Iraq's Central Bank Governor Is Removed Under Cloud
Author: alzaman Posted October 17, 2012
Yesterday [Oct.16], sources in the Central Bank of Iraq said that the Iranian lobby in Iraq has finally managed to persuade Prime Minister Nouri al-Maliki to suspend the bank’s governor, Sinan al-Shabibi, and his deputy, Mudher Mohammad Saleh, from their posts.
It must be noted that Shabibi and his deputy were able to reduce the smuggling of hundreds of millions of dollars from Iraq to Iran.
According to sources in Baghdad, Shabibi, who was representing Iraq at a conference in Tokyo, has yet to return to Baghdad and is likely to head to Switzerland, where he used to reside. However, he was seen on London’s Oxford Street yesterday [Oct.16], a reliable source in London said.
Sources speaking on the condition of anonymity told Azzaman that Shabibi and Mudher have launched a series of measures binding those who wish to exchange Iranian rials for US dollars to submit their applications to the bank. The applications must include an account number from an Iraqi bank, in addition to the purpose of the currency exchange, in order to ensure that that the amounts are used for commercial transactions and are not being smuggled into Iran, which suffers from a significant lack of hard currency, among other hardships, due to the impact of sanctions.
The sources added that the relationship with the sanctioned regime of Bashar al-Assad has become Maliki’s first priority in terms of coordination, financial and commercial support. Moreover, it has been reported that following these measures, requests for exchanging currency have declined from $80–$100 million to $1 million per day.
Sources added that under the free economy, the bank used to exchange rials for dollars without requiring any documents. However, the bank discovered that most the of those applying for currency exchanges were not traders and were submitting their applications under pseudonyms for fear of being exposed.
These measures, which were taken by Shabibi and which the government is using as evidence against the governor and his deputy, have limited the smuggling of US dollars from Iraq to Iran, helped stabilize the Iraqi currency and protected Iraq’s cash reserves.
Yesterday [Oct. 16], the Iraqi government named Abdel-Basit Turki, head of the Supreme Audit Board, as interim Central Bank governor to replace Shabibi.
The bank has also endorsed the principles of coordination, consultation and information exchange regarding fiscal and monetary policies between the bank and the Iraqi cabinet, according to the constitution. Also, the bank has examined the methods used to deliver foreign currency to the local market and to allocate Iraqi banks greater roles.
At the beginning of the year, the demand for dollars increased by 40–50%. This is when the bank announced, in February, the launch of new measures regarding its purchase of dollars.
Shabibi is credited with rebuilding the bank after war. Under his management, the bank has managed to raise Iraqi currency reserves from zero to $65 billion. Shabibi used to work for the World Trade Organization in Geneva before assuming management at the bank. He is also an expert in international economics and public finance.
Legal and parliamentary sources told Azzaman that suspending Shabibi is not the prerogative of the government; rather, it is the parliament’s decision, as the bank constitutes an independent body that is affiliated to it.
According to the same sources, the suspension of Shabibi —as well as Turki’s appointment — both violate the constitution. Appointing a new governor for the bank also falls under the duties of the parliament, not the government.
Shabibi rejected Maliki’s decision to put the bank under his jurisdiction because it is an independent body belonging to parliament. The Iraqi parliament backed Shabibi’s position, forcing Maliki to back down.
The bank had limited Iran's ability to draw hundreds of millions of dollars from the Iraqi market to support its economy — which is suffering under the impact of sanctions — at the expense of the value of the Iraqi dinar. Shabibi rejected the government's desire to withdraw from Iraqi currency reserves, as it would decrease the value of the Iraqi currency.
The decision by Iraq’s anti-corruption commission was issued against Shabibi while he was representing Iraq in a global conference in Tokyo.
Ali al-Moussawi, a media adviser for the prime minister, said that the Council of Ministers voted in favor of appointing Turki to run the bank until further notice. He added that the judiciary decided to suspend Shabibi, current governor of the bank, from his post.
Moussawi said that after the fluctuation of the exchange rate of the dinar, a parliamentary investigation committee was formed — headed by deputy speaker Qusay al-Suhail — adding that extensive investigations revealed shortcomings by the bank governor and others.
He said that the committee submitted its report to the official Integrity Commission responsible for fighting corruption in government departments, which in turn decided to suspend Shabibi and others. He added that when the government decided to appoint Turki, the decision received nearly unanimous support.
Spokesman for the Integrity Commission Hassan Aati said yesterday [Oct. 15] that the commission received the bank dossier from the parliamentary Integrity Committee, noting that it is currently under investigation.
Bahaa al-Araji, head of the parliamentary Integrity Committee, said that arrest warrants were issued, but not travel bans. He added that 30 arrest warrants have been issued, including those against the bank governor and his deputy.
An official at the Ministry of Justice said that the Supreme Judicial Council was responsible for issuing such arrest warrants.
Araji said that the issue is not about money, but about procedures and instructions that led to the increase of the price of the dollar against the Iraqi dinar and the decrease of the price of the dinar.
Central Bank Governor Shabibi, who has been in office since 2003, told AFP from Tokyo two days ago [Oct. 14] that “I know nothing about this issue and, God willing, there will be no arrest warrants.”
In April, the exchange rate of the dollar was at its highest level against the dinar in local markets in close to four years, reaching 1,320 dinars per dollar following a stable period at 1,230 dinars per dollar.
Shabibi had told AFP that the relatively unstable political situation in Iraq and the region — particularly referring to Iran and Syria and the sanctions imposed on both countries — has created greater demand for the dollar, which has recently led to a higher exchange rate.
It is noteworthy that the Federal Supreme Court issued a decision on January 18, 2011 to link the bank to the cabinet, attributing the ruling to the predominantly executive nature of the bank’s work and its activities.
Following the issuance of the decision, the bank governor warned of the risks of applying such a decision, saying it would lead Iraq — one of the most corrupt countries in the world — to lose the ability to protect its assets abroad.
In a meeting yesterday, the Iraqi government adopted several decisions relating to the bank, including the formation of a committee headed by a representative of the bank, with members comprising representatives of the Ministries of Interior, Finance and Commerce, which would exchange information regarding the movement of currency sold by the bank.
Read More: http://www.al-monitor.com/pulse/business/2012/10/warrant-issued-for-iraqs-central-bank-governor.html