The Iraqi banking system to pass through several stages started from 1867, and the oldest were the Ottoman Bank , Bank of the Shah of Iran , eastern British Bank, and then the Iraqi national banking stage was started in 1935 , which saw the creation of the agro – industrial bank that became after 1940 two banks: the Agricultural Bank , industrial Bank.
In 1941 , Rafidain Bank was established as a single commercial government bank and commercial single, then the Central Bank of Iraq in 1947, the Real Estate Bank has been established in 1948 , Cooperative Bank and the Bank of mortgages, and many of the Iraqi private banks as Al-Itimad Bank and United Bank and Rasheed Bank, in addition to branches of foreign banks , which exceeded the 15 bank , mostly belonging to the Lebanese banks, and Jordan.
At the present time the Iraqi banking system consists of 54 banks , including 7 – governmental organization, and one newly established Islamic bank , and 23 special commercial banks , 9 Islamic banks and 15 branches of foreign banks. As well as a representative office of one foreign bank . There are many institutions that do some banking, of which 34 money transfer company, and about 2,000 exchange company affiliated to banks , with the loan guarantee company and the company for financing of small and medium enterprises, and the two companies for electronic banking services and smart card, in addition to about 800 branch belonging to the banks and spread over All of Iraq ‘s provinces.
To understand the work of banking system deeply , it is required to identify the fiscal and monetary policy and the functions of the Central Bank, The functions of the bank are coined and printed the national currency and to support the national currency and the consolidation and install the internal and external value, in addition to strengthening the cash cover, and the management of State’s reserves of foreign cash and set up and administration of the monetary policy to preserve the stability of prices and the prices of exchange and encouraging the financial system growth and ensure its safety and keep an eye on commercial banking and banks and workers with currencies exchange works.
Fiscal policy is the approach made of the government in its expenditure and revenue planning. As monetary policy is the process by which the government can control the supply of money, often targeting the rate of inflation, and interest rates to ensure price stability and public confidence in the currency, which contribute to economic growth, reduce unemployment and maintain the exchange rates that could to predict with other currencies. It can be noted that monetary policy is an expansionary or deflationary process; as the expansion increases the overall policy listings of money in the economy which is greater than the usual fast, and regarding the deflationary is expanding the money supply more slowly than usual; that it is shrinking, although expansionary used to combat unemployment in the recession by reducing the interest rates in the hope that the ease of access to loans will entice companies to expand,
The monetary policy owns executive decisions in the hands of authority such as the fees of the currency coin , and determine the price of gold and silver, the price of the local currency against foreign currencies.
After the Iraqi Central Bank Law No. 56 of 2004 and the Banking Act No. 94 of 2004, according to the approach of the market economy , the interest rate was Liberalized , and the abolition of credit plans, opening the door to work for foreign banks either through participation in local banks, without putting any limits on the participation rate or open branches in Iraq, without specifying the capital, in addition to the possibility of opening offices to represent them, and the launch of freedom of foreign exchange and the abolition of restrictions on the transfer of money, except for the requirements of the law of anti – money laundering and terrorism financing , and ensure that all banks, including specialized banks to one law that take care for the commercial banking activity only.
After April 2003 the Iraqi economy collapsed and the banking system is underdeveloped in all administrative, financial and service areas, because of the wars , economic blockade and the militarization of production, and the involvement of government banks in external and internal financial ‘s relationships that are complex and confusing to it , in addition to Iraq disruption and its economic activities for global developments in all intellectual, scientific and material fields . Which led to the weakness of international confidence in Iraqi banks, and the weakness of the Iraqi role in the economic activity and development activity.
Hence the need to reconsider the status of the banking system in Iraq, and the laws organizing its work , and improve its performance, and activates its role in the economic and development activity and the strengthening of international relations.
Since mid-2014 , Iraq is going through an suffocating economic and financial crisis that began to escalate and worsen for objective and subjective reasons , including financial mismanagement and financial corruption in the country’s economic institutions and random and non-planned manner for oil revenues achieved in previous years and the lack of government reserves and falling of oil prices in the global market by 65% from the prices and the costs and requirements of the war on terror and the occupation of Daesh in the range of 40% of the area of Iraq and the lack of clear aproach or strategy to the Iraqi economy and the lack of clear visibility and coordination between fiscal and monetary policies and rely entirely and exclusively on oil resources and the failure of successive governments to develop plans and programs to diversify resources and encourage other economic sectors , such as agriculture , industry , tourism and other sectors .
