Proposing Iraq's economic future

26 September 2003
The announcement, approved by the Coalition Provisional Authority (CPA), the UN-recognised occupation body, and the CPA-appointed governing council, envisages a revolution in the structure of the Iraqi economy (see full text over).

Advocates of radical economic liberalisation greeted the statement with enthusiasm but there are worries that the measures could presage a free-for-all in the Iraqi economy and the sale of valuable national assets to foreigners. CPA administrator Paul Bremer issued a decree on 20 September saying the statement was now law, although the detailed implementing procedures for the foreign investment provisions are yet to be agreed.

The principal issue, however, is how relevant it is to foreign investors this autumn. The only saleable assets in Iraq are oil and gas reserves and land. These have been excluded initially from the open-door foreign investment initiative.

Foreigners can now buy all other assets, but the reality is that most, private and public, are dilapidated and overstaffed with under-trained and badly-paid employees. Selling them cheap to foreign investors or to local business people who acquired wealth under Saddam Hussein is almost certainly politically unacceptable.

The second issue is security. No large international business will even begin to contemplate investing in Iraq so long as the physical threat to foreigners is so tangible.

The statement is effectively a political declaration, probably targeted at US congress, which has been asked to approve a total of $20,000 million in aid for Iraq. This is the largest single foreign donation in American history. Controlled by ideological free-market Republicans, congress is more likely to vote for the package now that the new regime in Iraq has so clearly rejected socialism and protectionism and embraced the capitalist agenda.

The immediate practical issue for the government of Iraq is a shortage of money. Lower-than-expected oil exports mean that the CPA governing council administration is likely to have received significantly less than the $3,888 million in revenue projected in the budget for July-December 2003. Lacking reserves or any capacity to borrow, the governing council will rely on the early approval of the congressional aid package and generous and immediate cash injections from the donors' meeting at the Madrid conference on 24 October to deal with its cashflow problems. By the end of September, no country apart from the US had made firm aid commitments and there are fears the conference could produce disappointing results.

The following is the full text of a statement issued at the International Institute for Finance (IIF) conference in Dubai on 21 September by interim Iraqi Finance Minister Kamel al-Gailani:

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