Global Policy Forum

By Sabri Zire Al-Saadi

The Economic Challenge In Iraq's Governance

One of the main challenges facing Iraq after the fall of Saddam's dictatorial regime in 9 April 2003, is how to rebuild the economy and stimulate growth and employment. In addition to the institutional prerequisites, and prior to undertaking such a huge task, the new economic policies should have seriously considered the main structural problem that characterized the economy over the last four decades: the high dependence on oil revenues for financing government expenditures on the one hand, and the limited role of the private sector in production, investment, public finance, and employment on the other.

Since the removal of Saddam's regime, the Coalition Provisional Authority's (CPA's) Orders (Laws) have not tackled these problems in a constructive way. The prevailing economic misconception is that while the price mechanism of the market economy could efficiently mobilize and allocate the available resources, the government fiscal policy and the independent monetary policy of the Central Bank of Iraq (CBI) would be sufficient for achieving economic growth and employment. Indeed, the CPA has advocated that sound fiscal and monetary policies would be enough for the economic rebuilding of Iraq. Even the Law of Administration for the State of Iraq for the Transitional Period (8 March 2004) has ascertained indirectly the CPA views and hence failed to highlight the responsibility of the government in rebuilding the economy.

Since the early 1980s, the Iraqis have experienced severe economic hardships and their living standards have deteriorated substantially. At present, and despite CPA's efforts, the economy is characterized by low levels of production and productivity, very high unemployment and structural problems. The substantial increase of aggregate demand financed by oil revenues and exogenous sources led to high inflation in basic needs, housing and food. The availability of goods and domestic appliances in the markets does not reflect equivalent increase of domestic production. Other than trade and construction activities, the industrial and agricultural activities are in a state of stagnation and private entrepreneurial initiatives are lacking.

The significant increase of government employees' wages and salaries does not correspond to an overall improvement of individual incomes. Indeed, the living standards of the majority of the people are very low in terms of GDP per capita. ¹ There is a low consumption of basic needs such as foodstuffs, water, electricity, public health, education services, and housing shortage. Obviously, widespread poverty is the most serious challenge.

On the financial side, the anticipated revenue from oil exports, the principal source of government expenditures, may be sufficient for the existing limited institutional capacities to finance public expenditures. ²

Iraq, however, has great economic potential in terms of human and natural resources and the people's willingness to hard work. In fact, the economic prospects for Iraq are bright; but the question is how Iraqis can realize them. In searching for an answer, three important conditions have to be stressed. First, given concerted political efforts and effective leadership, the successful implementation of any new economic policies will need a qualified economic team to supervise, coordinate, and follow them up. Team members should have common objectives in strategy and policies, and full awareness of the policy implications. Unfortunately, this is not the case in Iraq at present. Second, the impact of any set of economic and fiscal and monetary policies will require frequent assessment. This means that good coordination and understanding must prevail among the ministries of finance, trade, and planning, and the CBI. Third, individual economic liberties can not be fully practiced, nor can constructive business be established or the private entrepreneurial sector allowed to flourish without institutional economic order, ie an overall strategy, economic objectives and policies, rule of law, institutional and administrative procedures, and a sound physical infrastructure.

Reconstruction Expenditures vs Focused Economic Policy

Since the fall of Saddam's regime, attention by the CPA and Governing Council (GC) as well as foreign business communities has focused on rebuilding the country's infrastructure, especially oil production, electricity and water, and identification of the available investment opportunities. Little attention has been given to the role of economic policy. In 2003, the six-month government budget (July-December 2003) allocated $7,362.3bn for operating expenditures and $1,869.9bn for capital projects, ie a total of $9,232.2bn. In November 2003, the US generously allocated $18,439.0bn for the reconstruction of physical, social, and political infrastructure projects in Iraq.³ It was planned that $12,652.0bn would be spent in 2004 and the rest, $5,787.0bn, in 2005. Out of this total, about 40% ie $7,300.0bn could be spent inside Iraq during 2004 and 2005.⁴ Added to this, a total amount of $1,118.4bn and $7,636.5bn allocated by the government budget respectively for capital projects in the years 2004 and 2005, meant that the anticipated investment expenditures would be high in 2004 and 2005. Moreover, it was reported that the donor countries, other than the US, pledged loans and grants totaling $13bn. ⁵ At the same time, international support for humanitarian assistance was valued at about $806mn by 2 January 2004. ⁶ Even if the identification of project priorities by the CPA and GC may not exactly reflect the realities, and/or the donors' pledge fails to materialize as fully as expected, the impact of the actual and anticipated expenditures on the economy would be significant though not necessarily positive.

