Identifier
Created
Classification
Origin
07BAGHDAD1408
2007-04-25 12:06:00
CONFIDENTIAL
Embassy Baghdad
Cable title:
ENDING TRADE BANK OF IRAQ'S MONOPOLY OVER LETTERS
how-toVZCZCXRO6329 RR RUEHBC RUEHDE RUEHIHL RUEHKUK DE RUEHGB #1408/01 1151206 ZNY CCCCC ZZH R 251206Z APR 07 FM AMEMBASSY BAGHDAD TO RUEHC/SECSTATE WASHDC 0898 INFO RUCNRAQ/IRAQ COLLECTIVE RUEATRS/DEPT OF TREASURY WASHDC
C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 001408
SIPDIS
SIPDIS
E.O. 12958: DECL: 04/24/2017
TAGS: ECON EFIN IZ
SUBJECT: ENDING TRADE BANK OF IRAQ'S MONOPOLY OVER LETTERS
OF CREDIT
Classified By: Economic Minister-Counselor Daniel Weygandt for reasons
1.4 (b) and (d).
C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 001408
SIPDIS
SIPDIS
E.O. 12958: DECL: 04/24/2017
TAGS: ECON EFIN IZ
SUBJECT: ENDING TRADE BANK OF IRAQ'S MONOPOLY OVER LETTERS
OF CREDIT
Classified By: Economic Minister-Counselor Daniel Weygandt for reasons
1.4 (b) and (d).
1. (C) Summary: In an April 23 meeting with the President of
the Trade Bank of Iraq (TBI) Hussein Al-Uzry, Treasury
Attache, CETI Coordinator and USAID Director, Deputy Prime
Minster Barham Salih called for ending TBI's monopoly over
GOI Letters of Credit (LC). "It's a bottleneck," DPM Salih
said, citing it as an obstacle to effective budget execution.
Hussein Al-Uzry countered that the LC process involved many
steps and many other GOI institutions, which were also
responsible for slowing execution. The TBI is involved both
in routing 10% of government LC's to other banks and in
processing the remaining LC's themselves. DPM Salih accepted
USG offers for assistance in developing a 6 month plan to end
the TBI monopoly. He requested that Hussein Al-Uzry attend
the next Council of Ministers meeting on April 24 to explain
the LC process and discuss plans for change. End summary.
--------------
TBI has an LC monopoly
--------------
2. (C) Since its creation in November 2003 with USG
assistance the Trade Bank of Iraq has had a monopoly over GOI
Letters of Credit. While there is no legal reason for this
monopoly, Al-Uzri said that the major state owned banks would
have had an attachment risk in processing international
transactions, and do not have enough qualified staff to run a
similar program. The private banks, he continued, are still
too small, although since 2006 TBI has routed 10% of the GOI
LC's to private banks. Credit Bank, ABC, Dar As Salam,
Commercial Bank, Middle East Bank and Kurdistan Bank
participate, as they have capitalization, corresponding
banking, SWIFT capability, and reasonable LC departments.
"They want more of the LC's," Al-Uzry said, "but they don't
have enough capital to back them". Al-Uzry said that TBI had
offered to set up an arrangement that would allow the private
banks to process a greater percentage of the LC's, without
giving them the cash money involved. Instead, they would
work out an arrangement where JP Morgan would be responsible
for the money - essentially including them in the JP Morgan
consortium. Al-Uzry said that the private banks were not
interested in increasing their business in this way.
--------------
Routing vs Processing
--------------
3. (C) Treasury Attache noted that TBI is involved with
routing the LC's to other banks, a function that could be
more logically located within the Ministry of Finance or the
Central Bank. If that function were removed from TBI, the
bank could focus on processing LC's, and compete against
other banks for the LC business. Al-Uzri said that TBI had
$200 million in capital, and that privatization was its
long-term plan. USAID director said that many of the private
banks have requested LC training, indicating interest in
processing LC's.
--------------
A Transition Plan
--------------
4. (C) DPM Salih was adamant that TBI's monopoly needs to
end, and intimated that the Council of Ministers may issue an
order to that effect soon. "We do not want an economy with a
government-sponsored monopoly," DPM Salih said, "and the
ministers often complain about the LC process." Even if the
reliance on TBI were not the only bottleneck in the budget
execution process, DPM Salih said, it is one of the problems.
He requested a 3 to 6 month transition plan to a more
diversified approach, which should include input from the TBI
and the Ministry of Finance.
