Disaster Of Us Economic Policy In Iraq

The Disaster of US Economic Policy in Iraq

An informed observer of the Iraq scene writes:

‘ For most constructive purposes, it is not worth adding controversy over the Bush Administration’s economic policy in Iraq and early plans to privatize the economy, including the oil industry. Until after there is an elected constitutional government, there can be little structural change in the Iraqi economy. That will not happen until next year at the earliest. This has been the case from the outset. It is the law, which may not be written specifically on one applicable piece of paper, but exists in a powerful and ineluctable way.

There could, and should, have been a variation of the WPA and other similar programs from the beginning. Few in the CPA would have known how to devise and implement programs of that type, even if they could have ideologically kept in mind and implemented them at the same time. Instead, little or nothing was, and has been even now, done to reduce unemployment, except for fewer than 200,000 in the security forces and relatively insignicant, in the context of the whole, USAID-financed small construction projects, however valuable they have been to those who directly benefited. No one knows what the actual level of unemployment is, but it is a good guess or estimate that it was and is in 7 figures.

Free markets require law and order and the rule of law. The US Government has not yet managed to achieve those necessary conditions for free markets or privatization or even, in some places in Iraq, for more than semi-primitive commerce.

The combination of the absence of the establishment of law and order and the illegal (4th Geneva Convention and other applicable law and legal principles) abolition by the CPA, early in its administration, of all import tariffs and controls, according to a recent report in Azzaman – English, has – predictably – resulted in 33,000 non-state-owned businesses being more or less idle, and, again, predictably, has largely destroyed, for the moment, whatever private sector there was in Iraq outside of Kurdistan.

Meanwhile, little was and has been done to professionalize and develop the state-owned enterprises, which is a prerequisite for privatization, for, without that additional necessary condition, they could only be privatized in a distress sale, bringing little or no revenue to the government.

There is now a consensus that the Bush Administration made “mistakes” in its post-invasion administration of Iraq. Principal focus rightly has been on the security front, and also the political process. Yet it would seem obvious that its economic policies have had, and continue to have, effects in both arenas. The effects of the economic policy mix, implemented in varying incomplete ways, will take a long time to fix. And, because the elected constitional government probably, to a significant extent, will be a coalition parliamentary government, it might not be efficient from an economic policy or administration (business) point of view, let alone there being a consensus with respect to economic structural change.

While a few Iraqis (and a few foreigners) have been made rich, which probably continues, there being $ billions at play, at the present time, on the basis of per capita GDP, Iraq is a relatively poor country, notwithstanding the oil in the ground. Roughly put, but concretely indicative, at a now notional $50 per barrel (some of Iraq’s oil is sour, and there is on the order of a $5 per barrel discount), exports of 1.5 million barrels per day, and a population of, say, 25 million, that price represents $3 per Iraqi person per day. While the Dinar goes farther in Iraq than the Dollar in America, that does not represent significant wealth and, among other things, if the savings and investment that will be required even to reconstruct and develop Iraq to where it was a decade ago (adjusted to the present) are taken into account, that roughly-computed amount can be characterized as “peanuts.”

Iraq could remain a relatively poor country for some time. An opportunity was lost. ‘