In Iraq, without economic vision and realistic policies, the goodwill of spending efforts may end in chronic structural problems, high inflation, leading to political and social disturbances. As a matter of fact, since the war ended, the implemented economic measures and the actual expenditures have neither increased domestic production and productive employment, nor improved the living standards of the majority of the people. Moreover, the main structural economic problems have not eased.

It is premature, however, to assess fully the reconstruction efforts of the CPA and GC, at least in terms of actual spending. Things are still at an early stage. ⁷ Yet it is crucial that applied economic policies should reduce the dominance of the oil sector, which influences economic growth as well as political governance. In this respect, Iraq's economic development can not be assessed only by the increase of GDP criterion, nor democracy progress evaluated by one or more political criteria as some may suggest. The value-added contribution of non-oil industrial activities to GDP should be increased, as well as their share in public finance and exports. Also, a more effective fiscal policy to maintain social security for the poor, and reduce income disparities and the wealth gap among Iraqis should be applied in order to enhance democracy and achieve political stability. Unfortunately, the CPA's strategic plan does not address these issues. Neither the GC nor Iraqi political parties have a clear strategy to deal with them. As a matter of fact, the recent Law of Administration ignored the government's responsibility for economic and social development. ⁸

Through the reconstruction of the infrastructure projects, the CPA aims to "provide financial market structures, as well as fiscal and regulatory conditions, that will enable sustainable economic growth, the development of a dynamic private sector, the creation of jobs, and raising living standards for the Iraqi people". ⁹Such a claim is neither sufficient nor substantiated by Iraq's realities and prospects. Judged by their pragmatic (experimental) practices, it is obvious that the CPA and GC put inconsistent emphasis on the various components of two important and interrelated issues. First, the reconstruction cost, priorities, and efficiency of construction companies in building the infrastructure projects, and second, the required economic liberalization policies. This is a result of adopting an issue-by-issue policy approach that may be effective in advanced capitalist countries, but is impractical and costly in an oil-exporting/developing country.

Are CPA and GC Economic Policies Effective?

In July 2003, I concluded that effective policies and measures were not being taken by the CPA to ensure speedy reconstruction and the economic revival of Iraq. I also argued that oil, democracy, and development, constituted the three main elements of Iraq's political economy. Hence, I stated that in pursuing a policy of economic liberalization, emphasis should be given to the dynamics of these elements in terms of their variable effect, timing, and coordination, rather than following the path for a swift liberalization. ¹⁰ Since then, although no comprehensive public document or guidelines on a new unified economic policy was produced, important economic decisions were taken by the CPA and accepted by the GC to free the flow of foreign investment and foreign trade. A fixed (low) income tax strategy for Iraqi and foreign individuals and corporations was introduced, and after five months was partially amended to increase individual allowances and add three lower tax brackets. ¹¹ Significant decisions were also taken to determine the (monthly) minimum wage of government employees that increased from about ID6,000.0 ($3.0) before the fall of Saddam's regime to NID69,000.0 ($46.0). ¹³ The 2004 annual budget also set the fiscal framework for 2005 and 2006.13 Furthermore, the CPA has ensured the independence of the CBI, ie monetary policy will be independent from the fiscal policy. ¹⁴ Significantly, the transitional government will "formulate the fiscal policy, issuing currency, regulating customs, regulating commercial policy across regional and governorate boundaries in Iraq, drawing up the national budget of the State, formulating monetary policy, and establishing and administering a central bank." ¹⁵ Also, the transitional government will distribute the revenues of the natural resources of Iraq, which belong to all Iraqis, regions, and governorates in proportion to their population. ¹⁶

