It’s the Stupidity, Stupid

Back in February, I wrote a post on the need for institutions in Iraq, and mentioned the Central Bank of Iraq as being one of the only independent, competent bodies in the country, largely thanks to the work of its governor, Sinan Shabibi. True to form, in an act of institutional self-flagellation, the Iraqi authorities have issued an arrest warrant for Shabibi (who has sensibly decided to stay away from Iraq rather than try to clear his name from inside the country).

The charges made against Shabibi by the parliamentary committee investigating corruption at the Central Bank are numerous: Shabibi was recklessly colluding with nefarious banks that were responsible for destroying the Greek economy (Goldman Sachs) with plans to invest some of the reserves held at the CBI; Shabibi put some of the Iraq’s reserves in low-yielding accounts abroad where the returns were a paltry 3%, rather than place them in Iraqi banks where they could have gotten 8% yields; and that the bank was overseeing the smuggling of $200 million a day.

These sound like serious charges, except when you hear Qusay al-Suhail, the deputy speaker of parliament who oversaw the investigation, you come to realize that instead of being serious allegations, they are a complete misunderstanding of quite ordinary behavior, represented instead as being heinous. It is ordinary for sovereign wealth to be invested in low-yielding securities—these present the least risk. The $200 million smuggling operation is in fact the daily currency auction that are used to stabilize the Iraqi dinar. These are still going on by the way (the last one was conducted just today)

Apart from the fact that we have lost a rare and endangered specimen in Iraq, an independent and capable institution (it has kept the currency steady and inflation low, the true measures of a central bank’s success), what struck me most about the situation was the that the whole thing could have been avoided if you had the right people with the right skills doing the job of investigating the initial claims against the bank. The accusations made by Suhail show very clearly that he is out of his depth, he just does not understand the issue he is supposed to be investigating. KPMG and Ernst and Young, two of the big four global auditing firms, have already audited the CBI’s books and have given the bank a clear bill of health. In their infinite wisdom the Iraqi authorities  decided that their deputy speaker of parliament was better suited to pass judgment on the issue, and as a result,  Iraq has lost the services of a capable technocrat with 25 years experience as an international civil servant and who was in part responsible for negotiating the largest debt-forgiveness programme the world has ever seen, without much prospect of replacing him with a similarly competent alternative.