The deputy governor of the Central Bank of Iraq (CBI), Mudhhir Mohammad Saleh, has revealed that Iraq's foreign currency reserves, estimated at $54 billion, have declined by $10 billion since last November, and that the money was used by banks, money-changers and money-transfer companies in support of the Iranian and Syrian economies, which are subject to sanctions. He asserted that speculators have exploited the monetary crisis in the two neighboring countries to make a quick profit. The rush to buy dollars has caused the Iraqi dinar to lose 11% of its value against the dollar, despite considerable foreign currency reserves available to support it.
CBI auctions dollars five days a week, Sunday through Thursday, with no restriction, until recently, on the quantity of dollars sought by buyers. As a result of speculators' demand for dollars, the quantity of auctioned dollars has spiked overnight, from $117 million average per session to $151 million. Advisor to the Iraqi prime minister Fadhel Mohammad has blamed the central bank, naming its auction policy as the main reason behind the decline in the value of the dinar against the dollar, from 1116 dinars to 1128.5 dinars to the dollar.
However, according to CBI governor Saleh, the sharp decline in the value of the Iranian riyal and the Syrian pound has made the Iraqi dinar a valuable medium of exchange and a currency that is easily convertible by merchants in these two countries. These merchants often seek to convert their Iraqi dinars, which they accumulate through trade with Iraq, and then use the intermediation of the many banks and money changers operating in Iraq (some of these banks, incidentally, are Iran-owned or fall under Iranian influence) to gain access to the U.S. dollar. Measures taken by CBI in recent days to restrict the purchase of dollars by authorized dealers by demanding that they present a statement on the ultimate destination of the dollars has proven ineffective, because some traders, as reported by CBI, opened as many as 5,000 individual accounts to siphon off dollars to circumvent CBI's restrictions. CBI has not denied that there was corruption involved in its operation.
The revelations by CBI about the siphoning of dollars to the two neighboring countries may also have political or altruistic dimensions. For some time, Iraqi Prime Minister Nouri al-Maliki has been seeking to bring the CBI under his direct control, as part of a larger scheme to bring key autonomous agencies, including the Elections Commission, under his control. This scheme has been widely criticized by most of the political parties represented in the governing coalition government, and by Iraqi parliamentary speaker Osama al-Nujaifi. Noteworthy is the Friday sermon delivered by Abdul-Mahdi al-Karabala'i, representative in Karbala of the Shi'a marjaíah (the highest Shi'a religious authority), who called for supporting the CBI's monetary policy and stressed its independence.
The CBI is guaranteed autonomous status under Article 103 of the Iraqi constitution and under Central Bank Law No. 66 of 2004. While the federal government, meaning primarily the prime minister, may invite the governor of the central bank for consultation and coordination on monetary policy, the government may not intervene in the direction of the bank or in its internal management. By contrast, supporters of the government argue that as an advisor to the government, the CBI should implement its policies.
Financial sources maintain that the prime minister is miffed by CBI governor Professor Sanan Mohammad Ridha al-Shabibi (a scion of a highly respected Sunni family) due to his rejection of repeated demands by the prime minister to offer loans to the central government and cover its deficits, which are estimated at $12 billion. Governor al-Shabibi would argue that the government's revenues from oil exports are sufficient to cover its expenditures.
Under growing criticism from many directions, including his partners in the coalition government, that he was pursuing a new form of dictatorship under his sole authority, Prime Minister al-Maliki appears to have put in abeyance his scheme to bring the central bank under his control. In this context, it is significant to point out that the head of Iraq's autonomous Elections Commission, Faraj al-Haydari, was arrested on the evening of April 12 for alleged corruption. A national outcry forced the government to release al-Haydari on bail two days later. With regard to the central bank, the prime minister has decided to follow a different path, namely that of attempting to replace the governor of central bank with someone who is more malleable than al-Shabibi.
Responding to criticism about consolidating too much power in his own hands, al-Maliki told a group of tribal chiefs in Baghdad on April 14: "Iraq will not tolerate the rule of a single person, single dictator, single tyrant, single political party, single [sect.]"
* Dr. Nimrod Raphaeli is a senior analyst at MEMRI.
Sources: Al-Sharq Al-Awsat, April 18 and April 15, 2012; Almadapaper.net, April 14, 2012; Elaph.com, Almashriqnews.com, April 13, 2012; Azzaman.com, Newsabah.com, April 11, 2012.