Iraq's civilian administrators have appointed US bank J P Morgan to lead a consortium of international banks representing 14 countries to operate the newly created Trade Bank of Iraq.

The administrators said in July that they wanted a mix of international banks to handle letters of credit (L/Cs) and other trade finance facilities to enable multi-million dollar public sector purchases (DC World 10 July 2003).

International spread

The consortium chosen from five competitors by an Iraqi-led selection committee that gathered in Bahrain in the last week of August includes 13 banks representing 14 countries.

Consortium members include Australia and New Zealand's ANZ Banking Group: the UK's Standard Chartered, the National Bank of Kuwait; Poland's Bank Millennium; Japan's Bank of Tokyo-Mitsubishi; Italy's San Paolo IMI, the Royal Bank of Canada; France's Credit Lyonnais, Paris; Spain's Caja De Ahorros Y Pensiones De Barcelona; South Africa's Standard Bank Turkey's Akbank and Portugal's Banco Commercial Portuges.

US-led bank

The appointment of J P Morgan by the Coalition Provisional Authority (CPA) in Iraq comes as no surprise. The bank has lobbied hard for business in Iraq and most analysts expected a US bank to lead the consortium.

Washington has attracted some criticism for awarding the bulk of contracts in Iraq's reconstruction to US companies and in June the US Export-Import Bank determined it would open for business for transactions between US companies and Iraq that involve buyers or L/Cs from banks located in third countries (DCWorld 23 June 2003).

Financing arrangements

The consortium will be paid about US$2 million to run the Trade Bank of Iraq, although a contract has yet to be drawn up. The bank has an initial franchise of 12 months, with the option to extend this for a further three years.

The bank's start-up capital will be funded by US$5 million from the CPA and up to US$95 million from a UN reconstruction largely funded by oil revenues. The bank is seen as a major component in the replacement of the UN's oil-for-food programme that is due to be wound up in November.

Oil revenues

There appears to be some confusion over the role of oil revenues in the bank's financing and operations. According to the CPA's director of economic development Peter McPherson, the trade bank would not be handling oil revenues. US Treasury officials however said after the conference call that they would clarify the role of oil revenues in the bank's finances later.

Speaking from Baghdad, McPherson told reporters in a conference call that the bank will initially work with the government but is expected to expand its operations to private-sector projects. McPherson said private-sector purchases would require a different administrative set-up.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.