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Mon, May 05, 2003 - Page 12 News List

Baghdad will use cash frozen overseas


Cash frozen abroad and computer data will be the principal assets of Iraq's first post-war government to be formed in a month under the auspices of a US-led coalition, experts say.

"From a financial standpoint, the next government will start from below zero," said Iraqi economist Humam Shamaa.

The central bank and the two state-owned banks were looted during the chaos which followed the collapse of Saddam Hussein's regime on April 9. US officials have said a minimum of US$400 million in hard currency were stolen.

To pay the salaries of civil servants, the next government will have to tap Iraqi state funds frozen abroad, as it cannot expect near-term revenue from oil exports, customs or income taxes, said Shamaa.

The Office of Reconstruction and Humanitarian Assistance (ORHA) running post-war Iraq has begun drawing on the US$1.7 billion in Iraqi funds frozen in US banks to disburse cash incentives for civil servants.

The US$20-per-head payments are aimed at motivating civil servants to report back to work.

Iraqi state employees are still to get regular salaries, a mass of money difficult to estimate because national data were a closely guarded secret under Saddam Hussein's 24-year rule.

US officials estimate the number of state employees at anything between 1 and 2.5 million, including members of the military and security services.

Those figures are expected to be fine-tuned in the coming weeks.

A US official told reporters that employees from the key planning ministry have managed to save data including payrolls from the building which was looted and torched by taking computer files home with them.

An Iraqi national meeting is to gather political groups, tribal and religious chiefs as well as business leaders and intellectuals at the end of the month to select an interim government.

The chances of the interim government also managing to stabilize the economy hinge on its ability -- and the ability of the coalition -- to restore security and overcome electricity and gasoline shortages, said Shamaa.

"The industry has stopped because there is no security, and electricity shortages. Agriculture is functioning, but the electricity problem affects poultry. The transportation problem makes products more expensive, slowing down consumption and trade," he said.

Trade also suffers from fluctuations in the exchange rate of the dinar as it yo-yoes between 1,500 and 2,100 to the US dollar, prompting an increasing number of upscale shops and restaurants to list prices in the US currency.

In the absence of a government and banks to centralize offer and demand, the foreign exchange market is mainly driven by political news, rumors and speculation.

Many of Iraq's woes should be solved once the oil sector gets back on its feet, satisfying local demand for power and gasoline and eventually generating cash revenue from exports to finance reconstruction.

Oil production has resumed over the past weeks, but still stands at around five percent of its pre-war level of 2.5 million barrels per day.

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