And not to apply the strategies drawn up by the committees and bodies of advisers in the Cabinet and in collaboration with the UN and international organizations, of which there were up to 16 strategy which have not been put into practice as they are not supported at the days of financial abundance of oil revenues, and not to go towards building and secure infrastructure and sponsoring and supporting institutions to the Iraqi economy and Iraq enter into agreements and contracts for the long – term with an aim of developing the oil industry, but the reality of the situation confirms the great damage they would have by these contracts, for example licensing rounds contracts , they are service contracts ? How to be service contracts its duration of 20 years? And how the oil – producing fields , one of the most important fields of Iraq , are given to foreign companies? And why Iraq has signed contracts and originally does not suffer at the time from the funding restriction ?
Is Iraq really can produce of what was guessed for it in the 2017 budget? And if Iraq was able to produce this amount , could export it ? If Iraq managed to export it , would it affect the price of oil? What The impact of these contracts on OPEC? Could Iraq reach the required level of production or not , and The Central Bank’s insistence on the use of the mechanisms and methods previously adopted in the monetary policy applications, including the continuation of the auction of foreign currency sale and sell up to $ 200 million a day.
Central Bank of Iraq authorized the establishment of non-solid banks and the granting of licenses for the shareholders and owners’ capital do not understand something about the economy and the banking as important for the bank’s capital to have not less than 250 billion Iraqi dinars, and a large part from currency traders and money changers were turned to be the heads of the boards and directors and members of the boards and they brought commissioners managers and incompetent banking leaderships and started from the concept that the bank is to implement their own business and have forgotten that there are rights of shareholders and specific economic objectives to the banking business and is contributing to the gross domestic product and thus be for the banks an important and essential role in sustainable economic development and provide the best of modern and technical services to customers and the development of a culture of saving among the public which the statistics and indicators in 2015. confirm the savings rate reached 23% and the proportion of compactness reached 77%. this indicates a lack of public confidence in the banking sector of Iraq . And maintaining the application of laws that do not fit with the reality of the Iraqi economy, which was brought by US civil administrator Paul Bremer in 2004, including 94 Banking Act of 2004 and the Central Bank Law 56 of 2004 and the law of Iraq Stock Exchange 74 for the year 2004.
These laws are governing the banking and economic work in Iraq in addition to the illegal investment and money laundering laws, which had been making modifications to them, and that the banking sector (financial sector and investment), which should play the desired role in the economic development is weak and is threatened with the collapse of the Iraqi economy, especially as the price of oil does not exceed $ 30 a barrel while the budget for the year 2016, adopted a price of $ 45 a barrel, so we think it should be on the Council of Ministers and the Committee of Central Bank of Iraq to stop and review, analyze, and diagnose the causes. The Iraqi market characterized of a lack of the number of citizens who have a bank account, which allows the banks a substantial margin to attract thousands of customers who are looking for an integrated banking service, and despite the diversity of Arab and foreign banks operating in the country, but most of them do not have much capital and work is limited to speculation in the currency auction to achieve quick profits which will reflect negatively on the reality of the local market which have been recorded cases of smuggling Of capital outside the country in the civil and foreign banks by dealing at the central bank auction, which should set strict economic laws to the work of banks,
Central Bank pointed out of the most prominent problems of the Iraqi banking sector by the decline of the banking bloc, which is supposed to be a bank for every 10,000 people , but the existed one are much less, where there is a bank for every 32,000 people and this is little compared to international standards, and the absence of active banking strategies and annual detailed plans for the majority of banks provided for by the banks law Article 26 , and banking services do not fit with the requirements and directions of the Iraqi economy to a market economy, where the number of services of the banking Act Article 27, amounted more than 50 banking service either actually made the 20 service, in addition to the weakness of banking technologies means ( Home banking services, for example) to see a customer revealed remittances account, pay bills for gas, electricity, phone,
Who is at home and this service was first used in Britain in 1983 while in Iraq ,it has only used in a very narrow range.
And the administrative structure suffers in many banks, especially government ones from sagging banks, in addition to the government’s policy of discrimination in dealing with private banks, which is to prevent the state departments and companies from the deposit of their money in those banks and non-acceptance of certified and regular instruments and letters of guarantee issued by it, but within certain limits, nor allow competition with other banks, and the absence chock institutions such as the deposit insurance Corporation and the insurance on loans and study the market risk, traditional routines procedures adopted by the office of Registrar of companies and the delay of ratification on the decisions taken by the General Administration of banks, including the increase of capital, holding its general assembly meetings, delaying the re traded of the private banks shares on the current trading sessions in the Iraq market for Stock Exchange, which causes damage and losses to shareholders and investors, and the government banks and some private banks are delayed in the acquisition of comprehensive banking systems or networks to link their branches with communications networks with its Public management and non-application of the electronic banking.
a number of Iraqi parliament members specialists in the economic sphere pointed out that “the failure of local banks made the Iraqi market in need of investment for foreign banks, and the reason for their decline in the country is the failure of the Iraqi banking sector, the fact that the foreign investor is looking for a safe and advanced banking environment to facilitate his work and keeps his money.” .
