SWFloridaGuy Chat 9-20-12

9-20-2012 SWFloridaGuy: The recent statements from the GOI are great but still just talk until we actually see it put into action. The talk however, is very encouraging all around the board these days. We’ll never be able to assign accurate time-frames to these events prior because Iraq doesn’t seem to be able to adhere to their own schedule.

The latest one put out by the GOI is next week for a possible NC and we are all hoping that this pans out. However, I would prefer to see Allawi and Barzani in attendance. Maybe between now and then, they can make some concessions to appease them and we won’t see another National Meeting where the Iraqi List boycotts and nothing is accomplished.

I do believe a deal (political reform) is in the works and we should know fairly soon if I am right or wrong. There is no magic “RV meeting” but when we see general progress that we can collectively process, it’s always a good sign that things are moving in the right direction.

The CBI, Finance Committee, United Nations and CoM have all said that reform (power sharing, HCL, ministers, Strategic Council, Article 140 etc), that supports stability is necessary to move forward both economically and politically.

Maliki could certainly throw a wrench in the process as he’s done many times in the past but of course we hope that’s not going to be the case for once. Currently the Minister of State for National Security, Minister of State for National Dialogue, Works & Planning Minister, Women’s Affairs Minister, Trade Minister, Municipalities and Public Works Minister, Electricity Minister, Defense Minister and Interior Minister are all still interim and need to be appointed but the Defense Ministers are the most crucial at this time.

I believe that a successful National Meeting, where all blocs are in attendance, would be the perfect platform to make public announcements of progress in these areas.

The exact mechanism by which the CBI will enact their currency reform project is obviously 100% confidential. They could never come out and say they are going to revalue their currency.

The CBI continuing to reference deleting the zeros and a straight redenomination should be exactly what we expect. A historic 100,000% revaluation is not the only option the CBI has where we could see large profits over time, as alluded to by Dr. Ibrahim of the AMF and studies done by Harvard, Yale & MIT (float and let the market drive up the value, change in peg to a PEP or broad based commodity that would help average out fluctuations etc).

If Iraq continues to increase oil production (currently producing historic levels) and their GDP, the IQD can increase in value giving them additional purchasing power. If Iraq were planning a straight redenomination with no significant rate increase, I doubt they would have spent this much time studying the long term effects, in-country (and out) security issues, counterfeiting, effects of dedollarization and how to institute a market-based economy where they are respected as a borrow in the eyes of global capital markets.

I also believe that the 2-10 year allotted range we’ve seen referenced where the currencies will run concurrent is a clue that leads away from a straight RD. While I don’t for sure, I strongly believe that we will profit from this. My doubts lie with the timing and the profit margin.

The toughest facet for me to understand is how the initial nominal appreciation will lead to sustained real appreciation. Iraq must choose between capital mobility, monetary policy autonomy, and exchange-rate stability and the only way they can pull off a historic straight revaluation of this magnitude is if they receive a lot of help from foreign central banks and powerful organizations like the IMF and World Bank in facilitating the process in order to profit themselves.

As previously mentioned though, a straight RV to those levels is not their only option and I can see how either a change in peg or a float where they let the market drive up the value makes a lot of sense. As usual, all we can do is hope for the best but the news lately has me very encouraged. These are just my opinions, which may or may not be correct.

, , , ,

Comments are closed.