culture, politics, commentary, criticism

Wednesday, February 18, 2004
Iraqi oil pipeline to Citigroup. That sloshing you hear is the sound of Iraqi oil flowing in the direction of Citigroup (Michael M. Phillips,
WSJ, sub. req'd.):
WASHINGTON -- The Bush administration and Citigroup Inc. are proposing a joint $200 million arrangement to finance Iraq's imports, with the bank's revenue from the project guaranteed by Iraq's oil sales.

The plan, led by the federal Overseas Private Investment Corp., has raised some eyebrows inside the administration because it comes just a few months before the U.S.-led Coalition Provisional Authority is to turn over sovereignty to a still-undetermined Iraqi government. It is far from clear whether the trade-finance project would get much done before the scheduled June 30 handover or whether the new Iraqi government would abandon it.

But OPIC officials believe their plan to facilitate letters of credit for Iraqi importers will help the economy recover and modernize. OPIC officials stress the assistance the project would provide to Iraqi private companies and private banks. It is an attempt to "put in the foundations that will achieve economic freedom for the Iraqis," said OPIC President Peter Watson.

The project would work through a series of guarantees for letters of credit, a standard tool used to smooth the flow of trade. Letters of credit guarantee payment to the seller -- say, a German drug company or an American tractor maker -- at the time it delivers the goods. Without such a letter, Iraqi importers -- who are by virtue of the country's situation considered huge credit risks -- would have to put up the cash beforehand and trust that the goods would eventually arrive.

In the case of the OPIC/Citigroup project, a Baghdad bank might issue a letter of credit for a local company's imports. An international bank would confirm the letter, assuming the risk of nonpayment. A separate institution, set up by Citigroup, would then guarantee that the international bank gets paid. Citigroup and OPIC would guarantee that the separate institution -- still nameless -- gets paid. Finally, the coalition would pledge to use Iraqi oil revenue to cover any Citigroup and OPIC losses.
Is it normal to accept letters of credit from invaded nations without governments? The arrangement sure stinks at first sniff.

At least we Americans can sleep better at night knowing Citigroup's revenues are guaranteed by the fruits of our taxes, although the job security, baseline medical coverage, and increasingly privatized retirement savings of our citizens are not.

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