Baghdad hits Erbil with new financial restrictions
Iraq’s central bank ordered private banks to close their branches in the Kurdistan region.
Rising hardships. A man counts money at the Erbil Stock Exchange, on October 4. (Reuters)
2017/11/12 Issue: 131 Page: 19
London - Iraq’s central government in Baghdad moved to impose financial restrictions on the Kurdistan Regional Government (KRG) in Erbil to strengthen its authority across the country.
Iraq’s central bank ordered private banks to close branches in the Kurdistan region to avoid a ban on dollar sales, Iraqi banking sources told Reuters. All banks must confirm they have closed their branches to avoid penalties, the sources said.
Iraqi banking sources said the measures were intended to control the flow of hard currency to the Kurdish region.
Central bank sources said a decision in October to stop selling dollars to four leading Kurdish banks was still in effect.
A preliminary draft of the 2018 federal budget seen by Reuters and confirmed by three lawmakers and two Iraqi government officials showed the Kurdistan region’s share of the 2018 budget trimmed to 12.6%, down from the 17% the region has traditionally been entitled to since the fall of Saddam Hussein in 2003.
The 12.6% figure was “very accurate,” said a government financial adviser on condition of anonymity. The adviser said it was based on population data from the Trade Ministry’s ration card programme.
Iraq’s central government and the Kurdish autonomous region have quarrelled over money repeatedly since Saddam’s fall.
The post-Saddam constitution put in place a system guaranteeing the Kurds’ self-rule with a share of overall revenue proportionate to their share of the population. For the past three years, Baghdad stopped sending funds while the Kurds held nearly all of northern Iraq’s oil infrastructure and sold enough crude to fund themselves.
The Iraqi government’s lightning advance on October 16 that recaptured oil-producing territory from the Kurds means the autonomous region is once again dependent on Baghdad for funds. The central government demanded a halt to independent Kurdish oil sales.
The reduced budget would dramatically add to the KRG’s financial difficulties.
Another proposal in the draft budget would see the central government distribute the Kurdish region’s share of the federal budget to the three provinces that make up the region individually, further undermining KRG control over the allocation of funds.
“It’s a dangerous sign that indicates that Baghdad is seeking to undermine the political and economic system in Kurdistan region by cutting the budget share and dealing directly with the provinces,” Ahmed Hama Rasheed, a Kurd and the secretary of the financial committee in the federal parliament, told Reuters.
Kurdish officials criticised the proposals, accusing Iraqi Prime Minister Haider al-Abadi of using the budget to punish the Kurds, who overwhelmingly voted in September to break away from Iraq in a referendum Baghdad considers illegal.
KRG Prime Minister Nechirvan Barzani, the nephew of Masoud Barzani, who stepped down as Kurdish president after the referendum crisis, said the KRG was “prepared to give them the oil revenue” — apparently an offer to negotiate over its own sales of oil — if the central government was prepared to give the Kurds their customary 17% share.
The proposed 2018 federal budget must be approved by Abadi and referred to parliament to vote on it.
Iraq’s Supreme Federal Court has ruled that no region or province can secede, strengthening the government’s hand as it seeks to prevent a repeat of September’s referendum vote.
The court is responsible for settling disputes between Iraq’s central government and the country’s regions and provinces, including Kurdistan. Its decisions are final and mandatory for all parties. However, it has no mechanism to enforce its ruling in the Kurdish region.
Abadi urged the KRG to abide by the court’s decision. “We call on the region to clearly state its commitment to non-separation or independence from Iraq,” he said in a statement.
The ruling would strengthen Abadi’s hand in future dealings with the Kurds, Ahmed Younis, a Baghdad-based constitutional expert, told Reuters.
Abadi said the government was “taking the necessary measures to impose federal authorities.” Baghdad was committed to “preserving Iraq’s unity and preventing any attempt for separation,” he added.
Baghdad has imposed a ban on direct international flights to and from the Kurdish region.