Restructuring of state own banks from IMF

This is posted on the IMF website:

Financial Sector
12. Financial intermediation is at a very low level in Iraq. A functioning banking sector is
essential for the development of a strong private sector. We have begun to embark on our
banking sector reform strategy:
 A critical step will be to complete the financial restructuring of the two largest stateowned
banks, Rafidain and Rasheed, based on their completed financial and
operational audits. In this regard, we formed a Bank Reconciliation Unit that
comprises technical level staff from the banks, the CBI and the Ministry of Finance,
and with the assistance of Ernst and Young (who were the agents of the Ministry of
Finance in the external debt restructuring process) to: (i) deal with all legacy external
liabilities taking into account the government’s actions in the context of Iraq’s external
debt restructuring (ii) indentify and propose to write-off non-performing loans to
defunct state-owned enterprises; (iii) propose a course of action for other remaining
unreconciled accounts; and (iv) after the balance sheets have been cleaned up, revalue
the remaining foreign currency denominated balance sheet items. The BRU will work
under the supervision of the Restructuring Oversight Committee (ROC), consisting of
the Minister of Finance, the Governor of the CBI, and the Chairman of the BSA. The
BRU will send its recommendations for final approval to the respective boards of the
two banks. Through this process, we aim to complete the restructuring of the balance
sheets of Rafidain and Rasheed by end-June 2011 (a structural benchmark).


HERE IS THE LINK.... http://www.imf.org/e...2011/cr1175.pdf

ITS ON PAGE 37

Read more: http://dinarvets.com/forums/index.php?/topic/70720-looks-like-great-news/#ixzz1PLrUHkPc

after the balance sheets have been cleaned up, revalue
the remaining foreign currency denominated balance sheet items[b][u]

Does this refer to Dinar or foreign currency???

This section is about the Rafidain and Rasheed Banks...the Audits that have been done, what still needs to be done. Just because the word "revalue" is stated the guru's have taken it out of context of what it really means!!!

"revalue the remaining foreign currency denominated balance sheet items."

This is a Accounting Audit function. I get google alerts every day of some company doing a audit and that above sentence is what caused the Google Alert.

Here is the Accounting Meaning of this:

Revaluing Balances
You can revalue balance sheet accounts that are denominated in a foreign currency in accordance with SFAS 52 (U.S.). Revaluation reflects changes in conversion rates between the date of journal entry and the date of receipt/payment of the foreign currency amount. General Ledger posts the change in converted balances against the unrealized gain/loss account you specify. You can revalue a single account or ranges of accounts.

When you run revaluation, General Ledger creates a revaluation batch containing a separate journal entry for each revalued foreign currency.
Note that General Ledger creates the revaluation adjustments in your functional currency. General Ledger automatically defines the reversal period as the next accounting period.

When you revalue balances in an average balance set of books, General Ledger only revalues standard balances. When you post the revaluation journal entries to update your standard balances, the system will recompute your average balances automatically.

More at the link:
[link to download.oracle.com]

If you want more research on This Accounting Audit function just google: revalue the foreign currency balance sheet

Saw a post that had a few parts highlighted by Ticky. Guess I missed the guru part. Thanks for the post Ticky

Flashback 3/18/11: IMF Executive Board Completes Second Review Under Stand-By Arrangement with Iraq, Grants Waivers and Approves $471 Million Disbursement
June 15, 2011 @ 1:10 AM › THE CURRENCY NEWSHOUND - Just Hopin
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The Currency Newshound Commentary:  

Flashback to March 18, 2011:  This document was released in March 2011 and mentions the revaluing of Iraqi currency.  In March this document and specifically the wording on Page 37 of the full study was heavily discussed. The date “end-June 2011″ was used and identified as a structural benchmark. It was a great sign of things to come and is surely a date we hope will come to fruition. But keep in mind it is a “structural benchmark” which means more or less a goal for these events to occur. All we can do is pray these goals are in line and on time!

