CHAZMAN POST - One Dinar

For my own understanding, I compiled and revised some notes from *****'s recent chats on the history of the IQD, along with some Q&A. It occured to me that others who haven't been at this for years might also benefit from this summary of how we got to where we are now. So, I hope you find this helpful.

Compilation of Medic's Chats on the History of the IQD Investment
Explaining our Investment

Now I know for a fact the Iraqi dinar (“IQD”) is going to revalue (“RV”). Now the day? That is another story. I am going to teach you about this investment. We will go from almost the beginning so you really understand and can speak confidently about the IQD like I do.
Background

I will start with the International Monetary Fund (“IMF’) / Government of Iraq (“GOI”) relationship, which lasted almost 5 1/2 yrs. This as many of you called it was the SBA (Stand-By Agreement). The SBA consisted of funds that were available to Iraq through the IMF for stabilization loans. Iraq never used a single penny of the available SBA funds. The actual program that the IMF placed Iraq under was called the Stabilization Program for Developing Countries (“SPDC”). SPDC is an economic and monetary policy that was used to reduce inflation and improve the primary revenue generator of the Iraqi economy, oil and gas.

First, the economic policy diverted all available funding to develop the oil and gas sector to generate revenues to keep the GOI running and allow for infrastructure development. But this policy stripped health and social welfare and education programs of money. Further, although unemployment is still high, the IMF program reduced unemployment from 30 plus % to 18% by the end of the SBA.

The monetary policy component of SPDC will be discussed next. There are two basic types of monetary policies: contractionary and expansionary. The IMF’s SPDC used contractionary monetary policy to increase interest rates and stabilize the exchange rate of the IQD, which was pegged against the USD. The main goal of this policy was to reduce or combat hyperinflation. The CBI’s job is to (1) reduce the actual physical currency within the borders of Iraq; (2) auction off currency to foreign buyers to generate revenue; and (3) to sell off T-Bills and CBI bills and to trade for foreign currency assets. The T-Bills and foreign currency assets will eventually be used to protect the sustainability of the RV exchange rate. Currently, inflation in Iraq is low.

Many of the stabilization programs implemented by the IMF have failed the first time around. IMF stabilization programs failed when first implemented in Turkey, South Korea and Argentina. In contrast, Iraq has proven to be a textbook example of a successful implementation of the IMF’s SPDC policy. Following this success, the IMF released Iraq from SPDC program on March 18th. The plan was then for Iraq to move to Phase II, which called for expansionary monetary policy and a transition to a market economy. In fact, the Iraqi constitution actually mandates that Iraq to have a market economy. Yet, the transition to a market economy has not yet occurred.

The CBI’s Daily Auctions

Following the release of Iraq from the IMF SPDC agreement, the CBI continued to auction off IQD at an alarming rate. This prompted Prime Minister Maliki, Vice President Hashemi and the Parliament to plead with the CBI for several weeks to stop the auctions. The calls to stop the CBI auctions ceased the CBI’s Governor, Dr. Sinan Al Shabibi, explained the purpose behind the auctions. As of January 2009, the CBI auctions were not being held just to generate revenues to subsidize the imports that were not permitted to be purchased with DFI money. Shabibi was using different forms of a managed float to control the rate at 1170 against the volatile USD, which had dropped .22 cents in the past year. He skillfully managed to keep the IQD from plummeting. At the same time CBI was reducing Iraq’s dependence on the USD for internal transactions. The use of USD in lieu of the local currency is known as dollarization. They were slowly reducing the liquidity abroad and the overall use of the USD for purchases (e.g., eliminating dollarization) and encouraging Iraqis to use the IQD.

Now it was hard to use the IQD since the only way it is of any use is to purchase subsidized goods and services. Now this policy of removing the use of USD was finally done and finished by the 1st week of October2009. The USD is still used on US bases in Iraq in on the black market. The CBI’s auctions now have very little to do with revenues for subsidies but rather are almost totally for the management of the IQD exchange rate. They have transfers out and USD in. On many days times there is no USD, which means no IQD was auctioned off. The transfers out are for T-Bills and CBI bills that the CBI is purchasing/paying off or for the swap of foreign currency for foreign currency assets.

Now the auctions are complex, but for a simple KISS explanation. The larger transactions are “transfers out” that do not involve the sale of IQD. The only amount that is associated with the sale of IQD is the USD taken in. Now that also is misleading since CBI is managing the IQD's rate through a dirty float. It means they personally are manipulating the rate of the dinar not the worlds want or use of it themselves. And the reason is: nobody has a use for it but brokers and traders outside of the country.

I will explain the concept of a dirty float. When a central bank intervenes with a floating exchange rate, the rate is called a "managed float." The method of exchange is still a float, but the bank will provide money if the exchange rates are dropping so that the exchange rate remains constant. The central bank has control over the exchange rate of the currency: if the rate is dropping, they will supply money to bring it up again. There cannot be an RV when USD has been accepted and IQD has been sold until the central bank has closed for the day. If the USD is $0 for an auction then they can do an RV.

