CREATING A SOUND AND MODERN BANKING SYSTEM
New Central Bank Law. A new Central Bank Law was enacted in
March, which supercedes the Central Bank Law of 1976 and establishes a
foundation for a strong and independent Central Bank. The primary goals of the
new law are to achieve long-term growth and prosperity through measures designed
to maintain domestic price stability and foster a stable and competitive
market-based financial system.
New Commercial Bank Law. A new Commercial Bank Law was enacted in September
2003, which creates the basis for a sound and modern banking sector. Supporting
regulations will soon be issued by the Central Bank. They will impose minimum
standards for capital adequacy, lending, loan classification, and directives to
prevent money laundering.
Modern Payment System. The Central Bank Law permits the CBI to establish and
maintain an interbank payment system. A VisaNet system is being installed, which
will provide an interim payment system until a more comprehensive payment system
Restarting the Banking Sector. Banking sector institutions in Iraq - Central
Bank, Rafidain and Rasheed Banks (280 Branches), 4 Specialized Banks and 17
private banks were quickly re-opened after the war. Banks have begun receiving
deposits, making loans, clearing checks, making money transfers. Indeed, as a
reflection of renewed public confidence in the banking system, deposits have
grown rapidly since last summer.
Strong Domestic Bank Interest. The Central Bank has received over thirty (30)
domestic applications for licenses. These are being reviewed very carefully, and
two domestic banks have received licenses since the first of 2004.
Starting International Transfers. Ten of the nineteen private Iraqi banks have
now been approved to provide remittance services and letters of credit. Several
other private banks are currently seeking the same approval.
Foreign Bank Entry. Understanding that foreign banks will help strengthen our
banking sector and accelerate Iraqs integration into the international
financial community, the Central Bank conducted a Request For Application ( RFA)
for foreign bank licenses. Three banks - HSBC, National Bank of Kuwait and
Standard Chartered Bank are being awarded licenses to operate in Iraq. The CBI
will be inviting foreign banks to participate in another RFA round.
Trade Finance. The Trade Bank of Iraq (TBI) was established in July 2003 to
facilitate trade of goods and services to and from Iraq by providing irrevocable
letters of credit. The TBI officially became fully operational in December 2003
and has a services contract with a multi-international banking consortium led by
JP Morgan Chase. Since opening in December, the Trade Bank of Iraq has issued or
has pending 183 letters of credit, totaling $708.9 million in imports from
thirty-one countries. Letters of credit have been issued on behalf of Iraqi
Ministries as well as several state-owned enterprises.
CREATING AN ENVIRONMENT FOR ECONOMIC GROWTH
Improvements in the banking sector are taking place against the backdrop of
broader initiatives to create an environment for economic growth.
New Iraqi Currency. One of the most notable achievements has been the adoption
of a new, unified currency serving all of Iraq. The Iraqi public was able to
swap its holdings of Saddam dinars, effectively having only two denominations,
and Old Iraqi (Swiss) dinars, having only three denominations, for six
denominations of New Iraqi dinars. The exchange took place over three months,
starting on October 15, and went extremely well despite a challenging security
environment. About 2 billion banknotes were successfully swapped.
This amounted to the equivalent of 27 747 Jumbo Jet loads of new currency. There
were over 250 sites all over the country where the Iraqi public was able to
exchange old dinars for the new currency.
Currency Auctions. In October, the Central Bank of Iraq introduced daily
currency auctions. The auctions have helped to unify currency trading throughout
Iraq. The New Iraqi Dinar (NID) has been fairly stable over the past two months,
trading in the NID1400 to 1450 per dollar range, which has been reassuring to
the public at a time of a deteriorating security situation.
Inflation Figures. Annual inflation for 2003 was reported to be just under 35
percent by the Central Statistical Office. Over the final months of 2003 and the
first few months of this year, consumer prices have been roughly unchanged on
balance. Establishing price stability is a key monetary policy objective of the
Liberalizing Interest Rates. In late January, the Central Bank of Iraq
announced that interest rates paid on deposits, loans, credits, securities and
all other domestic financial instruments would be fully liberalized. This policy
became effective on March 1.
Tax Strategy for Individuals and Businesses. A new Tax Strategy to raise
revenue, as well as stimulate economic activity, has been established for 2004.
The new strategy sets out a tax regime that caps the highest individual and
corporate marginal tax rate at 15%. A reconstruction levy of 5% on all imported
goods, except humanitarian goods, was implemented on April 15.
Conducive Market for Foreign Investment. A new Foreign Investment Law/Order 39
was enacted in September 2003, which permits foreign investors to acquire up to
a one hundred percent ownership in almost all sectors of the economy and
provides national treatment for foreign firms and provided equal treatment for
domestic and foreign companies.
Streamlined Law for Small Business Owners. A new Company Law/Order 64 has been
adopted, which replaces Company Law Number 21 of 1997. The new law reduces the
steps and time necessary to form companies, and provides for equal treatment for
foreign and domestic firms.
WTO Accession. Iraq has been granted observer status to the World Trade