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Emerging Markets

Iraq trade lender sticks to Iran sanctions

The Trade Bank of Iraq will continue to abide by US and UN sanctions against Iran, its president and chairman said yesterday.

Hussein Al-Uzri told Emerging Markets in an interview that TBI, which last year issued letters of credit (LCs) worth $9.5 billion, was in “close coordination” with the US Treasury.

Iraq is Iran’s second-largest non-oil export market, with estimates of total trade between the two neighbours put as high as $5 billion.

Proponents of tougher sanctions against Tehran argue they would curb the Islamic Republic’s nuclear ambitions, and the US treasury already discourages European banks from involvement in the Iranian market.

Al-Uzri conceded however that although state-owned TBI has Iraq’s primary responsibility for financing trade through LCs, the bulk of non-oil trade with Iran was financed through money-brokers. “This is a very old tradition and will not change quickly,” he noted.

Despite the difficulties of its operating environment – including security issues and corruption, as well as tensions between Washington and Tehran – TBI is reporting encouraging figures, Al-Uzri said.

“Although oil revenue in the country has declined [since 2008], we will issue more than $10 billion in LCs this year,” he said. “We have $13 billion on our balance sheets. Our profit last year was $359 million, which is money we retain, it does not go back to the government.”

These figures were important in fostering the development of private banks. “For them to prioritise us with lines, they like to see a healthy balance sheet,” he said.

“Iraq is underbanked,” he added. “Yet the country is launching big [reconstruction] projects, and you need to be adequately capitalised to do this. We need a few banks the size of TBI ... not just one.”

Private banks had minimum capitalisation – even after a recent increase – of just $86 million, he added, and foreign banks that had opened were reluctant to expand.

But Uzri said he was encouraged by the number of LCs now being issued by private banks, which now made up 65% of government LCs. “We have developed the private banks’ relations with our own 127 corresponding banks: previously many of them were limited in their [international] dealings.” TBI would continue to prioritise the energy sector, he added, citing its role in power plants in Erbil and Suleimania.

While Al-Uzri stressed that security was Iraq’s “top priority”, it had improved greatly since 2007. Progress towards a vibrant private sector as the primary engine of development had been far slower than hoped, Al-Uzri said. But he argued that the government was committed to fostering the private sector and to diversifying its own income away from oil, which accounts for 85-90% of government revenue in 2009.

Al-Uzri also praised the Iraqi central bank for maintaining reserves of around $40 billion and refusing to use them for “[politicians’ pet] projects”.

“Compare this situation with what there was under Saddam, when the national budget was a state secret,” he said. “Now good laws [on banking and investment] have been passed, and there is a thorough process of tendering.”

Al-Uzri left Iraq in 1977, attending high school in Beirut, and then living in the US and Russia. A grand-nephew of Ahmad Chalabi, the Iraqi politician, he was appointed president of TBI when it was set up in 2003 under the US-led Coalition Provisional Authority.

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