The Iraq Trade Bank (ITB) is taking too long to open letters of credit (L/Cs), apparently causing Iraqi officials to turn to banks in the Lebanon according to a British newspaper.

The Financial Times (FT) reports that the situation emerged during Ramadan and that UN officials fear the banking strategy adopted by Iraqi officials to secure food supplies for Iraq could be less than transparent.

Dollar transfers

Iraq's trade ministry has transferred hundreds of millions of dollars earmarked for the country's food rations into two Lebanese banks.

Trade minister in the Iraqi Interim government, Mohammed Jibouri, said last month that he had transferred "nearly US$400 million" to Lebanese banks, bypassing the ITB, the state-controlled bank established in 2003 by the US-led administration.

Taking too long

Jibouri said the ITB was taking too long to issue L/Cs for food purchases before the holy month of Ramadan in November and December last year. "The only reason behind the transfer was time," the minister insisted. "They [ITB] had a manual, not an electronic [transfer] system. The Lebanese banks were quicker."

The trade ministry deposited the funds with Fransabank, chaired by Lebanon's economy minister, Adnan Kassar, and al-Mawarid. They had both been used during the UN's oil-for-food programme, according to Iraqi finance officials.

Transparency compromised

Questions of transparency according to the FT arise out of the trade ministry's choice of bank. The ITB has an internal auditor but the use of alternative banks effectively bypasses the requirement for verification of spending on food rations, on which the UN claims 60 per cent of the population depend.

The newspaper reports one analyst surmising that Iraqis want to use ITB alternatives to avoid unwanted pressure to buy US goods.

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