Term Paper on "Iraq's Economic Prospects"

Term Paper 3 pages (1252 words) Sources: 1+

[EXCERPT] . . . .

Iraq's Economic Prospects

It is after the fall of the Saddam Regime that the private sector in Iraq has picked up considerably, and has resulted in the start of the rise in the value of the Iraqi Dinar. This fact is revealed in the phenomenon of more than two Banks starting their operations from the year 2003, and there has been a steady trickle of foreigners stepping on to Iraqi shores. This may have been caused by the investment laws of the state that offer foreigners or non-Iraqis easy access to the country, a reality not seen in any other country in the Middle East. In addition, those Banks in Iraq that had been hitherto, under Saddam Hussein's rule, been forbidden to venture outside their country, are now feeling free to set up business outside their places, as well as welcoming those foreigners who want to establish their businesses within Iraq. (Iraqi Banks Gaining Ground)

This phenomenon is as yet un-researched, and the pros and cons of the situation have not yet presented themselves, but the general trend of opinion is that it is economic development that will most definitely come first before physical security. For example, it is a fact that more people would be less than willing to join armed resistance movements if they have a fear and a feeling that they would certainly lose something if they did. In a study that was conducted by Citigroup, in a bid to research the market before embarking on any investments, it was discovered that in Iraq, more than 30% of the entire region's assets that could have been banked or invested were for a large part lying un-invested and un-banked. (Iraqi Banks Gaining Ground)

When the devastating accident in the Mina al Hamedi Refinery that resulted in the shuttering of more than half of the country's refining capabilities took place during the year 2000, Iraqis had to sit down and think. The need for diversification into another field, that is, other than oil refineries, was sorely felt at the time, and the need for reforms was also stressed. This is because it was at this time that the vast majority of people came to realize that it was oil in Iraq that was prone to a number of price fluctuations when it was treated as a commodity, and when the oil prices began to rise during the year 2000, the prospects for Iraq started to improve dramatically, and the outcome was that the medium-term prospects for Iraq and for Kuwait were vastly improved. The monetary policy of the country began to focus on the maintenance of a certain amount of stability in the very value of the Kuwaiti Dinar. (Key Economic and Financial Indicators for Kuwait)

What caused changes in the exchange rate of the Kuwaiti Dinar were a number of factors such as the depreciation of the Euro as compared to the both the U.S. Dollar as well as the Japanese Yen. This was the time when the Dinar started to depreciate to a small extent as against the U.S. Dollar, and at the same time started to appreciate against both the Euro as well as the Yen. The result was that the discount rate had to be raised to a certain extent, a half point to be exact, by the month of May 2000, because of the fact that the spread against the existing dollar rates had gone down significantly. This phenomenon was quickly reversed when three separate half point cuts were made in IQ 01, because of similar moves that had been attempted by the U.S. Federal Reserve earlier. (Key Economic and Financial Indicators for Kuwait)

In the early years of the 1990's, the Dinar was worth about U.S. $3. During the… READ MORE

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