IRAQ. A slump in oil prices, the result of slowing crude demand caused by the global financial crisis, has left Iraq short of money to rebuild its infrastructure after years of war, economic sanctions and violence, Iraq’s central bank governor said.
“It has a large influence on us as a result of slumping [oil] prices caused mainly by the current financial crisis,” Sinan al-Shabibi told Dow Jones Newswires in an interview in Amman, Jordan late on Saturday night.
Iraq, which derives more than 95% of its revenues from oil, earned only US$1.8 billion last month from oil sales compared with almost US$7 billion last July when oil prices peaked at a record US$147 a barrel.
The country, in dire need of cash to rebuild its infrastructure after the debilitating impact of war, economic sanctions and sectarian violence, has to cut its 2009 budget to US$58.9 billion, from US$80 billion.
But al-Shabibi said that his country hasn’t been hurt by the other symptom of the financial crisis - deteriorating bank credit - due to its relative financial isolation and undeveloped banking system.
The governor said the central bank has plans to improve Iraqi state-run and private banks, which have yet to meet international standards of operation.
“There is a large programme to improve our banks especially the private banks,” said al-Shabibi.
Recently the central bank, for the first time in years, authorised the country’s private banks to handle international payments and foreign currency letters of credit worth up to US$4 million each from only US$1 million in 2008.
Most of the letters of credit used to be handled by the state-run Trade Bank of Iraq (TBI), he said. Private banks need to exert more efforts to widen their trade and financial businesses, he added.
Iraqi private banks, which number about 30, still lack an effective cross-border payment capability and most of these institutions are relatively small and can only support limited amounts of commercial trade businesses.
Al-Shabibi said the central bank has managed to reduce core inflation to 9.2% currently, from a record high of 34% in 2006.
“We are planning to reduce that inflation percentage further to a certain level that would improve the purchasing power of the Iraqi currency,” he added.
Al-Shabibi admitted that the central bank had pursued a very strong monetary policy over the last few years in order to curb core inflation which reached 70% during former Iraqi leader Saddam Hussein’s regime.
“Our monetary policy used to be very strict but now we have eased it as inflation has dropped,” he said.
Al-Shabibi said the central bank has adopted a policy to boost Iraq’s currency, the Dinar. The Dinar has risen over the last few months to a record high against the US Dollar, thanks to trading by the central bank at its daily auction.
The Iraqi Dinar was trading Sunday at 1,170, after trading at around US$1,500
per dollar for almost three years after the US invasion. Before the war, the
Sinar was trading at around 2,000 to 2,500 per dollar. The central bank sells an
average of US$50 million to US$60 million every working day in Baghdad to
private and state-run banks
Iraq plans to boost currency, revive rebuilding plan through the crisis - Source
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