They stressed the need of the Iraqi market to the global banks with an investment character that help to attract investment companies and transfer of expertise to local banks, and the advancement of the process of investment through the granting of loans and money transfers, and the use of modern banking techniques that to facilitate the works and speed up the completion of transactions.
Member of the Committee on Economy and Investment MP / National white bloc / Aziz Mayahi, said, Iraq needs foreign banks with investment character to support the investment process in the country, adding that local banks lacked not extend technologies that work with the Universal, and that investment needs to be a solid legal environment and the political and security stability and developed banking sector, to enable companies to come to invest, because they are looking for a safe environment in which the rule of law and modern systems.
He explained that the Iraqi environment need sophisticated foreign banks with high capital with an investment nature for the support of the investment process and economic development in the country, plus they will be able to create a competitive atmosphere between them and the local banks , and therefore will develop the banking sector.
He added: There is the difficulty of handling the banking due to the fact that the Iraqi banking sector lags behind and is working with old systems and legislation that do not keep pace with the world ‘s development, noting that most of the Iraqi banks limited their work to deposit the money and selling foreign currency, so they need to issue letters of guarantee to attract investors.
MP / coalition of Kurdish blocs / Sheriff Soliman, called to encourage solid international banks to open branches in Iraq to attract foreign investment and to support the reality of investment in the country.
Sulaiman said that one of the most important obstacles to the process of investment in the country is the lack of a sophisticated banking system, where Iraq has economic elements and international companies have the desire to invest, but they are surprised by a lot of obstacles when they came to Iraq.
He added that the process of the advancement of the investment requires the presence of sober and sophisticated international banks , and the development of foreign relations, and the enactment of laws for working to meet the need for companies and push forward the wheel of investment.
And banking expert Mohsen Ali stressed , on new legislation for banks that the applied law is not conducive to the development of the banking sector and does not attract international banks to operate in the country.
He explained that the local banks are not able to fulfill the requirements of the investment process in the country due to lack of their capital, and that the government and private banks do not meet the investment and the requirements of economic development process such as grant loans due to the limited physical potential and technology ..
In spite of the Investment Law No. 13 of 2006 had excluded the investment in the banking sector from its provisions , but that the investment in the banking sector takes legal framework based on the legal central bank No. 56 of 2004, banks No. 94 of 2004,
and the banking expert Muwaffaq Hassan Mahmoud, attributed reasons for the failure of Iraqi banking sector with its current structure , to many factors , including the “weakness and confusion in a number of the instructions not few issued by the Central Bank of Iraq between now and then, and withdrawn or modified days later. The decline in bank supervision efficiency and professionalism , but lack of seriousness. ”
He said that the supervisory methods on banks have not kept pace with the evolution of central banks in developed countries and in neighboring countries, including preventive controls, in addition to the lack of the banking system to the corporate governance rules needed to monitor the performance of boards of directors and, and validation of the commitment of the laws, regulations and instructions, and the lack of sector of the culture of banking risks and ways evaluation and management and ways to mitigate or reduce them. Also it included reasons, according to Mahmoud the emergence of the boards of management and banking managements which are non – professional that have no experience nor knowledge of banking work, and lack of qualifications and only had a sudden financial fortunes that suspicions hovering about their sources.
He pointed to another problem facing the banking sector «The faintly funds of capitals that do not meet the needs of development , as well as other sources of financing».
And economist Ahmed Alobreha saw , that “a manifestation of failure in Iraq is the inability of the government to enforce the law, as the central bank is unable alone to impose censorship and evaluate the banking performance level.”
Financial Advisor to the Prime Minister , Mudher Mohammed Saleh emphasized , the banking market «is homogeneous under the attraction of State – banks to capital and deposits , which had owned 90% of them, to keep 10% for the special ones . He explained that ” the government banks are backward and the private ones operate according to the nineteenth century systems.” And he declared that «adults who get a credit of 12 percent, and with each failure there is a banking transaction and due to the tripping 32 transactions were withdrawn since the private banks are very conservative and the government one are on the contrary, and that it is evident from the large size of loans granted by the government.
Salih said the currency auction file is «important and necessary» , and asked « could they create a bank to the private sector that its duty will be the opening credits of the centrality and shift gradually to cover imports?».
