Banking Sector Shows Growth and Vigor

(Source: whitehouse.gov)

In a sign of Iraq’s improving economy, two new private banks have opened their doors in the past two weeks, and the Central Bank has before it several additional applications for new banks.

Iraqi citizens are gaining confidence in this banking system, and private deposits have doubled since last summer.

In announcing the opening of the new banks, the governor of Iraq’s Central Bank expressed confidence that the positive transformation of Iraq’s economy will “contribute immensely to peace and prosperity in the Gulf region and beyond.”

Central Banks Selects Three to Open Branches

The Central Bank of Iraqi selected three banks to open branches in Baghdad. The three banks; HSBC Group, the National Bank of Kuwait and Standard Chartered Bank, are the first to be granted licenses to provide financial services in the country.

“Any economy goes nowhere without a banking sector, so that’s the first place to invest your money,” said Bill Barron, a managing director at Deutsche Asset Management Ltd. “HSBC and Standard Chartered have the expertise and the Middle Eastern network, so it’s no surprise they got in. I’m surprised there were no US banks, but it’s only a matter of time before Citibank and the others plant their flags there.”

The Iraqi people are casting their implicit vote for the success of the Central Bank’s policies by not selling Dinars for dollars. This week, the Central bank announced it would remove interest rate controls, a signaling growing confidence in the economy’s ability to grow.

The Central Bank has put in place a currency exchange to replaced Iraq’s old notes, a foreign investment law that allows non-Iraqis to own 100 percent of most companies and banks, tax codes for corporations and individuals, and customs duties.

Billions of Dollars Pouring Into Iraq

The World Bank is projecting a significant rebound in 2004 with growth estimates ranging anywhere from 30% to 70% and an overall economy worth $17 billion to $22 billion.

Bush administration officials are optimistic about reconstruction and project that Iraq’s growth will be close to the high end of the World Bank projection.

Salaries and pensions for public employees have been increased. Repair work on the power grid, oil facilities and roads are broadening throughout the economy. Farmers who could not get seed, fertilizer and animal feed in recent years are producing again.

The billions of dollars are pouring into Iraq acts as a powerful economic stimulus. The United States is expected to award contracts for $14 billion in reconstruction work this year and $4 billion to $5 billion next year.

Foreign Investment Increasing

Foreign companies are considering long-term investments in Iraq. Pepsi is refurbishing a bottling plant and Nestle has a bottled-water factory in planning stages. Fortune 500 companies researching the market for the best opportunities.

France To Restore Business Ties With Iraq

Shortly after the announcement of the transfer of power to the new Iraqi government, France announced It would normalize business relationship with Iraq.

Complete economic ties with the new government will be restored immediately following the exchange of power.

The new directive, which cancels the 1990 degree suspending all trade with Iraq, will take effect immediately and will restore transactions between France and Iraq without the required French government approval.

Oil Prices Fall on Iraq Power Transfer

Oil prices fell as traders speculated that the transfer of power will reduce the orchestrated attacks on Iraq’s oil production industry.

The decline in oil prices signals a hopeful sign that the world oil supplies may be increased due to the future increase in oil production in Iraq.

Although unlikely to dissipate the insurgants, the transfer of power to the Iraqi people may reduce the willingness of some of the population in Iraq to support the opposition groups.

Blair to Iraqis, "Have faith in your future"

“Have confidence and faith and you will succeed,” Blair said in an interview on Iraqiya television on Tuesday, a day after the transfer of power to the interim government of Iraq.

Blair insisted that the coalition had transferred complete sovereignty to new interim Iraqi government. NATO has pledged to assist Iraq in training its security forces, both inside and outside or Iraq. “The best guarantee of security for Iraq is Iraqi forces and we can help in that.”

“Of course I would like visit Iraq and I would like the people in Iraq to know that they have got a friend in my country,” he said, although he did not know when such a visit might take place.

U.S. Transfers Sovereignty to Iraq 2 Days Early

The U.S.-led coalition transferred sovereignty to an interim Iraqi government on Monday, accelerating the move in an attempt to prevent sabotage by insurgents who oppose the rule of the new Iraqi government.

The new interim government was sworn in six hours after the handover ceremony.

With their right hand on the Quran, members of interim Prime Minister Iyad Allawi’s Cabinet vowed to execute their new duties with sincerity and impartiality. A bank of Iraqi flags lined the podium behind them.

