Future Prices And Openness Of Economy

Published Date: 02 Nov 2017

Iraq’s economy suffered from wars. The major economy sector of Iraq is oil but the economy suffered inversely from the issues raised in 1980. The economic losses resulted from war were not less than $80 billion. The economy once more boomed in 1988 and oil prices rose. The gas pipelines were also constructed along with oil pipelines. At present Iraq is coming in collaboration with many international firms to make the oil production at boom. The country has potential to use natural resources, (Farrell, 2013). The development of Iraq depends on the gas and oil reserves, country need to boost these to manage prices within the country. The banking restructuring and focus on private sector can lead to implementation of some good consequences. Now FDI is open in economy due to which anticipation of normal prices is there, the oil and gas price hike will be ended due to perfect competition in the market. A FDI always open some way of knowledge that is gained by local marketers. Due to the fact developing companies encourage FDI. FDI has direct and positive impact on national growth rate. This impact is significant in some countries whereas in the countries it is not significant does not mean it is not positive either. Duplication and substitution are two ways of imitable behavior. Foreign companies are showing quite interest in the development of healthy business environment in Iraq Human rights and labor rights are present but are not noticed at present, (Salih, 2005) This is an ease for doing business at lower wages. But, environmental laws are also not applicable. Developing business in such cultural practices is easier. Movement outside Baghdad is a big time issue, (US Commercial Service, 2012). Business needs an open and friendly environment to boost in. The transportation and travel is an important part of doing business and exploring resources. Foreigners are taking control on the corruption side as well. Cases of corruption in Oil and Gas department are notified and now are operated on. Investment Commission and the Provincial Investment Commissions are giving way to foreign investment to bring prices to normal level, (Jaffe, 2007).

Overview of Iraqi Dinar

The price stability is the foremost preference of redevelopment plans within Iraq. Iraqi government sees bright future of Iraqi Dinar. It was introduced in 1932 but after war the value of Iraqi Dinar is not appreciated. The government is trying to manage prices. The government recently has increased interest rates. This increase will help in appreciation of Dinar. The value of currency lies in a fact that how much a currency can buy. The purchasing power of Dinar has decreased and inflation has take place. The prices are higher and value of Dinar is lost. There is a need to trigger prices. Iraq is producing 3 million barrels of oil per day whereas China alone has 5 million barrels of oil usage per day thus there is a lot of room for development in Iraq, (Bowen, 2012). Iraqi government has revaluated its Dinar in order to get back to life. The demand of oil will increase the value of Dinar in near future leading to lower prices in the economy. When value of Dinar will be appreciated then people will be able to buy more goods from single Dinar. The country is working with US and the future economic growth depends on the oil and tourism sector. Country is placing much value on tourism as well, though the country is not a right place for tourism at present but the country has plans for it thus future of Iraqi Dinar is bright leading to decreased inflation and lower prices in the market. For reducing prices the country is trying hard to work on internal and external factors. Everyone here is starting from the scratch, (Iraq Business News, 2010).

Gas Prices and Recession

According to Bonsor & Grabianowski, (nd) the prices of gas has affected the whole economy. There is no doubt that gas is a substitute for petrol in cars now days. Thus gas prices do impact on the other prices of the commodities and overall inflation of the country. Expensive gas will lead to more expensive transportation and more expensive prices of products because of transportation input costs. The labor also goes on strikes due to rising inflation and lack of rise in wages. The customer price index is affected by the gas prices. People’s living standards go down and there income is more spent on striving for necessities of life instead of raising living standards. Thus it is evident that gas and oil prices impact on the overall prices of the goods and leads to inflation. Currently Iraq’s economy is in recession due to lack of development in oil sector, (Jaffe, 2007).Recession is an economic downturn in economy of any country, this downtown is temporary, and a country is in recession if it follows a downturn in gross domestic product for two consecutive quarters. The economic cycle does have a role of recession in it; every recession is followed by a boom and then peak. It is very important to keep inflation stagnant, unemployment low and GDP increasing to enjoy peak of the economy, (Farrell, 2013). High unemployment and low GDP are indicators of recession which are to be avoided at every cost. The wars of Iraq bring in recession in the economy, (Bonsor & Grabianowski, nd).

