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Dire Straits
Baghdad’s Financial Blockade Of Iraqi Kurdistan Has Desired Effect

Hayman Hassan
Since the beginning of the year the authorities in Baghdad and Iraqi Kurdistan have had a financial stand off. The Iraqi Kurdish have done everything they can to support themselves, from exporting oil to asking for…
25.09.2014  |  Sulaymaniyah
Iraqi Kurdistan's economy is slowing down.
Iraqi Kurdistan's economy is slowing down.

Several weeks ago Sardar Gharib turned off his mobile phone and locked himself in his house. He no longer wanted to deal with the people who had loaned him money and who were now coming to ask him where the repayments were.

Gharib is a contractor working in the semi-autonomous region of Iraqi Kurdistan and unfortunately he recently had to declare bankruptcy, with an estimated US$1.5 million in debts. The debts have been incurred because almost all the projects that Gharib’s construction firm was working on have been postponed – a lot of them were funded by the government of the region, which has its own parliament, court system and military independent of the rest of Iraq.

And Gharib’s firm is not the only one facing these kinds of liquidity problems. The Kurdistan Investor’s Union, an association of Iraqi Kurdish businesspeople, says that, according to their count, 430 contractors and companies in a number of different fields have declared bankruptcy over the past six months. They count 250 in the Sulaymaniyah province of Iraqi Kurdistan, 110 in Erbil and 70 in the Dohuk area.

The main reason for this can be blamed on the Iraqi government in Baghdad’s so-called “financial blockade” of Iraqi Kurdistan.

Since the beginning of this year Baghdad has refused to release the 17 percent share of the national budget that Iraqi Kurdistan is entitled to, to them. This is due to a number of disputes between the two sets of governments but a lot has to do with the fact that Baghdad says Iraqi Kurdistan is exporting oil illegally and is therefore not entitled to their share of the national budget (which mainly comes from oil revenues). Iraqi Kurdish officials say that more than 95 percent of the region’s revenues come from Baghdad.

Former Iraqi Prime Minister, Nouri al-Maliki, was the leader who made the decision not to send money to Iraqi Kurdistan. The transfer of salaries to government employees - around 700,000 people in Iraqi Kurdistan are registered as such – has not been made since February. And even though al-Maliki has been replaced by Haider al-Abadi, the decision is still being enforced.

At first, Iraqi Kurdish business seemed to be able to weather the storm with donations from wealthy locals and profits from the sale of some oil used to fund government activities and pay salaries. However it seems that now the region has had enough.

There are a number of factors that are making life impossible in Iraqi Kurdistan, says Yassin Mahmoud Rashid, the spokesperson for the Kurdistan Investors’ Union, as well as its Deputy President. The financial blockade imposed by Baghdad, the security situation in the rest of Iraq and a decrease in trade with other countries like Iran and Turkey as well with other parts of Iraq are also making Iraqi Kurdistan’s financial situation impossible, he told NIQASH.

Rashid says that almost 3,000 projects are on hold because nobody can afford to pay for them and licenses for investment in the area have dropped by 80 percent in September, compared to previous months. A lot of foreign companies have also decided to lay people off or suspend work, due to the security situation in Iraq.

The ever-increasing number of refugees from other countries like Syria and from within Iraq are also placing an extra burden on the local authorities.

Interestingly before the security crisis, caused mostly by Sunni Muslim extremists from the Islamic State, or IS, group, worsened, members of the Iraqi Kurdish government had been suggesting that their region could go it alone and did not need Baghdad’s help. They thought they could make enough from exporting oil and from local revenue streams.

Sources inside the Iraqi Kurdish Parliament also say that the region’s government had approached foreign banks and companies for loans, including Italian, Japanese, Austrian and Turkish institutions. However it had only received one positive answer and that was from a Japanese bank.

Politicians in Iraqi Kurdistan have blamed Baghdad for the whole scenario but some local experts say that Iraqi Kurdish politicians started exporting oil without being prepared for the consequences.

“The region’s government should have had a backup plan,” says Mohammed Karim, an economics professor at the University of Sulaymaniyah. “They needed to ensure that funds were available from the beginning and the government should also have put more effort into developing the agricultural and industrial sectors.”

The increasing numbers of bankruptcies being caused by the financial problems represents a major social and economic threat to Iraqi Kurdistan and will halt reconstruction efforts in the region, Karim argued.

Besides bankruptcies and business grinding to a halt, local police have also reported a number of suicides, both successful and attempted, of local businessmen.

Meanwhile the Prime Minister of Iraqi Kurdistan, Nechirvan Barzani, has said he believes the financial crisis will be over soon, by early next year at the latest.

“We are waiting for the new Iraqi government to transfer the region’s share of the budget,” the official spokesperson for the Iraqi Kurdish Ministry of Finance, Dler Tariq, told NIQASH. “But we don’t yet know if the money they’re going to transfer will cover salaries.”

Tariq also said that he was optimistic and felt that the financial blockade couldn’t continue forever – but he was unable to give any kind of date either.

According to information from within Iraqi Kurdistan’s political scene, the financial blockade was one of the main reasons that Iraqi Kurdish politicians decided they would participate in the new government in Baghdad that is headed by Haider al-Abadi. Apparently those who attended a crucial meeting on Sept. 8, during which local politicians decided whether or not they would return to Baghdad, Iraqi Kurdish Prime Minister Nechirvan Barzani was asked if it was possible for Iraqi Kurdistan to make the regional budget without going back to Baghdad. His answer: no.

And apparently this was one of the major reasons the Iraqi Kurdish decided to remain part of the new Iraqi government.