Stumbling in Economic Reform Opportunities: An Analysis of the Impact of US Treasury Decisions on Iraq’s Recovery Efforts

Summary:
– The measures taken by the US Treasury will hinder international efforts towards economic transformation in Iraq towards adopting a market economy system, making the Iraqi market less responsive to economic reform methods.
– The Iraqi government will have to engage in negotiation efforts on behalf of the national private sector, specifically towards parties affected by sanctions, for which there is no supporting evidence for the accusations.
– Iraq has postponed nearly all efforts aimed at enhancing financial inclusion, gradually shifting its priorities away from the global economic reform agenda, including financial inclusion, climate change, and the shift towards a green economy and energy transitions.
– Iraq’s air transport sector will be affected by the ban on Fly Baghdad, as the company is the largest national carrier in the private sector and has proven successful in providing jobs for more than a thousand employees, serving as a gateway for investors entering the local market. Therefore, investment conditions in Iraq may be affected by this decision.
– The strong financial linkage of Iraq with the US dollar, alongside the economic linkage and the excessive confidence of decision-makers in the US dollar, has created an unexpected shock that can be addressed by diversifying the currency basket in the Central Bank’s foreign exchange reserves with Iraq’s main trading partners.
– Iraq may not be able to sustain momentum with various international entities in economic diversification through financial reforms and easy access to financing.
The actions of the US Treasury will lead to the normalization of economic conditions in Iraq with other economic actors in the world.
Introduction:
Iraq relies entirely on the US dollar as an international currency for settlement in local transactions. This dependence stems from crises, including wars and economic sanctions, that have undermined confidence in the Iraqi dinar. Furthermore, the Iraqi economy is considered to be unidimensional, depending heavily on natural resource revenues to finance economic activity. The years of war, terrorism, and crime have fostered an increasing reliance on the US dollar. Due to the prolonged sanctions imposed on Iraq, along with the conditions of occupation, terrorism, and political instability, the US Federal Reserve has been able to exert influence over the flow of dollars to Iraq. Most of Iraq’s oil revenues and deposits are held in a special account by the Iraqi Ministry of Finance in the United States, and the Central Bank of Iraq, responsible for setting the exchange rate and managing Iraq’s foreign financial reserves, purchases these dollars from the Iraqi Ministry of Finance to deposit in the Central Bank’s account at the US Federal Reserve.

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