WASHINGTON — A key to success in Iraq will be the ability of
the Iraqi people and coalition members to transform the country’s
economy from a state of ruin to a model for prosperity in the
Middle East. Iraqis with jobs and opportunities are less likely to
join or sympathize with terrorist and insurgent efforts, focusing
more of their energies on improving their individual situation than
on political developments that could be interpreted as a danger to
their sect. This outcome parallels one of the Bush administration’s
original goals of the invasion in establishing a bridgehead for
reform in the Middle East, while reducing the potential of a drawn
out and costly American presence in Iraq. Thus, while the vast
majority of attention has been placed on the political violence
plaguing Iraq, the economic development of the country deserves
additional scrutiny and provides reason for guarded optimism.
As the Iraq campaign continues to be labeled a disaster by
political opponents of the Bush administration at home, those
suspicious of the United States abroad, and increasingly by
conservatives who call themselves realists yet have no realistic
plan for Iraq, positive indicators about the Iraqi economy are not
too hard to find. Though the economy expanded by an unimpressive
2.6 percent in real terms in 2005, that figure is scheduled to
reach over 10 percent this year, as reported by the International
Monetary Fund (IMF). Dawn Liberi, director of the U.S. Agency for
International Development (USAID) in Iraq, noted in February that
per capita income has increased from $500 at the time of the
invasion in 2003 to $1,500 today.
Despite the charge by Anthony Cordesman of the Center for
Strategic and International Studies that American efforts to
improve the devastated Iraqi economy “have largely been a wasteful,
and highly ideological and bureaucratic failure,” more than 30,000
new businesses have been registered with USAID in last seven months
alone. While the bureaucracy undoubtedly has been responsible for
waste and inefficiency — not something uncommon with these types
of establishments — ideological efforts to introduce conservative
principles into the Iraqi economy seem as little cause for
alarm.
In 2004 a modest five percent national tariff rate was imposed
to help fund reconstruction costs. A flat corporate tax rate of 15
percent was applied by the Coalition Provisional Authority and
foreign investment restrictions were extremely limited, with the
exclusion of national resources such as the country’s oil fields.
After years of sanctions and isolation — with the exception of
Saddam Hussein’s corrupt enterprises — the above noted efforts
have been relatively successful in opening up the nation’s
economy.
As Niall Ferguson persuasively advanced in his work
Colossus: The Price of America’s Empire: “It has been
convincingly shown that one of the principal reasons for widening
international inequality in the 1970s and 1980s was in fact
protectionism in less developed countries.” Citing a 1995
publication by the Brookings Institution, Ferguson supports the
claim by illustrating that when the per capita GDP of developing
countries were contrasted, it was discovered that “closed”
economies grew at an annual rate of only 0.7 percent while “open”
countries expanded by a healthy 4.5 percent. The Bush
administration, therefore, has not merely steered the Iraqi economy
in a direction of a liberal market economy based on ideology, but
has done so under a historical precedent of success.
Historical precedents are also relevant in examining how to
establish long-term stability and productivity. An influential
piece by Stanley Kurtz titled “Democratic Imperialism: A Blueprint”
that appeared in Policy Review in April 2003 predicted a
protracted, but ultimately beneficial occupation of Iraq. The
paradigm, according to Kurtz, was to follow the lessons of the
British imperial experience in India. Of principle importance to
establishing a peaceful, democratic, and prosperous nation is the
development of a sound education system.
Although coming well short of suggesting a similar dawdling
reform process, Kurtz professes that “the educational policies set
up by liberal British administrators 100 years before independence
had laid the foundation for democratic self-rule in India.” Whereas
the British sought to hold on to their colonial possession
throughout much of their rule of India, the United States wants
nothing more than to return home. Thus, the success in the
construction of schools, the training of more than 36,000 teachers,
and the provision of nearly nine million textbooks should prove to
be a valuable investment for the political and economic future of
Iraq.
