Tlm724 Administrator Bondlady’s Corner
Are New US Financial Restrictions On Iraq Missing Their Target?
By Hayder Al-Shakeri March 29, 20230 Iraq has once again been hit by US financial restrictions,
this time aimed at restricting specific banks and individuals from trading in the Central Bank of Iraq (CBI)’s daily currency auctions. The timing of these economic measures can in part be attributed to increased tensions between the US and Iran, that are once again being played out in Iraq.
However, the elites targeted by the sanctions are finding ways around them, while the real impact is being felt by ordinary Iraqis, whose lives are made even more difficult as currency fluctuations make essential goods, like food and medicine, more expensive and less accessible.
What has happened?
Banks such as Asia Islamic Bank, Al-Sharq Al-Awsat, Al-Ansari Islamic Bank and Al-Qabith Islamic Bank have long used CBI’s daily currency auction to gain US dollars and launder money.
In fact, the governor of CBI once admitted that a majority of the money is going to neighbouring countries such as Iran via electronic transfers, often with fake invoices.
These banks are also backed by political figures and are deeply entrenched in Iraq’s political elite and armed factions, and some of their partners have been targets of US sanctions in the past.
Washington is demonstrating its discomfort by flexing its economic muscle, warning Baghdad not to stray too far in the wrong direction.
As part of a larger set of demands by Washington, in November 2022 the CBI started banning several of these banks from dealing in US dollars.
Security forces added to the pressure by arresting or fining employees at currency exchange offices selling at black market rates, leading to the majority of exchange offices ceasing to sell US dollars.
These restrictions have had a significant impact: in October 2022, Iraq sold up to $260 million daily, but that had dropped to around $43 million by January 2023.
Why now?
These currency auctions have been a haven for illicit financial transactions for over a decade, so why has the US decided to clamp down now?
Some experts argue the restrictions are linked to when Iraq joined the international electronic banking system in November 2022.
But exposing Iraq’s financial procedures to international scrutiny also revealed transactions linked to Iranian-affiliated trading houses which divert the cash back to Iran or its allies across the region, rekindling the US-Iran dispute.
As early as 2018, the US reported that some Iraqi banks were linked to parties that diverted the money to Iran or for Iran throughout the region, and it threatened to impose sanctions as far back as 2020.
Any future sanctions must be based on an in-depth understanding of Iraq’s complex political dynamics.
The political element of these new restrictions relates to emerging dynamics in Baghdad.
Unlike his predecessor, Iraq’s new prime minister, Mohammed Shia al-Sudani, is backed primarily by a network of Shia leaders, some of whom are US-designated terrorists and allies of Iran.
Washington is therefore demonstrating its discomfort by flexing its economic muscle, warning Baghdad not to stray too far in the wrong direction.
Iraq’s people are the ultimate victims
Iraq’s elites have quickly found ways around these restrictions.
Blocking international transactions have not prevented the majority of funds from being smuggled to neighbouring countries, either through exchange offices or in cash over Iraq’s borders.
Despite threats from security services, exchange offices in Baghdad, supported by political elites and parties, continue to purchase US dollars on their behalf.
Exchange offices are only one part of a complex system – including federal government contracts, border checkpoints and other official bodies – that helps finance these political parties and their backers to the tune of up to $300 million per day.
Instead of hitting their intended targets, the absence of a comprehensive strategy means these US restrictions have impacted the everyday lives of Iraqi citizens by driving up exchange rates, leading to protests.
While most Iraqis are paid in the Iraqi dinar, many essential goods are priced based on the value of the US dollar, making them unaffordable for many people
(*) Research Associate, Middle East and North Africa Programme
Source: Chatham House, 28 March 2023
The Prime Minister’s Advisor Proposes Two Solutions To Take Advantage Of The Public’s Cash Surpluses For Development Purposes
Economy Yesterday, 21:53 Today , Tuesday, the financial advisor to the Prime Minister, Mazhar Muhammad Salih, proposed two quick solutions to take advantage of the public’s cash surpluses for development purposes, while he indicated that attracting large deposits requires encouraging citizens to use electronic banking.
Saleh said, to the Iraqi News Agency (INA), that “the cash issuance amounted to perhaps 100 trillion dinars, and about 70% of it is currency in circulation outside the banking system and in the form of cash hoarding by the public, due to inherited customs and traditions, which are deep institutional factors that society has been accustomed to since Long years,
knowing that the interest on using a lot of that money hoarded in the unregulated money market exceeds 80% annually, which is a type of obscene usury.
He added, “There are two quick ways to take advantage of the public’s cash surpluses, especially for the purposes of development funds. The first is to deal with borrowing bonds, which are issued by the central bank or the government, which arenegotiable in buying and selling, extinguishing receivables and bearing annual interest, including the issuance of Islamic sukuk as a hybrid financial instrument.”
And he continued, “The second way is to spread borrowing and deposits through mobile phone banks within the wide uses of electronic banking and very easy applications,without neglecting the current banking activity in carrying out its basic duties, which is cash credit, improving banking services for depositors, and attracting their chunky deposits and other means of attraction towards banks.”
And with innovative, easy and attractive tools for depositors, without also neglecting to strengthen the role of the deposit guarantee company and show its effectiveness and strength in guaranteeing the rights of depositors in the face of the risks of failure faced by banks. https://www.ina.iq/182163–.html
The Central Bank defines two sections for housing loan outlets and a ceiling for electronic card Withdrawal Amounts
Economy 4-04-2023, 21:01 Today, Tuesday, the Central Bank of Iraq disclosed measures to prevent currency smuggling, and set the ceiling for the amounts allowed to be withdrawn from electronic cards outside Iraq, and pointed out that the outlets for providing loans for the purchase of housing units are divided into two parts.