In the present extraordinary circumstances, where there is lack of security and political instability, judgment can not be passed easily on the performance of foreign companies working in Iraq. Given the prevailing difficult and complex power politics, critical examination of CPA economic policies may appear to be more subjective or politically biased. The concern of post-war economic assessment at this stage is, indeed, neither to question the criteria for winning contracts for reconstruction projects nor the efficiency of the market economy as the main target of these policies. The key question is whether these policies are cost-effective and could achieve the targeted economic liberalization, diversify the economy, and increase the role of indigenous private sector. Politically significant is analysis of whether these policies will reduce government political power emanating from oil revenues – while keeping public ownership of oil production – in order to promote democracy. In other words, is the policy of the CPA and GC increasing the contribution of non-oil sectors to economic growth and employment and at what cost? Also, will the CPA and GC policies maintain maximum utilization of oil revenues for financing public infrastructure projects? And to what extent they have succeeded in freeing the prices of goods and commodities, interest rates, wages, and the NID's foreign exchange rates?

Hasty Economic Liberalization and Misuse Of Fiscal Policies

The economic liberalization measures announced by the CPA ¹⁷and implicitly approved by the GC, as well as the policy of the 2004 annual budget, give added impetus to the argument for comprehensive and economic policies. Significantly, CPA order No 39 clearly states that foreign investment can be undertaken in all sectors of the economy other than natural resources (oil). The foreign investors will "transfer abroad without delay all funds associated with its foreign investment including, shares or profits and dividends, proceeds from sales or other disposition of its foreign investment or a portion thereof, interest, royalty payments, management fees, other fees and payments made under a contract". Also, other transfers can be made if approved by the ministry of trade. That was the most daring measure for swift liberalization of foreign capital inflow taken by a developing country. However, it was wishful thinking on the part of the CPA to try to achieve the ultimate goals of economic liberalization (ie free foreign trade and free flow of foreign investment) without taking into account the realities of Iraq.

In Iraq, there is no institutional foundation for an effective monetary policy that can use interest rates, credit capacities, and foreign exchange rates to assist in regulating the domestic economy and foreign current account balances. Therefore, the independence of the CBI would have no positive impact on the economy except that the practical problems related to the money liquidity for government operations expenses will continue. Paradoxically, the monetary policy functions of the CBI are assumed to be superior to economic growth, employment, and social development of Iraq. ¹⁸ In fact, the banking system is not yet capable of assuming an active role in facilitating private investment. ¹⁹ Also, the economy lacks a financial market for transparent mobilization. This is essential for the required economic structural reforms. In this regard, ex-post evaluation of public enterprises based on the real values of their assets must be a pre-condition for successful privatization. The publication of the financial positions of public enterprises means little in this regard. Privatization should be undertaken in a more stable political environment as well as a competitive market.

Also lacking is an infrastructure for foreign trade, communications, and government institutions to monitor economic competitiveness at different levels. ²⁰ Indeed, unregulated foreign trade practices have already badly affected industrial and agricultural production with no measures in sight to deal with the problem.

In addition, there are no institutions reflecting and protecting the different economic and business interests of various Iraqi groups such as industrialists, farmers, traders, contractors, public sector employees, workers etc. These are essential to ensure that the implemented economic policy wins support. Even the suggested fiscal policy with a fixed 15% income tax rate on companies and corporations will not help to narrow the existing disparities in income and wealth.

