Iraq Central Bank
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Iraqi Central Bank governor discusses economic policies, debt relief
BBC Monitoring International Reports
Mar 3 2005
Text of report by Adil Mahdi in Baghdad: "Iraqi Central Bank governor says 2008 year when Iraq will be free of debts", published by London-based newspaper Al-Hayat on 1 March
Iraqi Central Bank Governor Sinan al-Shabibi has described Iraq's current relationship with the IMF as "crucial", adding that this relationship continues to expand for it serves the economic interests of Iraq, which seeks to open up Iraq to the world, particularly to the key international organizations, chiefly the IMF.
In an interview with Al-Hayat, Al-Shabibi said that the severed relations between Iraq and the IMF have completely isolated Iraq from the important and effective international organizations. However, the political changes that occurred following the collapse of the regime in 2003 helped Iraq to regain its relations with the IMF and to continuously supply it with data, information and statistics about the Iraqi economy and its development programmes.
Al-Shabibi said: What is more important is that our talks to reschedule the external debts required negotiations and discussions with the IMF to prepare a programme that will permit us to hold a dialogue with the creditor Paris Club countries to reduce the debts in accordance with specific formulas and the implementation of a reform programme to be called Emergency Post-Conflict Assistance [EPCA] programme.
Al-Shabibi noted that the Iraqi Central Bank and Finance Ministry were careful to have the referent programme thoroughly analyse Iraq's economic policy in the current and future stage and the measures required to activate the Iraqi economy. The discussions with the IMF on this issue were protracted and the IMF took great pains to assess the Iraqi state of affairs and its requirements and issued a recommendation to the Paris Club to initiate negotiations on the debts Iraq owes to the Paris Club countries.
Al-Shabibi explained that Iraq's negotiations with the Paris Club required ongoing efforts to prepare the statements on the reform programme that was put in place by the IMF. This programme was characterized by positive flexibility that helped Iraq's negotiations with the Paris Club countries. Iraq was the first country to have entered the Paris Club on the basis of the Emergency Post-Conflict Assistance programme and not through a more stringent programme. The first gains Iraq obtained from its negotiations with these countries was to strike a deal writing off 80 per cent of the debts it owed to the Paris Club countries, totalling 44bn dollars and expects to reschedule the remaining 20 per cent of these debts with the possibility of writing them off too.
Al-Shabibi said that the Paris Club countries programme for reduction of Iraq's debts will take place in three stages. In the first stage, 30 per cent of the debts will be written off directly. In case, the new programme (the support programme) is signed within the current year, another 30 per cent will be written off, and when Iraq completes the implementation of the entire programme, the remaining 20 per cent of the debts will be extinguished. Al-Shabibi pointed out that he expects the debts that were agreed to be cancelled to be completely extinguished in 2008.
Al-Shabibi said that Iraq's relations with the IMF will continue in an effective manner and "we are eager to safeguard these relations for this serves the Iraqi economy". Al-Shabibi said he expects Iraq as part of the developing countries group to play an important role in these key international organizations. He pointed out that the Paris Club gave Iraq the highest debt reduction rate in the world ever to be obtained by a developing country with average revenues like Iraq. He added this encourages Iraq to seek a similar reduction from the other non-Paris Club creditor countries on the basis of the same principle of treatment adopted by the Paris Club. Iraq, he added, will do its best to get a bigger debt reduction rate than the one it got from the Paris Club.
Al-Shabibi revealed that if Iraq succeeds in reducing its debts in accordance with the rate mentioned it would be writing off 100bn dollars out of the total debt figure of 120bn dinars [currency as published] This means triple the amount of the assistance funds promised by the Madrid conference that was held in Madrid in 2003. Therefore, this step is a major gain for Iraq. Iraq's debts, totalling 120bn dollars is six times more than the annual gross domestic product. After the debts reduction, Iraq will still owe small sums of money that might not exceed half the annual gross domestic product, a rate that is acceptable on the international level.
Al-Shabibi said he is fully confident in the monetary policy the Central Bank currently adopts to enhance Iraq's financial and economic position, a policy that is linked to the strength of the Iraqi economy and its development chances and to the liquid reserves the Central Bank has through which it can always secure a stable rate of exchange for the Iraqi dinar against the other currencies.
Al-Shabibi said that the Iraqi currency in circulation is seven trillion dinars out of eight trillion that were printed abroad and pumped into the market after replacing the old currency. Al-Shabibi explained that the Central Bank's policy is to maintain the liquidity in circulation under control by absorbing the liquidity when needed to safeguard a stable exchange of the dinar at the present time.
Al-Shabibi added that the Central Bank's policy also seeks to check inflation, and encourage investment and savings to achieve a stable exchange rate of the Iraqi dinar, adding that the liquidity currently in circulation is fully covered by treasury bonds and remittances from abroad.
Al-Shabibi said that the Iraqi Central Bank backs any step by the banking sector to develop Arab and foreign investments in Iraq and that the partnerships that Iraqi banks have said they had concluded with Arab and foreign banks through participation in their capitals is an inevitable step and in the right direction if there is a desire to develop the banking sector in a manner that will keep it in step with the modern world, the market economy requirements and the development of investments.
Al-Shabibi said that the Central Bank has asked any new bank under establishment to have a minimum capital of 50bn Iraqi dinars or its equivalent in hard currency and the need to liberalize the interest rates that are offered by the new banks.
Al-Shabibi said foreign and Arab banks have been issued licenses to establish branches in Iraq, which he believes is an important step to lay the ground works for an effective banking sector in Iraq in line with the requirements of this stage and in a manner that will enhance the banking sector's professional capabilities and expertise and qualifies it to act as a pivotal sector in the economic process.
Source: Al-Hayat, London, in Arabic 1 Mar 05
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