Volume 1 - Iraq Watch

Annex GIraq’s Banking Systemdid not think it was safe to put their money in banks.Figure 36 lists both the state and privately ownedbanks of Iraq, including branches, establishment dateand capital assets remaining after OIF.Origins of the Iraqi Banking SystemIn imitation of Egyptian leader Abdul Nasser’snationalist/socialist policies, the Iraqi governmentof Abd al-Salam ‘Arif nationalized all privatecommercial banks in Iraq in 1965, as well as thebranches of foreign commercial banks. The governmentclosed the nationalized banks and moved theircustomer accounts to the state-owned commercialbank, Rafidian Bank, which was owned by the MoF.As a result, Rafidian Bank had to rapidly expand itsbranch system to service its expanded customer base,but it did not have the human resources to managea complex network. In addition, nationalization ofthe private banks caused the best bank managers toleave the industry and created distrust among foreigninvestors. The combined effect of these factors causedthe effectiveness and service quality of the country’sbanking system to deteriorate.In response to Rafidian Bank’s inability to service thecountry’s banking needs, in the early 1970s the CBIand the MoF proposed to the government that a newstate-owned bank be licensed. As a result, in 1988Rasheed Bank, also owned by the MoF, was licensed.In addition to serving the private sector, RasheedBank and Rafidian Bank soon took over much of thebanking business of state-owned enterprises, relievingCBI of that function.The Ministry of Finance was responsible for overseeingbudgets of several ministries as well as thestate-operated banking system. Currently, the sixstate-owned banks (Rafidian, Rasheed, the Agricultural,the Industrial, the Real Estate, and the Socialist)account for about 93 percent of banking systemassets. There are also 18 private banks with capitalizationof $25 million and deposits of $107 million.The 18 private banks were established in an effort tohandle local depositors’ financial needs and reformas well as modernize the banking sector. Thesebanks remained small, in part because most IraqisOrganization of the CBIThe CBI was composed of five main departments,plus support elements (see Figure 37).• Department of Investment. This department maintainedaccount information for foreign accounts.• Department of Accounting. This departmentmaintained the employee accounts of the CBI.• Department of Exchange. This departmentlicensed money exchangers.Iraqi Ministry of Finance’s Banking RoleThe Iraqi MoF was headed by Hikmat MizbanIbrahim al-Azzawi from 1995 to 2003. Azawi wasresponsible for managing the funds for the Iraqigovernment held in the CBI. All revenue for the governmentwent into accounts in the CBI. Apart fromnormal budgetary requirements, a major duty for theFinance Minister was to disperse money for Saddam.The Presidential Diwan had special accounts separatefrom the normal government accounts. Routinely,letters from Saddam would arrive at the MoF orderingthe transfer of funds from government accounts toPresidential Diwan accounts located at the CBI.• The Presidency was also the authorizing authorityfor transferring money to other ministries. Anyorder for funds received by the MoF was sent to theDirector of the CBI, Isam Rashid al-Huwaysh. Anydisputes between al-Huwaysh and al-Azawi weresettled by Saddam.• When hard currency was collected in the CBI, itwas allocated to the ministries that needed hardcurrency to buy things internationally, such as theMinistry of Health. Because hard currency was insuch short supply, the ministries that received it hadto pay it back in Iraqi Dinars.Regime Financeand Procurement251