Global Policy Forum

By Nathaniel Hurd*

After the Iraqi invasion of Kuwait and the UN Security Council's imposition of comprehensive economic sanctions upon Iraq, the former Iraqi government assembled a food ration database, which was later expanded under the UN's so-called Oil for Food program. Grand Ayatollah Ali Sistani and Iraqi Shiite political leaders have recently proposed that the rationing rosters double as makeshift voter rolls for early national elections. Whether or not this proposal is adopted, at least until June 2004 the rosters will serve as guides for food rationing under the US-British occupation government in Iraq, the Coalition Provisional Authority (CPA). On November 21, 2003, as per the stipulation of Security Council Resolution 1483 passed in May, the UN "terminated" the Oil for Food program and turned over the UN's records and warehouse assets to the CPA. Though Resolution 1483 ended 13 years of economic sanctions on Iraq, the food dependency and eroded purchasing power that Iraqis experienced during the economic sanctions era stubbornly persist.

According to the October 2003 joint assessment of the UN and the World Bank, at least 60 percent of Iraqi civilians, or 15.8 million people, "completely depend" on the monthly basket of such items as flour, tea, cooking oil and soap distributed under the rationing system. The UN's Food and Agriculture Organization (FAO) and World Food Program (WFP) go further, estimating in a joint report on September 23 that "approximately 80 percent of the Iraqi population would become vulnerable to food insecurity if the current food rations were no longer accessible."

Faced with these numbers, Steven Mann, the CPA coordinator for the Oil for Food program transition, told the UN 661 Committee on November 17 that "you're not going to see any change in [the public distribution system of a food basket]" before the planned dissolution of the CPA and installment of an Iraqi provisional government in June 2004. The 661 Committee, which oversaw Oil for Food as part of its mandate to monitor the sanctions, watched Mann deliver a 19-slide Power Point presentation intended to assure them that the transition will be controlled and smooth. Yet as of early December, Security Council members, UN agencies and concerned NGOs were still waiting for the CPA to detail -- in depth -- its plans for the distribution of rations. Because the CPA is known to be pondering major changes to the structure of the ration system, its failure to publicize a plan is worrisome.

Stopgap Measure

Contrary to its lasting image, Oil for Food was never a humanitarian aid program. Instituted in 1996, five years into the well-documented public health emergency that beset Iraq after the 1991 Gulf war, Oil for Food was a series of humanitarian exemptions to the economic sanctions, intended to offset some of the damage that those sanctions wrought upon civilian well-being. Under Oil for Food, the Security Council granted the Iraqi government permission to sell oil and use the proceeds to purchase civilian goods, including food for the rationing system run by the Iraqi government in the center and south of the country. (The UN Office of the Iraq Program handed out goods in the three northern provinces under the control of the two major Kurdish parties.) The 661 Committee determined which items Iraq could import, using money from oil sales held in escrow by the UN. The remainder of the oil revenues were used to settle claims for reparations related to Iraq's invasion of Kuwait, to pay the bills of UN weapons inspection and monitoring teams, and to cover other UN administrative and operational expenses related to Iraq.

Throughout its life span, Oil for Food provided political cover to the UN, and the champions of tough economic sanctions in Washington and London, by ameliorating the humanitarian crisis sufficiently to reduce opposition to the role of economic sanctions in Iraqi suffering. That opposition still impelled the Security Council to raise its cap on Iraqi oil sales in February 1998 and then to lift the lid entirely in December 1999. But in contrast to the thinking of US policymakers that economic sanctions would squeeze Iraqi civilians into rising against Saddam Hussein's regime, the Oil for Food ration system seemed to deepen Iraqis' reliance on the central government. In December 2002, a task force of UN contingency planners stated that "the bulk of the population is now totally dependent on the government of Iraq for a majority, if not all, of their basic needs."

No Comprehensive Plan Available

When Oil for Food expired on November 21, 2003, the CPA had yet to release a comprehensive plan for meeting those needs, despite having promised one to the Security Council by November 19. CPA officials gave the 661 Committee a brief overview document prior to Mann's Power Point presentation, and later, copies of his 19 slides. But these materials contained few details. The CPA website's "Oil for Food transition page" features a photo of a smiling Iraqi girl underneath the phrase, "And, as your economy grows...you shall enjoy your future of hope and dignity." Below the photo is the caption: "Building the market structure that promotes private business." There are also four "helpful links," but no comprehensive plan. Absent a comprehensive plan, it is difficult to tell whether or how the CPA's rationing system will differ from the system followed by the former Iraqi government and the UN, much less whether CPA administration will improve or worsen food security for Iraqis.

