CAIRO -
Speculators who stashed away "Bremer dinars" earlier
this year in the hope their value would skyrocket are
suffering enormous losses as the official Iraqi currency
plummets. Hit particularly hard are a high number of
Egyptians, who had earlier raced to pick up the
currency.
"Many people sold anything they could
to buy Iraqi dinars," Mohammed al-Abyad, chairman of the
Egyptian Foreign Exchange Association told IPS. "When
the dinar went down these people lost a lot of money."
The Iraqi dinar was trading at one Egyptian
pound (16 cents) per 50 dinars on the black market
before its value dropped sharply earlier this year on
news of escalating insurgency in Iraq. The pound is now
worth 210 dinars on the black market.
"The black
market has narrowed and the currency has no liquidity
now," said Shady Sharaf, head of market research at
Cairo-based al-Shorouk Brokerage. "The people cannot
sell the dinars they bought, which presses on demand."
The new Iraqi dinar banknotes introduced by the
US command last October replaced old banknotes bearing
images of deposed Iraqi leader Saddam Hussein.
Speculators believed the value of the "Bremer dinar" -
named after the US civilian administrator of Iraq, L
Paul Bremer - would rise as the economy of
war-devastated Iraq recovered.
But that recovery
has yet to take place, with daily reports of further
violence, deaths and insurgency making the headlines. In
the latest, a car bombing attack hit an Iraqi police car
and a civilian vehicle carrying foreigners in the city
of Ramadi, some 110 kilometers west of Baghdad on
Wednesday, killing at least four people. On the same day
in Kirkuk, Iraqi security forces said gunmen ambushed
and killed the top security official for the state-run
Northern Oil Company, dealing another blow to the
country's already battered oil industry.
But
months ago, unaware the instability would continue to
plague Iraq even as the handover date draws near,
thousands of investors working in the Gulf region
brought bags stuffed with the new Iraqi dinars. They
stashed away the currency or sold it for quick profits
to other speculators on the black market.
"They
remembered what happened in Kuwait, and believed the
same thing would happen in Iraq," al-Abyad said.
The value of the Kuwaiti dinar fell to less than
10 cents during the country's occupation by Iraqi forces
in 1990, but climbed steeply after its liberation by
coalition forces the following year. It now trades at
US$3.50.
"The situation in Iraq and Kuwait is
very different," said al-Abyad. "Kuwait recovered in
little time because its [infrastructure] remained
intact."
The speculation was based on
credibility, says Alaa al-Shazly, economics professor at
Cairo University. "The dinar is backed by the US and
people wouldn't have thought the US would get into
something that would turn out to be a failure."
Although many countries do not trade the Iraqi
currency, Western traders have been doing so through
websites. When trading began last October, a dollar
bought 420. Now it buys 555 - a 32% drop. The currency
has declined 11% against the dollar in the past five
weeks alone, and this while the dollar itself has
fallen. In downtown Baghdad, though, the exchange rate
is 1,400 to the dollar.
Many foreigners in Iraq
are also buying up dinars in the hope that it will
recover strongly. One analyst commented that the word in
Iraq is that at the low end, a dinar could be worth $1.
At the top end, more than $4 - many people will become
very rich overnight. In its April report, the Economist
Intelligence Unit forecast a 60% gross domestic product
growth for 2004 and 25% for the following year.
But speculators should perhaps heed the advice
of another anlayst: "The only thing the Iraqi dinar is
likely to hit is a wall." Perhaps he was thinking of
Iraq's huge whopping $120 billion foreign debt, which
few countries are interested in writing off.
