The Central Bank of Iraq bleeds dollars after a breakthrough in the Washington negotiations
The Central Bank of Iraq bleeds dollars after a breakthrough in the Washington negotiations
2-14-2023
The Central Bank of Iraq hastened to sell millions of dollars as soon as positive signs of a breakthrough arrived in the negotiations conducted by an Iraqi delegation led by Foreign Minister Fouad Hussein in Washington, amid fears that this impulse, which appears to be uncalculated, would lead to the depletion of the cash reserves in Iraq.
BAGHDAD – The Central Bank of Iraq sold more than $420 million on Sunday and Monday, with the first “positive” signal coming from the Iraqi delegation currently negotiating in Washington about giving Baghdad a deadline to comply with the US Federal Reserve’s measures to combat money smuggling to Iran.
Iraq’s cash reserves amount to about 115 billion dollars, and spending such an amount every two days would mean, in practice, the depletion of cash reserves within a year and a half.
And in the event that oil prices decline from their current rate, which provides for accumulation, the fiscal deficit will return to put pressure on the general budget, as was the case in December 2020, when Finance Minister Ali Abdul Amir Allawi announced at the time the devaluation of the dinar “to bridge the financial deficit in the operating budget, In order to secure internal expenditures, with the decline in the value of the country’s oil imports.
And the Iraqi negotiating delegation, headed by Foreign Minister Fuad Hussein, sent signals indicating that Iraq had received a deadline to adapt to the requirements of the Federal Reserve.
The central bank sold more than $420 million in two days, with the first “positive” signal coming from the negotiating delegation in Washington.
Following this news, the Rafidain Bank opened its coffers to sell 305 million dollars on Sunday, 47 million dollars of it in cash, and 257 million dollars in transfers and credits. It is still unknown what was bought with it, or where it went. He also sold $115 million the next day, $62.8 million of which was in cash, and $52.6 million in transfers and credits.
And the “Ruado” website quoted a source from within the Iraqi delegation in Washington as saying that “the Americans will agree in principle to grant Iraq a temporary deadline regarding Iraq’s measures to combat corruption and money laundering, intensify the process, and control border crossings and airports in front of the exit of the dollar and the new system for requesting funds by demanding invoices and order.” Swift”.
According to the same source, “the Americans want to see what the changes will be on the ground and whether Iraq will be able to implement the procedures they set, so easing the conditions will be relative, not lifting them completely.”
Observers say that the deadline given to Iraq ranges between three and six months. If the smuggling operations to Iran were limited to 50 million dollars a day, at a minimum, the deadline would mean smuggling between 4.5 and 9 billion dollars during this period. On the other hand, it is estimated that Iran receives up to double this amount from smuggling operations, including money from tax revenues.
And the Iraqi Foreign Minister said earlier that “meetings took place with representatives from the US Treasury Department regarding a set of understandings that we reached in the field of monetary policy and reform in the banking and banking field, and how to deal with some countries subject to US sanctions.” And there is a clear understanding by the United States of some of the issues we raised, and support for the discussions that took place between the Central Bank and treasury representatives.
For its part, the US Treasury Department announced that “the two parties stressed the importance of mutual commitment to anti-money laundering and terrorist financing measures, and the continuation of bilateral economic relations between the United States and Iraq, which aim to strengthen the Iraqi economy.”
A statement by the Central Bank of Iraq said that it is “committed to applying international standards in combating money laundering and financing terrorism, and seeks to strengthen its relations with its counterparts in countries of the world to serve the work and development of the Iraqi banking sector.”
According to the statement, “the two parties expressed their willingness to work jointly to meet the challenges of working on the electronic platform for remittances and cash, which allows the US Federal Bank to monitor foreign transfers from Iraq abroad.”
The statement stressed that “the US Federal Reserve delegation and the US Treasury discussed a number of support and attribution mechanisms for the Central Bank of Iraq, in a way that enhances its capabilities to deal flexibly with crises during this stage.”
Observers say that the deadline given to Iraq will allow the money smugglers to rearrange their situation, by finding alternatives, with the Central Bank continuing to sell huge amounts of dollars daily that come out of the local economic cycle and do not return to Iraq, even if they are in the form of goods, commodities, and services.
One of the methods that was tried previously, especially during the era of the Nuri al-Maliki government between 2006 and 2014, is to appoint local companies, linked to the Iranian Revolutionary Guard, to implement fictitious projects. And that was before it ended either by declaring bankruptcy and establishing new companies, or by completing a limited part of the projects and neglecting the rest.
This method is an ideal model because it is based on official government transfers, which do not violate the rules of funding, but the other side of it ends up stopping the business on which the money was spent. The purchase of damaged equipment was another method of “legitimate” transfers.
On Monday, the coordination framework, which represents the political umbrella for the pro-Iranian forces, expressed its satisfaction with the course of negotiations in Washington.
“The Iraqi negotiations in Washington that are currently taking place are very positive after communicating with some members of the negotiating delegation,” the leader in the framework, Hassan Fadam, told the local Shafaq News agency, pointing out that the US Federal Reserve, the US Treasury, and the US State Department support the stability of Iraq and its market.
To prove his seriousness in adhering to the restrictions of the Federal Reserve, Iraqi Prime Minister Muhammad Shia’ al-Sudani held a meeting in Baghdad on Sunday with the Federation of Chambers of Commerce, the Association of Iraqi Banks, and government financial agencies and departments. Taxes and customs, as well as border crossings, the central bank, and trade fairs, and he stressed that his government and all its competent agencies “will firmly confront all smugglers and speculators, and those who obstruct the progress of reform, harm the Iraqi economy, and affect the living conditions of citizens.”
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