Print ArticleSustainable economic growth supported by a well-thought out monetary policy and fiscal discipline is a necessary prerequisite for economic prosperity. The economy is influenced by a host of factors, the most significant of which is the political system. Government is the key to the economic condition of a nation, thus there is a direct relationship between the success or failure of those in power and the state of the economy. A modern banking system channeling business transactions is the agent that renders payment, lending, borrowing, and currency exchanges along with a host of investment arrangements. The central bank oversees monetary policy, referred to as economic contraction or expansion, through interest rate regulation. The central bank and the banking system combine to fuel the engine driving the modern day economy. That being said, there is no adequate economic system in the Kurdistan region. There is neither a banking system nor a monetary policy. Business and financial deals are made in the most primitive way, compared to today´s economic models adapted by developed economies.
Ridiculously, in all of Iraq, economic ´policy´ operates in much the same way as the world did before banking systems were in place. Kurdish leaders, who are proud of their achievements, are no different than their Arab counterpart in the south, and they are as ignorant as how a modern world economy operates. Developed countries have a host of government and non-government agencies which furnish crucial statistics regarding the health of their economies, including employment, inflation, industrial output, trade account surplus or deficit, consumer confidence, retail sales, and consumer spending. Based on the compiled data, economic expansion or contraction can be determined, and the central bank can adjust interest rates to boost or cool the economy. At the same time, federal government, through its fiscal policy, can take necessary measures, including adjusting the rate of taxation. Sadly, none of these checks and balances exist in Kurdistan, and yet both Kurdish leaders continue to speak about the economy as though they really understood what it is all about.
A modern banking system is essential to the economy, and its function stretches beyond offering lending and saving to individual customers. It employs investment opportunity in financial markets, as well as provides working capital for business for both financial enterprises and individual entrepreneurs. Additionally, it offers secure safety deposit for large cash holdings with dividends.
Without a banking system, there is no real economic expansion. Take, for example, individual savings in Kurdistan, currently all in cash and hidden. These cash hideouts are enough to run many banks with formidable balance sheets. The banks usually pay interest, and in the process of running its business, it must hire personnel to do the job. First, it creates many jobs at various levels; second, it has to invest deposits to pay both its employees and interest to its depositors. All together, it creates a business climate, where employees draw stipends and circulate money back into the economy through spending. Banks, meanwhile, make working capital available for businesses at a determined payable interest. With this capital, business is able to expand resulting in buying more equipment and employing more people, again helping the local economy. All of this can be achieved without any foreign assistance or even government assistance. It can be done through housing money - now essentially hidden under rugs - in a safe banking institution. Currently, due to the lack of a reliable banking system, people with money throughout Kurdistan are depositing their funds abroad, resulting in money leaving the country, benefiting foreign banks, and starving the local economy from much needed investment.
Banking system needs to be regulated by government so that deposits and investment in a bank are guaranteed against unscrupulous individuals and unethical financial institutions. This brings us to the issue of confidence and trust. Financial institutions can only operate if there is trust and faith in the political system. Political systems regulate and oversee the banking system, therefore the political system itself must be trustworthy and credible. In Kurdistan, the economic chaos is directly attributable to the two Kurdish leaders who have monopolized power and divided the Kurdistan region between themselves. There is no term limit on their rule, and because of their lack of ethics, their selfishness, and their insatiable greed, people have no faith in the phony government they have constituted.
In a systematic, managed economy, interest rates are determined by market forces, and subject to taxation. In Kurdistan, when businesses need capital there is no bank from which to borrow. Funds must be borrowed from individual investors who can set interest rate. At times, the borrowing rate has exceeded fifty percent. Under this tight credit market and the inability of businesses to raise cash to finance expansion, there is limited opportunity for business growth, thus the economy remains stagnant and without measurable growth.
Because of the lack of fiscal and monetary policies, the pivotal data elements that determine the health of an economy do not exist in Kurdistan. As a result, the rate of inflation is unknown. There is no reliable data to show the rate of unemployment or any other significant data that can be counted on to reflect the true state of the economy. One may argue that Kurdistan is a young nation and needs more time to develop an economic model. But Barzani and Talabany have been in power for seventeen years and they have taken no steps towards establishing a better business environment or a stable, modern economy. The level of corruption that exists has led to a total lack of faith in their leadership.
