********** Warning .. Iraq is heading toward borrowing from the International Monetary Fund

01/03/2015



BAGHDAD / JD / .. committee recommended economy and investment representative, among the proposals to bridge the fiscal deficit in the budget of 2015, borrowing from the International Monetary Fund, which will lead to a low government spending and raise the price support for public goods and services to the public sector, in addition to raising taxes and fees on public service institutions.

Said committee member Rep. Najiba Najib told / BD /: "The 2015 budget is facing a lot of challenges, the most important of the fiscal deficit of $ 25 trillion dinars," noting that "this deficit is different from previous years as a real deficit of the fact that the price of oil is installed in the budget by 60 dollars and sold on world markets at less than this price. "

She added: "The Commission on Economy and Investment parliamentary taken several steps to reduce the fiscal deficit, including borrowing money from local banks Kalravedan and Rasheed and (TPI), as well as borrowing from the International Monetary Fund."

He said: "There are expectations of an increase in oil prices in global markets from $ 60 to $ 74 per barrel during the first quarter of 2015, in light of the efforts made by OPEC members to avoid the problem of falling oil prices."

Knows: that borrowing from the International Monetary Fund will lead to interference in the internal policies under the pretext that the Fund ensures the ability of these countries to repay the loan by making the cost-cutting are the removal of subsidies gradually and be away through social justice and who bears the results of that is just a simple citizen.

Among the most prominent demands to give the loan, from this fund, reduce government spending, reduce government intervention in the price mechanism and the movement of the markets, in addition to raising the price support for public goods and services to the public sector, and increase taxes and fees on public service institutions, as there would be a control on the market cash through credit identifying and raising interest rates and exchange rates and the settlement until the devaluation.


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Devaluation
From Wikipedia, the free encyclopedia
For other uses, see Devaluation (disambiguation).

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v t e

Devaluation on modern monetary policy is a reduction in the value of a currency with respect to those goods, services or other monetary units with which that currency can be exchanged.

‘Devaluation’ means official lowering of the value of a country's currency within a fixed exchange rate system, by which the monetary authority formally sets a new fixed rate with respect to a foreign reference currency.

In contrast, depreciation is used to describe a decrease in a currency's value (relative to other major currency benchmarks) due to market forces, not government or central bank policy actions.

Under the second system central banks maintain the rates up or down by buying or selling foreign currency, usually but not always USD. The opposite of devaluation is called revaluation.

Depreciation and devaluation are sometimes incorrectly used interchangeably, but they always refer to values in terms of other currencies. Inflation, on the other hand, refers to the value of the currency in goods and services (related to its purchasing power). Altering the face value of a currency without reducing its exchange rate is a redenomination, not a devaluation or revaluation.

Contents

• 1 Historical usage
  
• 2 Devaluation in modern economies
  
• 3 See also
  
• 4 References
  

Historical usage

This section needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (October 2012)

Devaluation is most often used in a situation where a currency has a defined value relative to the baseline. Historically, early currencies were typically coins struck from gold or silver by an issuing authority which

certified the weight and purity of the precious metal. A government in need of money and short on precious metals might abruptly lower^[clarify]the weight or purity of the coins without any announcement, or else decree that the new coins have equal value to the old, thus devaluing the currency.

Later, with the issuing of paper currency as opposed to coins, governments decreed them to be redeemable for gold or silver (a gold standard). Again, a government short on gold or silver might devalue by abruptly decreeing a reduction in the currency's redemption value, reducing the value of everyone's holdings.

Devaluation in modern economies

Present day currencies are usually fiat currencies with variable market value.


Some countries hold floating exchange rates while others maintain fixed exchange rate policies against the United States dollar or other major currencies.

These fixed rates are usually maintained by a combination of legally enforced capital controls or through government trading of foreign currency reserves to manipulate the money supply.

Under fixed exchange rates, persistent capital outflows or trade deficits may lead countries to lower or abandon their fixed rate policy, resulting in a devaluation (as persistent surpluses and capital inflows may lead them towards revaluation).

In an open market, the perception that a devaluation is imminent may lead speculators to sell the currency in exchange for the country's foreign reserves, increasing pressure on the issuing country to make an actual devaluation.

When speculators buy out all of the foreign reserves, a balance of payments crisis occurs.

Economists Paul Krugman and Maurice Obstfeld present a theoretical model in which they state that the balance of payments crisis occurs when the real exchange rate (exchange rate adjusted for relative price differences between countries) is equal to the nominal exchange rate (the stated rate).^[1]

In practice, the onset of crisis has typically occurred after the real exchange rate has depreciated below the nominal rate.

The reason for this is that speculators do not have perfect information; they sometimes find out that a country is low on foreign reserves well after the real exchange rate has fallen.

In these circumstances, the currency value will fall very far very rapidly. This is what occurred during the 1994 economic crisis in Mexico.

Generally, a steady process of inflation is not considered a devaluation, although if a currency has a high level of inflation, its value will naturally fall against gold or foreign currencies.

Especially where a country deliberately prints money (often a cause of hyperinflation) to cover a persistent budget deficit without borrowing, this may be considered a devaluation.

In some cases, a country may revalue its currency higher (the opposite of devaluation) in response to positive economic conditions, to lower inflation, or to please investors and trading partners. This would imply that existing currency increased in value, as opposed to the case with redenomination where a country issues a new currency to replace an old currency that had declined excessively in value (such as Turkey and Romania in 2005, Argentina in 1992, Russia in 1998, Germany in 1923, or Bizone/Trizone in 1948).



http://en.wikipedia.org/wiki/Devaluation