Iran and Iraq have signed a memorandum of understanding to open a US$1 billion credit line aimed at boosting trade flows between the two neighbouring countries.

The announcement follows the recent visit of Iraqi Prime Minister Ibrahim Jafaari to Iran.

Export guarantees

The credit line will be used for exports of technical and engineering services, as well as other goods to Iraq according to an Iranian commerce ministry spokesman. It is envisaged that Iran's Export Guarantee Fund (EGF) will pay Iranian exporters for their exports to Iraq. The EGF will subsequently reclaim the money it pays plus one per cent interest from the Trade Bank of Iraq.

Already Iran has struck a deal to send about 200,000 tonnes of flour to Iraq in which Iran will guarantee letters of credit issued by an Iraqi bank to a total of US$300 million.

Trading

Trade between Iran and Iraq amounted to US$700 million in the year to March 2005.

Trading volumes between the two countries have been depressed since Iran and Iraq fought each other to a stalemate in the 1980s in a conflict that killed hundreds of thousands of both Iraqis and Iranians.

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