By Alister Bull and Mariam Karouny
BAGHDAD, Aug 2 (Reuters) - Iraq's central bank offers a beacon of stability in a country on the brink of civil war, but the governor is still forced to use safe houses for meetings with guests too scared to visit his headquarters downtown.
Sinan al-Shabibi makes light of the bank's location a few blocks from Haifa Street, one of the most dangerous places in Baghdad. But many prefer to avoid the narrow road that leads to the bank, fearing it is too easy for potential kidnappers to block.
"It is very difficult. In many cases we see a lot of people outside. We designate a house or something like that and see them," he told Reuters in a recent interview in his third floor office, overlooking an internal courtyard.
The central bank is on Rasheed Street, long Baghdad's financial centre, and next to its old headquarters, badly damaged during the 2003 U.S.-led invasion to topple Saddam Hussein and from which his son Qusay allegedly stole $1 billion on the eve of war.
Approached through a bustling market, the bank remains in the heart of the city, in contrast to most government operations which have moved to the heavily fortified Green Zone on the other side of the Tigris river.
"It is very difficult to work somewhere else. All the banks are here and all the staff. We can always have alternative offices, but it is better to be with the staff of the bank," said Shabibi, who spent 11 years at the United Nations and was Iraqi Minister of Planning from 1977 to 1980.
The guardian of Iraq's new currency, the central bank was re- created by U.S. occupiers in the image of a modern institution with its independence enshrined in law.
NEW APPROACH
It now conducts daily foreign currency auctions, in which the Iraqi dinar has maintained striking stability at around 1,475 dinar to the dollar despite an Iraqi inflation rate of 52.5 percent year-on-year in June.
Shabibi says there is no intervention to keep the dinar strong. Nor is there a black market currency price, indicating the official exchange rate reflects real dinar purchasing power.
The very model of a modern monetary policy maker, Shabibi said: "The most important objective of the central bank is the preservation of price stability. That is why we are concerned and monitoring the (inflation) situation."
Interest rates were raised to 12 from 10 percent in July and Shabibi said in the interview further action might be needed.
All this marks a sea change from the mismanagement the central bank endured under Saddam, whose government used its overdraft at the bank to print money while saddling it with debts that were never paid.
Shabibi said a recent audit of the bank by accountants Ernst and Young, which has not been published yet, gave it a clean bill of health from corruption, but exposed the costs of years of abuse.
"It opened our eyes to what kind of losses we had in operations and to losses from outside our operations, which were put on our balance sheet, and that is not fair," he said.
The same treatment was meted out to state-owned lenders Rasheed Bank and Rafidian Bank, which the central bank must now restructure in cooperation with the ministry of finance.
Shabibi said changes to create the healthy banking system needed for economic progress in Iraq would happen soon.
But he declined to be more specific, displaying a gift for sidestepping questions that he claimed to have learned from the former chairman of the Federal Reserve.
"We had some technical assistance from Alan Greenspan in being vague," he said.
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