ANDREA SEABROOK, host:
At the beginning of this year, the government of Iraq's central bank issued a report predicting major economic progress, but there's been little of it. Oil production has remained stagnant. Inflation is up 70 percent. Unemployment is about 35 percent, and the country's banking sector has been crippled by the lack of security. NPR's Anne Garrels has this report.
ANNE GARRELS: Last week, bombs exploded near the agricultural bank. Last month, the director of the United Investment Bank was shot. Armed men burst into the al Kuliff(ph) State Bank, kidnapping four employees. Nafia Elias Abu(ph) is the director of North Bank, one of the new private banks that opened with great optimism after the fall of Saddam. He says many bank directors have now fled the country.
Mr. NAFIA ELIAS ABU (Director, North Bank): They put their life in physical danger. The best thing to run away anyway. We have to pray a lot every day and to take in consideration any possibility, as you know.
GARRELS: Bank robberies are common. So most private banks try to avoid using armored vans, tossing cash into the back seat of a car.
Mr. ABU: Put it in normal car, not to give attention to that, this is a money car or this is something like that.
GARRELS: Because of the high risk of robberies, the banks have lost most of their insurance. Because of lax management there is still no agreement on depositor insurance. Sinan Al-Shibibi, the governor of Iraq's Central Bank, is as refined and educated as his environment is crazy. He travels in a heavily armed convoy because of threats. But he clings to hope.
Mr. SINAN AL-SHIBIBI (Governor, Central Bank): Iraq is very well situated and very well located, actually, to be a model for developing countries, not only for Arab countries. And it is the only country where you have, actually, human and natural resources.
GARRELS: His father was one of the founders of the Iraqi state in the '20s. Forced into exile by Saddam in 1981, Shibibi was only able to return 23 years later, after Saddam was ousted. With skills he develop in the West, he successfully negotiated debt relief and loans for the country, which has always remained his homeland.
(Soundbite of Baghdad Stock Exchange)
GARRELS: At Baghdad's stock exchange most of the trading is in bank stocks and securities, not industry and agricultural. This kind of financial activity doesn't generate jobs. And jobs, says Shibibi, are needed to lure people away from militias and insurgents.
Mr. SHIBIBI: We would like, actually, the banks to operate in furthering reconstruction and development, not to work in the financial sector alone. We would like eventually the banks to go to a real sector and finance house loans, finance trade, finance investment.
GARRELS: But because of the high rate of defaults, banks are leery of lending and interest rates are sky high. Shibibi says there's also a lack of trust in the banks themselves because there have been problems with payments. So Iraqis still prefer to deal in cash, even when tens of thousands of dollars and the risk of robbery are involved.
Mr. SHIBIBI: People don't want, actually, to divulge that they were selling a house or something like that, because I mean a robber or a thief might discover that they get a lot of money, and of course they're being watched.
GARRELS: Credit cards have been issued here, but not one store accepts them. Employers have to make payrolls in cash.
This dependence on cash has been a nightmare for U.S. officers trying to build the new Iraqi army. At any one time, units already short of men are down another 25% because soldiers get a week's leave every month to go home with their pay. Central Bank governor Shibibi attributes many of Iraq's current problems to the years of isolation and repression. As bad as it is now, he's not ready to go into exile again.
Mr. SHABIBI: I'm sure people will come to their senses and realize that, look, I mean there is a lot of potential we are losing by the day by continuing this route.
GARRELS: For him the tragedy of Iraq is particularly poignant because with such great potential the losses he sees every day are also enormous.
Anne Garrels, NPR News, Baghdad. Transcript provided by NPR, Copyright NPR.