If the timing of the CPA decisions was meant to be a signal to encourage foreign investment in Iraq and enhance the message of the Madrid donors conference, the 2004 budget confirms that swift liberalization of the economy is the main target of these decisions. In the 2004 budget, the CPA and GC neatly identified five principles guiding Iraq's economic policy. These are: economic liberalism, private sector development, international integration, public sector transparency, and a safety net for the poor. ²¹ It is understandable – although debatable – that the first four principles could be theoretically explained as salient features of the free market economy. However, it is hardly convincing that the "safety net for the poor" can be achieved through the likely realization of the long-term target of an efficient free market economy. It was correct and essential that the CPA determined the minimum wage level of government employees in view of the prevailing low level of living standards and income. However, the CPA decreased substantially the total number of employees, in ministries and statutory authorities, including the new army, to about 1.046mn only. ²² This is a small number for a country of 26.0mn people.

The CPA assumed that the dominance of the anticipated market economy activities would automatically shape the best economic strategy for Iraq. This is a fantasy vision. To clarify this argument, I refer to two main issues.

First, the CPA estimated oil revenues of $18,000.0mn, $27,675.0mn and $28,950.0mn for the years 2004, 2005 and 2006, which were based on exports of 1.6mn b/d, 2.4mn b/d and 2.5mn b/d respectively, with export prices of $21/B, and the exchange rate of $1 against NID1,500. The net result of these assumptions is that budget allocations will increase the dependence of government expenditures on oil revenues. ²³ According to these allocations, oil revenues will contribute 93.5% to total public revenues in 2004. This ratio will increase to 96.4% and 97.7% in 2005 and 2006. In other words, oil revenues will contribute 89.4%, 96.5%, and 97.7% of total government expenditures in 2004, 2005, and 2006. Whereas, income tax contribution is estimated to be 0.2%, 0.4%, and 0.8% of total public revenues in the same three years. In 2006, significantly, the budget assumes no taxes on foreign trade, while custom duty is estimated at NID450.0bn ($300.0mn) and NID525.0bn ($350.0mn) in the years 2004 and 2006. Excise tax, hotel and restaurant service tax, land tax, and other taxes will be increased from NID90.0bn ($60.0mn) in 2004 to NID105.0bn ($70.0mn) and NID120.0bn ($80.0mn) in 2005 and 2006. These taxes constitute only 0.5%, 0.4% and 0.4% of total revenues respectively in the years 2004, 2005 and 2006. Significantly, in the 2004 budget, only 5.6% of oil revenues went to capital projects. This ratio is planned to increase substantially to 27.6% and 27.5% in 2005 and 2006. However, this allocation level and pattern will not accelerate the diversification of national income or reduce the high dependence on oil revenues.

In estimating the budget's oil revenues, it is noticeable that the decision-makers have arbitrarily devalued the foreign exchange rate of NID against the US dollar by 25% compared to the then prevailing value. They provide no justification, like the CBI, as to the winners and losers of such superimposed fiscal and monetary measure to influence the path of economic activities. It is another example of the negative consequences of the hasty economic liberalization policy.

Implicitly, the fiscal policy of the budget indicates that oil revenues will be used to finance government expenditures. Therefore, there is no guarantee that taxes from the private sector will be increased. The role of taxes in promoting economic growth has been always controversial in advanced capitalist countries. In Iraq, however, increasing taxes from non-oil sectors are essential to encourage the political process through finance and government expenditures. In Iraq, there is a wide belief that oil revenues should be allocated mainly to finance economic, social and environmental infrastructure projects, in which the private sector would not invest. This is not a theoretical socio-economic hypothesis, but the reality of Iraq where the capacities of the infrastructure in all sectors are limited. Also, oil financial power must not be utilized by governments without clear and acceptable criteria that reflect the interests of the majority. Let us be clear, the Iraqi people, and not the private sector, own the oil wealth at present. As revealed by the 2004 budget, privatization of public enterprises will be finalized by 2005.

