Proposed economic aid to Iraq dependent on security
WASHINGTON .President Bush's plan for salvaging the war
in Iraq acknowledges failure so far in efforts to reconstruct
the country's moribund economy. His proposed fixes depend
largely on achieving security and stability there.
Bush pledged on Wednesday night another $1.2 billion in
economic aid, announced the appointment of a reconstruction
coordinator and promised to channel economic aid quickly
to areas that Iraqi and U.S. troops cleared and secured.
He said the Iraqi government would spend $10 billion on
a jobs program, and he supported creating an "International
Compact for Iraq" to forgive the country's debt and
encourage foreign assistance.
Iraq's economic picture isn't pretty. Unemployment is estimated
to range from 20 to 60 percent. Inflation in November, the
last estimate available, was running at 51.9 percent on
a year-over-year basis.
"Nobody knows for sure what is the rate of unemployment.
I suspect it's pretty high, like 40 percent or higher,"
said Nimrod Raphaeli, an Iraqi-born economist at the Middle
East Media Research Institute in Washington. "There
is really no evidence of resurgence of economic life in
Iraq."
The Bush administration is trying to create jobs in the
hope that that might ease one factor that's driving young
Iraqi men into insurgency.
U.S. military officials said this week that they wanted
to steer 25 percent, or about $1 billion, of the government
contracting now done in Iraq to support Iraqi factories
and companies. Pentagon officials won't identify the factories
for fear that insurgents will target them and their employees,
underscoring how security challenges hamper efforts at economic
revival.
Still, fueled by high oil prices and construction, Iraq's
roughly $30 billion economy grew 4 percent last year, according
to unofficial estimates from the World Bank, the International
Monetary Fund and other global institutions.
But gauging the country's economy remains a guessing game.
Years of dictatorship and isolation from the global economy
mean that Iraq's economy and institutions must be rebuilt
from scratch.
"A lot of the systems have collapsed, and they need
to build a better system," said Kathryn Funk, the World
Bank's lead country officer for Iraq. "It's a matter
of rebuilding a relationship, and rebuilding their knowledge
on how to deal with financial institutions."
International organizations, including the World Bank and
IMF, removed most of their personnel from Iraq after the
deadly August 2003 bombing of Baghdad's U.N. headquarters
and a spate of beheadings of foreigners.
Regaining security is key.
"It's a very difficult situation in Iraq because of
the security situation. It does hinder the implementation
of the investment program _ the inability of officials simply
to get to work and carry out their instructions," said
a top IMF official who's involved in creating standby loans
for the Iraqi government.
The official, demanding anonymity because of an IMF security
policy that protects the identities of its officials who
are working with Iraq, said insurgents clearly were hurting
oil production.
Oil accounts for as much as 70 percent of the country's
economy and more than 90 percent of its foreign-exchange
earnings. Insurgent attacks on oil installations and rampant
corruption rob Iraq of financial resources that could be
used to develop the economy.
"We are obviously disappointed that the security situation
has not improved," the high-ranking IMF official said.
Before the war started in March 2003, Iraq produced more
than 2.5 million barrels of oil per day. Last year, it averaged
2 million barrels per day, about the same as 2005.
Four years after the U.S.-led invasion, Iraq still lacks
the metering equipment that would provide firm production
data. There's ample evidence that large volumes of oil are
being smuggled into neighboring Iran, where they're purchased
on the black market and sold on the global market for a
higher return.
An audit of oil revenues by global accountant Ernst &
Young, made public in November, found discrepancies of $940
million and $1 billion in the two six-month audit periods
from July 2005 through June 2006. The audit also noted that
there were no efforts to reconcile the differences between
U.S. and Iraqi accounting. Proceeds from Iraqi oil exports
are deposited with the Federal Reserve Bank of New York,
which sends the money back to Iraq for administration by
the Finance Ministry and central bank.
"We can't send our accounting staff into Iraq,"
said Calvin A. Mitchell III, a spokesman for the Fed's New
York branch, who thinks that Iraqi banking officials will
address the matter eventually. "Our books are reconciled
according to the records we have. How they reconcile their
books, and whether they are reconciled, we can't speak to."
Despite such daunting problems, some experts salute Bush's
new economic plans.
"I think they are very good ideas," said Michael
O'Hanlon, an Iraq expert and usually a critic of Bush's
policy at the Brookings Institution, a center-left research
center. "We don't have the luxury of getting the security
environment right first. ... You've got to try on multiple
fronts. ... I think all this makes good sense."
Previous economic initiatives for Iraq failed in part because
the Bush administration wanted private enterprise, not government,
to create the badly needed jobs, O'Hanlon said.
2%
economic growth seen in '07