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[casi] Bush Officials Devise a Broad Plan For Free-Market Economy in Iraq

Dear List Members,

This may have already appeared on the list, but I've finally managed to
track down the Wall Street Journal piece on the USAID document that was also
obtained by Greg Palast (and which I mentioned in a previous post).

Best wishes,


Bush Officials Devise a Broad Plan
For Free-Market Economy in Iraq

1st May 2003

WASHINGTON -- The Bush administration has drafted sweeping plans to remake
Iraq's economy in the U.S. image.

Hoping to establish a free-market economy in Iraq following the fall of
Saddam Hussein, the U.S. is calling for the privatization of state-owned
industries such as parts of the oil sector, forming a stock market complete
with electronic trading and fundamental tax reform.

Execution of the plan -- which is expected to be complicated and possibly
contentious -- will fall largely to private American contractors working
alongside a smaller team of U.S. officials. The initial plans are laid out
in a confidential 100-page U.S. contracting document titled "Moving The
Iraqi Economy From Recovery to Sustainable Growth." The consulting work
could be valued at as much as $70 million for the first year.

The U.S. Agency for International Development plans to award part of the
work to BearingPoint Inc., a Virginia-based consulting firm known previously
as KPMG Consulting, an AID official said. BearingPoint, which received a
similar $40 million job to do economic work in Afghanistan, was approached
as a sole-source bidder. AID plans to open the larger share of the work,
including privatization and small-enterprise development, to a limited pool
of competitors likely to include Booz Allen Hamilton Inc., Deloitte Touche
Tohmatsu and International Business Machines Corp.'s recently acquired
PricewaterhouseCoopers' consulting unit. Unlike some of the construction
companies that have won contracts, BearingPoint has made few political
contributions to either party in the past two years.

AID has been criticized by some in Congress for the secretive way it has
awarded other Iraq reconstruction contracts over the past two months. But
AID officials said these contracts will be awarded under the same expedited
rules to launch work as quickly as possible.

The document provides the most detailed look to date at the ways U.S.
officials contemplate restructuring an economy that had been almost entirely
government-run, and long mired in a slump aggravated by wars and
international sanctions. It is likely to intensify already-sharp
international criticism of Washington's unilateral actions in Iraq.

Treasury Department officials, who helped draft the document, maintain that
the plan reflects a broader vision for Iraq's future economy, and that not
all the goals will necessarily be followed. "Everything in there is
notional," one U.S. official said.

For many conservatives, Iraq is now the test case for whether the U.S. can
engender American-style free-market capitalism within the Arab world. In a
February address, President Bush spoke of "a new Arab charter that champions
internal reform, greater political participation, economic openness and free
trade." A new regime in Iraq, he said, "would serve as a dramatic and
inspiring example of freedom for other nations in the region."

On the economic side, the AID plan serves as a detailed road map for
achieving that end. The proposals for possible mass privatization of Iraqi
industry are likely to be the most controversial. The document -- first
drafted in February and circulated among financial consultants -- calls for
liquidating some insolvent Iraqi companies, while assessing others for
possible sale. Some state companies might be sold through "a broad-based
Mass Privatization Program," which could distribute ownership vouchers to
ordinary Iraqi citizens, similar to a program used in Russia in the

The document says that the contractors would help support "private sector
involvement in strategic sectors, including privatization, asset sales,
concessions, leases and management contracts, especially in the oil and
supporting industries" that dominate Iraq's business activity.

Any attempt at privatizing Iraq's oil industry, which controls the world's
second-largest petroleum reserves after Saudi Arabia, would be a gargantuan
business deal. It could be contentious, especially if assets wind up in the
hands of foreign oil companies. In the Mideast and Europe, there is a
widespread belief -- despite White House denials -- that the U.S. invaded
Iraq to get control of its oil.

According to the timetable in the documents, officials would spend a year
building a consensus for industry privatization, and then transfer assets
over the following three years.

The administration also envisions converting Iraq's rudimentary prewar stock
market, within a year, into a "world-class exchange" for trading the shares
of newly privatized companies. The work would entail developing a
centralized share registry as well as a new clearing and settlement system,
the document says. U.S. officials, working with the AID contractors, would
write rules for membership in the exchange and would train Iraqi
stockbrokers. The plans also call for forming a tough securities commission
to prevent abuses.

At the same time, the contractors would be designing by year's end "a
comprehensive income tax system consistent with current international
practice." They would be preparing regulations to impose a consumption tax.
The plan also envisions extending as much as $8 million in loans to small
and medium-size Iraqi businesses within the first year.

The AID contractor would help revamp Iraq's battered banking system by
working out problem loans. The traditional Islamic money-transfer system
would be incorporated into the banking system, the document says.

The Treasury Department has been careful in recent weeks in talking about a
possible new Iraqi currency, saying any decisions will be up to the Iraqi
people. The AID contract is less shy, stating that the contractor "is to
carry out an extremely rapid and thorough exchange of currencies" and to
collect and destroy the old bills -- all by July.

Under the consulting division of labor worked out by AID, BearingPoint will
be hired to do all of the regulatory and legal reform work with the Central
Bank and Iraq's various financial ministries. The contract will also entail
BearingPoint's taking over the distribution of cash to Iraqi civil servants,
now being handled by the Pentagon. The U.S. has so far shipped $20 million
in cash to Iraq.

The other, larger contract will handle privatization, modernizing of the
stock market, loans to smaller Iraqi enterprises and international-trade and
private sector development.

The plan makes scant mention of any involvement of multilateral
organizations such as the World Bank and the International Monetary Fund,
both key players in similar reform efforts in Russia and Eastern Europe.
Still, Bush administration officials have said they would welcome World Bank
and IMF help in Iraq, but how those would be reconciled with projects such
as the AID restructuring blueprint remains unclear.

"This will not be credible to the Iraqi people or anyone else if we try to
do it ourselves," said Edwin Truman, a former top international finance
official at the Federal Reserve who served in the Clinton administration's
Treasury Department. "The World Bank and the IMF have a lot more experience
and a lot more credibility in this than the U.S. government."

Other experts on post-communist reform efforts say it would be a mistake for
the Bush administration to stress swift privatization, a policy that met
with mixed success across the former Soviet bloc. In many countries, rapid
privatization of state-run enterprises led to sharp disruptions in jobs and
services, as well as rampant corruption.

Treasury Department officials caution that whoever is picked to perform the
jobs will work under the strict guidance of Bush administration officials --
some of whom are in Baghdad as part of an overall Pentagon-led
reconstruction effort -- as well as senior Iraqis.

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