Global Policy Forum

Why You Should Care About the World Bank and Iraq

Bank Information Center
March 13, 2007

Reports that a World Bank staffer was shot at an Iraqi checkpoint surfaced in late February. The Bank apparently suppressed the news for several days, presumably in an effort to quell concerns about Bank President Paul Wolfowitz's recent push to re-open a World Bank office in Baghdad. What should the Bank be doing in Iraq? Following is an overview of current Bank involvement in the country, and some reasons why you should be concerned.

What the Bank is doing in Iraq

The World Bank's stated mission for Iraq is to "help Iraq build efficient, inclusive, transparent, and accountable institutions for stability, good governance, and sustainable economic prosperity." Activities are guided by a 2006-7 Interim Strategy Note (ISN) and based on four pillars: restoring basic service delivery, enabling private sector development, strengthening social safety nets, and improving public sector governance. The Bank is currently providing both lending and technical advice to the country. It also administers one part of the International Reconstruction Fund Facility for Iraq: the World Bank Iraq Trust Fund (the UN's Development Group Trust Fund is the other part).

* Lending: The ISN provides a framework for up to $500 million in IDA resources. Another $500 million in IBRD resources may also be available, contingent upon improvements in creditworthiness. The Bank's website lists three active IDA projects with commitments totaling almost $300 million. The IFC, the Bank's private-sector arm, is supporting four private investments in the country totaling $297 million, including a SME-based project involving a Jordanian bank and a Commercial Bank project involving the National Bank of Kuwait (which is also, incidentally, part of a consortium managing the Iraq Trade Bank).

* Analytical & Advisory Services: The Bank is also providing policy reform papers on key issues and sectors, and organizing policy dialogues. Examples of Iraq reform paper topics include: economic reform, investment climate, and state-owned enterprises. One WB policy reform paper (United Nations and World Bank Joint Needs Assessment: Investment Climate (October 2003)) urges Iraq to quickly develop institutions and laws in favor of private and foreign investment. The Bank is also the lead adviser to the IMF's Iraq program on sectoral strategies including, inter alia, the oil sector.

* Iraq Trust Fund: Through the World Bank Iraq Trust Fund, the Bank finances at least 15 active and completed projects totaling over $400 million, primarily in the Water/Sanitation, Transportation, and Education sectors.

* Office: Bank activities in Iraq have been directed through an office in Amman, Jordan since shortly after the fall of Saddam Hussein. Country Director Joseph Saba is based in Washington, DC. However, Paul Wolfowitz has recently made moves to beef up the Bank's presence in the country, negotiating a contract with a new resident country director to be based in Baghdad's "Green Zone".

So what's the big deal?

1. The Bank's rush to re-engage is premature

Some argue that by preparing an ISN and approving lending to the country, the Bank is going against its own conditions for engagement, as outlined in the 1998 "Framework for World Bank Involvement in Post-Conflict Countries" and Operational Policy (OP) 2.30: Development Cooperation and Conflict. The OP states that an Interim-Strategy Note (ISN) may be prepared to guide short to medium-term operations when "active conflict has diminished sufficiently for Bank staff to be able to travel to the area for the purpose of identifying and supervising Bank-supported countries" and "there is a reasonable expectation of continued stability or of a sustainable …cease fire."

Active violence continues, there is no reasonable expectation of stability and World Bank staff cannot travel safely in the country. Sectarian violence is not only ongoing, it has intensified since the Bank prepared the ISN in 2005. And as the February shooting shows, staff is clearly not safe operating in the country. "In the simplest financial terms, there is no functioning banking system, the government does not control its territory and it cannot guarantee loan repayment. Any emergency or social funding in Iraq should come from donors' grants, not loans," Bea Edwards of the Government Accountability Project recently commented. Without stability and security, how can World Bank lending be properly implemented or supervised?

2. If I want your opinion, I'll give it to you…

Wolfowitz has the power to re-appoint a resident country director for the Baghdad office, regardless of staff and management concerns. But should he? Word is that Middle East Vice-President Christiaan Poortman resigned after a falling-out with Bank management over the issue. German ED Eckhard Deutscher has also publicly raised concerns. "Mr. Wolfowitz says he was simply following staff advice ‘for a modest, incremental upgrading of our presence' in Iraq and that the plans have board approval, but current and former officials say he and his staff were the driving force for change," Greg Hitt wrote in the Wall Street Journal last year. At the very least, recent developments highlight ongoing tensions between Wolfowitz's team and the Bank's Board. Many are wondering if these tensions will in turn hamper the President's ability to successfully raise funds during the upcoming IDA-15 replenishment.

3. Wolfowitz's conflict of interest

In addition to exacerbating tensions within the institution, many see Wolfowitz's actions as confirming longstanding fears that the President will use his role to promote US geopolitical interests. His rush to establish an office might very well be interpreted as a move to instill greater confidence in other donors involved in reconstruction efforts in Iraq. Some might even go so far as to suggest the move might be laying the groundwork for ushering US private-sector interests back into the country. How can an architect of the Iraq war be truly objective in guiding the country's reconstruction?

