The latest
controversy in Iraq involves the country’s central bank. In October 2012,
arrest warrants were issued for the governor of the Central Bank of Iraq along
with sixteen of his staff. They were charged with various cases of corruption.
Immediately, people interpreted this as a power grab by Prime Minister Nouri
al-Maliki who has disagreed with some of the bank’s decisions in the past, and
has tried to exert his control over government agencies.
The
circumstances surrounding the charges against the Central Bank officials were
controversial to say the least. On October 15, 2012, the Integrity Commission issued arrest warrants for the head of the Central Bank of Iraq, Sinan Shabibi,
his deputy Mudher Arif, and 15 others. The next day, the cabinet named the head of the Board of Supreme Audit Abdul Bassit Turki as the interim governor of the bank until the investigation was over. The Board looks into the
government’s finances. A member of Prime Minister Nouri al-Maliki’s State of
Law list who was on parliament’s integrity committee told the press that Shabibi and the others were being looked at for their instructions to private banks on the amount of reserves they needed, and the financing of imports. The lawmaker for example, claimed that from January to August 2012, the Central
Bank issued $27 billion for imports, but only $4.5 billion in goods were
delivered. Media reports also mentioned money laundering. The Integrity
Commission is the main anti-corruption agency in Iraq. In September 2011
however, the head of the Commission quit, and Maliki named an interim head,
despite complaints from parliament that only it had that power. That has
given the premier sway over the Commission, and led to accusations that the
arrest warrants were simply his way of manipulating the law to achieve his
political goals vis a vis the Central Bank.
One of the
Prime Minister’s main complaints against the Central Bank has been its attempt
to revalue the dinar. Bank Governor Shabibi has talked about eliminating three zeros from the dinar for years now, and officially announced his plans in June
2011. The premier and his staff disagree with this move. One of Maliki’s
advisers for instance, said that the revaluation should not happen until the
next decade. That led to the cabinet issuing an executive order in April 2012
freezing any changes to the currency. Later it was revealed that the order was
issued directly by Maliki without the cabinet. This led to lots of criticism
with various politicians claiming that the prime minister was attempting to
interfere with the independence of the Bank. Shabibi has talked about the need
for a stronger dinar to reverse decades of keeping the currency weak to
facilitate state control of the economy. Iraq has also begun to earn huge
amounts of cash as its oil exports have increased, which would support
increasing the value of the dinar. Maliki seems to want to maintain the status
quo. With Shabibi out of the way, the prime minister could win this argument.
The premier
also attempted to assert direct control of the Bank before. In January 2011,
the Federal Supreme Court ruled that that the Central Bank was no longer under the jurisdiction of parliament, but rather under the cabinet. The Bank issued a statement condemning this decision. The institution is one of the
independent bodies set out in the constitution. The Federal Court is widely
believed to be under the sway of Maliki, and the decision was one of the most
glaring examples of it doing his bidding. The Bank did not go along with the
Court, but it did reveal the prime minister’s attempt to control the nation’s
offices.
Some of the
accusations against the Bank officials seem superfluous as well. For one, the Central Bank has demanded that the private banks in the country increase their reserves to $213 million by 2013. The Bank began setting out these rules back in 2009 in a step to increase banking services. Currently, banks
mostly serve the state rather than the public. Shabibi wants to reverse that
process, so that people can get easier loans for example to start businesses or
help with transactions. Private banks need to have larger amounts of reserves
on hand if they are going to increase their lending. A State of Law politician
claimed that these rules have been muddled, but international institutions such
as the World Bank have supported the Bank’s moves. Second, Shabibi and his
associates are being charged with money laundering during the recent run on dollars in currency exchanges across the country, which occurred at the
beginning of the year. A source in parliament however, told Ur News that
bank officials associated with Maliki’s State of Law were involved in
laundering, and ordered Shabibi to take no action against them. Corruption
is rampant in Iraq, and having unscrupulous staff in the Central Bank is not
out of the question. At the same time, the Bank is one of the most respected
institutions in the country, and has worked hand in hand with international
organizations and banks to push economic growth and reform. It would be a huge
surprise then if the Bank governor was personally involved in any illegal
activities.
Given recent
history, it would be no surprise if this move against Governor Shabibi was an
attempt by Premier Maliki to wrest control of the Central Bank. He tried to do
it legally before with the Supreme Court decision. The Bank refused to go along
with that order, and has gotten into a number of disputes with the prime
minister since then. Iraq has weak state agencies after many of them had to be
put back together or created anew after the fall of Saddam Hussein. Maliki has
tried to strengthen the central government and his own hand, by gaining
influence over many of these institutions. That’s why many pointed to him when
the news broke that the Central Bank Governor had an arrest warrant out for
him. It’s impossible to tell how this will play out, but it’s likely to go down
as another example Maliki trying to impose his will over the government.
SOURCES
Abedzair, Kareem, “Commission orders arrest of Iraqi Central
Bank Governor on corruption charges,” Azzaman, 10/15/12
Agence France Presse, “Iraq cabinet names interim central
bank governor: spokesperson,” 10/16/12
AK News, “Share of banking services per capita in Iraq is
low, says Central Bank,” 6/11/12
Alsumaria, “Iraq Central Bank urges explanatory ruling,”
1/25/11
Brosk, Raman, “Iraqi Central Bank accuses banks of “fraud”
over hard currency sales,” AK News, 5/17/12
Dagher, Sam and Nabhan, Ali, “Iraq Dismisses Central Bank
Chief Amid Investigation,” Wall Street Journal, 10/16/12
Habib, Mustafa, “dinar woes: iraqi currency traders break
Syria, iran sanctions,” Niqash, 5/17/12
Harissi, Mohamad Ali, “Iraqi dinar casualty of Iran, Syria
sanctions,” Agence France Presse, 4/12/12
International
Crisis Group, “Iraq’s Secular Opposition: The Rise and Decline of al-Iraqiya,”
7/30/12
Al-Jaff, Wissam, “Central Bank’s independence compromised by
Federal Court ruling says official,” AK News, 1/23/11
Kami, Aseel, “Iraq tries again to buoy dinar, stem dollar
flight,” Reuters, 6/6/12
Muhammad, Barzan, “Erbil Currency Traders Lose Out as US
Dollar Value Fluctuates,” Rudaw, 5/27/12
Peel, Michael, “Iraq bank moves to allay laundering fears,”
Financial Times, 4/2/12
Reuters, “Iraq centbank slams ruling placing it under
cabinet,” 1/24/11
Saleh, Khayoun, “Deputy Premier warns against attempts to
meddle in Iraqi Central Bank’s affairs,” Azzaman, 4/16/12
- “Iraq hard cash reserves exceed $60 billion,” Azzaman,
4/10/12
Sami, Zeena, “Central Bank fails to stem Iraqi dinar’s
weakening vis-à-vis the dollar,” Azzaman, 4/17/12
Sowell, Kirk, “Inside Iraqi Politics No. 39,” 5/29/12
Special Inspector General for Iraq Reconstruction,
“Quarterly Report and Semiannual Report to the United States Congress,” 1/30/11
- “Quarterly Report and Semiannual Report to the United
States Congress,” 1/30/12
Ur News,
“Sources at the Central Bank: Al-Shabibi retains documents signed by Maliki to
protect the corrupt,” 10/15/12
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