The Central Bank said, in a statement to the Iraqi News Agency (INA), that “there is cooperation by the Central Bank with the relevant security authorities to prevent such practices,” noting that
“there is a directive for banks to specify withdrawals from electronic cards outside Iraq at a rate of $250 per day to prevent earnings.” Illegal withdrawal of the dollar in a way that affects the Iraqi economy.
Regarding the increase in the volume of loans, the bank affirmed that “the housing loan initiative provided to the Housing Fund for the purpose of construction and the Real Estate Bank for the purpose of purchase is still continuing.”
He added, “There is no direction by the bank to stop this initiative, and it continues with its initiative to support the liquidity of the housing sector (the housing fund and the real estate bank) to lend to citizens and employees wishing to buy housing units throughout Iraq.”
He pointed out that “the outlets for providing loans are divided into two types, the first of which is the Housing Fund loans, which are in the amount of (75) million dinars to build housing units with an area of not less than (100) square meters or to add a building in Baghdad and the provincial centers, and
loans in the amount of (60) ) One million dinars in the districts of the capital, Baghdad, and (50) million dinars outside the centers of the rest of the governorates, and loans in the amount of (75) million dinars to purchase housing units in investment housing complexes, and
the loan will be without interest except for a one-time administrative commission of (5%) of the value of The loan has a repayment period not exceeding (20) years, to facilitate the value of the monthly installment. He added,
“The other section is represented by real estate bank loans in the amount of (100) million dinars to purchase housing units outside investment housing complexes with an area of no less than (100) square meters.
Not exceeding (20) years, and loans in the amount of (125) million dinars to purchase housing units in residential investment complexes, and these loans will be without interest, provided that a one-time administrative commission of (5%) of the loan value is deducted and a repayment period does not exceed (20) year”. https://www.ina.iq/182159–.html
The Central Bank Expects The Dollar Exchange Rate To Continue To Decline
Economical 2023/04/05 Baghdad: Shukran Al-Fatlawi The Central Bank of Iraq has suggested that the dollar exchange rate will continue to decline in the parallel market during the coming days,
attributing this to a number of reasons, including the
packages of measures taken by the monetary authority, the
great response of merchants and banks, and
adherence to the bank’s directives regarding the instructions of the currency sale window,
while specialists in economic affairs praised,
With the “macroeconomic policy” that has been reflected in strengthening the dinar and will lead to reducing or ending the difference between the official and parallel exchange rates.
The opinions of the specialists coincided with the Central Bank’s suggestions that the exchange rate of the parallel dollar would continue to decline, as experts confirmed that the coming days will witness a clear relative stability in the foreign exchange rate, stressing that this matter will be accompanied by a decrease in the prices of imported goods and materials, especially after it touched the exchange rates of the dollar.
In the parallel markets, the barrier of 148 thousand dinars per 100 dollars, which is what specialists see as an important step resulting from the continuous measures of the Central Bank.
And the Deputy Governor of the Central Bank, Ammar Hamad Khalaf, believes that “the recent decline in the dollar was not born of the hour,
but rather due to previous measures, especially the
procedural packages launched by the Central Bank and the
response of the market, merchants and banks to the directives and instructions of the Central Bank, and
all of this helped to provide the dollar to the beneficiaries.”
Khalaf added, “The central bank sells more than 200 million dollars a day,
all for real and organized purposes by the merchant and by the bank, and
all of this helps in lowering the dollar exchange rate,”
expecting “a further decline in the future as long as there is a response by sectors and merchants.”.
In turn, the financial expert, Dr. Amr Hisham, counted in an interview with “Al-Sabah”
the drop in the exchange rates of the dollar against the Iraqi dinar as expected,
resulting from the state of health due to the high foreign reserves amounting to 115 billion dollars, which is the record that has not been achieved in the history of Iraq.
Hisham also pointed out that “The measures that have been taken with regard to the
electronic window, the dollar supply outlets, and the supply of dollars to travelers, as well as the use of the Iraqi dinar in buying and selling operations, are all combined factors that have led to an increase in confidence among citizens and merchants, and thus reflected positively on the issue of expectations.”
Therefore, expectations turned from pessimistic to optimistic, in addition to increasing the percentage of Central Bank sales to more than 200 million dollars. And the financial expert added, “The increase in strengthening balances abroad, those that acquire sales, and not cash sales balances as it was in the past.
Or ending the difference between the parallel market price and the official price of the Iraqi dinar.
For his part, economist Dr. Adnan Bahia told Al-Sabah that “the slow gradual decline in the dollar is better than the sudden decline for the citizen,” pointing out that the decline in the exchange rate occurred as a result of the recent measures taken by the Central Bank,
foremost of which is the increase in the outlets that offer the dollar, as well as Commitment to the exchange rate by many banks and the prevention of speculation, not to mention theincrease in exchange with what is presented daily from the dollar to the markets and it is constantly increasing, i.e. the application of the theory that if supply increases, demand decreases.
Baheya pointed out that there is a balance in favor of the citizen in the process of declining, because the lower the price and the smaller the difference between the parallel and the central bank rate, it will be in the interest of the citizen through lower prices, especially those imported from abroad.
He noted that the processing paper put forward by the Central Bank, if all of them were implemented, especially those related to obligating all banks and sales outlets to have an electronic board linked to the Central Bank to define the official price of the state, would be sufficient to end the process of manipulation and speculation between merchants and exchange houses, which are simple, fast and inexpensive procedures that will organize this process. and pour in Citizen’s benefit. https://alsabaah.iq/74665-.html
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