Economist's View: Is Financial System Development a Key to Rebuilding Iraq and Reducing Terrorism?
リンク: Economist's View: Is Financial System Development a Key to Rebuilding Iraq and Reducing Terrorism?.
Is Financial System Development a Key to Rebuilding Iraq and Reducing Terrorism?
This article is a reminder of the importance of developing institutions that support economic development. If there is not a well developed legal system to protect investments and other activities, if necessary government institutions are not present or are riddled with corruption, and importantly for this discussion if there is not a well developed financial system available to those attempting to establish a business presence within a country, then development will not reach its full potential. This article by Neil MacDonald in the Christian Science Monitor focuses on the development of credit as a key to Iraq’s economic development and to hampering the insurgency.
I am in full agreement that the development of an internal credit system will aid development. An economy forced to function largely on a cash basis will not live up to its full potential. So, from an economic standpoint there is little disagreement about the necessity of economic institutions, credit in this article, as a means of increasing growth in developing countries. Where I disagree is with the idea that this will also undermine the insurgency. The article claims that "...a reliable network for electronic transactions would undercut an insurgency eager to deal in cash..." While it is certainly true that having credit available will potentially reduce highway robbery and other such crimes, I do not see the development of internal credit as substantially undercutting an insurgency eager to deal in cash. So long as cash exists (and there’s always dollars), this means of funding the insurgency will exist as well:
I am in full agreement that the development of an internal credit system will aid development. An economy forced to function largely on a cash basis will not live up to its full potential. So, from an economic standpoint there is little disagreement about the necessity of economic institutions, credit in this article, as a means of increasing growth in developing countries. Where I disagree is with the idea that this will also undermine the insurgency. The article claims that "...a reliable network for electronic transactions would undercut an insurgency eager to deal in cash..." While it is certainly true that having credit available will potentially reduce highway robbery and other such crimes, I do not see the development of internal credit as substantially undercutting an insurgency eager to deal in cash. So long as cash exists (and there’s always dollars), this means of funding the insurgency will exist as well:
Iraqis eye credit to boost economy - Modernizing banks and shifting from cash could hamper insurgency and boost rebuilding, officials say, by Neil MacDonald, The Christian Science Monitor: Shoppers in Baghdad no longer need to carry plastic bags full of cash, as they did after years of international sanctions reduced the value of a 10,000-dinar note with Saddam Hussein's likeness to less than $5. A year-and-a-half ago, the Central Bank of Iraq (CBI) began issuing higher-value currency notes. … But finance officials eager to move Iraq away from a heavily cash-based society have set their sights on a more ambitious goal: developing banking networks that will allow a shift to an electronic, largely credit-based economy. Doing away with cash as the main form of payment would reduce the threat of highway robbery, which hinders fund transfers within the country ... And in turn, a reliable network for electronic transactions would undercut an insurgency eager to deal in cash and spur reconstruction, finance officials say. … Revamped financial services will be essential for kicking reconstruction into a higher gear at ground level, says Bill Taylor, director of the Iraq Reconstruction Management Office (IRMO). … Contractors on US-funded reconstruction projects - including some US companies - are already turning to the local banking system as an alternative to carrying large amounts of cash on planes … But repairing the banking system properly can happen only with major injections of foreign funds and expertise. … The CBI governor, along with Ministry of Finance officials, wants foreign banks to start working in the war-ravaged country. "The mere presence of banks and foreign investment in general will improve the security situation," he says. "What we don't want is to always have the excuse of the security situation." … The CBI has granted licenses to eight foreign banks, none of which has opted to open branches in Iraq under its own name. The insurgency and the rising threat of kidnapping last year prompted foreign investors to reconsider. But local officials threatened to revoke licenses unless foreign banks demonstrated their commitment to the market. After more than a year of hesitation, the British bank HSBC reportedly signed a partnership agreement last month with Dar Al-Salaam Bank, offering capital in exchange for majority ownership. Other banks have made similar arrangements with Jordanian and Gulf Arab institutions, which wanted a foothold - but also a relatively low profile. … foreign banks willing to operate in crime-ridden countries such as Colombia or Nigeria should be capable of operating in Iraq. Taylor, however, says that foreign bankers, like other foreign investors, have every right to be cautious. "It's hard to tell anyone to come in, disregard security, and get things moving. We don't," he says. "Private-sector investment is going to come after private-sector investors feel safe that they can come ... without horrible things happening." While two debt-ridden state-owned banks dominate the sector, Iraq also has 18 private sector banks, with others due to open soon. … The CBI is encouraging other new banks to focus on impoverished areas in southern Iraq, some of which have almost no financial services …
