Global Policy Forum

US to Take Bigger Bite of Iraq's Economic Pie


By Emad Mekay

Inter Press Service
December 23, 2004

The United States is helping the interim Iraqi government continue to make major economic changes, including cuts to social subsidies, full access for U.S. companies to the nation's oil reserves and reconsideration of oil deals that the previous regime signed with France and Russia.

The United States is helping the interim Iraqi government continue to make major economic changes, including cuts to social subsidies, full access for U.S. companies to the nation's oil reserves and reconsideration of oil deals that the previous regime signed with France and Russia. During a visit here this week, officials of the U.S.-backed administration detailed some of the economic moves planned for Iraq, many of them appearing to give U.S. corporations greater reach into the occupied nation's economy.

For example, the current leadership is looking at privatising the Iraqi National Oil Company, said Finance Minister Adil Abdel Mahdi. The government, which is supposed to be replaced after elections scheduled for January, will also pass a new law that will further open Iraq's huge oil reserves to foreign companies. U.S. firms are expected to gain the lion's share of access in a process estimated to be worth billions of dollars.

"So I think this is very promising to the American investors and to American enterprises, certainly to oil companies," Abdel Mahdi said at the National Press Club in Washington, DC on Tuesday. Abdel Hadi, formerly a member of the exile Iraqi opposition, said the interim government will also reconsider deals signed between French and Russians oil firms and the regime of former President Saddam Hussein. It is still not clear whether those contracts will be cancelled altogether or just reduced.

France and Russia both opposed the March 2003 U.S.-led invasion of the Arab country and companies from those nations were initially banned by the U.S. occupation administration, the Coalition Provisional Authority (CPA), from helping to "rebuild" Iraq. Washington later said non-U.S. firms could work there, after the world's rich nations agreed to forgive part of Iraq's debt, a decision that opened the door to Baghdad signing on to a loan programme designed by the International Monetary Fund (IMF). But to date all contracts let for "reconstruction" by the U.S. Agency for International Development (USAID) have gone to U.S. firms, which have then subcontracted some work to foreign companies.

Iraq's oil sector is essential both to world energy markets and to the nation's economy. Iraq sits on the planet's second largest oil reserves, after Saudi Arabia, and oil revenues account for more than 95 percent of the country's current budget. (The rest comes mainly from taxes and profits of certain state-owned enterprises). Iraq is now producing a maximum 2.5 million barrels of oil a day (bpd), which drops to around two million bpd during attacks from the armed opposition.

But Baghdad says it expects to produce 3.5 million bpd when more U.S. companies move in and security improves. "We found it very useful and interesting to hear the representatives of the government describe some of the preliminary thinking about structuring of the state-owned oil sector in Iraq," said Alan Larson, undersecretary of state for economic, business and agriculture, during the press club conference with Iraqi officials.

Washington is also expanding its influence in Iraq's oil sector via training programmes. During meetings this week of the Iraq-U.S. Joint Economic Commission (JEC), the body that coordinates U.S. plans for Iraq's economy, Larson said the United States will provide training for oil-sector personnel, at U.S. universities.

Since it invaded Iraq, the United States has worked to reshape the Arab nation in its image. All the economic programmes, including the most liberal tax scheme in the Middle East and nearly non-existent trade tariffs, instituted by the CPA are being continued by the interim government. Washington has installed hundreds of U.S. economic advisors in all Iraqi government ministries, who have a decisive say on most economic decisions. It has also sponsored the bulk of the nation's economic changes, based on a neo-liberal model that emphasises privatisation of government entities and cuts to social spending.

One major move the country is inching towards under U.S. guardianship, which was discussed this week, is a rollback of Iraq's huge subsidies system, which may have kept millions of Iraqis from starvation under U.S. and UK-backed sanctions imposed by the United Nations after the 1991 Gulf War. The sanctions lasted for 12 years. A study by the U.N. Children's Fund (UNICEF) and Iraq's Ministry of Health found that 500,000 more Iraqi children died under sanctions, from 1991 to 1998, than would have otherwise perished, but they stressed that not all the deaths could be directly blamed on the provisions. It is believed that many more Iraqis would have died if not for a strong subsidies system that gave food rations to Iraqi families.

Under its October agreement with the IMF, Baghdad's interim leaders agreed to cut the support, among many other conditions. Officials defended the move during their Washington visit. "I think this is a necessity for the Iraqi economy," Abdel Mahdi said. "We really need to work on our subsidy side. Subsidies are taking almost 60 percent of our budget. So this is something we have to work on … Other measures really were a real necessity for the Iraqi economy before (becoming) conditions asked by the IMF."

Iraqi officials say the country's unemployment rate is now 27 percent, but some groups have estimated it to be as high as 50 percent. The IMF has been notorious for imposing conditions that its economists say are necessary to slash nation's budget deficits. Development groups and anti-poverty campaigners argue those measures favour corporations in the most industrialised nations while harming the poor and middle class in borrowing countries.

The programme with Iraq appears to be no different. Called the "enhanced post-conflict facility," the IMF programme bestows 420 million dollars in loans to the Iraqi government as a first step, promising more in 2005 if the nation meets more demanding conditions. The IMF, which is dominated by the United States and other rich nations, has said it is willing to loan Iraq 2.5-4.3 billion dollars over three years now that an internationally recognised government is in place in the nation. Washington also brokered talks that began two weeks ago to make Iraq a member of the World Trade Organisation (WTO).

During this week's meeting of the JEC, the United States Agency for International Development (USAID) said it will focus on lending for Iraq's agricultural sector, which will include over 100 demonstration projects throughout the country to reinvigorate crops and to boost the industry, with the help of U.S. companies.

The United States Treasury and USAID also said they will back a housing fund in Iraq, which will start lending in January 2005 and is designed to add 30,000 new residential units in and around Baghdad during the year. Many U.S. companies will be involved. Washington is also pushing lending programmes to Iraq through the U.S. Export-Import Bank, the Overseas Private Investment Corporation and the U.S. Trade and Development Agency, all of which would produce more opportunities for U.S. firms in the occupied nation.

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