Q: How would you characterise the current economic situation in Iraq? Has the difficulty in forming a government impacted negatively on how international investors view the country or affected the economic stability in real terms?

I don’t think it really affects the interest [of international investors] in general but of course it affects doing immediate business. Political stability is actually affected and this is very important for investment. But all in all people are not really paying attention to this when they are growing their businesses or making their investment plans, because plans need time to be confirmed and within this time the government will have been formed.

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Q: What was the primary rationale behind the setting of minimum capital requirements for Iraq’s banks? Was this policy implemented with a view towards trying to force consolidation in the banking sector?

This is an important thing for upgrading the banks and explicitly the policy is not aimed solely at consolidation, because it is important that the banks have adequate capital liquidity – and consolidation is difficult in any case because many of our banks are family businesses [and so they are resistant]. We have to encourage mergers and we have told the banks that they should try to merge, but [with so many of] them being family-owned they don’t agree.

Q: Would you welcome foreign banks coming in to partner with or buy stakes in Iraqi banks?

This is of course up to the banks. But as for our policy we encourage all of this. In fact we encourage some kind of foreign expertise to come to the country. And we mention that in all of our meetings. Now that the situation in Iraq is getting better I think we can see some interest, very clearly, from international banks who would want to come to Iraq.

Q: What can we expect with regards to interest rate policy going forward? Currently the rate is quite low, at 6%.

We are in transition all the time and the first objective of Iraq's central bank is maintaining price stability, which is done through containing inflation. And we design our policies for this objective, but of course we have another objective, which is subject to the first one and this is to encourage growth and employment, although not at the expense of price stability. 

Q: Some private bankers in Iraq complain that the central bank plays favourites with the country's banks. Is this a criticism aired to you?

Well, I haven’t read that; on the contrary the private banks compliment the central bank for supporting them. They have complaints about the government because it is not depositing or liquifying the deposits in those banks. Also, the government does not give them letters of credit. But this is more of a government/private sector business. The central bank supports government and private sector partnerships. We are always telling the government in meetings that if it has problems with the banks and if there are problems within the banks then this is because Iraq is in a period of transition from a state controlled to private sector economy. So, it is natural for a lot of banks to have problems.

Q: Do you think the right measures are in place to diversify the Iraqi economy and not be so reliant on oil revenue in the future?

First we have to define what diversification is. Either we are talking about financial diversification or fiscal diversification. On the central bank side, we are trying to diversify the financial structure and when we talk about government finances we are trying to find sources of finance that are separate from oil, such as treasury bonds, or encouraging the government to borrow from the domestic sector or from the foreign sector. Of course, the real sector [which consists of non-financial corporations, households and non-profit institutions serving households] should make some effort to depend on the private sector more and diversify the sources of finance.

Realistically the country will remain dependent on oil but we want always to encourage new sources of finance slowly away from oil. It is going to be very difficult to succeed in this but it’s an objective.