Middle-east Arab News Opinion | Asharq Al-awsat

Away from Violence…an Overview of Iraq’s Economy | ASHARQ AL-AWSAT English Archive 2005 -2017
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The toppling of Saddam Hussein from power, three years ago, gave the Iraqis the opportunity to reclaim their country in order to live under a normal government whose leaders do not instigate three destructive wars in less than three decades. His departure was a chance to live under a government that respects the law and institutions, a government derived from the choice of its citizens, represented by an elected parliament and a cabinet that answers to it; a chance to live in a country resting on a wealth of natural resources which the former regime squandered on its security services and wars, in order to maintain its bloody rule.

Of course, no one expected the transformation from oppression to democracy and political pluralism, in a country like Iraq, to occur seamlessly. Civilians continue to die across Iraq; images of corpses being brought to hospital morgues caught on camera have come to epitomize the current situation in Iraq, together with the re-construction programs currently underway in several regions across Iraqi regions, especially Suleymaniya and Irbil in the north, as well as Kerbala in central Iraq and al Qadissiya in the south.

Three years after the fall of Saddam Hussein, the first signs of an economic recovery are looming on the horizon, despite the numerous predictions to the contrary. These measurements include the halving of the unemployment rate, from 60% in the summer of 2004 to 30% a year later; the stabilization of the value of the new Iraqi Dinar, which was introduced in October 2003; the halving of Iraq’s debts; the earmarking of considerable funds for the reconstruction of Iraq at the 2003 Madrid conference. Iraqis abroad have also increased their remittances to a total of $1.5 billion. Iraqis have also rushed to buy and acquire new technologies; more than a million cars have been bought in the last three years, in addition to thousands of satellite reception equipments, electrical equipments, mobile phones and computers. Until recently, Iraq was an oil-exporting country, with Saddam’s regime benefiting from the country’s rich natural resources. However, the oil wealth was not reflected in the average earnings of Iraqis, which declined dramatically.

In the last three years, the Iraqi economy has witnessed a growth that is notable in the consumption capabilities of Iraqis as the salaries of public sector employees have increased and the old ruling cartels ceased to exist. According to a number of reports, the Iraqi economy is set to grow between 20% and 30 % annually owing to investments, reconstruction projects and private schemes.

Highlighting the growth of Iraq’s economy three years after the toppling of Saddam Hussein, does not mean escaping reality and its complications in the search for a lost “paradise” or a utopia of sorts. It is the result of what has been achieved so far and what is planned for the future.

In light of the complications of the Iraqi economy, a number of estimations have been put forward on the size of the reconstruction effort that is needed and the cost. By far, the biggest amount is earmarked for infrastructure projects that can transform the lives of Iraqis.

According to evaluations by the World Bank, the funds for reconstruction projects might reach $36 billion dollars between 2004 and 2007, with 68% going to the development of Iraq’s infrastructure, including its electricity grip, water and sanitation networks and transportation, in addition to health and education. Another proposed project is to build the oil sector and develop it in order to increase oil experts from 2.7 billion barrels in 2005 to 5.4 billion barrels a day in 2007.

What are the main sources for funding this ambitious program, rightly described as the biggest reconstruction project since the Marshall Plan in the wake of WW2?

In first place are the pledges from donor countries at the Madrid conference estimated at $33 billion dollars and the oil revenues, which could reach $25 billion a year, in addition to the private finds of Iraqi citizens, likely to play a major role in the reconstruction projects.

Successive Iraqi governments will face a number of challenges, least of which is the chronic unemployment, inflation, and fixing the exchange rate of the Iraqi currency. The government will also have to increase its control of Iraq’s oil sector, including the production and marketing aspects, and attempt to obtain the aid pledged by donor countries in several international conferences, in addition managing the growing budget deficit and Iraq’s spiraling debts, totaling $130 billion dollars.

Despite all the successes that have been achieved so far, one ought to admit that fixing the Iraqi Dinar’s exchange rate remains a difficult task, because it requires large reserves of foreign currency to maintain/stabilize the exchange rate. Because these reserves are not currently available, either from oil revenues or as assets in the Iraqi Central Bank, doubts will remain on the strength of the Iraqi currency.

Foreign donors have also been reluctant to make available the funds they pledged to Iraq, earmarked for reconstruction projects, and so far, only a small number of the funds pledged at the Madrid conference and by the U.S Congress, has reached Iraq. This means the Iraqi government will have to take action and plead with donors to fulfill their promises.

In addition, another challenge is how to control the budget deficit with the presence of hundreds of thousands of government employees who receive monthly salaries and the increased spending on the army and security services, to ensure the men are adequately trained and armed, in order to achieve the necessary stability required to lure investors to Iraq. In this respect, a number of pessimistic predictions have indicated that Iraq’s oil revenues will not suffice to finance public expenditure and foreign aid will not meet the needs of the country. These predictions point out that the reconstruction projects could cost as much as $75 billion while public expenditure in the current financial year is estimated at $15 billion. This gap in finances will only increase as the new government is sworn in, making it harder to meet the requirements to continue reconstruction projects. Either way these points do not negate the positive side of the Iraqi experience, following the invasion in 2003, and does not ignore its problems. At least, it paints a picture of the current reality of life in Iraq, away from discussions of violence and death.