Link to original post: http://wp.me/pZC7o-6XF

Press Release No. 11/90

March 18, 2011

The Executive Board of the International Monetary Fund (IMF) today completed the second review of Iraq’s economic performance under a program supported by a Stand-By Arrangement (SBA). Completion of the second review makes an additional SDR 297.1 million (about US$471.1 million) available for disbursement, bringing the total resources currently purchased by Iraq under the SBA to SDR 1.069 billion (about US$1.7 billion).

The Executive Board also approved a waiver of applicability of the end-December 2010 performance criteria on the central government fiscal deficit and on the central government spending bill, for which data is not yet available. The Executive Board furthermore approved an extension of the SBA by five months to July 2012, and a rephasing of access under the SBA to match disbursements with Iraq’s balance of payments financing needs.

The SBA was approved on February 24, 2010 (see Press Release No. 10/60) for SDR 2.38 billion (about US$3.77 billion). The SBA supported program aims to ensure macroeconomic stability and provide a framework for advancing structural reforms in Iraq.

Following the Executive Board’s discussion on Iraq, Mr. Naoyuki Shinohara, Deputy Managing Director and Acting Chair, stated:

“Iraq has maintained macroeconomic stability under difficult external and internal circumstances, while making efforts to rebuild key economic institutions. Inflation has remained subdued, and the exchange rate has remained stable. The 2011 budget aims to accelerate investment in public services and infrastructure, and accommodates higher social safety net provisions to support those in need. Iraq’s rehabilitation needs remain large and the higher investment spending is essential to help create a vibrant private sector that provides employment opportunities for Iraq’s large labor force, thus helping to reduce poverty. At the same time, a strong emphasis on ensuring the quality of public spending will be important.

“Decisive efforts to rebuild key economic institutions and improve governance will be critical for private sector development. The formation of the new government and the expected increase in oil production in the coming years offer an opportunity to do so while maintaining macroeconomic stability. Further strengthening public financial management encompasses the introduction of an automated financial management and information system and improvements in cash management which would eventually culminate in the establishment of a single treasury account. Establishing a framework for oil revenues to succeed the Development Fund for Iraq should help ensure continued accountability and transparency. In the financial sector, moving ahead with the financial and operational restructuring of the two largest state-owned banks and enhancing the central bank’s supervision capacity will contribute to creating a financial sector that can provide essential services to the private sector.

“Iraq continues to make progress to conclude debt agreements and resolve outstanding claims under terms comparable to the 2004 Paris Club Agreement.”

Note:  See page 37 of full study

Financial Sector 12.Financial intermediation is at a very low level in Iraq. A functioning banking sector is essential for the development of a strong private sector. We have begun to embark on our banking sector reform strategy: A critical step will be to complete the financial restructuring of the two largest stateowned banks,  Rafidain and Rasheed, based on their completed financial and operational audits. In this regard, we formed a Bank Reconciliation Unit that comprises technical level staff from the banks, the CBI and the Ministry of Finance, and with the assistanceof Ernst and Young (who were the agents of the Ministry of Finance in the external debt restructuring process) to: (i) deal with all legacy external liabilities taking into account the government’s actions in the context of Iraq’s external debt restructuring (ii) indentify and propose to write-off non-performing loans to defunct state-owned enterprises; (iii) propose a course of action for other remaining unreconciled accounts; and (iv) after the balance sheets have been cleaned up, revalue the remaining foreign currency denominated balance sheet items. 

The BRU will work under the supervision of the Restructuring Oversight Committee (ROC), consisting of the Minister of Finance, the Governor of the CBI, and the Chairman of the BSA. The BRU will send its recommendations for final approval to the respective boards of the two banks. Through this process, we aim to complete the restructuring of the balance sheets of Rafidain and Rasheed by end-June 2011 (a structural benchmark).

Link to Document: http://www.imf.org/external/np/sec/pr/2011/pr1190.htm

Link to Full Study: http://www.imf.org/external/pubs/ft/scr/2011/cr1

SMARTY PANTS!

