea was presented within the reforms of the White Paper, and received acceptance and extensive discussion.
The technical adviser to former prime minister Haitham al-Jubouri confirmed in August 2022 that “the return to the old exchange rate is a fantasy, as the losses that Iraq will pay in the event of a return will be more than the dollar remaining at its current price”.
Speaker of the House of Representatives Mohammed Al-halbousi explained in February 2021 that the exchange rate changed due to the corona pandemic, low oil prices, the scarcity of Iraqi imports, and what caused a financial crisis that the Iraqi government was unable to repay its obligations at the time, calling on the Ministry of finance to address the harmful effects resulting from the high exchange rate.