Well managed economies progress according to a systematic planning based on resources, the needs of the nation and the population growth. Economic planning for a nation requires utilization of all talents to its full potential, indiscriminately. But in Kurdistan, no matter how capable a person might be, he is not allowed full participation unless he supports Kurdish leadership. It is all about nepotism, cronyism, and favoritism – all conditions under which the economy will not advance. This is what has transpired in Kurdistan.
Ridiculously, in all of Iraq, economic ´policy´ operates in much the same way as the world did before banking systems were in place. Kurdish leaders, who are proud of their achievements, are no different than their Arab counterpart in the south, and they are as ignorant as how a modern world economy operates. Developed countries have a host of government and non-government agencies which furnish crucial statistics regarding the health of their economies, including employment, inflation, industrial output, trade account surplus or deficit, consumer confidence, retail sales, and consumer spending. Based on the compiled data, economic expansion or contraction can be determined, and the central bank can adjust interest rates to boost or cool the economy. At the same time, federal government, through its fiscal policy, can take necessary measures, including adjusting the rate of taxation. Sadly, none of these checks and balances exist in Kurdistan, and yet both Kurdish leaders continue to speak about the economy as though they really understood what it is all about.
A modern banking system is essential to the economy, and its function stretches beyond offering lending and saving to individual customers. It employs investment opportunity in financial markets, as well as provides working capital for business for both financial enterprises and individual entrepreneurs. Additionally, it offers secure safety deposit for large cash holdings with dividends.
Without a banking system, there is no real economic expansion. Take, for example, individual savings in Kurdistan, currently all in cash and hidden. These cash hideouts are enough to run many banks with formidable balance sheets. The banks usually pay interest, and in the process of running its business, it must hire personnel to do the job. First, it creates many jobs at various levels; second, it has to invest deposits to pay both its employees and interest to its depositors. All together, it creates a business climate, where employees draw stipends and circulate money back into the economy through spending. Banks, meanwhile, make working capital available for businesses at a determined payable interest. With this capital, business is able to expand resulting in buying more equipment and employing more people, again helping the local economy. All of this can be achieved without any foreign assistance or even government assistance. It can be done through housing money - now essentially hidden under rugs - in a safe banking institution. Currently, due to the lack of a reliable banking system, people with money throughout Kurdistan are depositing their funds abroad, resulting in money leaving the country, benefiting foreign banks, and starving the local economy from much needed investment.
Banking system needs to be regulated by government so that deposits and investment in a bank are guaranteed against unscrupulous individuals and unethical financial institutions. This brings us to the issue of confidence and trust. Financial institutions can only operate if there is trust and faith in the political system. Political systems regulate and oversee the banking system, therefore the political system itself must be trustworthy and credible. In Kurdistan, the economic chaos is directly attributable to the two Kurdish leaders who have monopolized power and divided the Kurdistan region between themselves. There is no term limit on their rule, and because of their lack of ethics, their selfishness, and their insatiable greed, people have no faith in the phony government they have constituted.
In a systematic, managed economy, interest rates are determined by market forces, and subject to taxation. In Kurdistan, when businesses need capital there is no bank from which to borrow. Funds must be borrowed from individual investors who can set interest rate. At times, the borrowing rate has exceeded fifty percent. Under this tight credit market and the inability of businesses to raise cash to finance expansion, there is limited opportunity for business growth, thus the economy remains stagnant and without measurable growth.
Because of the lack of fiscal and monetary policies, the pivotal data elements that determine the health of an economy do not exist in Kurdistan. As a result, the rate of inflation is unknown. There is no reliable data to show the rate of unemployment or any other significant data that can be counted on to reflect the true state of the economy. One may argue that Kurdistan is a young nation and needs more time to develop an economic model. But Barzani and Talabany have been in power for seventeen years and they have taken no steps towards establishing a better business environment or a stable, modern economy. The level of corruption that exists has led to a total lack of faith in their leadership.
Well managed economies progress according to a systematic planning based on resources, the needs of the nation and the population growth. Economic planning for a nation requires utilization of all talents to its full potential, indiscriminately. But in Kurdistan, no matter how capable a person might be, he is not allowed full participation unless he supports Kurdish leadership. It is all about nepotism, cronyism, and favoritism – all conditions under which the economy will not advance. This is what has transpired in Kurdistan.
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