Sources familiar with CPA planning excuse the delay by pointing to thesheer complexity of the Oil for Food program and the situation on the ground, as well as the evacuation of the program's UN staff from Iraq due to security concerns. Indeed, on September 17, Benon Sevan, executive director of the UN Office of the Iraq Program, reported that "115 UN international staff [were] required for the orderly termination of the program in the three northern governorates" alone. Sevan warned that reducing staff would "handicap" the transfer of program files and assets. The CPA, however, reportedly did not bring enough personnel into Iraq to facilitate the Oil for Food handoff until late September, by which time UN international staffers had already left. Mann himself arrived in Iraq in August, over two months after the Security Council passed Resolution 1483.

According to UN sources involved in the transfer, their interaction with the CPA was almost entirely consumed by discussing the necessary legal framework for specific implementation, such as making contractual arrangements with suppliers, in a way consistent with Resolution 1483. These UN officials concluded there were disappointingly few consultations regarding the mechanics of the transfer or how the implementation of the ration system after November 21 might affect the humanitarian situation.

"Monetization"

Such diverse organizations as the World Bank and the World Food Program agree that for Iraq's economy to "normalize," food handouts must gradually give way to food purchased with income. A source familiar with CPA planning says the CPA plans to phase out the distribution system by slowly "monetizing" ration components, that is, by gradually substituting cash handouts for the goods currently included in the food basket. At present, planning for monetization is still underway.

According to this source, the CPA would only roll out monetization after a trial period of, for example, three months in select geographic areas. At first, essential food items would continue to be part of the ration and cash handouts would replace non-food items, like detergents. The overall ration would for some time include both commodities and cash, and monetized rations might continue until 2005. Like many occupation policies, formulation of the post-Oil for Food ration policy has reportedly been subject to a sense in the Bush administration that relevant technical experience and expertise are not necessary. Some Administration officials argue that free markets are a key to "freedom" and "democracy" and thus "winning" the administration's self-titled "war on terror." Having labeled Iraq as central to this war, they seem to want to transform Iraq's state-centered economy into a market economy that would resemble few even in the developed world. Steps taken to implement this vision led the Financial Times to editorialize on September 24, "The disconnect between theory and reality in this plan is almost total. Five months after the war ended, Iraq is in no state to endure some free market laboratory experiment." In line with such objections, some CPA officials have privately argued that economic changes the occupying powers make in Iraq should depend at least in part on economic conditions.

A source inside the CPA says that the CPA trade team responsible for formulating Iraq's ration policy has little or no experience in ration systems, food issues or even international trade. In one part of the team, the most senior personnel have backgrounds in unrelated issues, like counterfeiting in China and privatization on the former Soviet Union. They have failed to consult outside experts. While top CPA officials are familiar with the origins of Iraq's ration system, many personnel just below them thought for some time that the ration was food aid, and knew neither that the former Iraqi regime paid for the food nor that the regime distributed the food in the central and southern areas of Iraq. According to the same CPA official, the finance group, backed by US overseer Paul Bremer, made the decision to monetize the ration without consulting the trade team. There was no input from the Iraqi Governing Council. Moreover, says the official, the CPA rarely talks to the interim Iraqi Ministry of Trade -- the lead ministry for the ration distribution system.

Secondees from Britain's Department for International Development, who do have relevant expertise, have contributed to monetization planning. But the CPA official complains that the incompetent override the competent, citing as an example a monetization proposal written by a finance team member from the Australian treasury. The paper's author, who has no experience in food distribution in developing countries, but does have the support of Bremer, suggested that Iraqi banks can cope with the increased circulation of cash that would accompany an end to the rationing system. Those with experience that suggests the contrary send their opinions up the decision-making chain, but hear minimal response. Another source familiar with the issue confirms that high-ranking members of the CPA view the Australian treasury secondee's paper approvingly, despite the dissent.

At this point, it is unclear whether monetization will be implemented before or after the scheduled dissolution of the CPA. Some in the CPA wanted to begin monetization in June 2004, while others favored postponing the measure until November or December 2004. According to the CPA official, those who wanted to begin earlier somehow got the June date included in the monetization working draft plan, though it may subsequently have been removed. Those who favored implementation by the end of 2004 at the earliest contended that decisions about eliminating the ration system ought to depend on the state of Iraq's economy. Unemployment, they insisted, would need to drop significantly. The Iraqi private sector should also be ready to take the place of the government, since the CPA is currently and ultimately responsible for procuring, importing, warehousing and distributing all items for the rationing program. Before the invasion, for example, the government of Iraq ordered, imported, warehoused and distributed most of the detergent in central and southern Iraq, via the rationing system. Today the CPA and Iraqi ministries are performing the same functions. If monetization phases detergent out of the ration and Iraqis are instead given cash to buy detergent in the market, then the private sector will need to have ordered and imported enough detergent to meet demand and avoid shortages. Properly designed and implemented regulation would be necessary to ensure consumer safety and consumer protection; the substantial cross-border trade in Iraq is presently unregulated. The CPA official notes that these concerns were initially treated as short-term worries that were less than significant.

