VZCZCXRO2845
PP RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #1946 1771330
ZNR UUUUU ZZH
P 251330Z JUN 08
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC PRIORITY 7981
INFO RUCNRAQ/IRAQ COLLECTIVE

UNCLAS BAGHDAD 001946 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN IZ
SUBJECT: IRAQI BANKS MOVE ELECTRONS INSTEAD OF PAPER 
 
¶1. Summary: While Iraq's economy remains predominately 
cash-based, the banking system has begun a shift toward 
electronic payments.  From December through April, 
Iraqi-owned banks more than quadrupled the monthly value of 
transactions they direct through electronic funds transfers 
(EFT).  Private banks lead the way, with 60 percent of their 
branches EFT-capable, while no state-owned banks offer 
domestic EFT services to the public.  The USG sparked this 
modernization, first through assistance to the Central Bank 
of Iraq (CBI) and then through an emphasis on electronic 
payments by the Joint Contracting Command - Iraq (JCCI).  As 
banks and businesses gain experience with the speed, safety, 
and low cost of EFT, we expect it to slowly displace the use 
of cash in wholesale transactions.  An important side benefit 
of progress in this area is that use of EFT may accelerate 
GOI budget execution.  End summary. 
 
¶2. In 2004 the U.S. Treasury Department contracted with New 
York-based Montran Corp. to build a modern payments system in 
Iraq through an $18-million program to deliver equipment, 
technical assistance, and training to the CBI.  By 2006 the 
new system offered both real-time gross settlement (RTGS) and 
automated clearinghouse (ACH) services.  The ACH service, 
which is designed to process low-value, high-volume retail 
and payroll transactions, remains unused for now.  But for 
RTGS, which is designed to process large inter-bank 
transfers, monthly transaction value has more than doubled 
since December 2007. 
 
¶3. The expansion of EFT in Iraq is a reflection of the 
increasing importance of privately owned banks.  While the 
seven state-owned banks hold 80 percent of non-GOI deposits 
in the system, the 32 private banks operate more than a third 
of the 726 bank branches in the country.  About 60 percent of 
the branches of private banks offer EFT services, while no 
branches of state-owned banks are EFT capable.  The private 
banks' modern capabilities are helping them expand their 
business. 
 
¶4. The USG played a role not only in building Iraq's EFT 
infrastructure but also in promoting its use.  In particular, 
the Department of Defense Task Force for Business Stability 
Operations (TFBSO) sought to direct more USG payments through 
Iraq's EFT system.  In October 2007, with help from TFBSO, 
JCCI established a new policy to use EFT for all contract 
awards of $50,000 or more.  This created a snowball effect in 
subsequent months.  By May the volume of RTGS transactions 
was more than triple the volume in October.  The aggregate 
monthly value of RTGS transactions is now more than twice as 
high as in the first six months of 2007.  Now TFBSO is 
working with Iraq's private banks to promote the use of ACH 
for retail payments. 
 
¶5. Comment: Iraq's economy still runs mainly on cash, but 
with "plumbing" installed by Treasury and "pump priming" 
engineered by TFBSO and JCCI, Iraq's banking system has taken 
a big step forward.  There will be greater gains when EFT 
moves into the retail sector with ACH services.  Among other 
effects, EFT can begin to replace the state-owned banks' 
creaky, corruption-prone, cash-based system for distributing 
wages, pensions, and other benefits for the GOI and 
state-owned enterprises -- once the GOI develops the 
political will to implement EFT for its own transactions. 
More immediately, EFT may also prove to be another way of 
easing bottlenecks that hamper GOI budget execution.  Iraqi 
banks without EFT can take up to three weeks to process a 
payment.  With EFT, the same transaction can be completed in 
less than a day. 
CROCKER