More details and some criticisms are emerging over the Iraq Trade Bank (ITB) announced by the US-led Coalition Provisional Authority (CPA). It was established to guarantee payment for imported goods and services and it is expected that a consortium of international banks will be awarded the task of managing the institution soon. (DCWorld 23 July 2003).

Meanwhile, delays have become commonplace in the UN's oil-for-food programme as the letter of credit (L/C) based scheme that has facilitated the majority of internationally legitimised exports to Iraq for a decade continues to wind down.

Trade Bank financing

The ITB, which would have significant L/C management function, will have a pool of US$100 million to draw from, with an initial capitalisation of US$5 million according to the CPA. The money to support the bank comes from the US$1.2 billion Iraq Development Fund.

Beneficiaries of the ITB are likely to be those selling goods and services required for rebuilding Iraq, including power generators, sewage pipes and oil field equipment. The bank is also expected to facilitate the privatisation of state-owned enterprises.

Criticism

Some Arab media have been critical of the financial institution, not least because it is the CPA rather than the 25-member transitional Iraqi Governing Council (IGC) that is setting the bank's structure and remit.

The English language Arab News points out that it is not clear who the ITB's shareholders will be.

Skills shortage

The same journal describes what it believes is the CPA's rationale for the ITB. It says the US administrators' feel that Iraqi banks will be too busy re-establishing basic banking services such as consumer finance and retail banking.

Iraqi banks will "have limited capacity for specialised trade services" and they lack "sufficient expertise and international links" to issue such trade finance basics as L/Cs, guarantees, trade acceptances, bills of exchange and so on, the journal reports.

This overlooks the fact that Iraq had a highly developed banking sector prior to the 1990 invasion of Kuwait invasion while Iraq's Rafidian Bank was one of the largest banks in the Middle East in terms of capital and assets, according to Arab News.

Oil-for-food programme

Meanwhile the L/C-centred UN oil-for-food programme is winding down - but there is still around US$1.7 billion of oil equipment and supplies available to Iraq under the scheme.

Of this total, about US$1.2bn worth of contracts were signed by the former Iraqi government and approved by the UN sanctions committee, with the necessary L/Cs opened. The Iraqi authorities however have been asked by the CPA to prioritise these supplies according to their needs - a factor which is causing some delays.

Moreover, around US$500 million of equipment has been allocated funds, but the L/Cs have not been opened. These supplies are also being prioritised, causing further delays. Only those contracts signed and approved before 20 March 2000 remain valid.

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