4. No 'development cancer' in post-conflict environments?

Paul Wolfowitz has made the fight against corruption a defining theme of his presidency thus far; the Governance and Anti-Corruption Strategy (GAC) is expected to be finalized at next month's Spring Meetings. Yet the GAC's ambitious list of expectations and conditions for tackling corruption in borrowing countries and Bank projects seems oddly matched with lending to Iraq. Numerous reports have highlighted the level of corruption in the country. The Bank apparently grants special exceptions for countries in conflict. But what is appropriate? Many have criticized the GAC's spotty treatment of corruption in post-conflict environments. Given the astounding amount of debt previously incurred by corrupt regimes, and current calls to cancel these "odious" debts, how can the Bank reasonably turn a blind eye to corruption in post-conflict situations? Wolfowitz and the Bank must walk the talk with respect to corruption and Iraq.

5. Iraq: Open for business!

IMF lending and debt relief to Iraq is in part contingent upon the country's development of a petroleum law. Stipulated in an agreement signed before the election of the new government, and without meaningful public scrutiny, the law is currently being debated by the Iraqi Parliament. It will establish a Federal Oil and Gas Council, staffed in part by Big Oil executives. "The new law would grant the council virtually all power to develop policies and plans for undeveloped oil fields and to review and change all exploration and production contracts," Juan Gonzalez reported in the Daily News on Feb 21. Conveniently, it would seem, these companies will be some of the very same US and British companies formerly excluded from Iraq's oil industry due to US sanctions against the country; the Iraqi National Oil Company won't have any advantage over these foreign companies. "Since most of Iraq's 73 proven petroleum fields have yet to be developed, the new council would instantly become a world energy powerhouse," Gonzalez wrote. Contracts with international companies will likely be similar to controversial production-sharing agreements, which could prolong and exacerbate poor governance by allowing investors in the oil and gas sector to effectively bypass the weak or absent legal and regulatory frameworks.

What's the Bank's role in all of this? The institution is advising the IMF in the development of the oil sector strategy. More broadly, the Bank is advising Iraq on attracting foreign direct investment through quickly developing investor friendly laws and institutions and also advising on reforming state-owned enterprises. In addition, the Bank is participating in meetings with the IMF, Iraq Minister of Finance, and the International Tax and Investment Center (ITIC) on Iraq's oil sector. The ITIC is a business lobby group comprised of: BP, Chevron, Eni, ExxonMobil, Shell, and Total. A third workshop with ITIC on Iraq petroleum fiscal issues is scheduled for this Spring.

6. Post-conflict engagement: the Bank's new bread-and-butter?

Why aren't other post-conflict countries receiving the same attention from the World Bank? Comparing World Bank assistance across post-conflict countries is at times like comparing apples and oranges, but here's some food for thought:

* Iraq. Conflict status: ongoing sectarian violence. World Bank lending: Three IDA projects since 2005 totaling $300 million and four IFC projects totaling $297million. No lending 1973-2005.

* Afghanistan. Conflict status: ongoing unrest.* World Bank lending: Since 2002, 30 IDA/IBRD projects totaling $1.29 billion. No lending 1979-2002.

* Ivory Coast. Conflict status: peace process underway, disarmament started.* World Bank lending: Four IDA/IBRD projects since 2002 totaling $235 million.

* Sierra Leone. Conflict status: conflict ended in 2002.* World Bank lending: Fourteen IDA/IBRD projects approved since 2002, totaling $303 million.

* Liberia. Conflict status: civil war ended in 2003, peace agreement signed.* World Bank lending: Since 2005, 4 IDA/IBRD projects have been approved, totaling $46.5 million. No lending 1985-2005

* Central African Republic. Conflict status: fragile.* Since 1999, 4 IDA/IBD projects have been approved totaling $127 million. No new lending 1994-99 or 2001-05.

* Haiti. Conflict status: free and fair elections in 2006.* World Bank lending: Nine IDA/IBRD projects since 2005, totaling $165 million. No lending 1996-2005.

Source: "Semi-Annual Monitoring Report on Conflict-Affected Countries, December 2005-May 2006". The World Bank.

Moving forward…

The World Bank's involvement in Iraq provides critical fuel for analyzing the institution's engagement in post-conflict situations. As intrastate violence has increased, so the Bank has stepped up its involvement in virtually all aspects of "peacebuilding". Do privatization and conditionality in post-conflict lending really enhance prospects for peace? What is the proper role for the Bank? The World Bank, governments, and civil society must actively engage with these and other questions in the years to come.

The IFIs must tread carefully in resource-rich countries. Iraq's oil may in fact be a "resource curse", given the correlation between abundant mineral wealth (in Iraq's case, oil) and negative economic and political consequences. An even more central concern is whether the liberalization and privatization of Iraq's economy will alleviate or exacerbate the conflict, given the country's current inability to successfully distribute resources and profits. The IFIs must provide thoughtful development assistance, not use their influence to drum up business in a barely stable post-conflict environment. And the main beneficiaries must be Iraqis, not international consulting firms, international oil companies, the IMF or World Bank.

More Information on Iraq
More Information on the Reconstruction of Iraq
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