x Abu Dhabi, UAEMonday 22 January 2018

Iraq's former central bank chief criticises government

Sinan Al Shabibi claims the charges against him are cover for a political manoeuvre by the government to use the central bank's reserves.

The former governor of Iraq's central bank who was removed from his job amid allegations of financial impropriety has vowed to clear his name.

Sinan Al Shabibi was suspended from his post following allegations that the central bank had manipulated the Iraqi currency against the US dollar.

But he claims that the charges against him are cover for a political manoeuvre by the government to use the central bank's reserves.

"We had conflicts with the government. They wanted to use the central bank's reserves to finance some electricity projects and part of the (public) budget, but we told them they cannot touch the reserves," Mr Shabibi said.

Mr Al Shabibi said the move was a "violation" of the country's constitution, and contravened the independence of the central bank. Only parliament can make such decisions.

Anthony Skinner of the risk analyst firm Maplecroft said the move suggests that prime minister Nouri Al Maliki was trying to take control of the central bank.

"We have seen this tactic by Maliki in the past, to remove potential opponents or awkward political figures," Mr Skinner said.

He cited the removal of trade minister of Falah Al Sudani, vice president Tarek Al Hashemi and more recently communications minister Mohammed Tawfiq Allawi. "This is a continuous trend of removing individuals that rub against political figures who hold the reigns of power," the analyst said.

Mr Shabibi was in Tokyo for IMF meetings last month when an arrest warrant was issued against him and dozens of staff at the central bank for allegedly weakening the dinar against the dollar.

Iraqi authorities allege that there was not enough oversight of capital outflows under Mr Al Shabibi's watch.

Upon notification of the charges, he left Japan for Switzerland.

He said he planned to return to Baghdad "soon" to defend himself and the central bank in court.

The cabinet ordered a judicial inquiry into the bank after a committee including representatives from the integrity committee cited violations in procedures that led to the weakening of the dinar earlier this year.

Iraqi authorities issued an arrest warrant for Mr Al Shabibi and 30 others, shortly before the appointment of Abdelbasset Turki, the head of the board of supreme audit, to succeed him.

"The government shouldn't have handled it in that way, there should have been another route of negotiations and discussions, rather than arrest warrants and making it a big public affair," the ex-governor said.

"We could have dealt with this in a much better way, through prolonged discussions with the finance ministry, the fiscal committee, the economic committee and realise their needs without touching the reserves," he said.

The cabinet recently approved a draft budget of 138 trillion Iraqi dinars (Dh435.6 trillion) for next year. However, the proposal still needs approval from parliament.

Mr Al Shabibi claims the "root" of the dispute surrounded the use of the central bank's reserves for this budget, which would have had a negative affect on the currency.

Mr Al Shabibi said he has been in discussions with various government officials to resolve the dispute and added that he hopes that the judiciary will maintain its independence from government.

Demand for dollars in the central bank's weekly currency auction doubled to US$300 million (Dh1.1 billion) from November to April, putting pressure on the nation's foreign reserves of about $63bn.

In April, the central bank introduced new regulations to govern currency auctions after demand for US dollars ballooned amid suspicions that some of the cash was being smuggled to Iran and Syria.

In August, the US president Barack Obama banned Elaf Bank, based in Baghdad, from any dealings with the US banking system for allegedly functioning as a conduit to Iran.

Mr Al Shabibi became the governor of the central bank shortly after the US-led war on Iraq, and was one of the main architects of the Paris Club agreements that dealt with Saddam-era debt. Before the war, he spent time in Geneva as a senior economist at the United Nations Conference on Trade and Development.