Section[ PART II - Strategy in Detail
Title[ THE ECONOMIC TRACK IN DETAIL
THE ECONOMIC TRACK IN DETAIL
Strategic Summary: Restore, Reform, Build
-- The economic track is based on six core assumptions:
- First, Iraq has the potential to be not just viable, but prosperous and self-sustaining.
- Second, a free and prosperous Iraq is in the economic interest of everybody, including Iraq's
neighbors and the greater Middle East. A flourishing Iraq can spur economic activity and
reform in one of the world's most vital regions.
- Third, increased economic opportunity in Iraq and a growing economy will give larger
numbers of Iraqis an economic stake in a peaceful country, and drain the influence of radicals
and rejectionists who recruit the unemployed and thrive on resentment.
- Fourth, economic change in Iraq will be steady but gradual given a generation of neglect,
corrosive misrule, and central planning that stifled entrepreneurship and initiative.
- Fifth, Iraq can be a reliable and contributing partner in the international economic
community, demonstrating the fruits of good governance and transparency.
- Sixth, Iraq will need financial support from the region and international community as its
economy transitions from being guided by command principles and hampered by poor
infrastructure to a more self-sustaining posture.
STRATEGIC LOGIC BEHIND THE ECONOMIC TRACK
-- Our efforts have focused on helping Iraq restore its neglected infrastructure so it can provide
essential services to the population while encouraging economic reforms, greater transparency,
and accountability in the economic realm. The international community has been instrumental in
these efforts, but there is room for the international community to do more. Foreign direct
investment, over time, will play an increasing role in fueling Iraq's economic growth.
- How will these efforts help the Iraqis - with Coalition support - defeat the enemy and achieve
our larger goals?
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- The rebuilding of Iraq's infrastructure and the provision of essential services will increase
the confidence of Iraqis in their government and help convince them that the government
is offering them a brighter future. People will then be more likely to cooperate with the
government, and provide intelligence against the enemy, creating a less hospitable
environment for the terrorists and insurgents.
- Efforts in the reconstruction realm have significant implications in the security realm
when they focus on rebuilding post-conflict cities and towns. Compensation for civilians
hurt by counterterrorism operations and the restoration of some economic vibrancy to areas
formerly under terrorist control can help ease resentment and win over an otherwise
suspicious population.
- Economic growth and reform of Saddam-era laws and regulations will be critical to
ensuring that Iraq can support and maintain the new security institutions that the country
is developing, attract new investment to Iraq, and become a full, integrated member of the
international economic community.
- Economic growth and market reform - and the promotion of Iraq's private sector - are
necessary to expand job opportunities for the youthful Iraqi population and decrease
unemployment that makes some Iraqis more vulnerable to terrorist or insurgent recruiting.
PROGRESS ON THE ECONOMIC TRACK
-- Our restore, reform, build, strategy is achieving results:
- Oil production increased from an average of 1.58 million barrels per day in 2003, to an
average of 2.25 million barrels per day in 2004. Iraq presently is producing on average 2.1
million barrels per day, a slight decrease due to terrorist attacks on infrastructure, dilapidated
and insufficient infrastructure, and poor maintenance practices. We are helping the Iraqis
address each challenge so the country can have a dependable income stream.
- Iraq's nominal GDP recovered from its nadir of $13.6 billion in 2003 to $25.5 billion in
2004, led primarily by the recovery of the oil sector. According to the International
Monetary Fund, GDP is expected to grow in real terms by 3.7 percent in 2005 and nearly
17 percent in 2006.
- Iraq's exchange rate has been stable since the introduction of its new currency in 2004 and
remains so at approximately 1,475 Iraqi Dinar/$1. A stable currency has allowed the Central
Bank of Iraq to better manage inflationary pressures.
- According to the IMF, per capita GDP, an important measure of poverty, rebounded to $>42
in 2004 (after dropping to $518 in 2003), and is expected to continue to increase to over
$1,000 in 2005.
- Since April 2003, Iraq has registered more than 30,000 new businesses, and its stock market
(established in April 2004) currently lists nearly >0 companies with an average daily trading
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volume over $100 million (from January to May 2005), up from an average of $86 million in
2004.
- Iraq is rejoining the international financial community: it is on the road to WTO accession,
has completed its first IMF economic health report card in 25 years, and secured an agreement
that could lead to as much as 80 percent reduction from the Paris Club for Saddam-era debt.
- At the October 2003 Madrid International Donors Conference, donors other than the United
States pledged over $13 billion in assistance for the reconstruction of Iraq, including $8
billion from foreign governments and $5.5 billion in lending from the World Bank and
International Monetary Fund, to be disbursed from 2004 through 2007.
- Iraqi business leaders are decidedly optimistic about the growth of the economy as well as the
growth of their own businesses.
- According to a September poll by Zogby International for the Center for International
Private Enterprise, 77 percent of Iraqi businesses anticipate growth in the national
economy over the next two years and 6> percent of respondents describe themselves as
being "optimistic" about Iraq's economic future.
- Today in Iraq there are more than 3 million cell phone subscribers. In 2003 there were
virtually none.
CONTINUED CHALLENGES IN THE ECONOMIC SPHERE
-- Even with this progress, Iraq continues to face multiple challenges in the economic sphere,
including:
- Facilitating investment in Iraq's oil sector to increase production from the current 2.1 million
barrels per day to more than 5 million per day;
- Overcoming decades of Saddam's neglect of Iraq's basic infrastructure;
- Preventing, repairing, and overcoming terrorist and insurgent attacks against vital infrastructure,
especially electricity and oil related nodes;
- Dealing with an increased demand for electricity;
- The liberalization of border trade and increased salaries of Iraqis, has led to increased demand
for electrical goods since 2003, which has driven up demand for electricity. At the same time,
insurgent attacks and dilapidated infrastructure have complicated efforts to bring more
electricity on-line. The Iraqis, with our assistance, are working to ease electricity constraints
by providing greater security to transmission lines, investing in new generation capacity, and
evaluating the prospects of using natural gas - as opposed to inefficient fuels - to keep
generators running.
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- Creating a payment system and a banking infrastructure that are responsive to the needs of the
domestic and international communities, and that allow transactions involving possible money
laundering, terrorist financing and other financial crimes to be detected;
- Balancing the need for economic reform - particularly of bloated fuel and food subsidies -
with political realities;
- Building the administrative and technical capacities of Iraqi ministries;
- Ensuring as much reconstruction assistance as possible flows to Iraqi entities (ministries and
businesses);
- Encouraging local and regional capacity building after decades of a highly centralized
government, so that reconstruction and essential services can be more evenly distributed
throughout Iraq;
- Facilitating progress toward a market-oriented economy by reforming commercial laws and
other bureaucratic obstacles to attract investment and private sector involvement;
- Encouraging many in the region and the international community to disburse their pledges
more quickly and contribute even greater resources to Iraq's reconstruction.
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