Iraqi dinar getting facelift

DOHA, Qatar -- Amid toppled statues and paint-splattered murals, one image of Saddam Hussein endures in postwar Iraq: the stoic portrait of the former president in a suit and tie that graces pastel-colored bank notes.

But the so-called "Saddam dinar," which has lost half its value with the collapse of the Iraqi government, could soon go the way of the Confederate dollar.

Part of the U.S. reconstruction push is introducing a new Iraqi currency that -- officials hope -- will hold its value and undoubtedly be expunged of the mustachioed tyrant.

Establishing a stable currency is seen as key to rekindling Iraq's tattered economy and rebuilding a national identity. But many hurdles remain, including the lack of an Iraqi government and a general mistrust of anything other than U.S. greenbacks.

The dinar was officially pegged at a rate of 0.311 to the dollar. But it traded at around 2,500 to the dollar on the black market before the war, and has plummeted to 3,500 with the ousting of Saddam. Merchants that have opened shops are already jacking up prices to compensate for the currency's hollowed-out value.

Disgusted Iraqis have been known to tear up wads of the cash, as much in protest of Saddam's portrait as their sliding value.

As a stopgap, the United States flew in $20 million of its own currency last week to pay firefighters, police, electrical workers and other civil servants.

Public employees returning to work will get an "emergency payment" of $20 as early as next week, said an official at the Office of Reconstruction and Humanitarian Assistance, which is charged with revamping the Iraqi monetary system.

"The overriding priority is to get Iraq back to normal and to get people back to work," he said on condition of anonymity. "And to get people back to work, you have to pay them in some currency that has real value and purchasing power."

The cash injection comes from the $1.6 billion in Iraqi assets seized last month by President Bush.

In the long run, however, Washington wants the new Iraqi government to pick its own currency, much as Afghanistan adopted a new one after the fall of the Taliban, U.S. Treasury spokesman Taylor Griffin said.

Treasury officials are already consulting with the interim Iraqi administration led by retired Lt. Gen. Jay Garner on how to phase out dollars and phase in something new.

One complication, though, is that Iraq uses two local currencies.

The Saddam dinar is used in the southern and central parts of the country. But in the Kurdish-controlled north, people use the so-called Swiss dinar, an older currency bearing portraits of previous Iraqi leaders instead of Saddam.

The Swiss dinar, which takes its name from being printed in Switzerland, has held its value better and trades at around 6 dinars to the dollar.

Merging the two could fire regional rivalries.

In any case, a semblance of Iraqi government is crucial to getting any currency off the ground. With U.S. troops still encountering scattered resistance and electricity and food scarce, it could be weeks or months before that happens.

"They have their own country and the currency should reflect the will of the people. But the first step is setting up a government," said Bart Fisher, a trade specialist and secretary of the U.S.-Iraq Business Council, which is presenting a rebuilding plan to American officials this month.

Afghanistan's new afghani replaced three local currencies when it was launched in October 2002 -- but that came nearly a year after an interim government was set up.

Fisher emphasized the importance of any new currency having a relatively stable exchange rate. That will help attract much-needed investors because it assures that their investments won't drastically lose value over time.

He suggested pegging the new currency to the dollar or a basket of currencies but said it must be underpinned by sound fiscal and monetary policy.

Even before the war, devaluation was a problem for the dinar. Its strength was drained by a decade of sanctions imposed after the Iraqi invasion of Kuwait, spiraling foreign debt and tumbling oil revenues linked in part to a neglected infrastructure.

Compensating for the plunge, Saddam's government unveiled the first 10,000-dinar note just last year so people wouldn't need stacks of cash to go shopping.