According to The USAID Tijara Provincial Growth Program, (2011) the external shocks hit the economy severely leading to underdevelopment of economical projects. Inflation is actually an overall rise in price level of the goods produced in a country. This rise of prices effects lay man of the country and the currency of the country is devaluated as the purchasing power of that currency goes down. Too much money buys too less good, this is what inflation means in general. This means that the value of currency is not good or it is deteriorating due to which much of the money is not buying much of the goods. In this scenario there is some recession taking place as the inflation also exists but the GDP is not improving. According to Phillips Curve there is a tradeoff between inflation and unemployment. According to new Keynesian Phillips Curve the trade off can be overcome by using the monetary and fiscal policies. If the money of country is used well in the government spending then there can be reduction in the unemployment rate, (US Commercial Service, 2012).

At present there are needed large network to keep the prices on normal position. The large networks of gas and oil sector will boost competition in the very field. The interrelation between sectors and foreign consultants lead to understanding with troubles of business faster and to become quick in effectiveness.

The projects of oil and gas are handled by the National government of Iraq and there is no role of foreigners in it. Only 10 percent reserves are controlled by international firms otherwise 90 percent firms are there in control of Iraq, (US Commercial Service, 2012).

According to Salameh, (2009) the oil prices are currently very high due to which the economy is suffering from recession. Development is tough because input cost of projects have increased. The price has even increased because of war. The future prices of the products can be decreased in case there is a room for foreign interference. The foreigner countries are intervening in development projects. Due to cartelization of oil by OPEC member countries the inflation has lead its way to all across the world. Iraq in past was focusing more upon the national benefits and was not coming in contract with foreign countries in order to search for developmental projects. The price control lies in the rehabilitation of gas and oil centers in the very region. The feasible gas investments are unavoidable and now the government is recognizing this fact. The Iraq suffered from good planning; Iraq can manage prices of products if there is perfect competition in oil and gas industry.

Currently there is too much of oil and gas which is getting unutilized. Proper utilization of resources will achieve economies of scale that are very preferable for the economy to sustain normal and competitive prices of other products. The perfect competition in the oil and gas sector will lead to many development projects, (Farrell, 2013).

Future Prices and Openness of Economy

The future of prices is stable if government makes such policies which are based on the benefit of the whole world instead of benefit of the national interests. The government can stable its prices by openness of economy. Any government can use its financial institutions which are banks to control inflation or flow of money in the economy. The tightened flow or circulation of money will reduce inflation and the velocity of money circulation will reduce whereas an ease in money supply will increase the velocity of money circulation and thus inflation will take place, (Farrell, 2013).

The openness of economy for oil and gas sector will lead to the triggering of cost push inflation. The monetary side can deal more with the demand pull inflation whereas fiscal policies such as import of oil on cheaper prices due to tax reduction can be subjected under cost push inflation.

Anticipation of Prices

To control inflation it is important to control anticipation of inflation. Besides monetary and fiscal policies it is important to control the business owners. Due to the fact of Okun’s law the producers can anticipate the high prices for their products which will worsen the condition. It is also said that anticipation of inflation is a cause of inflation, thus it is important that Fed and government must try to lessen the controversies. It is an interesting point that how anticipation of inflation will yield inflation. The answer is very simple! When people would expect a rise of price is near future, they will buy the products in abundant quantity and no doubt this act will actually raise the price of product due to demand pull inflation. Thus being a president of a country, it is important to reduce the controversies and anticipation of inflation. Sometimes industrialists anticipate inflation themselves so that they can actually sell their products at higher prices in near future. In underdeveloped agricultural economies the prices of sugar and rice rise because besides being an agricultural economy the corruption and immoral anticipation of inflation by the industrialist gives burden on laymen of country.

An alteration in investment laws made situation hopeful. According to the present government of Iraq western countries are into investing in the region. China, Philippine, Indonesia, Thailand and Malaysia can be given a chance besides UAE, Dubai and other countries. The joint ventures are supported very much now days in other countries, joint ventures can lead to betterment in price reductions. The special considerations are made for this sector. It is announced by the investors of Iraq that openness of economy is necessary. The government can give contracts to international organization and can be given subsidies in form of five years tax waiving and permission to do business for next few years, (Jaffe, 2007).

The risks factor is there but no undoubtedly, the Baghdad government is looking forward in openness of economy in housing sector, agriculture and industrial sectors. Iraqi government has taken suggestions from World Bank and IMF for the restoration of economy. Iraq now is looking towards foreign investment in every field and sector of economy, (US Commercial Service, 2012). The government has rejoined many international communities in order to come back to life. The national are trying to attract foreign investments. Anyone interested in investing there needs to review foreign Investment Law first. A foreign company has to give a detailed notice that how its investment in Iraq is profitable for the nationals and nation. What benefits it can bring to the country. Foreign Investments are very much attracted in hotel and real estate business, exploration of natural resources is also there as an attractive business for international firms. But, Iraq has something important with it. No country can survive without the oil and gas pressure maintenance etc, (The USAID Tijara Provincial Growth Program, 2011).