If the CPA and GC decision-makers have this vision, then the prospect of sustainable economic growth and improving living standards will not ensure the diversification of the Iraqi economy and an increase in non-oil public revenues. If the oil industry is privatized before a reduction in the high dependence on oil revenue, then the only difference that Iraq will face is a change in the key player in its political economy: the foreign "devil" companies will replace the Iraqi "devil" governments. This is the worse scenario for Iraq. However, until the contribution of non-oil sectors to public finance is increased and the sources of national income are diversified, the political economy of Iraq will not be stable. ²⁴

Second, for Iraq, it is rather strange to suggest that the "social safety net for the poor" will be dealt with through the promotion of a free market economy. Even in advanced and democratic countries, public finance maintains developed and costly social welfare and benefit systems. National health services, social benefits for the poor, allowances for the unemployment and pensions for retirees should be financed by public revenues. Also, the provision of basic needs for the poor and unemployed can not be left to the dynamics of market economy. Fortunately, Iraq has public oil revenues that could finance such a system. ²⁵

The 2004 budget treats the reconstruction of Iraq as if the latter were a failed company that needed financial re-structuring, reduction of manpower costs, and the appointment of new, up-to-date management. There were also some short-sighted proposals, such as that by the Ministry of Planning to raise revenue through the sale of data to foreign firms. ²⁶ But the problem is more complex than this. Indeed, the CPA has had to admit that the implementation of free prices and privatization programs will have to be postponed and the individual income tax system should changed. ²⁷

Conclusions Iraq's post-war experience has shown that infrastructure projects are essential and must remain a priority in spite of delays. However, experience also shows that policies for macro-economic stabilization and structural reforms are too complicated to be dealt with by superimposed decisions for swift liberalization of foreign investment and the flow of foreign trade, and an enforced artificial independence of monetary policy from the fiscal policy. Unless the Iraqi Government next July makes radical changes of economic strategy and policies, there will come a time when economic problems, and poverty in particular, will cause an explosion. Regrettably, the recent Law of Administration for the State of Iraq for the Transitional Period offered no remedy to Iraq's economic governance. The piecemeal approach adopted by CPA and followed by the GC will not alleviate the economic problem of Iraq.

It is appropriate that the issues of democracy and power politics should be high on the Iraqi agenda today – as it is that the occupying authority and the GC should ensure internal security. It is also politically essential to deal with the non-commercial foreign debt and war reparations. But it would be a strategic mistake for the CPA, the GC, ministers, and Iraqi politicians to think that economic revival depends only on the availability of financial resources and the invisible hand of the market economy.

However, as the Iraqi people continue to strive for peace, freedom, and a prosperous society, the fall of Saddam's regime has opened up golden opportunities. This is why Iraq is ready for a new economic model that will create a dynamic and efficient market economy, sustaining long-term growth and high employment, and quick integration with the world economy, while preserving a social security and welfare system. ²⁸ Such goals can be achieved through free competition, consumer dominance, and private entrepreneurial initiatives, as well as sound government economic regulatory policies that diversify economic activities and lessen the prevailing high dependence on oil exports for public finance and imports. Iraq needs a new economy, which relies on a creative and wide middle class base.

In brief, Iraq's economic agenda at this stage should define the public objectives of economic growth and employment, price liberalization and market efficiency, reconstruction of public infrastructure, and provision of social utilities. A successful economic and democratic model for Iraq requires a clear development strategy in which non-oil activities should be encouraged, and oil and gas production and revenues maximized and utilized mainly for public infrastructure. Also required are sets of integrated fiscal and monetary policies to ensure stability and control inflation as well as well-designed structural reforms to free prices. ²⁹ These are necessary conditions for encouraging the private sector and promoting private entrepreneurial initiatives that are imperative for an efficient market economy and for achieving the long-term economic interests of Iraq. These are the main features of the economic project for change in Iraq.

