Baghdad is right to issue bonds

The Iraqi government of Nouri al-Maliki has enjoyed a huge upswing in its authority in the past 12 months.

Since the Charge of the Knights campaign in March last year when, backed by US and UK troops, Iraqi security forces routed Sadrist militias in Basra, the government has steadily taken control of the security situation.

Public confidence in the administration has swelled, albeit from a very low base in Sunni and Kurdish areas.

However, the government's ability to capitalise on this period of relative calm has been hampered by the collapse in oil prices which has enforced deep cuts to public spending this year.

Against this backdrop, the $3bn government bond issue to finance major power, transport and water projects which is under discussion is an encouraging sign for those at home and abroad seeking evidence that Iraq is about to stand on its own two feet.

Moreover it comes hard on the heels of the $66bn investment programme using future oil revenues as collateral revealed by MEED in May.

The one-year bond issue is a cautious step but, as international observers point out, Iraq is not used to issuing internal debt in the post-Saddam era. Caution is understandable at this early stage.

More importantly, it is encouraging that at a time when Iraq cannot rely on a steady stream of oil dollars, the government is taking the initiative to diversify the public finances and maintain short-term funding for critical infrastructure projects.

With its vast oil reserves, Iraq has long-term collateral to set against any borrowing, but the administration needs to show it can support its people today.

The government has shown that with support it can defeat armed opponents. With this borrowing programme, it is beginning to show it can maintain the peace.