The banking expert Samir Nasiri warned against the “collapse of the banking system in Iraq soon in the event of problems faced during this year did not address.” He stressed that its collapse means the collapse of the economy. He pointed out that research and studies and the results of indicators do not receive the attention evidenced by the decline in deposits recorded by the five largest banks in Iraq, as well as the low liquidity and operational, credit and capital investment and profits, without losing sight of the impairment of assets. He stressed that these indicators are dangerous.
The MP Mehdi al – Hafez described the control which is supposed to be exercised by the central bank for the weak and confused, and announced that the sale of dollar by the central bank process represents a sensitive issue for the citizen, it is assumed that the process of converting amounts to be ordinary and easy as they are in other countries. He stressed the lack of separation between what exists in the transactions of the banking sector and the central bank , and the corruption that exists in the state.
The tax policy:
The government should take advantage of the taxes and customs duties imposed Since all countries of the world imposed it and regards it as a way to achieve a number of economic, developmental, financial and social objectives and to protect local products from foreign competition and the expansion of domestic production and development of export , as well as the creation of the financial resources of the public budget to cover government expenditures as well as facilitate the task of monitoring and controlling the volume of imports for processing trade balance problems.
In countries that do not have , for example the important natural resources such as the Hashemite Kingdom of Jordan , they rely almost entirely on taxes and fees to finance public expenditures and budget. In Iraq, the lack of development vision and the appropriate economic policies and the rampant financial and administrative corruption in all aspects of the state has deprived the country to take advantage of this important resource and that such a big problem for the Iraqi economy.
The impact of this has clearly emerged after falling world oil prices , as happened since mid – 2014 and so far , which led to the confusion of the government ‘s accounts and the difficulty in securing staff and retirees ‘ salaries and cover the war against the terrorist al Daesh and work on the growing budget deficit caused very largely by the low cover expenses of oil export earnings .
To face these consequences the government was forced to apply a number of ways to address the situation, including reducing the number of ministries and the reduction of the three presidencies salaries, deputies and senior staff, as well as deducting a percentage of salaries of employees, retirees and some other actions , lending from the International Monetary Fund and the imposition of taxes and customs duties and increase some of the other ones as well impose or increase fees for certain services provided by the State to the citizens who do not have to afford the taxes and fees or its increase at a time the state is still spending huge amounts of money to remuneration and deputations and incidentals on the ministers and MPs and senior grades as if there is no state of austerity suffered by junior staff and the lower classes of the people.
One of the problems facing the application of taxes and fees that they lead to higher prices for imported goods subject to taxes and fees in the local market , and this to burden on citizens, including the lack of efficiency and fairness of the administrative body responsible for guessing and the collection as the money collected from these taxes do not all go back to the public budget and even go into the pockets of some parties and individuals and corrupt mafias in various departments and state agencies noting that there are in the the tax collection devices some estimators haggling citizens to pay a certain amount in exchange for reducing the amount of tax dramatically and tempting , which encourages citizens to bow to this demand and lead to the public treasury deprived of a lot of this money.
There are a lot of doubts about the fate of the money collected from the border outlets and citizens, including a trillion and two hundred billion dinars that had been collected from citizens in the past year as a result of the rampant corruption in the state apparatus .therefore, to achieve the goal behind taxation of citizens requires that be coupled with the means to ensure ruling out the impact of corruption on this process and making sure of its collection accurately and deliver it to the competent financial authorities .
Regarding the extent of corruption at border crossing points, the central bank governor stressed that the border crossing points for a country that imports everything under the current circumstances is assumed that this process should be the highest degree of organization, competence and integrity, not only for financial reasons , but also for environmental and health reasons and safety of citizens. The materials reach and penetrate the border crossing points and the enter our cities which lacked the specifications or forged or date of its expire was changed , referring to the border crossing points remain , however in the hands of the corrupt , and in the hands of those who are dominant on it, and that the custom brokers of goods in the border areas and some workers are getting more than the state.
The bottom of the above, the economic reforms are necessary to minimize the suffering of the Iraqi people of all groups and its components resulting from the lack of honorable living and poor services , unemployment and poverty, which are a reflection of the poor economic conditions and on the forefront the corruption of banking sector , where the unemployment rate has risen to more than 25% between youth groups and graduates who are able to act as the poverty rate rose , according to the official data of the ministry of planning and development cooperation and the ministry of Labor and social Affairs .
Translated by : Mudhaffar Alkusairi
concept and what fiscal policy Http://www.mouwazaf-dz.com/t523 –
CBI / General Directorate of Statistics and Research
economist Network Iraqis / Nabil Jaafar Abdul Redha
d. Sinan Mohammed Rida al – Shibibi
Medhat al – Quraishi
Rawabet Center for Research and Strategic Studies