A deal signed on 5 December by 16 countries has paved the way for the much trumpeted Iraq Trade Bank to start issuing the letters of credit (L/Cs) that will allow Iraqi agencies and oil concerns to buy big ticket foreign goods.

The countries that signed the deal have paved the way for Iraqi entities to buy foreign goods on credit by agreeing to release more that US$2.0 billion in short-term export guarantees.

Reconstruction contracts

The guarantees are aimed at backing L/Cs for deals made by companies that win reconstruction contracts in Iraq and according to the head of economic policy in Iraq's US-led temporary administration, Marek Belka, the agreement would make it much easier for firms buy foreign goods on credit.

"The fact that the Trade Bank of Iraq can now issue L/Cs will make it easy for Iraqis to buy goods in a more civilised and safer fashion. It will also reduce their costs," Belka said. "Iraqis at the moment have to pay cash for pretty much everything, which is hugely cumbersome and risky," he added.

Guaranteed support

The US and Japan have offered the most generous loan guarantees, each pledging support of around US$500 million.

The US Export-Import Bank said its US$500 million programme was now open for business and its short-term insurance facility will support sales by US firms to Iraq of goods ranging from capital equipment and raw materials to consumer goods and fertiliser.

Italy's export credit agency, SACE, has pledged around EUR 250 million for short-term guarantees. It has also made provision for an additional EUR 750 million that will only be available when the agency decides the political and security risks in the war torn country have diminished enough for it to provide medium- to long-term cover for Iraq.

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