1. GDP per capita in real terms was estimated at $237 (against $3,312) in 2001. It was estimated at $2,143 (against $3,688) in 1980. On these adjusted estimates vis-a-vis (government) statistics, see, Sabri Zire al-Saadi, "Oil Wealth and Poverty in Iraq: Statistical Adjustments of Government GDP Estimates (1980-2001)". MEES, 12 May 2003. In this respect, the CPA and the Ministry of Planning have published a histogram graph reflecting their GDP estimates for the period (1980-2001) in the 2004 Budget document. See: Republic of Iraq, "2004 Budget", Minister of Finance and Minister of Planning, October 2003, page 7. Unfortunately, neither the sectoral details nor the aggregate values of GDP have been explicitly published in this document. As we have demonstrated in our GDP adjusted estimates, the former Iraqi government has published GDP estimates for the whole period in $ values and ID too. Both these sets of the former government and our adjusted estimates are different from the 2004 budget's estimates. The peculiar way of presenting the new 2004 budget's estimates may raise previous concern that undocumented and unverified GDP estimates are used to support the then political notion that the "UN oil for food program" has substantially improved the living standards of the Iraqis. And Iraq should not be considered as a Least Developed Country in terms of GDP per capita. Therefore, such a criterion, ie GDP per capita, has no use in the likely negotiation for writing off Iraq's war reparation, obligations, and foreign non-commercial debt.

2. As for the burden of non-commercial foreign debt, no definite progress is reported by the CPA to reduce or write them off. Payments for war reparation continued by allocating 5% of oil revenue in accordance with Security Council Resolution No 1483.

3. USA, Public Law 108-109, "Emergency Supplemental Appropriations Act for Defense and for the Reconstruction of Iraq and Afghanistan, FY 2004", 6 November 2003. Issued by the "Executive Office of The President – Office of Management and Budget, Washington, DC 20503. See www.cpa-Iraq.org.

4. Ibid.

5. The International Donors Conference for Iraq Reconstruction in Madrid, Spain, 23-24 October 2003 was attended by 73 countries and 20 international organizations. With the US contribution, the total amounts of loans that the international community, including the IMF and IBRD, pledge toward Iraq construction is at least $32.0bn.

6. "Emergency Supplemental Appropriation Act for Defense and for the Reconstruction of Iraq and Afghanistan, FY 2004", Ibid. Page 10-11.

7. As identified by the CPA and GC and approved by the US administration, the strategic CPA plan has five principle objectives: security, essential services, economy, governance and strategic communications.

8. See, CPA, "Law of Administration for the State of Iraq for the Transitional Period", Baghdad, 8 March 2004. Chapters 3, Article 25.

9. Page 5. Ibid.

10. Sabri Zire al-Saadi, "Economic Liberalization and Oil Policy in Iraq: Vision and Priorities", MEES 21 July 2003. Further elaboration was given in "The Economic Revival of Iraq", MEES 1 September 2003.

11. On 7 June 2003, the CPA issued order No 12 entitled "Trade Liberalization Policy" that suspended all tariffs, custom duties, import taxes, licensing fees and similar surcharges for goods entering or leaving Iraq, and all other trade restrictions that may apply to such goods, until 31 December 2003. On 19 September 2003, the CPA issued orders No 37, 38 and 39 to free foreign investment, foreign trade and define the tax strategy. Also at the same date, the CPA issued order No 40 to establish a new banking system. On 19 February 2004, the CPA issued order No 49 entitled "Tax Strategy of 2004", in which four income tax brackets (3%, 5%, 10% and 15%) and various allowances on individuals were introduced. See www.cpa-Iraq.org.

12. CPA order No 30 dated 8 September 2003. This substantial increase will influence the wages as well as other returns of the factors of production in all sectors of the economy.

13. "2004 Budget", ibid.

14. CPA order No 18, 7 July 2003 entitled "Measures to Ensure the Independence of the Central Bank of Iraq". Accordingly, the articles of the ICB law No 64 of 1976 were suspended to the extent they authorize the ICB to loan funds to Iraqi Government ministries. And that the ICB shall have the authority to determine and implement monetary and credit policy without the approval of the ministry of finance. On 1 March 2004, the CPA issued order No 56 entitled "Central Bank Law" that established an independent central bank.

