The Obama administration is encouraging US businesses to export to Iraq despite the country’s political deadlock.
In a sign that the investment climate is improving, the Export-Import Bank, the official export-credit agency of the US, is now offering to back short and medium-term loans for sales of US products to Iraq.
“It’s not the safest place yet, but it’s a place where we can begin to finance trade,” said Fred Hochberg, Ex-Im Bank chairman.
The bank guaranteed about $250m in short-term lending for exports to Iraq between 2005 and 2008, mainly for commodities such as wheat and agricultural spray equipment.
“What is beginning to change is that we’re opening up to short and medium-term transactions with the private and public sector,” Mr Hochberg said.
“Iraq is beginning to emerge into a phase where we can protect customers from repayment risk. The key thing for us will be local banks that we can work with.”
Reflecting the continued risk, however, the exposure fees for US companies exporting to Iraq are 10 per cent, compared with 4.5 per cent for neighbouring Turkey.
The maximum term for the loans will be seven years, meaning most of the trade financed will be for infrastructure equipment such as tractors.
Ex-Im Bank requires 85 per cent of an export’s content to be American. Exports such as aircraft and power plant equipment will not be covered because they do not fall within the seven-year loan guidelines set by the Organisation for Economic Co-operation and Development.
The Obama administration says that Ex-Im Bank’s decision is part of a broader change in the relationship between the US and Iraq, one that is increasingly shifting from aid to trade.
“We are building a dynamic partnership with the Iraqi government and people that features co-operation in a range of sectors,” a senior administration official said.