Tuesday, October 23, 2012

More On Central Bank of Iraq Scandal

The October 2012 announcement that the governor of the Central Bank of Iraq Sinan Shabibi and several of his staff were facing arrest warrants came as a surprise to many. The initial stories said they were being charged with manipulating the value of the dinar, money laundering, fraud, and other illegal activities. Now it seems that the investigation only involves the first matter. Whenever something controversial happens in Iraq, politicians are quick to jump in, and make their own announcements about the matter before the official story comes out. That’s why the case against the Bank officials is still unclear, and is likely the result of political manipulation.

There was some initial confusion over what exactly Central Bank Governor Sinan Shabibi was being charged with. The Supreme Judicial Council issued warrants for Shabibi and 15 other bank officials on October 15. There were contradictory reports about what the head of the integrity committee in parliament, Sadrist Bahaa Hussein Ali Kamal Araji said about the charges against them. Agence France Presse for instance, said that Araji claimed that Shabibi had manipulated the value of the Iraqi currency, the dinar to lower its value. Shafaq News on the other hand, said that the governor had increased its value. A State of Law parliamentarian was cited in the Wall Street Journal that the bank officials were being investigated for the capital requirements the Central Bank made of private banks, fraud, and money laundering. The head of the integrity committee Araji denied all of those accusations. One member of the integrity committee told Al-Hayat that it had not looked into the matter at all, rather that it was done by a special group made up of Qusay Abdul Wahab Suhail, the Sadrist deputy speaker of parliament, Haidar Abadi of State of Law who is the head of the finance committee, Haitham al-Jabouri from State of Law, and one member of the Board of Supreme Audit, which is in charge of looking into the government’s finance. There are still some contradictory stories coming out about the matter. It does appear that Shabibi and his staff are only being looked at for manipulating the value of the dinar. Whether that’s for raising or lowering its price in relation to the dollar is still not clear. This is what happens during political crises in Iraq. All kinds of politicians chime in, and that leads to all the different versions of events. Many believe that Prime Minister Nouri al-Maliki is using the situation to get rid of Shabibi, which could be the reason why State of Law members have been quoted making the greatest accusation against the bank officials. 

The fact that Shabibi and the others are being accused of exploiting the value of the dinar is very suspicious since the Central Bank is widely considered to have saved the currency from a dramatic devaluation earlier in the year. Buying dollars is relatively easy at Iraqi money exchanges. Starting in December 2011, (1) the dinar started dropping in value as huge amounts of dollars started being bought up. Governor Shabibi told the press that demand for American currency had increased 40-50% at the beginning of 2012. The situation got so bad that the Central Bank was afraid there would be a run on the dinar, so it started vastly increasing the amount of dollars in circulation. Before, the Bank usually sold around $150 million a week to other banks. That suddenly jumped to $400 million. Many believed that Iran and Syria were involved, buying dollars in Iraq to make up for their shortage of hard currency due to sanctions. Shabibi responded by issuing new rules to tighten the dollar supply. That seemed to stabilize the dinar by the end of spring. Foreign experts believed that the actions of the Bank were commendable in this situation. Now it seems this series of events is at the heart of the charges against the governor and his staff. That only adds to the questions about the validity of the investigation. Again, because the premier has been known to oppose the Bank’s actions, he could just be using this situation to trump up charges to either get rid of Shabibi or intimidate him, so that he does not stand up to the prime minister in the future.

What exactly the case is against Governor Shabibi still seems to be in contention. The latest reports are focusing just upon the value of the dinar, but whether it’s increasing or decreasing it is not clear either. What is apparent is that the actions of the Central Bank were critical in stopping a run on the dinar vis-à-vis the dollar at the beginning of the year. A credible case can also be made for the fact that Prime Minister Nouri al-Maliki has attempted to take control of the Bank before, has opposed its plans to revalue the currency, and has wanted to replace Shabibi. The premier has been making a series of moves in the last year or two to take over all of the country’s independent institutions. The Central Bank could be just the latest example of Maliki’s political maneuverings to achieve this goal.


1. Saleh, Khayoun Ahmed, “Per capita income in Iraq to reach $10,000 in 2015,” Azzaman, 1/4/12


Agence France Presse, “Iraq cabinet names interim central bank governor: spokesperson,” 10/16/12

Al-Ansary, Khalid and Razzouk, Nayla, “Iraq Deplores ‘Currency Attack’ as Dollars Flow to Syria, Iran,” Bloomberg, 1/12/12

Dagher, Sam and Nabhan, Ali, “Iraq Dismisses Central Bank Chief Amid Investigation,” Wall Street Journal, 10/16/12

Habib, Mustafa, “dinar woes: iraqi currency traders break Syria, iran sanctions,” Niqash, 5/17/12

Harissi, Mohamad Ali, “Iraqi dinar casualty of Iran, Syria sanctions,” Agence France Presse, 4/12/12

Hatem, Oudai, “Iraq Lawmakers See a Power Grab In Maliki Ouster of Central Banker,” Al-Hayat, 10/18/12

Kami, Aseel, “Iraq tries again to buoy dinar, stem dollar flight,” Reuters, 6/6/12

Kami, Aseel and Chaudhry, Serena, “Iraq dinar hit by fallout from sanctions next door,” Reuters, 4/15/12

Khallat, Khudr, “Battle against counterfeit gangs before change in currency,” AK News, 4/9/12

Muhammad, Barzan, “Erbil Currency Traders Lose Out as US Dollar Value Fluctuates,” Rudaw, 5/27/12

Peel, Michael, “Iraq bank moves to allay laundering fears,” Financial Times, 4/2/12
- “Iraq issues arrest warrant for bank governor,” Financial Times, 10/18/12

Sami, Zeena, “Central Bank fails to stem Iraqi dinar’s weakening vis-à-vis the dollar,” Azzaman, 4/17/12
- “Iraq expands ties with Iran,” Azzaman, 1/14/12

Saleh, Khayoun, “Deputy Premier warns against attempts to meddle in Iraqi Central Bank’s affairs,” Azzaman, 4/16/12
- “Iraq hard cash reserves exceed $60 billion,” Azzaman, 4/10/12
- “Per capita income in Iraq to reach $10,000 in 2015,” Azzaman, 1/4/12

Shafaq News, “Integrity committee reveals the reasons of dismissing al-Shabibi,” 10/17/12

Sowell, Kirk, “Inside Iraqi Politics No. 39,” 5/29/12


Anonymous said...

this is about Iran. Iran was using Iraq to launder US dollars. The Iraqi bank put a stop to it, even though the Malaki gov told it to look the other way. So Malaki removed him at the behst of Iran. There was a report about this in the Iraqi press last week.

Joel Wing said...

Both Iran and Syria were suspected of buying up huge amounts of dollar at Iraqi money exchanges at the beginning of the year. However, Maliki has been trying to take over Iraq's independent institutions for over a year now. His own aspirations for centralizing control are a far more convincing cause of the warrants then pointing the finger at Iran.