Published on Monday, 29 Oct 07:00 am
By Walid Khadduri
The ousted Central Bank of Iraq Governor has rejected the charges of corruption and currency manipulation being leveled against him. His supporters see it as a smear campaign designed to give the Maliki government and his Da’wa Party control over central bank funds.
The Iraqi Council of Ministers has appointed the Chairman of the Board of Supreme Audit, ‘Abd al-Basit Turki, as the new Acting Governor of the Central Bank of Iraq (CBI), succeeding Sinan al-Shabibi, against whom arrest warrants have been issued on charges of corruption and currency manipulation (MEES, 19 October). Dr Shabibi was abroad at the time of the decision attending International Monetary Fund meetings in Tokyo and has since travelled to Europe. He told reporters that he plans to return to Iraq soon to clear himself of the charges. Prime Minister Nuri al-Maliki’s decision was criticized by several political party leaders (including Muqtada al-Sadr, former Vice President ‘Adil ‘Abd al-Mahdi, and Chairman of Parliament’s Energy Committee ‘Adnan al-Janabi) and appears to have come as a surprise to Chief Justice Midhat al-Mahmud, who was not initially informed of the arrest warrants but then acceded to the prime minister’s wishes.
MEES learns that the conflict between the prime minister and the governor has been brewing for around two years, after Mr Maliki asked the governor to lend the government $5bn from CBI reserves and Dr Shabibi refused. This invokes the 2004 Central Bank Law which prohibits any direct lending from the CBI to the government and its institutions. The latest development raises concerns of domestic and regional significance.
Claims Of Smear Campaigns
Allegations of corruption and currency manipulation have been orchestrated by the executive authorities over several months on TV, depriving Dr Shabibi of the right to defend himself in a court of law. The prime minister’s accusations against the respected and independent governor have given rise to widespread indignation, reveal MEES soundings. Around 180 professionals (mostly prominent economists) inside Iraq and abroad sent a petition to President Jalal Talabani, emphasizing that “it is the duty of the Iraqi state and its institutions to protect public funds and the civil and political rights of citizens without smear campaigns to defame their personal and professional reputations, such as those against Dr Sinan al-Shabibi, the Governor of the Central Bank.” The petition concluded by warning that “the previous regime started with smear campaigns, and ended with purges. Hence, we as professionals warn of the end result of these policies.”
CBI Independence Under Threat
If, as Dr Shabibi’s supporters allege, the charges are trumped up, Mr Maliki’s move is a clear threat to the integrity of the CBI as an independent institution. His opponents fear that the prime minister will now proceed to tap into the CBI’s funds, ignoring Dr Shabibi’s advice that the resources of the CBI should be separate from those of the Ministry of Finance. In fact, MEES understands, the prime minister and the head
of his office, ‘Ali al-‘Allaq, are of the opinion that since he is the central authority in the country, he has the right to use the funds available to Iraq as he sees fit, whether these funds are under the direct control of the government (via the Ministry of Finance) or form part of the reserves of independent public institutions (such as the Central Bank). This question about the independence of the CBI is at the core of the conflict between the ex-governor and the prime minister.
Fewer Checks And Balances
The move against Dr Shabibi further consolidates Mr Maliki’s power base without the necessary checks and balances, say opponents of the government. Mr Maliki heads the armed forces and the country’s security affairs, managing both directly from his office through his aides – Da’wa Party members – after several times postponing the nomination of both the defense and interior ministers.
The Dollar-Dinar Conundrum
The charges of currency manipulation have left many of those in financial circles baffled. The official government spokesman, ‘Ali al-Dabbagh, accused the CBI of lacking procedures to minimize the fluctuations of the dinar against the dollar, and particularly the means to stop the flow abroad of hard currency. The Iraqi currency had been largely stable against the dollar at around $1=ID1,200 for the past few years, having appreciated from $1=ID1,453 in 2004. But it then depreciated this year.
With tightening US and EU sanctions on Iran and Syria, the two countries recently resorted to the Iraqi foreign exchange market to access hard currency and this has caused the value of the Iraqi dinar to drop by around 9%. This raised alarm bells, including from the US. An 18 August report in the New York Times had said that Iraq was helping its neighbor Iran skirt US and EU sanctions by providing it with dollars. This was flatly rejected by Mr Maliki’s media advisor, ‘Ali al-Musawi (MEES, 27 August). US sanctions have also been brought against one Iraqi bank – Elaf Islamic Bank – for allegedly being part of a network providing Iran with scarce foreign exchange.
CBI Deputy Governor Mudhar Salih stated in August that the bank had drawn up plans to lower the value of the dollar in Iraqi dinars from around $1=ID1,300 to near the auction price of $1=ID1,189. This measure was designed to discourage those coming in from Iran and Syria to buy dollars, and stop them effectively pushing down the Iraqi dinar’s value against the dollar. The CBI is in a position to boost the value of the Iraqi dinar with its ample foreign exchange reserves of about $65bn held at the Federal Reserve Bank of New York.
According to Mr Salih, to meet rising dollar demand the CBI sold around $100mn in the daily auctions in 2010, which rose to $150-160mn per day in the first 10 months of 2011, and reached around $200mn per day early this year, before peaking at $300mn daily.
The irony here is that Mr Maliki was backed by Tehran for the post of prime minister with the acquiescence of the US. Moreover, the Maliki administration is central to the Tehran-Damascus axis. (Iraq has been accused in recent months of permitting the transit of Iranian Revolutionary Guards and transport of arms to Syria. There are also reports of smuggling petroleum products from Iraq to Syria, despite Western sanctions.) In this context, Dr Shabibi’s supporters contend recent events are a move to consolidate the prime minister’s rule over the country and establish the Da’wa Party as the main political force in Iraq, while the Maliki camp asserts that the conflict with Dr Shabibi is part of a long-awaited campaign to clean up corruption.