US to pay Iraqi workers in dollars

by Tim Reid in Washington, Times Online [UK], 17 April 2003

 

The US is airlifting millions of dollars from the Federal Reserve Bank of New York into Baghdad to pay Iraqi workers with American currency until a replacement for the discredited Iraqi currency is found.

US officials said today that they will give any Iraqi civil service employee who returns to a job a $20 payment in an effort to quell Iraqi unrest, the looting of banks and to stabilise the chaotic Iraqi economy.

The decision to pay government employees follows the use of US dollars by British officials for the wages of workers refitting the southern port of Umm Qasr, and will make the US dollar the interim de facto Iraqi currency.

The move carries significant economic and political risks, not least the repercussions it will have in the Arab world where many are suspicious that Washington wants to dominate and control Iraq.

Some economists also fear that the introduction of the dollar will complicate and undermine efforts to introduce a new Iraqi currency because it will struggle to gain any market strength in an economy already flooded with US currency.

But US officials insist there are no plans for the "dollarisation" of the Iraqi economy. In the short term, they say, it is imperative that Iraqi workers are paid in a recognised currency and the US dollar is the only currency to which they have access.

"This is not an issue of dollarising the economy, but to get money into desperate people's hands that has real value," one US official said. Funds for the payments will come from the $1.7 billion in Iraqi assets that the US has recently frozen.

At first, Iraqi workers will be given $20 each, in $1 and $5 bills. That is a large sum in Iraq. In central and southern Iraq, a mid-level oil professional with a university degree would make the equivalent of $50 a month.

There are three currencies circulating in Iraq: the US dollar on the black market alongside the "Saddam dinar", now largely discredited, and the more stable "Swiss dinar", a pre-Saddam dinar used in the Kurdish north. It earned its nickname because of Switzerland's reputation for financial probity.

Before the war the Saddam dinar traded at about 2,500 to the dollar. In recent days, after the widespread looting of banks, some of its bigger denomination notes were trading at over 16,000 to the dollar.

US Treasury officials say they will work closely with any new interim Iraqi authority on the choice of a new currency.

In Afghanistan, Washington urged the new government to use the dollar for large government transactions, to reassure donors that Kabul intended to rapidly stabilise the economy. Hamid Karzai, the Afghan President, refused, and his administration quickly printed a new currency as a symbol of national unity.

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