Now right now Iraq is at the brink of some major changes. CBI has approved an RV. It has been handed over to the GOI, which means Maliki. When or the reason that Maliki will use the RV to his best advantage only he knows.

Now going back in time - there are or were several major pieces of legislation that Iraq needed to pass.

HCL or Hydrocarbon Law, which entailed two parts. First part was the revenue sharing of the oil sales from Kurdistan and what was fair in the GOI and Kurds eyes as a split. Well it hasn't gone well. This spring it will be 3 years that the law has not been acted on. So Talibani (president of Iraq) and the oil minister did a semi settlement. They open up the pipelines and said that 83% goes to the GOI and 17% stays with Kurdistan.

Investment Law. Then part two was the oil laws that dealt with foreign investors in the oil industry and they being protected. All oil in Iraq is nationalized, meaning that it is owned and run by the GOI. Initially, the GOI was only offering foreign oil companies the opportunity to own a maximum 49% interest. This meant that companies would have to invest billions with no guarantees they be booted out at anytime. Not surprisingly, no companies were willing to bid under these conditions. It took Iraq about 3 months to amend the Investment Law in a way that would attract foreign investment. The amendments allowed foreign investors to have up to 75% controlling interests in their projects and to have lease terms of up to 20 years. These terms were attractive enough to induce foreign oil companies to step up to the plate and bid on Iraq’s oil contracts.

Now a couple of other issues:

SOFA or Status of Forces Agreement, which was signed in December 2008 by President Bush and PM Maliki. This is an agreement on the timetable that US forces must be removed from the cities and also the timeline that us forces are to leave Iraq. According to the agreement US forces are to be out of Iraq no later than December 31, 2011.

SFA or Strategic Forces Agreement which is an agreement between the US and Iraq that we will help with education to include Iraqi students in us colleges - hygiene and pretty much anything you can think of that we can teach them.

Chapter VII of the UN Charter. Now come May 2009, all looked very good for Iraq. Then the kiss of death jumped out, Chapter VII. It is a resolution that is enacted when a government commits an act of aggression against another UN member. Chapter VII is just the initial resolution. It is then followed by dozens of other resolutions that layout the exact consequences and issues that need to be resolved to have Chapter VII removed. This is why the open files by Kuwait are so important.

A country under Chapter VII is not protected by international law. It can be sued, which in general a country’s government cannot because of the protection of international law. The US is the only country whose leader has forbid any us citizen to sue or put a lien against Iraqi assets. This was PO 133303 signed by George Bush.

Along with CPA (Coalition Provisional Authority) Order No. 39 and later amended to CPA Order No. 40, this granted us as US citizens the same rights as Iraqis to purchase and own hard currency, stocks, bonds and securities that were issued by the CPA/GOI. This is why you are allowed to own IQD.

Now all sanctions are subsequently removed except for the open files of Kuwait, which is the reparations owed to Kuwait which is about 25 billion USD, the demarcation of borders between Iraq and Kuwait and the return of approx 300 missing Kuwaitis. Since the 1990 gulf war these have not been resolved. This is the holdup of the removal of Chapter VII. Also as long as they are under Chapter VII, all oil revenues for the last 19 years are controlled by the UN Security Council (“UNSC”). They are placed into an account called the DFI or development fund Iraq. There are hundreds of billions of oil revenues in this account including all the gold bullion that was taken and frozen.

A % of the yearly oil revenues is paid to Kuwait to repay the reparations to Kuwait. Also a UN committee controls all the funds and disperses funds to Iraq for a very strict use. They can only purchase certain imports with the DFI money and it is audited by the UN. On the 21st of this month (December 2009) the UN wants to turn over the management of the fund to an Iraqi financial committee.

GOI will not get the revenues to do as they wish. They must follow the strict management of the funds and continue to make timely payments to Kuwait. Iraq lobbied for months to get released. They came to the US multiple times but never got the UNSC to vote on it. They must have 8 of 15 votes of the UNSC to be removed. But of those 8 votes they must have all 5 permanent members’ votes. ANY permanent member one can veto it. Those members are: US, China, Russia, UK and France. And every single one has now oil contracts won in Iraq. Russia was the last one with Lukoil. So that is where we stand to date with Chapter VII. So far no vote has come up and as of late no news has even come up with reference to Chapter VII.

QUESTION: Just wanted to know how the recent 10mil Iraq paid fitted in.

ANSWER: The 10 million was to pay for excavations fees owed to the contractors who were digging up the mass graves the Iraqis had made that may have held Kuwaiti bodies. The responsibility for the payment fell on Iraq but they did not pay it. So the CBK did, then the Central Bank of Kuwait (“CBK”) was told by Iraq that they would pay it with RV'd IQD. And that the RV was set for the Friday about 10 days ago. Then Iraq did not RV, so Kuwait contacted the UN. The UN took 10 million in bullion that they had in frozen assets in a bank in NY and transferred it to the bullion stored in NY for the Kuwaitis.