--------------
Comment
--------------
5. (C) The complicated LC process is one of the challenges
to accelerating budget execution in Iraq. While Al-Uzri is
correct that TBI is not solely responsible for LC delays, the
de facto monopoly held by TBI is a problem. This issue
crystallized as a problem for the DPM when the Finance
Ministry incorrectly argued to him last week that a new UNSCR
is needed to remove the monopoly rights of the TBI. The
DPM's insistence that the TBI president attend a Council of
Ministers meeting to explain the LC process, and hopefully
also direct the ministers to more information and training,
is another positive indication of GOI commitment to improving
budget execution.
BAGHDAD 00001408 002 OF 002
CROCKER
SIPDIS
SIPDIS
E.O. 12958: DECL: 04/24/2017
TAGS: ECON EFIN IZ
SUBJECT: ENDING TRADE BANK OF IRAQ'S MONOPOLY OVER LETTERS
OF CREDIT
Classified By: Economic Minister-Counselor Daniel Weygandt for reasons
1.4 (b) and (d).
1. (C) Summary: In an April 23 meeting with the President of
the Trade Bank of Iraq (TBI) Hussein Al-Uzry, Treasury
Attache, CETI Coordinator and USAID Director, Deputy Prime
Minster Barham Salih called for ending TBI's monopoly over
GOI Letters of Credit (LC). "It's a bottleneck," DPM Salih
said, citing it as an obstacle to effective budget execution.
Hussein Al-Uzry countered that the LC process involved many
steps and many other GOI institutions, which were also
responsible for slowing execution. The TBI is involved both
in routing 10% of government LC's to other banks and in
processing the remaining LC's themselves. DPM Salih accepted
USG offers for assistance in developing a 6 month plan to end
the TBI monopoly. He requested that Hussein Al-Uzry attend
the next Council of Ministers meeting on April 24 to explain
the LC process and discuss plans for change. End summary.
--------------
TBI has an LC monopoly
--------------
2. (C) Since its creation in November 2003 with USG
assistance the Trade Bank of Iraq has had a monopoly over GOI
Letters of Credit. While there is no legal reason for this
monopoly, Al-Uzri said that the major state owned banks would
have had an attachment risk in processing international
transactions, and do not have enough qualified staff to run a
similar program. The private banks, he continued, are still
too small, although since 2006 TBI has routed 10% of the GOI
LC's to private banks. Credit Bank, ABC, Dar As Salam,
Commercial Bank, Middle East Bank and Kurdistan Bank
participate, as they have capitalization, corresponding
banking, SWIFT capability, and reasonable LC departments.
"They want more of the LC's," Al-Uzry said, "but they don't
have enough capital to back them". Al-Uzry said that TBI had
offered to set up an arrangement that would allow the private
banks to process a greater percentage of the LC's, without
giving them the cash money involved. Instead, they would
work out an arrangement where JP Morgan would be responsible
for the money - essentially including them in the JP Morgan
consortium. Al-Uzry said that the private banks were not
interested in increasing their business in this way.
--------------
Routing vs Processing
--------------
3. (C) Treasury Attache noted that TBI is involved with
routing the LC's to other banks, a function that could be
more logically located within the Ministry of Finance or the
Central Bank. If that function were removed from TBI, the
bank could focus on processing LC's, and compete against
other banks for the LC business. Al-Uzri said that TBI had
$200 million in capital, and that privatization was its
long-term plan. USAID director said that many of the private
banks have requested LC training, indicating interest in
processing LC's.
--------------
A Transition Plan
--------------
4. (C) DPM Salih was adamant that TBI's monopoly needs to
end, and intimated that the Council of Ministers may issue an
order to that effect soon. "We do not want an economy with a
government-sponsored monopoly," DPM Salih said, "and the
ministers often complain about the LC process." Even if the
reliance on TBI were not the only bottleneck in the budget
execution process, DPM Salih said, it is one of the problems.
He requested a 3 to 6 month transition plan to a more
diversified approach, which should include input from the TBI
and the Ministry of Finance.
--------------
Comment
--------------
5. (C) The complicated LC process is one of the challenges
to accelerating budget execution in Iraq. While Al-Uzri is
correct that TBI is not solely responsible for LC delays, the
de facto monopoly held by TBI is a problem. This issue
crystallized as a problem for the DPM when the Finance
Ministry incorrectly argued to him last week that a new UNSCR
is needed to remove the monopoly rights of the TBI. The
DPM's insistence that the TBI president attend a Council of
Ministers meeting to explain the LC process, and hopefully
also direct the ministers to more information and training,
is another positive indication of GOI commitment to improving
budget execution.
BAGHDAD 00001408 002 OF 002
CROCKER