15. See, CPA, "Law of Administration for the State of Iraq for the Transitional Period", Article 25, Item c.

16. See, ibid. article 25. Item e.

17. The CPA's order No 37 entitled "Tax Strategy for 2003", section 4 " Income Tax Rates in Future Years", which reads "The highest individual and corporate income tax rates for 2004 and subsequent years shall not exceed 15%". However, Tax Strategy was changed by CPA order No 49 in which income tax burden on the average Iraqi family was reduced. The CPA order No 38, section 1 reads "The Reconstruction Levy shall be imposed at a rate of 5% of the taxable value of goods." "Unless exempted from this order, the Reconstruction Levy shall be imposed on all goods imported into Iraq from all countries beginning 1 January 2004". The CPA order No 39 entitled "Foreign Investment" states that "a foreign investor shall be entitled to make foreign investment in Iraq on terms no less favorable than those applicable to an Iraqi investor".

18. The purpose of the new CBI law, order No 56 is that it "establishes a safe, sound, and independent Central Bank for purposes of achieving and maintaining domestic price stability, fostering and maintaining a stable and competitive market-based financial system. Subject to these objectives, the CBI shall also promote sustainable growth, employment, and prosperity in Iraq", page 6.

19. The CPA's order No 40 entitled " Bank Law ", aims to establish the foundation for an advanced banking system. Since then, three foreign banks were licensed.

20. In mid-January 2004, the CNN news channel, business program, presented an interesting report on Tomato, the main component of the essential and leisure meals in Iraq, as a living standards indicator because of the absence of Consumer Price Index or official inflation estimates. In that report, Iraqis confirm that inflation is high and living standards deteriorate as Tomato prices are doubled for the last few months.

21. Republic of Iraq, "2004 Budget", ibid.

22. Ibid, page 23.

23. Total revenues of the 2004 budget were estimated at IND19,258.8bn whereas total expenditure was estimated at IND20,145.1bn, ie the budget has a total deficit of IND886.3mn. In 2005 and 2006, total revenues were estimated at IND28,775.0bn and IND29,645.1bn respectively and total expenditures were estimated at NID28,755.7bn and NID29,617.8bn, ie the budgets would have IND19.3bn and IND27.3bn surplus in these two years.

24. Outline of this strategy was given in "Economic Liberalization and Oil Policy in Iraq" ibid.

25. A comprehensive definition of Social Benefits and Welfare System was given in Sabri Zire Al-Saadi, "The Economic Project for Change in Iraq – Economic Policies and A Program of Action for the New Democratic Regime". Paper presented to the economy and infrastructure group meetings held in Washington on 24-26 October 2002, Future of Iraq Project sponsored by the US Department of State.

26. See, Republic of Iraq, "2004 Budget", ibid. page 19.

27. On 19 January 2004, a U turn of CPA' policies was noticed when Mr. Mark Belka, the senior CPA's official responsible for the economic policies, announced that due to possible social disturbances associated with the coming process of transferring the political power to the Iraqis, the USA has postponed the plan for Iraqi economy reforms that include the privatization of the state public enterprises. He also said that the current policies are concentrated on institutional reforms such as tax authorities and the ICB. He also admitted that unemployment is a big problem. Another major U- turn was the change of Tax Strategy in order No 49.

28. A thorough macroeconomic analysis of Iraq's experience and prospects was given by the author in his paper entitled "Analytical Vision of Economic Development Prospects in Iraq", to be published in " Tasawoorat Hawla Wakei and Mustakbal Alektisad Aliraqi", (Arabic) Arab Planning Institute, Kuwait, 2004.

29. An earlier formal analysis of the structural problem of the Iraqi economy was given in: Sabri Zire Al-Saadi, "A Formal Growth and Distribution Model - The Case of a Developing Crude Oil Exporting Economy". OPEC Review, autumn, 1989.