Global Policy Forum

Operation Corporate Freedom: The IMF and The World Bank in Iraq


By Basav Sen and Hope Chu

50 Years Is Enough
September, 2005

While U.S. military forces occupying Iraq may be facing a quagmire in operations, the economic forces of the International Monetary Fund (IMF), the World Bank, and the World Trade Organization (WTO), are moving full speed ahead implementing various economic reforms that will cause U.S.-based corporations – Bechtel, Halliburton, and others – to proclaim, "Mission Accomplished!" As the Bush administration touts its rhetoric of freedom and liberation, the IMF and World Bank are busily "liberating" Iraq's resources – oil and labor – and "freeing" Iraq's markets.

Stage One: Debt cancellation for Iraq, increased control for the IMF

Shortly after the start of the US occupation of Iraq, the Bush administration sent former Secretary of State James Baker on a pilgrimage to the capitals of other wealthy countries to seek cancellation of Saddam Hussein's odious debts. In a move that seemed inexplicable at first, the Bush administration was using the principle of odious debt to ask for cancellation of Iraq' s Saddam Hussein-era debt.

Now, the political motivations behind this unexpected move are clear. The cancellation of Iraq's debt is a Trojan horse for the IMF, World Bank, and WTO to enter Iraq and start restructuring the economy further, continuing where Paul Bremer's Coalition Provisional Authority (CPA) left off. In a move reminiscent of the Heavily Indebted Poor Countries (HIPC) program, not only debt but debt relief is being used as a tool to restructure Iraq's economy

The Paris Club of Creditors, a cartel of most of the world's major bilateral creditors (including all the G8 governments and the governments of other wealthy countries), agreed on November 21, 2004, to cancel 80% of Iraq's debt of about $39 billion to Paris Club members, in three steps. The terms of the cancellation are that:

- 30% of the debt would be cancelled outright;

- 30% would be cancelled "as soon as a standard IMF programme is approved," according to the Paris Club press release announcing the move, essentially conditioning debt cancellation on the subjugation of Iraq's economic policy to the IMF;

- Another 20% would be cancelled after three years, subject to the IMF Board's review of Iraq's implementation of the terms of the agreement, further binding Iraq to IMF conditions.

Two things about the Paris Club "deal" are noteworthy. First, Iraq's debt to the IMF is only about 1% of its total Paris Club debt, and yet the IMF gets to determine the conditions for most of the debt cancellation being offered to Iraq. This shows that the political clout of the IMF is way out of proportion to its financial clout.

Secondly, the Paris Club made it clear that the offer of debt cancellation was because of "the exceptional situation of the Republic of Iraq and... its limited repayment capacity over the coming years." While the initial rhetoric of the Bush administration had focused on the principle of odious debt, the Paris Club was careful not to set a precedent for acknowledging this principle, lest they face pressure in the future to cancel the debts of other repressive regimes such as the apartheid regime in South Africa, the Suharto dictatorship in Indonesia, the notorious Duvaliers of Haiti, or the Mobutu regime in Congo. Denying the odious nature of the debt also provides the Paris Club political cover to keep 20% of Iraq's debt off the table. Even the Iraqi National Assembly, a body that rarely contradicts the United States, has publicly condemned the Paris Club deal for failing to recognize the odious nature of Iraq's debt and consequently requiring Iraq to repay a fifth of it.

In this manner, a move that appears on the surface to be beneficial for Iraq – debt cancellation – is being used as a tool of control by the World Bank, the IMF and the wealthy creditor countries. What is more, it is a tool of control that will last long after the withdrawal of U.S. combat forces.

Stage Two: The Coalition Provisional Authority lays the groundwork

In this context, it is worthwhile to review how the Coalition Provisional Authority restructured Iraq's economy. (See "World Bank Brings Market Fundamentalism to Iraq," Economic Justice News, September 2004) Paul Bremer passed a series of Executive Orders (without any accountability to Iraqi people) that, among other things:

- Laid off 500,000 government workers – 400,000 of them employees of the Iraqi Armed Forces – in a country with a workforce of 6.5 million. This lay-off thus represented nearly 8% of the workforce.

