Somalia PM intervenes over US money transfer closure

File photo shows an employee of Barakaat Bank of Somalia listening to a customer who was told that he cannot receive his money because the bank accounts were frozen by the US, in Mogadishu on November 10, 2001 (AFP Photo/Pedro Ugarte) (AFP/File)

Mogadishu (AFP) - Somalia said Sunday it was trying to prevent the closure of the main money transfer service from the United States, warning the move would have an "astronomical impact" on the war-torn country's economy.

The US-based Merchants Bank of California has said it will halt its services to money transfer companies, a decision aid groups say would stop up to 80 percent of the $200 million sent annually by relatives in the United States from reaching Somalia.

"I have personally spoken to the US government on this pressing issue and repeated my calls to US banks to reconsider their decision," Somalia's Prime Minister Omar Abdirashid Ali Sharmarke said.

With no formal banking system in the impoverished Horn of Africa nation, diaspora Somalis across the world turn to money transfer services to send money back home support their families, sending some $1.3 billion (1.1 billion euros) each year, dwarfing foreign aid.

They send money home via transfer businesses which can accept deposits abroad and immediately credit recipients. But banks have become increasingly reluctant to keep them as customers as regulators crack down on money laundering and the funding terrorism.

"I fully understand the limitations imposed on them by government regulations," the prime minister said, describing the transfers as a "vital humanitarian lifeline".

"Through good open negotiations, I will seek to appease their concerns and I will do everything in my power to find a permanent legitimate and transparent solution."

On Thursday aid agency Adeso said Somalia faced "devastating consequences" from the measures.

"Unfortunately, this decision comes at a time when nearly three quarters of a million Somalis are facing acute food insecurity, and we are likely to see that number rise if money transfer companies cannot remit funds," Adeso director Degan Ali said.

Somalia has been unstable since the collapse of Siad Barre's hardline regime in 1991, with the country's internationally-backed government, along with African Union forces, currently battling Al-Qaeda affiliated Shebab rebels.

Washington is a leading backer of the government.