Iraq’s central bank governor Sinan Al-Shabibi is forced out

Nine-year tenure ends; Maliki seen to be consolidating power

The removal of Iraq’s central bank governor, Sinan Al-Shabibi was announced on October 16 while he was at the annual IMF/World Bank meetings in Tokyo. His interim replacement Abdul-Basit Turki, head of the state-spending watchdog the Board of Supreme Audit, was in place before Shabibi could return home.

Many fear the move is another attempt by the country’s premier, Nouri al-Maliki to strengthen his domestic powerbase. In recent years, Maliki has tightened his control over military, financial and intelligence institutions, forcing one top official, vice-president Tariq al-Hashimi, to flee the country after ill-defined terrorism charges.

Shabibi, a respected technocrat, has kept prices low and monetary policy in check since rising to the post in 2003, while building an impressive foreign-reserves war chest ($70 billion at end-September 2012).

To many observers, the allegations against Shabibi seem intentionally nebulous. The 71-year-old is charged along with 15 other bank officials with supposed inconsistencies over foreign exchange auctions and improprieties over capital rules at local banks.

Turki is also seen as a competent technocrat with no obvious political affiliations or connections to Maliki. However, his appointment has been explained to no one and a shortlist of long-term successors has not been tendered. Many want to see an official promoted from within, although the scale of the Shabibi investigation might make that impossible.

Citi analyst Farouk Soussa describes the hurried dismissal of Shabibi as a “worrying development” for central bank independence. The move is likely to have a “significant inflationary impact” and erode confidence in the Iraqi dinar, he says.

Inflation in Iraq rose 0.2 percentage points in September month on month to 5.2%. Maliki, says Soussa, is also coming under increased pressure over the alleged advancement of his own political aims by using the judiciary – potentially demonstrated in Shabibi’s removal.