If Chapter VII was discussed in July as an issue back then, no one knew, people thought it was the HCL, the SOFA, SFA, Chapter VII, Election Law, Investment Law. CBK weren't really as upset as much as I told you so. They have no respect for the Iraqi mentality. They think they are corrupt and inept in how they handle the government and their people. Now we are talking the government not the people of Iraq. And they sure aren't the #4 most corrupt country per capita for nothing.

QUESTION: I have a question for you, as I remember reading a while back that Chapter VII expires automatically on December 31, 2009. Is this as you understand?

ANSWER: First off Chapter VII does not expire. Only UNSC resolution 1859 does.

QUESTION: Where's some logic...why would anyone work in oil in Iraq, when they can make more $ working in Kuwait?

ANSWER: Kuwaitis don't work. They hire others to do their work. The entire country is on an oil revenue welfare plan.

QUESTION: What does Chapter VII have to do with the RV – do we need Chapter 7 pulled before the RV?

ANSWER: At one time it was thought that the removal of Chapter 7 was required prior to an RV because a county cannot engage freely in international trade while under Chapter VII.

QUESTION: Then we are not waiting on the removal of Chapter VII just the RV?

ANSWER: This is a country that procrastinated for almost 6 years, passing no legislation and not trying to resolve any of the issues that were needed to make Iraq be recognized as truly a sovereign nation that could be trusted. It was not until Obama administration made it perfectly clear they will have to stand on their own two feet that the GOI felt the pressure to move forward - that the day of the free lunch was over - that the US wanted to see the benefits of losing 4700 lives and spending almost $1 trillion. No I never said we were waiting for Chapter VII to be removed. The CBI is the only authority that can or did authorize the RV. No one else in the GOI has the right or authority under the constitution.

The CBI has already made it perfectly clear the Istanbul meetings of central banks on February 16, 2009 that they were going to RV. This is fact - it was stated by the senior advisor to the central bank. Now the RV has been approved and released by CBI to the GOI. After that as was also stated by Shabibi in August that after the CBI releases the RV to the GOI, then what ever happens thereafter is solely the GOI’s responsibility.

Until the GOI releases the RV, it remains the CBI’s responsibility to still maintain the stable currency rate of 1170 through a managed or dirty float, which is what the CBI is currently doing through its daily auctions.

Now it is in the hands of Maliki and we know he has signed off on it. All we know is that as of last Friday, according to the Warka Bank executives at Citibank corporate offices, there are issues with computer system failures that would prevent Iraq from announcing the RV in a coordinated way and sending it all nations at the same time. At this time, I have no other reason for the delay in the announcement of the RV other than these computer system issues.

QUESTION: Do you think there is a real push for this to get done by the end of December? What are your thoughts on an RV before the end of December 2009, especially knowing that the Islamic New Year begins on the 18th? What do you think of the conflicting articles about Maliki running or not running for re-election and also the elections being delayed to march?

ANSWER: The elections now have an official date because of the mandatory 90 days needed by the election commission and by the constitution of Iraq. Even though the blocs and Hashemi forced a violation of the constitution and violated a mandatory UN mandate for the election law to be in place.

QUESTION: Can we accurately assume that the revalue has taken place since there is a rate, which we know of, at least has been posted here, and that the only thing holding it from going forward is the GOI's release of it for public trade? Am I right? There has been some conflicting terminology on here that I sometimes just need to read between the lines.

ANSWER: Ok, I never give conflicting statements on where the IQD is standing and why. No I do not think the tarp money is from IQD. It is from the fact that it was never used by the banks. All the banks are doing is returning the money they never spent. Yes I was told by Chase that they were required to take the tarp money by the government and then just turned around at the first payment date and paid it all back.

Yes several countries hold the IQD. But we are not bidding on it. France accepts payment in IQD and just banks it for future use after post RV. China did also. They actually bought up T-Bills and CBI bills.

QUESTION: Do you think that maybe Iraq is just printing IQD and does not have resources, at this time to cover, them all if it announced an RV/?

ANSWER: Ok Iraq does not print anything, so please just forget that. The printing of the IQD has stopped, long ago. Wareagle says: Iraq has loads of gold to cover the RV.

QUESTION: You mentioned a "coordinated" effort to get the word out. Why doesn’t Maliki make the phone call and have the Reuters / Forex sites disseminate information effectively now? Or does Iraq’s electronic system need to be fully up and running before they will even consider and RV? What does "up and running" really mean to the rest of world?

ANSWER: It just doesn't work like that. Forex is not an official agency. It is a company that profits from currency trading and pairings.

QUESTION: Is all we are waiting for is the technical computer issues to be resolved?

ANSWER: Yes. According to the only info and explanation out of Iraq.

QUESTION: How long until the computer system is fixed and Iraq can announce the RV?

ANSWER: Does it matter how long? Really?