Instability keeps Iraqi savings in property - or under mattress
By Aseel Kami
BAGHDAD (Reuters) - When a recent lecture for a group of Baghdad university students started with the question, "What is the Iraq Stock Exchange?", only one young participant put up her hand to respond, and got the answer wrong.
Last month's scene at the headquarters of the Baghdad bourse revealed the struggle which Iraq faces to modernize its financial system: it must overcome primitive, ultra-conservative savings habits born of decades of war and political instability.
Thanks to a partial improvement of security and an oil boom, Iraqis' average incomes are rising sharply, and they are able to save more. But many of these savings are not being channeled into the stock market, where they could earn returns, or even into bank deposits, where they could be lent on to companies for fresh investment.
Instead, they are going into real estate, where a large proportion of the money becomes tied up unproductively, or being hidden in people's homes in the form of cash - sometimes hard currencies such as U.S. dollars - or jewellery.
"Other countries have political and security stability but we do not," said local economist Majid al-Souri. "So people tend to put their money under the pillow."
Iraq's economy grew about 8 percent last year and is projected to exceed that performance in the next five years, the International Monetary Fund says.
Such growth is supporting a big, if uneven, rise of incomes. Since the U.S.-led invasion that ousted Saddam Hussein in 2003, Iraqi government salaries have jumped from the equivalent of a few U.S. dollars a month to a minimum of around $200 - though some of that increase is due to appreciation of the local currency against the dollar. Government figures show the per capita annual income in Iraq is now about $4,000. Continued...