Monday, August 30, 2010

Iraq Is Considered A Bad Credit Risk

The Organization for Economic Cooperation and Development (OECD) consists of 32 countries committed to free market capitalism. It has a credit risk classification system that affects the interest rates OECD members charge others. The organization places nations in eight categories with 0 being the best and 7 being the worst. In the first half of 2010 it completed its latest evaluation of the credit risks of the Middle East and North Africa. Iraq received a 7, the same score that it has gotten since 1999.

As a recent survey of 300 executives by the Economist Intelligence Unit found in July, many still believe that Iraq is too unstable to do business in. While 55% said that Iraq would show some form of improvement in the next two years, 64% thought that it was too dangerous to invest in right now. The main reasons were on-going violence, corruption, lack of infrastructure, the bureaucracy, inadequate contract protection, and credit risks.

Both of these factors obviously affect the country’s ability to gain international loans. So far, only Japan, Italy, Iran, the International Monetary Fund (IMF), and World Bank have been willing to advance Iraq any large amounts of money. Japan has been the most generous, with $3.28 billion in loans, followed by $930 million from the IMF, $900 million from the World Bank, $400 million from Iran, and $300 million committed by Italy. Iraq actually received two loans recently from the IMF and World Bank to cover a possible budget deficit this year, largely because Baghdad has worked with both organizations closely to settle its debts, control inflation, and institute economic reforms.

The bad business environment means that most countries, banks, and companies are unwilling to put their money in Iraq at this time. That’s reflected in the bad score by the OECD, and the negative perceptions shown in the Economist Intelligence Unit survey. Until violence subsides and the government institutes some meaningful reforms, Iraq is likely to continue to be seen as a credit risk.

SOURCES

Organization for Economic Cooperation and Development, “About OECD”

Rafique, Mahmood, “Iraq’s security situation remains the major deterrent to Business: Survey,” Arab News, 7/4/10

Special Inspector General for Iraq Reconstruction, “Quarterly and Semiannual Report to the United States Congress,” 7/30/10

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