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[casi] Chalabi heading "foreign investment"



August 28, 2003
THE OCCUPATION
U.S. Seeking Foreign Investment for Iraq
By RICHARD A. OPPEL Jr.
NY Times  http://tinyurl.com/liqf

BAGHDAD, Iraq, Aug. 27  American officials here are preparing an order that
for the first time in decades would pry open most Iraqi industries for
foreign investment, opening a new lifeline for an economy starved of capital
during Saddam Hussein's government.

The proposal, outlined in a memo by the top American civilian administrator
here, L. Paul Bremer III, and circulated among the Iraqi Governing Council,
is a step toward creating a relatively open economy in a region long
protective of its domestic markets.

Aware of those sensitivities, the proposal excludes railroads, oil and
natural resources, electricity, and water and sewage  areas that are either
linked to national security or that might inflame national resentment if
opened to foreigners. [????]

The proposal would also permit foreign investors to take their profits out
of the country, with no requirement to reinvest the money here. [????]

A number of Iraqi political leaders, while supporting the proposal in
concept, have raised concerns that it would create an uneven playing field
for Iraqi business owners. They fear that it would allow foreign businesses
with access to capital and credit to set up shop in Iraq while doing nothing
to help Iraqi entrepreneurs obtain the financing that could allow them to
compete against new entrants.

In particular, some members of the Governing Council say they expect Arab
retailers from nearby Persian Gulf states to take advantage of the new rules
early on, arriving with the money to finance nicer stores and bigger
inventories than Iraqi shop owners, who have little or no access to credit.
Other major industries in Iraq not exempted from the new proposal include
food and agriculture, manufacturing  including state-run enterprises  and
service businesses.

The proposal also cuts strongly against the grain of the socialist economic
dogma that dominated Iraq for decades.

"Many on the Council have not overcome their fears about the need for
protection," said Ahmad Chalabi, [?????[ the Council member who is
coordinating a committee studying the proposal.   "The culture of the Iraqis
has been a culture of fear that foreigners would take advantage of the
country."

But American officials say the step is an important one to rebuild Iraq and,
in effect, democratize the economy.

In the memo outlining the proposal, Mr. Bremer said that foreign investment
would create more jobs  with larger paychecks  and introduce valuable
technologies to the country. He also said he believed it would reduce the
economic influence of wealthy businessmen allied with the Baath Party who
profited from their ties to the Hussein government. Currently, those people
control disproportionately large pools of capital, he said.

Mr. Bremer wrote in the memo that the "future prosperity" of Iraq would
depend in part on how successfully it could attract foreign investors.

While the new rules may shape the Iraqi economy in the years to come, for
now, practical decisions about investment are likely to be driven by the
country's unstable security situation. In addition to attacks on American
troops here, the rise of terrorism in Baghdad in the past month  including
a bomb that killed 17 people at the Jordanian Embassy and a truck bomb that
killed 23 at the United Nations compound  has also unsettled Westerners
here.

Would-be foreign investors occasionally get a personal glimpse of the
country's security problems when they arrive: armed robberies are common on
the main road from Amman, Jordan, to Baghdad, as bandits armed with
Kalashnikov rifles routinely hold up convoys of arriving and departing
Westerners.

When Mr. Hussein was in power, investment by non-Arab foreigners was
effectively barred both by the Iraqi government and by the international
sanctions that followed the Persian Gulf war of 1991.

Arab investors were allowed only a minority stake in a business, people who
have studied the laws said. The United Nations Conference on Trade and
Development said $2.8 million in foreign direct investment flowed out of
Iraq from 1997 to 2001.

All of Iraq's neighbors enjoyed positive investment flows during the same
period, the conference said, including Turkey, which saw foreign direct
investment of $6.78 billion, and Saudi Arabia, with $4.69 billion. But those
numbers pale when compared with some much smaller Western countries. In
Ireland, for example, foreign investment of more than $60 billion flowed
into the country during the same five-year period.

Even though Mr. Bremer's proposal would end years of state ownership and
closed markets, it still called for significant restrictions. In addition to
barring investment in a handful of critical industries, the occupation
authority and a panel of Iraqi leaders would have 60 days to reject any
foreign investment of $40 million or more if they believed it threatened
national security or if the investor had a "history of unlawful behavior."

An investment of that size also could be rejected for other reasons,
including a determination that the foreign company or investor had not
demonstrated "how the project will affect national goals such as employment
creation, the development of national infrastructure, and technology
transfer, as well as the impact on the environment."

Mr. Chalabi said some on the Council wanted other changes, including a
mechanism for Iraqi businesses to obtain financing, which for most of them
was nonexistent, so they could compete against well-financed businesses from
abroad. Mr. Chalabi said the top American economic adviser in Iraq, Peter
McPherson, met with a committee of Governing Council members on Monday and
was "very amenable" to putting together a program to extend loans to Iraqi
business owners.

Council members are pushing for other modifications, including restrictions
on foreign investments that do not lead to the creation of jobs, such as the
speculative buying and holding of land in the hope of profiting from a rise
in values.

An official with the Coalition Provisional Authority, the civil
administration led by the United States, said that the concerns about
extending credit to Iraqi businessmen, and the rules for distinguishing
between speculative and job-creating investments had been discussed among
occupation officials and Council members. The concerns of the Iraqi Council
members "were well taken and well understood," the official said.

Some on the Council also want more certainty that people who profited under
the old government would not do the same under the proposed rules.

"We welcome foreign investment, that is for sure," said Adil Abdul Mahdi,
senior adviser to Abdul Aziz al-Hakim, an influential Shiite member of the
Council. "But we have to be sure there is no return of Baathist money," he
said. "Many offshore companies have been created by ex-regime people," he
said. He said he feared they could take advantage of open investment laws.

Mr. Mahdi also said the proposal should not leave poorly financed Iraqi
business owners competing against well-financed foreigners. "We have to be
sure we are really defending the interests of the Iraqi people," he said.




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