Citigroup and US to propose backing Iraqi imports

Citigroup Inc and the US government are to propose a $200 million project to help finance Iraqi imports, using funds guaranteed by the country's oil revenues, a US official said on Monday.
The proposed venture, led by US government agency Overseas Private Investment Corp (OPIC), would allow certain Iraqi banks to issue letters of credit backed by OPIC and Citigroup, the world's largest financial services company.
"There are preliminary discussions here on this idea. Those details have to be worked out," OPIC spokesman Larry Spinelli said in an interview.
Spinelli said the financing plan, to which Citigroup would contribute $50 million and OPIC $150 million, was designed to stabilise and lend legitimacy to the Iraqi banking system.
"A critical part in the economic development of Iraq, and really of any country, is to begin to bring credit into the economic system," he said.
At present, Spinelli said, Iraq's imports are paid for primarily by the Trade Bank of Iraq in cash.
The OPIC project would create a new special vehicle entity, backed by the US agency and Citigroup, that could issue letters of credit on behalf of the Trade Bank of Iraq and other Iraqi banks.
Those accepting the credit include companies selling their wares to Iraq or banks facilitating those transactions, Spinelli said.
In the case that an Iraqi bank did not honour a given letter of credit for cash, OPIC and Citigroup would guarantee its value, Spinelli said. They would then recover their funds from the US-run Development Fund for Iraq (DFI), which holds Iraq's oil revenues.
"We are risk-sharing here," Spinelli said. "If this thing comes to pass, we will have a US bank ready to take on some risk in Iraq."
A Citigroup spokeswoman declined to comment on the proposal. The White House had no immediate comment.
Before the proposal could be put into place, it would need to be subjected to a Congressional notification process. The project could then be threatened by a planned transfer of power from the US-led Coalition Provisional Authority in Baghdad.
After the planned hand-over of power, the DFI fund would no longer be controlled by the Coalition Provisional Authority but by the Trade Bank of Iraq. As a protective measure, Spinelli said some have suggested placing funds matching the total outstanding letters of credit between April 1 and July 1 into escrow, although no final decisions have been made.