- Changed laws governing foreign investment to "make Iraq one of the most liberalised economies in the developing world and go beyond even the laws in many rich countries," according to the Financial Times. (CPA Order No. 39)

- Made it illegal for Iraqi farmers to plant saved seeds and to exchange knowledge freely. Now they are allowed to plant only "protected" crop varieties which remain the property of the multinational seed companies. Previously, the Iraqi constitution did not allow patenting of plants. The CPA, however, changed the law to allow "intellectual property" control over plant varieties. (CPA Order No. 81)

Collectively, these laws represent what The Economist calls "the wish-list of foreign investors." (" Let's All Go to the Yard Sale: Iraq's Economic Liberalization," September 27, 2003).

Every single one of these policies fit the neoliberal framework, and sound as if they were World Bank and IMF conditions. But they aren't. Even before the IMF, World Bank, and WTO made their entry into Iraq to any significant extent, the US occupation was unilaterally coercing Iraq to conform to policies identical to what these institutions would have required – and at a more accelerated pace. There are more ways to restructure economies than through loan conditions. What Iraq has undergone under the CPA can best be described as a structural adjustment program imposed at gun-point.

Stage Three: Economic occupation by the IMF and World Bank

Not content with the extent to which Iraq's economy has already been restructured on neoliberal lines by the U.S., the IMF, World Bank, and WTO have more designs for the Iraqi economy. The IMF and World Bank are using debt cancellation as leverage to compel Iraq to comply with their conditions, while the WTO is using Iraq's entry into the world trade body as leverage. In addition, both institutions have begun normalizing their relations with Iraq: in July, the World Bank made its first loan to Iraq since 1973. This renewal of lending will strengthen the IFIs' hand in the country.

Conditions imposed by the IMF, World Bank, and WTO on Iraq include the following:

Privatization of all state-owned enterprises in Iraq except oil. This IMF-imposed condition will lead to the lay-offs of an estimated 145,000 workers. It will also provide foreign corporations with control of vital sectors of Iraq' s economy. As for the oil industry, while it will not be totally privatized, legal changes are underway to provide for partial foreign ownership. Former Finance Minister Adel Abdul Mehdi (who is now one of Iraq's two Vice-Presidents) admitted that these legal changes would be "very promising to the American investors and to American enterprise, certainly to oil companies."

An end to food subsidies. Subsidized food rations have been a lifeline for 60% of Iraq's population, and often their only protection against starvation, but the IMF, World Bank, and WTO want to eliminate them. The elimination of subsidized food distribution will facilitate the control of Iraq's market for food by corporate agribusiness.

Liberalization of food prices. The World Bank wants to eliminate regulations that keep food prices under control. "Liberalization" of food prices has led to severe food shortage, even famine, in many countries, most recently in Niger and Mali.

Paul Wolfowitz: Master and Commander

The economic restructuring of Iraq to benefit foreign investors was most likely one of the main motivations for the U.S. invasion and occupation of Iraq – or at least a highly profitable windfall. The fact that Paul Wolfowitz, the newly appointed president of the World Bank, was one of the major architects of the invasion only heightens the probability of a conscious plan on the part of the Bush administration. With the goal of maintaining U.S. control over the resources of Iraq after the occupation, installing Wolfowitz – a leading member of the Project for a New American Century and already on record as an advocate of expanding U.S. influence and dedicating foreign policy to the service of U.S. interests – at the head of the World Bank makes perfect sense.

It is clear that the consequences of the U.S. occupation, and of the subsequent economic occupation and restructuring of the country in the interests of foreign investors by the IMF, World Bank, and WTO, will last well after the withdrawal of U.S. troops. Getting US troops out of Iraq, while an important first step towards winning self-determination for Iraq, is exactly that – a first step. If the U.S. anti-war movement is serious about standing in solidarity with the people of Iraq, and challenging the deep-rooted economic motivations of an interventionist U.S. foreign policy in Iraq and around the world, then it needs to make resistance to the neoliberal economic agenda of so-called international institutions a central plank of its campaign.



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