Financial liberalization contributes to increased growth rates

Friday 08 March 2019

Baghdad / Emad Emirate

The economic scholar, Dr. Abdul-Karim Jaber Shangar, said that the negatives can not be overcome in isolation from the state's reforms in its financial policies, because the financial sector is the biggest contributor to raising economic efficiency and achieving economic stability.
 
Economic activities

"The reforms and the restructuring of economic activities involve the allocation of funds (capital resources, savings and investments) and directing them towards optimal use, and this is not possible unless the financial sector of all its institutions at the level of efficiency and ability to absorb the variables."

"The financial sector can be used as a catalyst for growth by pooling different means of changing economic power and distributing it between competing financing demands," he said. "Growth in any period depends on the share of national income devoted to investment," he said, adding that "the features of the financial sector and its activities Making it vulnerable to partial and comprehensive crises and their effects are not only destructive to growth, but also affect those with limited incomes who are unable to deal with these effects, which requires intervention in identifying and improving vulnerabilities and preventing crises is inevitable. "
 
Financial liberalization

"The issue of financial liberalization has received the attention of developing countries as the financial sector has a great impact on the economic process in terms of development and achievement of growth rates," he said. "There are two levels of financial liberalization, both local and international."

"Financial liberalization increases the state's ability to formulate a strategy to solve its problems, as well as to achieve higher growth and lower volatility in consumption patterns in developing countries. Under traditional economic theory, financial liberalization is a flow of capital from rich countries to poor countries, Investments at a higher rate than their savings. "
Local level

"The local level is aimed at easing the control by using indirect quantitative instruments of monetary policy rather than the specific qualitative tools that impede the process of financial liberalization," he said, noting that "indirect instruments are an important part of a wider range of reforms, Identify them in the financial market, and relax the restrictions on the financial market. "

"This encourages shareholding companies after giving them the freedom to determine how to issue securities, to cancel the credit limits imposed on commercial banks, to grant them the freedom to set interest rates on deposits and loans, and to improve the infrastructure for developing financial markets by establishing a network to deal with brokers and intermediaries "He said.
 
International level

That "the international level aims at the liberalization of financial liberalization of exchange controls by the adoption of variable exchange is determined by the mechanism of the market and the transfer of capital to and from the markets because of the liberalization of capital transactions, as a result of the possibility of owning the real assets and financial and foreign cash and allows non-residents to own local assets And the liberalization of interest rates, increasing competition in the financial market, allowing foreign companies to enter and issue various securities and give foreign companies the right to financial intermediation.
 
Balance of Payments

"The elimination of balance-of-payments discipline is one of the most important aspects of financial liberalization and the main reason for the interpretation of the speed of capital movement," said Shangar.

"With the fixed exchange rate, rapid monetary expansion leads to a balance of payments deficit. The weakness of balance-of-payments discipline, which took place in the 1970s, led to floating exchange rates.

Governments felt that they were more free to pursue monetary expansion. In contrast, liberalization of the capital account weakened the role of the state in managing its foreign sector.


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