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Iraq plans new Europe accounts to protect $15.6B oil money
Iraq plans to open accounts at three central banks in Europe, seeking protection for Iraqi funds after May 2012
July 12, 2011 9:47 by Reuters
Iraq will open accounts at three European central banks to protect oil revenue from claims by commercial creditors when immunity at the U.S. Federal Reserve runs out, a senior central bank official said on Monday.
Iraq holds the bulk of proceeds from its oil export sales in the Development Fund of Iraq (DFI) account at the New York Fed but will lose legal immunity on that account next May.
It plans to move at least part of that money to central banks in Britain, France and the Netherlands where the money would be protected.
“The funds in these banks enjoy legal immunity. Besides that, the policy of these banks is independent. These banks consider the funds of its counterpart central banks are used for political stability, not for commercial purposes,” Iraqi central bank adviser Mudher Kasim told Reuters in an interview.
SPENDING ON THE RIGHT THINGS
The DFI was established at the US Federal Reserve after the 2003 US-led invasion of Iraq to direct oil revenue to reconstruction and food for Iraqis.
Control of the fund was turned over to Iraq on June 30, when UN immunity from legal claims expired but it still has immunity inside the United States because of a presidential executive order that expires next May.
The fund held about $15.6 billion on June 30, Kasim said.
“Our problem is beyond this date of the next year. What will happen when this one-year immunity expires?” Kasim said.
“We must move, starting from now, and find arenas that enjoy legal immunity,” he added.
Iraqi Finance Minister Rafie al-Esawi also told Reuters recently that Iraq planned to open accounts in three European central banks to diversify and protect its assets and contain risks.
Iraq expects an increase of war reparation and commercial claims as creditors intensify efforts to seize assets, often in compensation for events in the first Gulf War.
THE CONTINUED ROLE OF THE US
Kasim said the plan did not mean Iraq would close its account at the New York Fed.
“On the contrary, I believe the financial relationship with the U.S. should remain and should be developed. It is in our interest to keep and enhance this relationship.”
Iraq’s external debt was $130-$140 billion in 2003 and much of it was settled through the Paris Club of sovereign creditors in 2004. The Paris Club deal required Iraq to seek similar settlements with its all of its creditors.
BOTCHED TERMS OF SETTLEMENT
But some commercial creditors have won court judgments and will not comply with terms of that settlement.
“By these rulings, they can seize Iraqi funds and put their hands on these funds,” Kasim said.
“The problem is that we don’t know how many there are and what the total volume of their claims is,” he said. “It’s a real problem for us.”
Kuwait and Saudi Arabia are among the notable holdouts, he said. Saudi Arabia is owed about $30 billion while Kuwait is owed some $22 billion in addition to war reparations likely to be fully repaid by 2016, BA-Merrill Lynch estimates.
Baghdad is in a long-running battle with Kuwait Airways which is seeking $1.2 billion in compensation for aircraft and parts seized when Iraq invaded Kuwait in 1990.
In May, Kuwait Airways successfully seized millions of dollars from bank accounts in Jordan and the UK belonging to Iraqi Airways and other Iraqi state entities. (Editing by Jim Loney/Anna Willard)