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[casi-analysis] casi-news digest, Vol 1 #27 - 1 msg

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Today's Topics:

   1. Free market changes in Iraq economy (k hanly)


Message: 1
From: "k hanly" <>
To: "newsclippings" <>
Subject: Free market changes in Iraq economy
Date: Wed, 11 Feb 2004 19:29:08 -0600

U.S. On Track for Market Economy

Emad Mekay

WASHINGTON, Feb 11 (IPS) - The United States is reporting success in
installing a free-market economy in Iraq but the changes have not improved
the lives of most Iraqis, many of whom remain unemployed and without basic
services, according to one expert.

"Iraq is making tangible progress towards the establishment of an open,
robust market economy," said John B. Taylor, undersecretary of international
affairs at the U.S. Treasury Department, on Wednesday.

Taylor, who was testifying before the Senate Banking, Housing and Urban
Affairs Committee, painted a positive portrait of Iraq's U.S.-fuelled march
towards free market economic rules.

The official said there have been "many significant, positive developments"
since the Coalition Provisional Authority (CPA), the top power in the
occupied country, and the U.S.-appointed Iraqi Governing Council launched
the supervised economic programme.

Its aim was to replace the formally protected and socialist economy that
operated under the regime of former president Saddam Hussein.

Topping the list of accomplishments is the imminent arrival of three foreign
banks in Iraq, a wider playing field for local banks and the "
liberalisation" of interest rates.

But an economic expert who monitors the economy in the capital Baghdad told
IPS that the U.S. picture is exaggerated and that the majority of Iraqis
have seen little benefits so far from the changes.

"Alongside the positive things that have taken place, there are other
negative things," said Essam al-Khafaji, director of Iraqi Revenue Watch, an
initiative of the Open Society Institute, which is chaired by leading U.S.
financier George Soros.

Al-Khafaji said that many recent changes to economic laws were imposed
without consulting Iraqis and were carried out "in a very premature way".

"Many radically new sweeping changes, for example the law on foreign
investment, Iraqis were not allowed to review it. They were not given the
chance to even look at it before it was passed," he added.

Despite the exclusion of Iraqis in designing their new economy, the
country's Central Bank Governor Sinan Shabibi and Finance Minister Kamel
Gailani told a meeting of the G-7 finance ministers in Florida State last
weekend that that they are fully committed to a "private sector-led market

The Iraqi officials outlined their priorities as working towards "openness
and transparency of Iraq's institutions", and creating strong incentives for
private-sector development.

They also said they were working toward close economic and financial
integration with the international community.

On the ground, the CPA and the governing council are moving ahead. The
U.S.-appointed council has selected three foreign banks to receive licences
to operate in Iraq, introduced a plan to liberalise interest rates by Mar. 1
and will soon pass a new Central Bank law.

Taylor reported that interest rates on all domestic financial instruments --
loans, deposits and securities -- will be fully liberalised.

"This measure is an important step in the direction of creating a modern,
efficient financial sector, because it will enable lenders and borrowers to
make their own decisions rather than having them determined by fiat and
top-down directives issued by the Central Bank," he added.

The CPA has taken other steps to give private banks in Iraq a leg-up.

Under Saddam's regime, private banks controlled less than eight percent of
total banking assets and used antiquated technology. But under a new banking
law, they are permitted to offer new services to their clients.

According to the U.S. Treasury, already 10 banks are receiving international
payments and remittances, and issuing letters of credit.

With 143 functioning branches of those banks, international payments and
remittances are now estimated at more than five million dollars a day into
Iraq, an influx of funds that Washington hopes will play a major role in
funding investment and consumption..

The United States is also opening the doors wide to foreign banks. The CPA
says its new law will permit up to six foreign banks to enter the Iraqi
market over the next four years, a definite departure from the previous
regime, which allowed only Arab banks to operate in Iraq.

Baghdad has to date received 15 applications from banks wanting a foreign
bank license. On Jan. 31 Shabibi said that Hong Kong Shanghai Banking
Corporation, the National Bank of Kuwait and U.K.-based Standard Chartered
Bank will be given licenses by mid-March.

The Kuwait bank has already said it plans to buy 85 percent of one of Iraq's
private banks.

Taylor has announced plans to substantially overhaul the management,
organisation, personnel and other systems at the state-owned banks,
including Iraq's two large state-owned commercial banks, Rafidain and

Washington has also opened the door to the new Trade Bank of Iraq, a credit
bank designed to lubricate the imports and exports needed to support the
country's economic re-orientation.

The Trade Bank, which opened in December, has issued over 200 letters of
credit worth 190 million dollars to most government ministries and several
state-owned enterprises.

Al-Khafaji, whose programme is among very few that monitors the Iraqi
economy, said these changes, while having some positive aspects, have also
created layers of corruption and financial abuse.

"It's creating riches, in a crony way, I have to say," he said. "We haven't
unfortunately departed from the old pattern where people used their personal
ties, etc, in order to enrich themselves. Old sharks from the old regime are
taking advantage of what's going on".

For example, there was an uproar when the governing council chose to give a
mobile phone licence to a company that includes the son of a close associate
of Ahmed Chalabi, the governing council strongman.

Anger also erupted when the council decided that all major industries,
except oil, would be open for 100-percent foreign ownership. Local
businessmen complained it was a giveaway of the country's wealth to U.S. and
other non-Iraqi companies.

But Washington says the reforms will help to create wealth that will
eventually seep down to all Iraqis.

The Treasury says it has managed to persuade some foreign governments to
transfer assets of the former Iraqi regime back to Iraq. To date, more than
10 countries have transferred about 650 million dollars in such assets to
the Development Fund for Iraq, it adds.

Washington has also recorded partial success in reducing Iraq's
international debt burden.

Current estimates put that debt at around 120 billion dollars. 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

Non-Paris Club governments, chiefly the Arab Gulf States, and private
creditors, hold the rest.

Iraq has suffered under a damaging dictatorship and for the past 12 years
under international sanctions fuelled primarily by the United States and
Britain, now the nation's two main occupying forces.

But al-Khafaji said that all of the economic changes are yet to leave a mark
on unemployment rates and on basic services, the two most pressing issues
for Iraqis now.

"The unemployed, who form some 50 percent of the total labour force, which
is a huge, huge proportion, cannot see the changes. Those who are already
workers see positive changes," he said.

"The number one problem remains basic services, which are not moving ahead
in a way that's proportionate to the amount of resources committed to that
... to be very fair, the outcome is very mixed to say the least." (END/2004)

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