There are certain reasons to invest in Baghdad that give an entry open warm welcome. The investment laws are very much similar to the investment laws in Britain. The laborers are willing to render services at low wages. The laborers are little more skilled than the rest of the regions. Baghdad is having good strategically position. Establishment in here can lead any foreign firm to become active in other regions of the country as well. It is situated in very center of many developing countries. It is possible that air and water connection with other countries will help stimulating more businesses, (US Commercial Service, 2009).

Once an entry is done, it is very probable to get success inside. There are many resources that are needed to be explored. The oil price hike can cause to explore for natural gas reserves present in Baghdad.

Baghdad Reforms; Expected Impact on Prices

Because security conditions are quite better since last few years and there are no significant incidents with the foreign companies in the region thus cost of doing business in Iraq is reduced. The national companies are also looking to development of energy sector.

Because Iraq is a poor country at present thus there is a need for some foreign support. The population of country is 30 million. The GDP growth rate is expected to grow double by 2020. Because of low population in Iraq it is tough that it will boost on its own. There is present educated class but they are more interested in agriculture and industrial sector. The banking sector needs to become stronger to manage prices. The investment is there in the Iraqi banks to give them power and trainings to compete other international banks, (US Commercial Service, 2009). There are few countries which are stable because these are open like Japan and US whereas there are other countries which are stable because these are closed such as Cuba, Korea and Iraq. But now Iraq is looking into international openness. The inner politics of Iraq was always controversial leading to closed economy. There are threats to price stability in Iraq because the international firms may find it hard to establish here. American sanctions are improving the current situations of consternation. Culture can effect in analyzing profit level of the firm. Income inequality and low living standards is usually a cause of lesser business profits. People do not have a power to spend on luxuries. They hardly meet the necessities of life. Company wants a feedback, (US Commercial Service, 2012).

According to Salih, (2005) the joint ventures and direct control of FDI both are the ways out for the Iraq investors. Both types of investments are suitable for the region. In form of joint ventures a firm needs to submit some percentage of the contribution in capital stock of the firm. The capital stock is the owner’s equity. There is a need for development and resources are there to be explored. So, there are bright chances for business grooming. Subcontracts can provide betterment to the local firms as well. Taxations can be limits in case of making mutual agreements. Moreover, transportation issue can be resolved. Cultural practices also strongly emphasize for the mutual collaboration with local firms to create price stability.

Iraq is back to the way of development and life. Now the forecasting is done for the next three years of development. The targets and costs of projects are well analyzed to overcome side effects of loss of $260 billion dollars in the war. The effective monitoring and evaluation will boost energy sector and ultimately the economy, (Salameh, 2009).

Medium Term Targets for Dinar Appreciation

The repeated mistakes will be avoided in order to achieve good perfect competition. Effective monitoring cannot be done unless and until there are many agencies working in collaboration thus close business network has to be made possible. There will be analysis offices, central offices and aid offices for projects. The development goals are to enhance living standards of persons by working on education, health and income quality factors. This working will enhance savings and private investment as well. The inflation is triggered when there are investment projects. The investment comes from savings. Currently there are public and foreign investments in order to boost competition in the market, the private side investment is lacking because of poverty prevailing and lack of population. Current vision of Iraq is decentralization. The medium term objectives are more consistent. The medium term priorities are health sector, public administration, operational issues, infrastructure development, disease problems, human skills and training, medicine, breast feeding and food security, housing and urban development and reconstruction. The property tights system will be more transparent leading to good taxation system. The mortgage laws will control more inflation. The money supply will be done tightly to gain the value of Iraq currency, (Bowen, 2012).

Conclusion

The current development projects are facing issues like duplicate payments and inappropriate segregated duties of professionals, the fictitious contractors are also there, suspended contractors, issues in payment activities etc are the challenges for the development plans in Iraq but WE and other foreign companies are looking in to the development. The development will lead to appreciation of Iraqi Dinar leading to low prices of products and gas in the region. Because of oil production incentives the country can appreciate its Dinar. It is better that national and international collaborations take place and similar to other countries of Middle East, this will also find its way to success with mutual collaborations. The US government has implemented audits of contractors which will be helpful in reducing all kinds of frauds in development which will help increasing competition in the market. The prices will stable once there are development plans and working on them.