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Thread: IMF >>>Iraqi Letter of Intent

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    IMF >>>Iraqi Letter of Intent

    Mr. Dominique Strauss-Kahn
    Managing Director
    International Monetary Fund
    700 19th Street, N.W.
    Washington, D.C. 20431
    Dear Mr. Strauss-Kahn:
    In the past few years, despite a very difficult security situation, Iraq’s economic performance
    strengthened considerably owing to improved macroeconomic management and a favorable
    external environment that lasted until mid-2008. These improvements also reflected the
    assistance we received from the international community, including from external creditors
    and the International Monetary Fund (IMF). Growth accelerated, inflation was reduced to
    single digits, and fiscal and external sustainability improved substantially. Since 2004, we
    have successfully completed three economic programs supported by the IMF, with our last
    Stand-By Arrangement (SBA) ending in March 2009.
    Already at the time of the last SBA review it became evident that the external environment
    was deteriorating rapidly due to the sharp drop in international oil prices and the onset of a
    slowdown in the global economy. As the proceeds from oil exports account for the bulk of
    Iraq’s export receipts and government revenue, the decline in oil prices has posed
    considerable challenges to our internal and external stability. During 2009, we have been
    able to absorb much of the adverse impact of these external shocks by using the financial
    buffers we built up in recent years. However, unless oil prices increase markedly, we would
    be forced to constrain government spending in 2010 and 2011, at a time when our
    developmental and security-related needs remain high. A fiscal contraction would hurt the
    economy and undermine our hard-won macroeconomic stability, and could also contribute to
    a deterioration of the security situation.
    To address these challenges, we have developed the attached economic program for 2010–
    2011. Our program aims to manage the effects on the Iraqi economy of the lower oil prices
    and the slowdown in global economic activity. The program focuses on keeping inflation
    low, increasing growth by boosting oil production, and ensuring fiscal sustainability. While
    our main focus is on macroeconomic policies, we are also accelerating the pace of structural
    reforms, especially to improve public financial management and develop the financial sector.
    To support our efforts, and based on the economic program and the specific targets set out in
    Tables 1 and 2 attached to this letter, we request a 2-year Stand-By Arrangement from the
    IMF in the amount of SDR 2,376.8 million (approximately $3.8 billion), equivalent to
    200 percent of Iraq’s quota, to help cover our balance of payments needs.
    Given the large uncertainties and the high volatility of international oil prices, our projections
    and the government’s budget for 2010 are conservatively based on an average price of
    $62.5 per barrel for Iraqi oil. In the event that our oil export revenues turn out to be higher
    than projected, we plan to save half of the additional revenues to rebuild our financial
    buffers, while using the other half to finance additional investment to improve the delivery of
    basic public services. Moreover, if by the time of the first or second program review futures
    markets indicate that we will be able to obtain, on average, an oil price equal to or higher
    than $73 per barrel for our exports in 2010, we intend to treat the SBA as precautionary,
    given that we would no longer expect to have a financing need, provided that our oil export
    volume (projected at 2.1 million barrels per day) is sustained (this issue will be examined in
    detail at the time of each program review discussion). Vice versa, should oil export receipts
    fall below our assumptions, we will reduce spending by half of the revenue shortfall and
    cover the remaining gap by further using our financial buffers and seeking additional external
    support, including from the IMF. If the revenue shortfall turns out to be sizable, or if the
    reserve position of the CBI weakens below program targets in between test dates, we will
    consult on the policy response with IMF staff.
    In the same vein, we intend to treat the SBA as precautionary if it is expected that the 2010
    investment budget will not be fully executed. Disbursements of capital spending in 2009 fell
    short of budgeted amounts, due in part to severe disruptions of administrative capacity as a
    result of the bombings of the Ministry of Finance in August and December. Investment
    remains a key priority, however, as underscored also by the Council of Representatives’
    provision of additional investment spending at the time of approval of the 2010 budget. The
    2010 capital budget would imply a large increase over last year’s estimated investment
    outturn. In order to ensure that the disruptions of administrative capacity do not lead to poor
    quality implementation, we are working hard to rebuild and expand capacity, including by
    restoring information systems and strengthening project approval processes. With these
    efforts, we will aim to execute the full envelope for the year. If capacity issues cannot be
    fully addressed, however, investment could again fall short of budgeted amounts. Therefore,
    at the time of the second review we will reach understandings with IMF staff on the expected
    rate of execution of the 2010 investment budget. If the rate of execution is expected to be less
    than 93 percent, we intend to treat the SBA also as precautionary.
    We understand that the requested SBA will be subject to semi-annual reviews, semi-annual
    performance criteria, and structural benchmarks, as set out in the attached Tables 1 and 2,
    and described in more detail in the attached Technical Memorandum of Understanding
    (TMU). In this regard, we understand that the completion of the first review under the
    SBA—expected to take place on or after May 31, 2010—will require observance of the
    quantitative performance criteria for end-March 2010 specified in Table 1, and that
    completion of the second review—expected to take place on or after August 31, 2010—will
    require observance of the quantitative performance criteria for end-June 2010.
    We believe that the policies set forth in our economic program are adequate to achieve our
    objectives but are prepared to take additional measures if necessary. We will consult with the
    IMF on the adoption of these measures and in advance of any revision to the policies
    contained in our economic program, in accordance with IMF policies on such consultation.
    The Iraqi government and the Central Bank of Iraq will continue to provide the IMF with the
    necessary information for assessing progress in implementing our program, as specified in
    the attached TMU, and will maintain a close policy dialogue with IMF staff. We authorize
    the IMF to publish the Letter of Intent and its attachments, as well as the related staff report,
    on the IMF’s website following consideration of our request by the IMF’s Executive Board.
    Sincerely yours,
    //s// //s//
    Mr. Baqir S. Jabr Al-Zubaydi Dr. Sinan Al-Shabibi
    Minister of Finance of Iraq Governor
    Central Bank of Iraq

  2. #2
    Member mannamay's Avatar
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    Very nice, keep'm coming!!

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    Executive dbcooper's Avatar
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    Nice post...Thanks!

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    Thanks for the post.

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