Iraq issued its first post-war debt on Sunday as it tries to shed a legacy of disastrous economic management and regain credibility in financial markets after decades of war and sanctions.
The government raised 150 billion dinars ($104 million) in three-month treasury bills carrying an interest rate of around 5.5 percent through an auction organised by the central bank.
"Demand was healthy," the bank's Chief Economist Mudher Kasim told Reuters.
"This was an attempt to explore the market," he said. "The plan is to issue six-month and one-year maturities too." He added that a stable dinar and growing foreign reserves had encouraged buying.
Iraq's foreign currency reserves stood at more than $2.4 billion last month.
Most of the new treasury bills were bought by local banks. Foreign banks were theoretically allowed to buy, but settlement and taxation mechanisms were not ready for such a move, Kasim said.
"We are aware there is international interest. It will take time before foreign buying is possible."
The interim government resumed domestic borrowing after the central bank recently wrote off debts incurred by Saddam Hussein's former government.
The central bank did not subscribe to the new issue, unlike in pre-war times.
The bank amassed almost all of Iraq's domestic debt issued by the former Baathist government and printed money in return, which contributed to the currency's collapse during the crippling 1990-2003 economic embargo and drove up inflation.
A new law, part of attempts to put state finances back in order, prohibits the central bank from buying government debt on the primary market.
"A secondary treasury bills market is being developed and the central bank could enter as a buyer then," Kasim said.
Iraq also has an estimated $120 billion of external debt, built up by the former government. The finance ministry has hired US accountants and lawyers to assess the financial claims on the country.
The government is planning to issue treasury bills every two weeks. The central bank set up another auction last year to sell and buy dollars. The two auctions are seen as monetary tools that could help maintain financial stability.
The dinar has been holding stable at around 1,400 to the dollar for months as new bank notes were issued and oil exports partly recovered.
The exchange rate fell from 10 dinars to the dollar in 1991 to 3,500 just before Baghdad fell to US-led forces last year.
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