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Dollar losing value in Iraq

BAGHDAD, Iraq—In one of the most dangerous neighborhoods in Baghdad, in the center of a congested marketplace lined with food stalls and shoeshine boys, a group of more than 100 men clustered together shouted out numbers.

Blocks of Iraqi dinars wrapped with dirty rubber bands exchanged hands; thousands of U.S. dollars waved in the air. It was hot, dirty and dangerous, with boys pushing their way through the crowd selling cold drinks, cars honking as they squeezed down the narrow road and traders carrying loaded weapons and looking warily at strangers.

Far from Wall Street, but just as influential here, this is al Kefaah, where the value of the American dollar is determined each day. Lately, it's had quite a ride: On Tuesday, a dollar was worth about 1,300 dinars. On May 1, one dollar equaled 2,000 dinars. Its value dipped to 1,000 on May 16.

Farid J. al Diliny, an assistant professor of economics at the University of Baghdad's College of Administration and Economics, said he believes the dollar's value was inflated in the past, and the future relationship between the dollar and the dinar remains complicated. No one is sure what direction the Iraqi economy will take, al Diliny said. Some Iraqis are also reluctant to have too many dinars since the new government, whatever form it may take, will print new currency, and no one knows how easy it will be to swap the old dinars for new ones, he said.

One reason the dollar is losing ground here is that a flood of bills is pouring into the country, al Diliny said. The U.S. military is hiring Iraqi workers and paying them in American currency.

"Most of my customers are Iraqis who are paid in dollars," said Ali Iessa, the owner of the Fas Monetary Exchange near the center of Baghdad. "People are afraid of the price of dollars, so they are exchanging every day before it gets to 100 dinars."

No one knows when the ride will stop. As U.S.-led coalition forces struggle to restore even basic services, they also need to reform the monetary system, where the popular 250-dinar note still bears Saddam Hussein's face.

"We don't have a clear vision now of the future Iraq economy," al Diliny said. "With so many problems, things are moving slowly."

Like money markets everywhere, speculation can drive prices. In 1996, when rumors spread that the United Nations economic embargo against Iraq was about to be dropped, the dollar fell to 400 dinars. More recently, whispers that much of the money looted from Iraqi banks was marked and that U.S. soldiers were burning bundles of dinars sent the market into a frenzy.

But according the traders of al Kefaah, the powerful merchants who control the market are almost more important to the value of the dollar.

"They can affect the market by pumping a lot of dollars into it and bringing the price down or buying a lot and bringing it up," agreed Sabah M. al Najjar, the head of the University of Baghdad's industrial management program.

The dynamic market has caused the currency trading business to explode. New merchants say the business is easy to set up and easy to manipulate.

Fauzee Suood and his brother-in-law, Firaas Mohammed, set up shop under an oversized umbrella in the traffic circle surrounding Paradise Square last month. Now theirs is one of a dozen such currency exchange businesses there.

Suood said the two were partners in an auto parts shop before the war, but there's no demand for their products now. They went into currency trading, Suood said, because "it's the easiest way to make money" and it allows them to sit in the shade all day.

All an entrepreneur needs to get started is a bag of cash, a calculator and a scale to weigh bundles of dinars, and the al Kefaah market plays an outsize role in the fledgling industry.

With no telephone service, Iessa, the owner of the Fas exchange, sends representatives to al Kefaah as many as five times a day to learn the latest value of a dollar. Suood and his brother-in-law have a satellite phone, which means all they need to do is call someone who works near the open-air market to get the latest quote.

"Sometimes we lose, but we usually make money," Suood said.

But they're taking many chances to do so. Currency trading is an especially risky business in postwar Iraq.

Iessa and Suood carry guns, and Iessa said he and his partner bring at least four bodyguards with them when they visit al Kefaah, where the distinctive tat-tat-tat of automatic weapons is common. Shortly before 10 a.m. on Tuesday, gunfire echoed through the street but business continued. Even when the shots grew closer to the market's center, trading went on.

Some exchange merchants, such as Omer Abd al Mugeth, have gone even further to protect themselves. Owner of Taima'a Exchange in the Karadaa Kharege neighborhood, al Mugeth handles between $10,000 and $100,000 daily, making him a prime target. He keeps a handgun tucked in his waistband, and he's increased the number of employees from three to six. Most recently, he said, he's hired a sharpshooter who keeps a rifle trained on the front door of his shop.

His listeners were skeptical. To that, al Mugeth smiled slightly and pointed to the four-story building across the street. The street-level store was closed, and white curtains shrouded the six sets of glass doors on the floors above.

Except on closer look, it was clear that one door on the third floor was opened slightly, its white sheet gently stirring. Then a hand popped out, and the unseen marksman waved to his boss.

"I need security," al Mugeth said simply.


(Pompilio reports for The Philadelphia Inquirer.)


(c) 2003, Knight Ridder/Tribune Information Services.

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