I remember when this issue first came up. Everyone keyed in on the phrase “revalue the remaining foreign currency denominated balance sheet items.” The interpretations that were posted took it completely out of context without considering the entire IMF report and what has been occurring with these two banks. Most specifically the status of moving towards a Single Treasury Account as this actively involves the R-banks.

In addition, the phrase states "the remaining foreign currency." Foreign currency is not dinar. Dinar is foreign currency to us but not to Iraq. It is also stated as past tense indicating this is still the old accounts from the previous era that they are purging. These two banks have been carrying a lot of debt from the Saddam era. That is what the CBI, IMF and World Bank have been in the process of overseeing to the extent that “Decisions on the recapitalization of Rafidain and Rasheed will not be made until the restructuring of their balance sheets has been completed and adequate progress has been made in their operational restructuring, especially by establishing an appropriate governance structure and strengthening risk management and control functions. More generally, given the vulnerabilities these (and other) banks face due to operational risks, the CBI will continue to improve its oversight systems and monitor closely the activities of the banks, particularly during the transition process.” CK posted an excellent explanation of the accounting procedures which would be involved.

What concerned me in the IMF report were the statements from the CBI regarding the Exchange rate arrangement. Every report from the CBI over the last couple of years has stated the same thing “keep the existing stable exhange rate” and this report is no different. So far Shabibi has done exactly what he told the IMF he would do. They are also still working on Article 8 which I also believe is a key issue.

24. Staff supports the CBI’s policy of managing the exchange rate of the Iraqi dinar to keep inflation low. A stable exchange rate continues to provide a solid anchor for the public’s expectations in an otherwise highly uncertain environment. Over time, rising oil revenues could put upward pressure on the real exchange rate, which would warrant allowing greater exchange rate flexibility. Staff also welcomes the authorities’ continued commitment to safeguard the independence of the CBI, which is critical for maintaining confidence in the Iraqi dinar. (page 15)

Exchange rate arrangement:
The Central Bank of Iraq has been conducting foreign exchange auction on a daily basis since October 4, 2003. The central bank followed a policy of exchange rate stability which has translated in a de facto peg of the exchange rate since early 2004. However, from November 2006 until end 2008, the CBI allowed the exchange rate to gradually appreciate.

As a result, the exchange rate arrangement of Iraq was reclassified to the category of
crawling peg effective November 1, 2006. Since the start of 2009, the CBI returned to its earlier policy of maintaining a stable dinar. Consequently, the exchange rate arrangement of Iraq was reclassified effective January 1 2009 as a stabilized arrangement.

Iraq continues to avail itself of the transitional arrangements under Article XIV. Iraq has a generally unrestricted current account regime and a significantly liberalized capital account. However, four measures (plus one exchange restriction maintained for national or international security) have been identified to give rise to exchange restrictions subject to IMF approval, namely,

(i) the requirement to pay all obligations and debts to the government before proceeds of investments of investors, and salaries and other compensation of non-Iraqi employees may be transferred out of Iraq,

(ii) the requirement to submit a tax certificate and a letter of non-objection stating that the companies do not owe any taxes to the government before non-Iraqi companies may transfer proceeds of current international transactions out of the country,

(iii) the requirement that before non-Iraqis may transfer proceeds in excess of ID 15 million out of Iraq, the banks are required to give due consideration of legal
obligations of these persons with respect to official entities, which must be settled before allowing any transfer, and

(iv) an Iraqi balance owed to Jordan under an inoperative bilateral payments agreement. In addition, one exchange restriction maintained for security reasons should be notified to the IMF under the framework of Decision 144-(52/51). (page 54)

PRICELESS!!! Now why didn't I think of that:


In addition, the phrase states "the remaining foreign currency." Foreign currency is not dinar. Dinar is foreign currency to us but not to Iraq.

that is why i am here and not anywhere else..............REAL EXPLANATIONS..not interpretation, and guesses.