Cash Component

To what extent would monetization help the Iraqis now dependent on rations? During the economic sanctions period, many critics decried the failure of the Security Council and the government of Iraq to agree on modalities for a cash component under Oil for Food. The purchasing power of the middle class -- especially in the central and southern governorates -- had fallen to a fraction of what it had been before 1990. Iraqi ration recipients sold part of their food ration in order to fill needs unmet by the ration system and the crippled economy. If Iraqis have more money in their pockets, then they should be able to avoid selling needed items. The more cash they receive, the more they will be able to choose which commodities they buy, and the more they can eschew the sometimes substandard goods in the food baskets.

Yet economic conditions in Iraq are prone to major fluctuations, and are likely to continue to be volatile. Overall inflation and weekly price variations will give the same dinar a different value every week, eroding the purchasing power and flexibility promised by monetization. Those who receive cash will bear the risk of price fluctuations, whereas under a distributed commodity system the supplier takes on the risk. The threat of inflation is especially noteworthy given the Bush administration's continuing insistence that Iraq's economy be rapidly liberalized. One consequence of the privatization orders issued by Bremer on September 19 was to put state-owned Iraqi food processing plants up for sale at a seemingly inappropriate time. The plants may be purchased by private (Iraqi or foreign) companies for whom quality control may be a secondary concern. It may be also be illegal under international law for the CPA to sell off Iraqi state assets or change existing Iraqi laws to allow the sales. As such, sold enterprises might have to be later transferred back to an Iraqi government, a process that might disrupt production. A source outside the CPA, but familiar with the authority's planning, says that the effects of monetization will be watched and that the system will be adjusted if necessary. But cash is more difficult to track than commodities, for once cash reaches the recipient it leaves no trail. It is not clear if Iraqi ministries' capacity will be sufficient to implement monetization and follow its consequences after the CPA's planned dissolution.

Bleak Prospects

Deficiencies in nutrition under economic sanctions, especially for children under the age of five, have continued in the era of US-British occupation. From the beginning of the rationing program in 1990, the absence of fruit, vegetables and meat often meant that poor people ate an unhealthy diet. In September 2000, the FAO and WFP jointly reported that "the existing food ration do[es] not provide a nutritionally adequate and varied diet...[is] lacking in vegetables, fruit and animal products and is therefore deficient in micronutrients.... Many households cannot afford to supplement their diet with an adequate variety of non-ration foods and intakes of micronutrients such as iron and vitamin A remain far below requirements. Adequate amounts of items such as meat, milk and vegetables are too costly for many families to purchase to supplement their diet." In September 2003, the two agencies again warned that "chronic malnutrition problems persist, especially among vulnerable groups including children and mothers due to a lack of nutrition diversity."

In 2003, the FAO and WFP observed significant improvements in production of cereals and livestock in northern Iraq, meaning that there are more locally produced supplements that could be added to the ration recipients' diets. But according to sources familiar with CPA planning, neither Iraqi officials nor CPA officials have sought to address the ration's nutritional composition. There have also been no public commitments to purchase, whenever possible, Iraqi agricultural products as a substitute for imported foodstuffs. The CPA has stated it will continue to purchase local wheat and barley. Absent, however, is a plan to increase production for other local items. Purchasing local goods would stimulate the local economy, reduce Iraq's dependency on food imports and enhance the nutritional diversity of Iraqi diets after a decade of undernourishment. Education, targeted food support and health care, improved water and sanitation, and increased purchasing power are also important for better nutrition.

Three wars, 13 years of economic sanctions, the militarized spending priorities of the deposed regime, the enormous debt accrued by Saddam Hussein's government and the current insecurity have left short-term economic prospects for Iraq rather bleak. In October, the UN and World Bank estimated that 50 percent of the Iraqi labor force is "either unemployed or underemployed." The FAO and WFP stated in their September report that "approximately 55 percent of the Iraqi population is poor" and that "the food insecure population represents 80 percent of the poor population." Extrapolated to the whole of the population, these numbers mean that an estimated 44 percent of Iraqis are "food insecure." The FAO and WFP added that ration-receiving families and individuals who are food insecure are still "selling the [food] ration to obtain other basic food or non-food needs." Without reliable income to purchase the goods flowing into Iraq since the end of economic sanctions, they may continue to do so.

*About the Author: Nathaniel Hurd is a consultant on Iraq policy based in New York.

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