3: The Economy
With Money Comes Power
By Bathsheba Crocker
Sunday, June 20, 2004; Page B01
"Iraq is open for business," L. Paul Bremer, administrator of the U.S.-led occupation, declared optimistically in May 2003. And despite security problems and political instability, consumer goods have flooded into the country, middle-class incomes have jumped, borders are open and, until an attack last week, oil was starting to flow from the south.
But U.S. ambitions for Iraq were even greater. Transforming Iraq into a liberal, market-based economy was one of the principal goals of the Coalition Provisional Authority (CPA). The authority promoted major reforms of Iraq's regulatory and legal frameworks, entered into long-term contracts and appointed oversight committees with multi-year terms.
Will any of that survive the transfer to Iraqi sovereignty on June 30? Some people say it shouldn't, arguing that the CPA has overstepped its bounds as an occupying authority by imposing changes that would bind a future Iraqi government. Even textbook-perfect economic reforms will not lead to sustained economic growth or an open Iraqi economy unless Iraqis own the process -- especially if sovereignty is to have any real meaning .
Until now, the CPA has kept a tight rein on economic decisions (and U.S. money), and Iraqis have had little input into the reforms imposed by the authority. Worse yet, U.S. contractors have reaped the greatest financial benefit from U.S. economic projects; delivery of basic services remains spotty and vulnerable to sabotage; and anywhere from 25 percent to 60 percent of Iraqis are unemployed or underemployed.
After June 30, the United States should make Iraqis feel invested in economic reform and success. The Bush administration should figure out how to free up more of the $18.6 billion in U.S. reconstruction funds and get more of it into Iraq. Because of bureaucratic and legal holdups, the money has only trickled in. Moreover, most of it never reaches the Iraqi people. More than 50 percent is lost to security and insurance costs, corruption, profits for U.S. companies and U.S. administrative needs. Putting money directly into Iraqis' hands would immediately revitalize the economy and give Iraqis some input into how the U.S. money is spent. Sure, some will be wasted or stolen, but while difficult for us to accept, it's better for the money to be wasted by Iraqis than by Americans.
To the extent that the new U.S. embassy still directs money, it should concentrate on projects that create Iraqi jobs. As of mid-May, when the CPA yanked its job counter off its Web site , fewer than 25,000 Iraqis (or less than 1 percent of the country's workforce) had been employed on projects funded by the $18.6 billion -- about half of the 50,000 jobs the CPA promised to create by June 30 and far fewer than needed. Our reconstruction focus should shift from massive, capital-intensive infrastructure projects to smaller-scale, community-level projects. That would also boost participation by Iraqi firms in U.S.-funded projects and generate other economic activity.
Because oil is Iraq's lifeblood, the Iraqis must be allowed to take ownership of it. The CPA has made some promising moves recently. The Oil Ministry is under Iraqi control, and the new U.N. Security Council resolution gives Iraq's interim government control over how oil revenues are spent. But a recent Open Society Institute report suggests that Bremer is rushing to commit oil revenue to long-term reconstruction projects before the interim government takes over. The problem is the United States will never be seen as an honest arbiter on oil-related decisions. Those must be left to the Iraqis, assisted by the international community. We should encourage transparency and the creation of a mechanism that would give all Iraqis a stake in their nation's oil wealth.
All this will mean nothing if Iraq doesn't get the help it urgently needs to reduce its crippling debt burden. The Bush administration has been out in front on this issue, but other creditors continue to resist the significant reduction that will be needed to free up Iraq's oil revenues. The alternative is for Iraq to remain dependent on outside assistance for years, undermining any new government.
Ultimately, only the Iraqis can determine whether they want a market economy. It is unclear whether they will pursue the CPA's economic reforms after June 30. The more radical reforms -- such as allowing foreign ownership of Iraqi assets -- have traditionally been anathema to Iraq and other countries in the region. After June 30, the United States should give the Iraqi people every opportunity to make their own decisions and, yes, mistakes on economic matters. That will represent the only hope of realizing the U.S. vision for Iraq's economy and, more importantly, of improving Iraqi lives.
Author's e-mail: email@example.com
Bathsheba Crocker directs the Post- Conflict Reconstruction Project at the Center for Strategic and International Studies. She visited Iraq in July 2003 with a CSIS assessment team.
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