* Governor seeks to shore up shaky recovery
* Islamists still pose threat to stability
* Commercial bank licences expected by end of 2013
* New Somali currency a possibility
By Edmund Blair
NAIROBI, May 17 (Reuters) - When Washington D.C. was in financial crisis in the 1990s, Somali-born Abdusalam Omer joined a team that turned its "junk" bonds into investment grade paper. Now, as governor of the Central Bank of Somalia, he wants to transform a "failed" state.
There is no escaping the scale of his new assignment. His office in Mogadishu is surrounded by the bombed out shells of former banks, symbols of Somalia's shattered economy and its broken financial system after two decades of conflict.
"We have to build brick by brick and person by person," Omer told Reuters by telephone from the smartly painted central bank, which stands out against nearby wrecks that once housed Banca di Roma, Commercial Bank of Somalia and other institutions.
"The task is so daunting," said Omer, 58, a dual Somali-U.S. national who left Somalia at 16 and returned this year.
But he is undeterred. Omer aims to issue licences to commercial banks by the year end, a new currency to replace the tattered Somali shilling may be on the cards and data is being gathered to build a picture of prices and other indicators to chart the informal economy that has emerged in the anarchy.
Omer's decision to take the central bank job is one more sign of a delicate recovery underway in the Horn of Africa nation since its new parliament elected President Hassan Sheikh Mohamud last year.
Success is not assured. Islamist al Shabaab militants continue to launch attacks from rural strongholds, clan divisions run deep and the government has limited control beyond Mogadishu's boundaries. But creating a new economic order is seen as vital to shoring up the shaky peace.
"The absence of commercial banks is a major hindrance ... to any reconstruction and development," said Omer, who as deputy chief financial officer helped balance the budget of the district government of cash-strapped Washington D.C.
The central bank is now offering "provisional licences" so commercial banks can prepare to comply with anti-money laundering rules and the other regulations that must be met when full licences are issued, which Omer plans for the last quarter of 2013.
"We want to do it methodically and right," said Omer, adding foreign banks were interested in licences but did not name them.
Yet years of chaos add complications to that careful approach. Dahabshiil, a Somali money transfer firm with an Islamic bank in Djibouti, already offers Islamic banking services in Somalia under a licence issued by a past regime, though its management says it will comply with any new code.
Dahabshiil is among several money transfer operations, telecoms firms and others that have survived and even thrived since the fall in 1991 of dictator Mohamed Siad Barre, whose Marxist-inspired rule gave way to anarchy under rival warlords and stringent codes imposed when Islamists militants took over.
"That informal economy is a robust economy," said Omer, who has previously said it was growing at 5 to 7 percent a year.
Indicating a growing confidence, Somalia's battered shilling has strengthened by about 80 percent in the past two years since Islamist militants were ejected from Mogadishu by an African peacekeeping force. It now trades at about 18,000 to the dollar.
But the well-thumbed and ragged notes are in short supply because they were last printed before 1991 and the biggest denomination is 1,000 shillings, worth about 5 U.S. cents.
A new currency could be on the way. "There is a unanimous understanding and agreement on the part of the Somali leadership that there is a need for a new currency and the central bank of Somalia will be working on that in due time," Omer said.
He did not give details, but the former World Bank employee who trained the Shanghai municipality on bond issues said he expected support on the issue from the International Monetary Fund, which in April formally recognised Somalia's government.
In the vacuum, many Somalis have relied on dollars and found innovative ways to work without a formal banking system. Mobile firm Hormuud lets clients make payments or transfers of a few U.S. cents by text message, vital when the smallest unit available in Somalia of the U.S. currency is a dollar bill.
"One of the problems in a dollarised economy is breaking down the one dollar," said Omer, adding this enterprising spirit needed to be harnessed as the formal economy was created.
As one of the first steps to that goal, the central bank is gathering data about inflation and other indicators needed for policy making. Next week, the bank issues its first economic report that will go up on its new website www.centralbank.so
"It might not be as useful as other reports around the world," said Omer. "But for us it is a giant step."
Other routine central bank activities, such as issuing treasury bills, are further off. Omer said debt sales were "at least 24 months" away. He also said it was too early to discuss the bank's reserves.
But in the meantime, he said there were other ways to repeat his Washington experience in his new post. "What would be considered a triple A bond for Somalia is ... to provide our people security and quality of life." (Editing by Richard Lough and Giles Elgood)