BLOG

Development Fund of Iraq (DFI) protected for one more year

Today, June 30, 2011 might have been the end of the special US protection of the DFI, the fund through which Iraq's oil revenues are collected and dispersed. But President Obama has extended this protection for another year to protect the fund from lawsuits and damage claims arising from the Saddam era.

http://www.state.gov/r/pa/prs/ps/2011/06/167387.htm

The DFI was originally set up in the UN's oil-for-food program, which was supposed to alleviate the humanitarian crisis caused by the UN sanctions imposed in 1990. Iraq could sell oil, but the revenues were placed in a special bank account administered by the US government, which had the power to decide what types of imports Iraq could purchase from abroad. Those purchases (such as food) were made by the DFI, so that the money remained inaccessible to Saddam Hussein and the Iraqi banks in general.

The DFI received its protection originally on May 22, 2003, shortly after the end of the war that brought down Saddam Hussein. It was done by Executive Order 13303, which was later revised by Executive Order 13364 on Nov. 29, 2004.

This protection is a good thing for today's Iraq; perhaps not so good for those seeking compensation for losses arising out of the Saddam regime's actions.

Executive Order 13303 was issued on May 22, 2003 by United States President George W. Bush to protect the Development Fund for Iraq for the rebuilding of Iraq from any legal attachments or liens. Further, it protects Iraqi oil products and interests and ownership by US persons (defined to include US corporations) from attachment as well. Executive Order 13303 also terminates sanctions specified in EO 12722, EO 12724, EO 13290, as it applies to the development fund. In effect, EO 13303 provides an extraordinarily broad legal shield for any and all contractors and mercenaries working in Iraq on behalf of US corporations in any oil related enterprise....

The primary effect of EO 13303 is the legal protection of US oil companies. EO 13303 is part of a broader endeavor by the Bush administration to exert control over Iraqi oil revenues.

http://en.wikipedia.org/wiki/Executive_Order_13303

Implications:

While I do not know all the implications of this, it is certain that it is positive for Iraq. It will allow Iraq to emerge from chapter vii sanctions without being immediately hit with foreign lawsuits. Tomorrow is the day that Iraq is supposed to get back its sovereignty after the time was extended from last December.

There are many conflicting reports, so it is difficult to sort out everything without being an active participant in the legal process. These high up officials simply do not explain things to the ordinary people unless they have to. But it is said that Iraq is scheduled to repay its first installment of debt to the Paris Club on July 11, 2011. It is also said that their currency must be revalued in order to make that payment feasible. I do not have enough proof to confirm this, but if it is true, then it would follow that Iraq must revalue its dinar very soon.

It does not appear that this year-long extension of National Emergency will make it impossible for Iraq to revalue its currency. In fact, it appears that the opposite is the case. This Executive Order is designed to protect Iraq's monetary resources--although it also may benefit the US government, as it will have access to the fund and may be able to use it to prop itself up. So goes the criticism in the Wikipedia article above.