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Baghdad Slashes Government Budget

May 26, 1999

BAGHDAD, Iraq (AP) _ In a bid to halt the decline of the local currency, the Iraqi government has decided to slash its budget by 10 percent and to scrap restrictions on the possession of hard currency.

The measures, publicized Wednesday in most state-run dailies, came as the Iraqi dinar tumbled to lows unseen in the past three years. Its slump is hurting Iraq’s domestic and external trade, Baghdad businessmen said on customary condition of anonymity.

In the past three months, the dinar has lost almost 28 percent of its value against the dollar. Earlier this week, it nosedived to 2,240 to the dollar. On Wednesday, it was exchanging at 2,220 to the dollar.

The gyration, though almost negligible in dollar terms, affects trading as most goods in Iraq are priced according to the dinar-dollar ratio at time of selling.

The papers said the slash in the budget was decided at a cabinet meeting chaired by President Saddam Hussein late Tuesday.

The papers did not say when the 10 percent cut would take effect. The government usually refuses to give figures or estimates of expenditures, but the slash could be billions of dinars.

Nonetheless, the cuts have not touched the meager wages of millions of state employees who earn an average monthly salary of 5,000 dinars, or $2. Reducing government spending has been a priority since 1995 when the dinar slipped to almost 3,000 to the dollar _ its all-time low.

Since then, the government has frozen wages but raised the number of services given away for free.

Rates for water, electricity, as well as telephone and postal services, have increased several times since 1995.

The dinar was officially worth about $3 before the United Nations slapped trade sanctions on Iraq for its 1990 invasion of Kuwait.

But the world body bypassed the sanctions when it allowed Iraq, in December 1996, to export no more than $5.2 billion worth of oil a year under the so-called oil-for-food deal. The oil program injects billions of dollars into the Iraqi economy every year in the form of food, medicine and other essential supplies.

But apparently both the oil deal and the government’s austerity measures have failed to check the dinar’s decline.

In an unprecedented step, Finance Minister Hikmat Mizban Ibrahim urged Iraqis this week to deposit their dollars in Iraqi banks in return for ``suitable interest.″

He said the government has removed all curbs on the possession of hard cash, and Iraqis were now allowed to ``buy, sell and open bank accounts″ in foreign currency.

Ibrahim said he hoped the move would end speculation by unlicensed money changers whom he blamed for the dinar’s fall.

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