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Occupied Arab World

Iraq's economy crippled by heavy debt and foreign hegemony

Mustafa Jalal

On June 28, after a hurried transfer of power to a few Iraqi cronies, Paul Bremer, who used to be the undisputed ruler of Iraq, boarded a military airplane without even waiting to receive John Negroponte, the newly appointed American ambassador to Iraq. Bremer left, but his legacy did not. This legacy will no doubt influence the policies of the transitional Iraqi government. That, in turn, is one of the institutions established by Bremer, whose job it was to perpetuate the US' s priorities and policies in Iraq.

A barrage of binding decrees was passed during the US occupation; combined with a lack of resources, hefty debts and the continuing presence of a large US force, they mean that the recent handover of authority to Iraqis cannot equal real control over their economy. Bremer has said that one of his biggest achievements is to transform Iraq into a market-based economy, with lower tax-rates and import duties, and more liberal foreign-investment laws.

The Privatization Act is among many laws that were not properly debated because of poor security and an unhealthy political atmosphere that shielded these laws from the media and from Iraqi public opinion. This law was passed in Iraq in August 2003. It was basically made to help foreign companies to pillage Iraq and control Iraq's vital interests and resources. Should we recall what took place last year, we will find that the most important conferences related to Iraq's reconstruction contracts were held abroad, mostly to keep the Iraqi media away. Privatization in Iraq is in dire need of field research before being finalized and implemented. However, the Privatization Act was made, like other pieces of legislation, well away from the Iraqis, as if they do not concern them. The market economy requires taxation, so another tax code was passed while the Iraqis' per capita income failed to improve under the harsh post-invasion unemployment conditions. Local newspapers reported the loss of US $20 billion from oil-export proceeds under the occupation, beside other plunders and blunders. The excuse is always poor security conditions, while the real issue is US-dictated policies.

In May last year, Bremer declared Iraq "open for business", and after that the Coalition Provisional Authority (CPA) promoted major changes in Iraq's regulatory and legal frameworks, entered into long-term contracts, and appointed oversight committees with many-year terms. As a result, Iraq's economy is set on a path that the Iraqis will find very hard to alter.

A report by the progressive Institute of Policy Studies estimates that Bremer has passed nearly 100 orders that give US corporations a "virtual free rein over the Iraqi economy while largely excluding Iraqis from reconstruction efforts which have failed to provide for their basic needs". Iraqis have had little influence on decisions about changes imposed by the authority, the report said. Most of the benefits of the contracts signed under the occupation also go to US companies, which also seem to have secured future maintenance and reconstruction contracts in several enormous capital-intensive infrastructure projects.

A recent report by the Open Society Institute's (OSI) programme to monitor Iraq's reconstruction says that the US-controlled CPA was engaged in a last-minute spending spree, committing billions of dollars to "ill-conceived projects just before it dissolves", in an apparent attempt to pre-impose those deals on any future Iraqi government. The US-controlled Program Review Board, the body in charge of managing Iraq's finances, approved the expenditure of nearly two billion dollars in Iraqi funds in a single meeting.

With so much money available, and so little planning on how the process will work, it will be all but impossible to avoid corruption and waste, Svetlana Tsalik, director of the Iraq Revenue Watch at the OSI, has said. She also says that in this way the new government is left with far less money to spend than the CPA, even including the $20 billion collected for the Development Fund for Iraq (DFI), authorized by the UN Security Council last May to safeguard Iraq's oil-revenues and other monies earmarked for reconstruction. Tsalik found that, all in all, the fund collected $20 billion: by the time the CPA leaves, there will be less than $3 billion left. So although the government will have formal control over its economy, in actual fact it will have few resources with which to exert this control.

The UN Security Council's latest resolution on Iraq, passed on June 8, requires the new government to satisfy all outstanding obligations against the DFI made before June 30, leaving the new Iraqi government with no choice but to honor the Program Review Board's expenditures.

Iraq Revenue Watch also says that the occupation has left the Iraqis burdened with the legacy of hundreds of US "experts and advisors", who work in all of Iraq's 29 ministries and in other government agencies. These advisors wielded enormous influence over decisions taken before the nominal handover of political power. They are expected to maintain their influence on future economic decisions. "Under the coalition they were indeed very powerful and most of the decision-making within the ministries came from them," Tsalik said. These advisors will remain within the ministries, although it is hard to say how much power they will have. It may not be an official power but an unofficial one, stemming from the fact that the US still has more than 140,000 soldiers in Iraq.

Iraq's control over its economy is also diluted in another way. International financial institutions, which have often been used by Washington to influence policies, will start working there soon. Iraq's already huge debts and its plans to take out more loans for reconstruction are likely to subjugate the country to further stringent terms and conditions by the International Monetary Fund (IMF) and the World Bank, which are notorious for taking control of economies of borrowing nations. Current estimates put Iraq's debt at around $120 billion. Members of the Paris Club, which includes 19 of the world's wealthiest nations, are owed roughly $40 billion: $21 billion in principal, and the remainder in late interest. Non-Paris-Club governments and private creditors hold the rest.

Recently the World Bank said that it recognizes Iraq's new interim government as legitimate: this opens the door for new lending to Iraq's government. The IMF has previously signaled its willingness to resume lending in the second half of this year. "Iraq will be very dependent on international aid," said Tsalik. "It also has a lot of debt and it remains to be seen whether that will be forgiven. So... it may not have a lot of alternatives to saying 'yes' to the IMF and the World Bank."

Juan Cole, an expert on Iraq at the University of Michigan, sees limited sovereignty for the Iraqis from another perspective. He says that John Negroponte, the new US ambassador to Iraq, will maintain control over some $18.3 billion in US aid to Iraq. "The caretaker government is hedged around by American power," Cole writes on his online blog; "Negroponte will control $18 billion in US aid to Iraq. Defense Secretary Rumsfeld will go on controlling the US and coalition military. There isn't much space left for real Iraqi sovereignty in all that."

Dr Ali Jawad, an Iraqi political analyst, predicts that sovereignty will be nominal as long as the decrees and legislations introduced by Paul Bremer are in force. He doubts the viability of the national reconciliation initiative called for by Dr Ayad Allawi, the prime minister, as part of a programme to consider the "great discord and pain" that resulted from the dissolution of the armed and police forces, security apparatus and the ministry of information, beside the Ba‘ath Party eradication programme; thousands of Iraqi university professors left Iraq after several hundred scholars, physicians and scientists were assassinated on suspicion of affiliation with the Ba‘ath Party.

Ambassador Bremer may have departed, but the concrete barriers and barbed wires remain. Also still there are the warning signs around the American military posts that prohibit approaching, stopping, or calling via mobile phones, and state that the military force is authorized to shoot and kill. Some local newspapers reported that Bremer fell in love with an Iraqi woman, who joined him in Amman so they could travel together to the US. Whether or not that is true, his legacy certainly remains prominent in Iraq . For some tyrants it matters not whether they are asleep or awake, present or absent: their tyranny and exploitation go on regardless.

Article from

Crescent International Vol. 33, No. 7

Rajab 16, 14252004-09-01

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