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[casi] Big Bucks in Iraq

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(bolded sections added by Rania Masri)

Big Bucks in Iraq


[from the November 10, 2003 issue of The Nation] .

In early October, Iraq's US-appointed Governing Council awarded the
country's first mobile phone licenses to three companies from the Middle
East. The decision was widely interpreted as a signal that Paul Bremer's
Coalition Provisional Authority (CPA) was expanding its contracting base
beyond US corporations like Bechtel and Halliburton to give local companies
a break. In particular, analysts pointed out that the networks will be using
a technology known as GSM, used widely in Europe and the Middle East, rather
than the rival CDMA technology developed by Qualcomm of San Diego for North
America and Asia. Qualcomm, joined by Lucent Technologies and South Korea's
Samsung, even complained to the Financial Times that the bidding process
"was designed to exclude CDMA from the beginning."

But any concerns about a US shutout from Iraq's telecom market were grossly
exaggerated. The biggest winner in Iraq's largest foreign investment deal
since the US invasion turned out to be Motorola, the US electronics giant.
Motorola has had a long relationship with US intelligence and was saved from
financial disaster three years ago when the Pentagon, in a deal brokered by
one of Bremer's top advisers, leased Motorola's Iridium global satellite
network; that network later became the backbone of the US military's
communications system in Iraq and Afghanistan.

Motorola has close financial ties with Egypt's Orascom Telecom, which won
the rights to serve Baghdad and central Iraq, and Mobile Telecommunications
Company of Kuwait, which will build the mobile network for southern Iraq.
Motorola, with the French vendor Alcatel, has agreed to invest up to $100
million in both companies and could gain up to $200 million in sales by
delivering GSM equipment over the two years of the contract, said Lucy
Norton, a telecom analyst with the World Markets Research Center. Siemens of
Germany could win major supply contracts as well. "Motorola has positioned
itself as the primary infrastructure provider for two of Iraq's three mobile
market players," said Norton, in an e-mail interview from London. Looking
beyond the next two years, Motorola could also be in the "pole position,
ahead of the other global vendors, as the key infrastructure provider for
one of the fastest-growing markets in the Middle East."

The story illustrates how the financial and trade policies the Bush
Administration is pursuing in Iraq are not only benefiting well-connected US
corporations but are also slowly integrating Iraq into the global economy
and transforming its largely state-run economy into a captive market for
foreign multinationals. And it underscores Iraq's economic importance to
countries like France and Germany, which opposed the war but voted October
16 to extend US control over Iraq in exchange for vague promises that power
will quickly be transferred to the Iraqi people.

The blueprint for Iraq's economic future was unveiled by Iraq's US-appointed
finance minister, Kamel al-Gailani, on September 21. The new laws, drafted
by the CPA, allow foreign investors to own 100 percent of any Iraqi asset
except oil and real estate and to remit profits and royalties when they
choose. They also reduce import tariffs to 5 percent and allow foreign banks
to take over the country's banking system. Iraq is now "one of the most open
countries in the world," proclaimed Gailani. But his reforms were denounced
by Iraq's leading business association, which warned that the new laws would
"destroy the role of the Iraqi industrialist."

Many observers, including even US businessmen and Iraqis who favored "regime
change" in Iraq, agree. They say the shock therapy being applied in Iraq
will concentrate wealth in the hands of large US and Iraqi corporations,
particularly the family-owned businesses that have won the majority of
subcontracts from Bechtel and Halliburton. "I like the analogy of Wal-Mart
coming into a town," says Timothy Mills, an attorney in the Washington law
firm Patton Boggs who represents several US and foreign corporations that
have contracted with the US government and are doing business in Iraq. "The
downtown dies, Wal-Mart grows and the owners of local businesses are
displaced. The effect of Iraq's new foreign investment law for the medium
and small-sized Iraqi business could be very detrimental and could result in
even more concentration of capital in Iraq." With the US Export-Import Bank
providing $500 million to insure US investors, he added, "If I was an Iraqi
and I was political, I'd say this was a ploy to favor US companies and let
them steal the riches of Iraq." In a similar vein, Fareed Yasseen, an
adviser to Adnan Pachachi, a member of the Governing Council, says that the
CPA has made its economic plans "completely out of the Iraqi context." He
worries that the CPA will sell state-owned assets to cronies of the previous
regime and create a "new class of oligarchs" in Iraq. "They haven't taken
into account Iraq's reality at all," he says.

Not so, says a US official working with CPA. The 100 percent ownership rules
are needed to attract foreign firms to a country where security and basic
services are in question. "If you can't have majority ownership, you won't
invest," he says. "But are US firms going to get a distinct advantage? No
question about it."

The CPA's mishmash of economic ideas is not simply a result of poor
planning, as many in Congress have charged. Most of Bremer's advisers are
either veterans of Washington's revolving door or financiers steeped in the
details of corporate buyouts. Dave Oliver, one of Bremer's senior financial
advisers, recently took a leave from his consulting business to draft the
budget for the Governing Council. Oliver, who was advising Northrop Grumman,
Raytheon and Booz Allen before taking his position, remains on the board of
Stratos Global, which does marketing for Iridium, now an independent
company. In 2000 Oliver, then President Clinton's Deputy Under Secretary of
Defense for Acquisitions and Technology, brokered the $250 million deal for
the Pentagon to lease Iridium's global satellites, in which Motorola had
invested more than $5 billion. (As a Stratos director, "I stayed away from
Iridium because I was so close to it," Oliver says.)

Another key figure on Bremer's economic team is Thomas Foley, an investor
and Bush campaign donor who specializes in mergers and acquisitions, a
business he learned as head of Citicorp's leveraged buyout division and,
later, founder of the NTC Group, which acquired a string of US textile and
manufacturing companies in the 1980s. As director of the Office of Private
Sector Development, he will manage the privatization of Iraq's 200
state-owned enterprises.

In September, someone in Foley's office had the bright idea to invite
fourteen Eastern European finance officials to Baghdad to give advice about
privatization. They included the notorious Yegor Gaidar, who presided over
the Russian mass privatizations of the early 1990s. Gaidar's policies "led
directly to the ruination of the Russian middle class, the collapse of
industry, the loss of savings and widespread poverty," says Stephen Cohen,
professor of Russian studies and history at New York University. Not
surprisingly, the Iraqis weren't impressed. Mowafaq Mahmood, managing
director of the Bank of Baghdad, rejected every suggestion about
privatization. "I must say I haven't learned any lesson from your
experience," he said, signaling that Iraqis may want to preserve parts of
their socialist economy.

Bremer has already shown that he can change course when decisions go bad.
After thousands protested his decision to demobilize the Iraqi military
without paying them, for example, he slowed the pace of privatization and
agreed to keep many employees on the payrolls of state-owned enterprises
until they could be sold off to foreign buyers. That flexibility goes only
so far, however; Bremer will allow dissent from the Governing Council, a US
official says, "as long as it doesn't violate one of the red lines we told
them about." That could give Iraqis little room to maneuver when confronted
with unilateral decisions coming from Washington.

When ideology drives policy, as it does in Iraq, pragmatism is swept aside
and generals and bureaucrats hop to the beat of the Commander in Chief. If
Bush truly wants to transform Iraq's economy into what his aides describe as
a beacon of free enterprise for the Middle East, his good soldiers will go
along. Unfortunately, the outcome is likely to be more bloodshed, more chaos
and more deals for American companies like Motorola.

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