IRAQ - Oct. 23 - Iraq Bank Chief Points To Licences For Six Foreign Banks.

Iraq's central bank governor, Sinan al-Shabibi says six foreign banks will be licensed to operate in Iraq within the next five years but two will be put on a fast track to assist in the country's reconstruction. Speaking to the FT on the sidelines of the Iraq donors reconstruction conference, he also says he was preparing for negotiations on Iraq's debt, which he estimated at around $120bn (102bn, [pounds sterling]71bn), though resolution of the issue at the Paris Club has been postponed until next year. Members of the US-appointed IGC and of the Iraqi cabinet tried hard to sell Iraq to donors and investors by highlighting that the country was being developed as the most open business environment in the Middle East. Most sectors have been fully opened to outside investment, provoking angry reactions from some Iraqis. Al-Shabibi, however, told potential private sector investors that the banking sector would be gradually privatised. "The banking sector is prone to crisis during a transition to the private sector," he said, adding that banks applying for licences should put up a minimum capital of $25m and concentrate on high-technology and e-banking services. In a brief interview earlier, he said a decision had been taken to issue licences quickly to only two banks and insisted that the move should not suggest any favouritism towards any financial institution. Proposals would have to be submitted and evaluated, he said. A list of companies attending a parallel private sector conference included Citigroup and several European banks. The need for greater political and physical security overshadowed the appeal for funds in Madrid on Oct. 23. But the message of Iraqi officials was that starting the reconstruction process was vital to improving security. "A lot of security problems have to do with unemployment," says al-Shabibi. "Companies don't have to wait until conditions of security exist. They have to contribute to bringing the security". For the Iraqi delegation, the stakes at Madrid are much higher than raising grants and boosting interest in investing. Facing concerns over the lack of legitimacy of the IGC and the risks involved in agreeing contracts with an unelected body, Iraqi officials said it was through a strong presence at such conferences that they sought to wrest international recognition. Several members of the Council have been shuttling between various capitals. "We want to engage politically with the world," says this month's Pres. of the IGC,Iyyad Allawi, in an interview. "When we went to the summit of the Islamic Conference last week the atmosphere was quite negative, but after a few days it changed in the favour of Iraq. People are treating the Council as legitimate". The conference, moreover, was about getting bridging funds until the economy gets on its feet as well as a way to set the scene for renegotiating Iraq's debt. "Some of the debts are genuine, others are not. Some money given to Saddam [Hussein] we do not acknowledge," said Mr Allawi. Another official, speaking on condition of anonymity, said envoys would be sent to neighbouring countries to negotiate a return of funds that belonged to the ousted regime of Saddam Hussein. The US has been pressing Syria in particular to give back billions of dollars it believes now belong to the Governing Council. Other funds are held in Lebanon and Jordan. The Iraqi delegation, made up of officials from various parties and political leanings who often contradict each other, put on a united show today. But once the funds are raised, the Iraqis' dilemma will be to find a coherent and transparent mechanism to implement projects.