Saturday, March 2, 2013

The Currency Newshound Commentary: Zebari article regarding Chapter VII, 2 march

The most recent article titled “Iraq FM Zebari discusses Iraq and the future of CH VII sanctions: CBI might keep tired under Chapter VII for four more years” (Reference LINK) is quite lengthy and can be confusing. So I will do my best to provide some clarity and my personal opinion.
In the fourth paragraph, Zebari states that Iraq has been removed from majority of the Chapter VII provision. This is something we all have been aware of for quite sometime.
In the fifth paragraph Zebari elaborates what issues remain that keep Iraq binded to Chapter VII sanctions. He lists 1) Install land and maritime borders between Iraq and Kuwait, 2) Iraq is required to pay Kuwait 5% of oil revenues to Kuwait victims of the invasion, and 3) the discovery of missing Kuwait prisoners of war and Kuwaiti artifacts.
In the same paragraph, Zebari explains Iraq and Kuwait are currently working closely to resolve land and maritime (sea) borders. He further explains in the seventh paragraph Kuwait fully understands it may take several years to locate and discover the remains of missing POW’s and artifacts and therefore Kuwait will not hold that against Iraq. In the fifth paragraph, and in my opinion Zebari explains that Kuwait is requesting Iraq pay the entire war reparation of $13 Billion at once however Iraq sees this as a “tremendous” size debt and has offered to pay the reparations over the next three years. Zebari continues in the sixth paragraph by suggesting that he believes Iraq can pay the $13 Billion owed and if they did Iraq would emerge from Chapter VII entirely (with exception to the technical items regarding missing persons, POW’s and possibly borders).
Zebari caveats himself by implying the UNSC has a grip on Iraq’s Central Bank and monitors its holdings. In the second paragraph he tells the reporters that resolutions made by the UNSC are binding and applied for all countries. He is essentially saying Iraq must fulfill all obligations written in the resolutions – Iraq should not anticipate a pass. In my opinion, in the sixth paragraph Zebari caveats by saying IF Iraq chooses not to pay Kuwait its $13 Billion up front and chooses to pay reparations over the next three years then the UNSC could choose to keep Iraq under Chapter VII sanctions during this period of time – until the reparation is paid in full.
Iraq has been trying to negotiate with Kuwait for several years now to reduce the total reparations owed (See below).
As of January 2012, Iraq owed Kuwait $18 billion and it would appear 1 year later Iraq now owes approximately $13 Billion.  This is a significant debt and a burden on Iraq and therefore Iraq has lobbied Kuwait to reduce the total reparations.  In my opinion, the reporter makes reference to this in the last paragraph of the article when the reporter discusses how Kuwait politicians welcome Iraq’s exit from Chapter VII sanctions however says Iraq still has a financial debt and the proposed reduction would need the approval of the Kuwait Parliament.
Over the past twelve months several articles have been published (including the article we discuss now) eluding to Iraq’s departure from Chapter VII sanctions.  I do believe all of us will agree Iraq has been agressive just in the past six months in trying to find successful steps toward emancipating themselves from UNSC sanctions.  Considering this, I personally view Iraq as eager to emerge from Chapter VII and the last thing they would want is to stay in Chapter VII another day.
Iraqi economist including those in the CBI and Finance Ministry have said Chapter VII places a burden on the nations economy. Banks view the country as high-risk.  International banks are hesitant to invest in Iraq and often refuse to trade with Iraqi based banks.  (See article ). As a result each of them recognize the importance of Chapter VII lifting.
Over the next few days, weeks, and months I expect Iraq and Kuwait as well as the UN will be fully engaged in talks.  According to the article, Iraq should see the Kuwaiti Prime Minister early next month to begin signing certain agreements.  Hopefully by then we will begin to see some clarity regarding the reparation payment and if Kuwait’s parliament will agree to a reduced payment.  Even if the reduced payment is rejected I wouldn’t be surprised to see Iraq pay off the entire debt so to emerge and put Chapter VII in their history books.
I remind you that Iraq emerging from Chapter VII would be a significant event for Iraq and potentially for the IQD.  However there is no certainty Chapter VII is the “magic bullet” needed to make the IQD gain in value. Other items could still need attention such IMF Articles of Agreement IV and XIV, HCL Law, investor laws, etc.
From a personal perspective I see the conditions are promising and encouraging.
-Just Hopin
p.s. Please keep in mind this is simply my opinion and based upon the simple translation of this article.

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