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Iraq: U.S. Plans To Reshape the Iraqi Economy

by Adam HorowitzZ Magazine
September 1st, 2003

On May 1, 2003 the Wall Street Journal reported that the Bush administration has “drafted sweeping plans to remake Iraq’s economy in the U.S. image.” According to this report, the U.S. is planning to privatize state-owned enterprises, create a modernized Baghdad stock exchange, a reformed central bank, and rewrite the tariff and tax code systems. The plan was officially released on June 6. “Economic Recovery, Reform and Sustained Growth in Iraq” is the USAID request for proposals (RFP) for “economic governance” work during the U.S. occupation of Iraq, and it makes clear what the United States has planned for the future of Iraq

This document, which outlines work in Iraq beginning this past summer and running through 2006, is important for several reasons. First, it continues the trend in recent USAID RFPs for work supporting the U.S. occupation by “limiting competition” to only ten firms. The firms eligible to apply for this contract are: Bearing Point; Booz, Allen and Hamilton; Nathan; IBM Global Services; Development Alternatives, Inc.; Carana; Abt Associates; Chemonics; Deloitte & Touche; and Financial Markets International, Inc. The Journal reported that at least part of the work is expected to be given to Bearing Point, formally KPMG, which was recently awarded a similar $40 million three-year USAID contract for the financial, legal, and regulatory reconstruction of Afghanistan

The RFP is also important because it contradicts stated U.S. policy in Iraq. The refrain from occupation leadership has been that an elected Iraqi government will make decisions regarding the future of the Iraqi economy, but the timelines laid out in the RFP make this impossible. One example of this is the new Iraqi currency. Accused of attempting to “dollarize” the Iraqi economy, the U.S. has pumped over $400 million into the Iraqi economy while repeatedly assuring critics that an elected Iraqi authority will decide the future of Iraqi monetary policy. Yet, the RFP calls for the contractor to “prepare a currency, and organize and carry out an extremely rapid and thorough exchange of currencies, eliminating the current currency and substituting a replacement currency designed and prepared and produced in large quantities to a very high standard of excellence. The currency exchange is to be carried out effectively and simultaneously throughout Iraq. Old currency units are to be collected and destroyed.” According to the RFP, the design and planning for the new Iraqi currency is to be completed by October 2003 and its introduction is planned for January 2004. Given that L. Paul Bremer recently postponed indefinitely  the creation of a representative Iraqi government, it is difficult to believe that this process will be lead by, much less advised by, elected Iraqi leadership.  

Similarly, plans for the privatization of Iraqi state-owned enterprises and commercial banks is covered by the RFP. As reported in the Financial Times, the planning for this privatization began on June 8, despite similar promises that this process would be led by an Iraqi government. Timothy Carney, U.S. advisor to the Industry Ministry, claimed, “The need for foreign investment in the economy is too great to delay.” The comprehensive privatization program is made up of two parts—the Mass Privatization Program and the Strategic Investor Sales. In the first year of this plan (begun this August) Iraqi industries will be identified for consolidation, liquidation, and privatization and new Iraqi laws will be drawn up to make these plans legal. The privatization of selected Iraqi industries is then scheduled to take place over the next two years. While the establishment of an Iraqi government has been put on hold, the selling off of Iraqi resources seems to be right on schedule. 

The RFP goes on to outline plans to “rationalize” and “modernize” the Iraqi banking and financial sectors, create taxation, legal and regulatory regimes to facilitate this process, along with the further integration of Iraq into international economic networks. It also calls for a public relations campaign to sell these fundamental changes to the Iraqi people. It is clear that the U.S. views these changes as the spoils of war. The document explains rather understatedly, “it should be clearly understood that the efforts undertaken will be designed to establish the basic legal framework for a functioning market economy; taking appropriate advantages of the unique opportunity for rapid progress in this area presented by the current configuration of political circumstances.” 

This plan calls into question the common critique of the U.S. occupation of Iraq as unfocused and disorganized. Rather, it clearly demonstrates U.S. priorities and goals in Iraq along with their plans to actualize them. What remains unclear is whether ongoing Iraqi resistance and worldwide protest of U.S. power will derail these plans. 

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