OF THE MOST DISINGENUOUS, or simply ignorant, charges that were
leveled prior, during, and following the spring 2003 invasion of
Iraq was that the war was conceived to rob the Iraqis of their oil
reserves. This imprudent accusation has largely disappeared because
few have the audaciousness to carry on this conspiratorial
paranoia. However, the administration’s reluctance to become
thoroughly engaged in the Iraqi oil industry — a result of
domestic and foreign critics — has made things unnecessarily
difficult for the Washington and Baghdad alike. Put simply, the
Bush administration needs to focus more on Iraq’s oil.
One of the first actions taken by the United States following
the ouster of Saddam Hussein was the nearly immediate transfer of
sovereignty of Iraq’s oil industry back to the people of Iraq. Even
after handing the key to nation’s wealth back to Iraqis, the United
States has sought little influence in oil policy-making decisions.
When asked by the Baghdad based daily Al-Adalah about
American and British interference in the Iraqi oil industry, former
Oil Minister Dr. Thamir al-Ghadban responded:
No doubt the U.S., British, and other forces are here
in Iraq. This is an accomplished fact and known to everybody. But
throughout my experience after the fall of the regime until I left
the ministry I can affirm that no person or side tried to influence
on the approach that we adopted in the oil policy. Where is the
influence?
Attacks on oil pipelines have made deliveries north to Turkey
virtually unattainable, limiting Iraq’s near-term export potential.
Additionally, the lack of investment from Saddam Hussein’s regime
left the technology and infrastructure of the country’s oil
industry in desperate need of modernization. The goal articulated
by the Bureau of International Information Programs of the U.S.
State Department is for Iraqis to expand production to more than
five million barrels a day from the 2.1 million that is currently
extracted from the country’s vast reserves. A dedicated commitment
through investment and technological assistance from the United
States is necessary to help the Iraqi government generate revenue
and decrease dependence on American assistance. This is entirely
achievable, and as attacks on pipelines decrease, the oil industry
will become a boon to an increasingly diverse Iraqi economy.
As with the oil industry, other significant problems needlessly
obstruct potential economic growth. As noted by Rashid Ashraf of
Financial Times: “More than half of the families in Iraq
still receive a monthly food parcel of basic supplies. This legacy
of the oil-for-food programme in the long years of sanctions is
expensive, and distorts the market.” Socialist prescriptions such
as these were necessary under the sanctions regime to keep millions
of Iraqis from starving, but are no longer appropriate. As the
economy continues to advance, free market principles will
rightfully continue to be encouraged by the United States as a
means to facilitate those gains.
The New Iraqi Dinar, the official currency introduced in July
2003, has become a stable and unifying presence in the economy of
Iraq. The banking sector is emerging as a powerful economic staple
now that the Baathists no longer corrupt and distort the system. A
similar development has occurred with the 2004 introduction of the
Iraq Stock Exchange, as it too is free from the corruption that
beleaguered the Hussein-era Baghdad Stock Exchange. About 90 stocks
are listed and market capitalization grew from $1.15 billion at the
end of 2004 to $2.14 billion at the same time last year. However,
fear of foreign domination of the market has kept it closed to
international investors. An Iraqi investor noted to Agence France
Presse late last February that the best way to increase the capital
flowing into the Iraq Stock Exchange is to “open the market to
foreign investors and get money into the market.” This will happen
over time.
Some foreigners, however, are already bullish on Iraq. In fact,
United States and other coalition forces serving in Iraq are
betting on an economically successful future for Baghdad. Many
American troops are putting their money into purchasing the new
national currency in hopes that a secure and prosperous Iraq will
emerge. The fact that they are already not paid enough for the work
that they do and that they are using their hard-earned paychecks
and intimate knowledge of the Iraqi environment to purchase a share
of Iraq’s future speaks volumes about the potential for a
forthcoming significant economic expansion in Iraq. Perhaps the
not-too-distant future will teach the impatient that, with time,
large returns can come from a substantial investment.