“Before us is a challenge and a burden and we ask God almighty to give us the patience and guide us to take this country whose people deserves all goodness,” said President Ghazi al-Yawer. “May God protect Iraq and its citizens.”

Sovereignty documents were transferred earlier by outgoing U.S. administrator L. Paul Bremer to Allawi in a ceremony attended by about a half dozen Iraqi and coalition officials in the heavily guarded Green Zone. “This is a historical day,” Allawi said. “We feel we are capable of controlling the security situation.”

Bremer leaves Iraq

Bremer left Iraq two hours after the ceremony. Bremer was accompanied by coalition spokesman Dan Senor and members of his staff. The interim government will have full sovereignty, yet it will operate under major restrictions, some imposed at the behest of the influential Shiite clergy, which whis to limit the powers this administration.

The Iraqis can in principle ask the foreign troops to leave — although it is unlikely this will happen.

The United States and its coalition partners are hoping that the transfer of power will serve as a boost for Iraqis, who have resisted foreign military occupation. Now that the country has returned to Iraqi control, U.S. officials hope Iraqis will quell the insurgency and work to restore internal stability.

Central Bank of Iraq Declares Objectives

In March, the Coalition Provisional Authority published the Central Bank of Iraq Law, which is far more than a law — it’s a primer on central banking.

Subject to those objectives, the CBI shall also promote sustainable growth, employment, and prosperity in Iraq.

The new law provides for an independent central bank whose objectives are to achieve and maintain domestic price stability, foster and maintain a market-based financial system and promote sustainable growth, employment and prosperity.

The CBI is required to maintain its independence from the Government of Iraq and, except for the provisions set out in the law, will not take instructions from any other persons or entity, including government entities.

The new CBI law has been reviewed by the Iraqi Governing Council, acting on the recommendation of its Economic and Finance Committee.

The law has also been reviewed by the International Monetary Fund and calls upon the CPA to promote economic reconstruction and the conditions for sustainable development in Iraq.

The Purchase, Ownership, and Sale of Iraqi Dinar

“Since the new, post-Saddam Iraqi Dinar is a public currency that is backed up by the government of Iraq, it is valid as currency throughout the world.”

“There are no prohibitions against purchasing this currency or against reselling it, so long as you are in accord with the local laws wherever you may be.” Quoted in a memorandam by Mr. Pearse Marschner, Coordinator, Regional Arabic Media for the Coalition Provisional Authority.

The World Bank Projects 30% Growth This Year

On March 10, the Pentagon awarded the first contracts in its $18.6 billion, U.S.-funded reconstruction program, which officials say should create hundreds of thousands of jobs for locals. The spending will fix sewage treatment plants, bridges and all manner of broken infrastructure.

“We’re seeing a big increase in consumer goods flowing into the country,” said Maria Khoury, chief of research for Atlas Investment Group, a Jordanian investment bank.

Iraqi living standards are higher than at any time since the 1990 Gulf War. Oil revenues, which fund the government and its social safety net, are near prewar levels. The World Bank estimates that the economy will grow by 30 percent this year, after shrinking last year.

Underemployment is chronic. Iraq may have the world's best-educated taxi drivers and waiters.

The coalition authority can boast of notable successes that U.S. officials argue have laid the groundwork for Iraq’s prosperity.

The most important one may have been the changeover last September to new paper money, minus Saddam’s portrait. While many postwar countries suffer from hyperinflation and currency devaluation, the Iraqi dinar has gained value against the dollar since last fall.

“Iraqis would not be placing their savings in this currency and buying more of it if they didn’t believe in its future,” said Olin Wethington, a top coalition economic adviser.

The Coalition Provisional Authority and the Governing Council also passed a new investment law allowing 100 percent foreign ownership in most sectors.

Last month, three foreign banks were granted licenses to open branches. Coalition officials also have helped write a commercial banking law and a central banking law, and have begun work on reopening the Baghdad Stock Exchange.

Mitsubishi Motors announced in January that it would open a Baghdad dealership within two years and has already selected a site.

In January, Pepsi announced a deal with that company to rebuild the factory and begin selling Pepsi by June. The plant will employ up to 2,000 workers.

The Sultan Center, which operates some of Kuwait City’s biggest malls, has put forward a proposals to Iraq’s trade ministry for plans for a hotel and shopping complex, in Baghdad’s al Monsour neighborhood.

“We think this can be open in two years,” said Muthunna Darwish, the Sultan Center’s Iraqi-born company representative. “We see huge potential here.”