The Economist's Country Briefing: "Iraq: Economic turmoil"

[Colin Rowat <cir20@DELETETHIScus.cam.ac.uk>]

In addition to the editorial and article run by the Economist on Friday,
it linked to an economic survey prepared by the Economic Intelligence
Unit.  This provides a more sombre assessment than the offhand remark
in the editorial that

        Saddam Hussein ... could return his country to respectability
        tomorrow if he wished, and to relative prosperity the day after.

I attach the survey below.

Colin Rowat

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Iraq: Economic turmoil
8 Mar 2000
http://www.eiu.com/latest/311792.asp

               COUNTRY BRIEFING
               FROM THE ECONOMIST INTELLIGENCE UNIT

Quantifying, and hence conceptualising the Iraqi economy, is difficult. It
is now almost a decade since the Iraqi government produced comprehensive
national accounts. Even these were flawed, owing both to a wide margin of
error and manipulation for political reasons. Indeed, it must be
remembered that Baghdad had only just returned to the publication of
regular figures following the eight-year war with Iran. Description and
analysis of the Iraqi economy, let alone forecasting its performance, is
therefore an inexact science. 

The country has experienced 20 years of destruction, with successive
external shocks compounding those which have gone before. The economy and
society have suffered terribly from the war against Iran, the intensive,
US-led aerial attacks of early 1991, and the decade of international
sanctions and isolation which have followed this. The industrial sector
has contracted, while educational standards have collapsed. Today, the
Iraqi economy is based predominantly on agriculture and smuggling
(underpinned by oil revenue), neither of which provide an auspicious base
for recovery. 

The problems that have beset the economy over the past two decades will
persist well into the future, almost regardless of the political and
economic policy stance adopted.  Once sanctions are lifted, Iraq will have
to undertake a reconstruction effort conservatively estimated at $50bn-
100bn just for essential infrastructural utilities, from a GDP base,
which, even including the grey and black economies, is less than $13bn in
nominal terms. 

External debt is another burden which is likely to plague the country for
years to come. If the money borrowed from the Gulf states during the war
with Iran is included in calculations, Iraq owes the world roughly $130bn.
International humanitarian concern will probably see much of this written
off or rescheduled, but with a long history of being unable or unwilling
to service its debt, it will be enormously difficult for Iraq to borrow on
the international capital markets. It follows that outside of the
lucrative hydrocarbons sector, it will be extremely difficult for Iraq to
attract substantial foreign investment. The country will therefore be even
more reliant on its oil industry for foreign currency earnings than in the
past. 

Looking to the more immediate future, improvements to the oil-for-food
formula should benefit the Iraqi economy, while the outlook for
international crude oil prices is also benign.  However, this will only
help to bolster a basic safety welfare net, rather than herald a return to
normality. To achieve the latter, sanctions will have to come to an end. 
The current pattern is of a whittling away of the sanctions regime, and we
expect this to continue over the next five years. The US is now less
concerned with Iraq than it has been for a number of years; however, it
will want to see some serious concessions from Iraq over international
inspections of its prohibited weapons before it will contemplate a full
lifting of sanctions. On balance, we continue to believe that these
concessions will not be forthcoming while Saddam Hussein remains as
president. 

               SOURCE: Country Forecast

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