Citigroup Inc. and the U.S. government are to propose a $200 million project to help finance Iraqi imports, using funds guaranteed by the country’s oil revenues, a U.S. official said on Monday.
The proposed venture, led by U.S. 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.
Spinelli said the financing plan, to which Citigroup would contribute $50 million and OPIC $150 million, was designed to stabilize 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 up-front and in cash, drawing from the U.S.-run Development Fund for Iraq (DFI).
The OPIC project would create a new special vehicle entity, backed by the U.S. 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 does not honor a given letter of credit for cash, OPIC and Citigroup would guarantee its value, Spinelli said. They would then recover their funds from the DFI, which holds Iraq’s oil revenues.
“We are risk-sharing here,” Spinelli said. “If this thing comes to pass, we will have a U.S. 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 U.S.-led Coalition Provisional Authority in Baghdad.
Spinelli stressed the OPIC/Citigroup venture would not be binding upon any new Iraqi government following the planned July 1 elections in Baghdad.
“There is no future commitment of any kind, either of oil revenues or commitment that binds any future government to continue this facility,” he said.
“Our hope is that whoever comes in, the Iraqi provisional government that follows, will see this as a good, positive thing and continue it. That is our hope, but there is nothing that binds them to that.”