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Can the U.S. "Jump-Start" Iraq's Economy?


From Basra to Baghdad to Kirkuk, U.S. and British forces are still mopping up combat operations and restoring order. But retired Lieutenant General Jay Garner, director of the awkwardly named Office of Reconstruction & Humanitarian Assistance (ORHA), is eager to get going on rebuilding Iraq. Still forced for security reasons to cool his heels with his staff of 350 in Kuwait City, Garner is itching to move to Baghdad to oversee his "Iraqi jump-start program." The plan is to restart oil production, award key telecom contracts, and provide small-business loans within three months.

Garner & Co.'s effort will mark the start of another monumental experiment in economic transition -- one that could prove every bit as complex as efforts to transform Eastern European and Soviet economies in the 1990s. Like many of those former communist governments, Iraq has operated under an inefficient command-and-control system for decades. Its economy has also been ravaged by three wars, including the current one, since 1980, and more than a decade of international sanctions. Although Iraq's oil reserves of 112 billion barrels offer tantalizing prospects, the industry sorely needs investment.

And while little is known about the rest of the economy -- few nations have been isolated for so long -- there's no doubt it's a wreck. More than 600 state-owned companies have been run into the ground, Garner aides estimate. Planners will have to sift through the ashes of the Finance Ministry, destroyed in Baghdad, for clues as to how the government finances were run. "The restructuring of this economy to meet national needs is going to take, at minimum, a half a decade," predicts Anthony H. Cordesman, a prominent expert on Iraq at the Center for Strategic & International Studies in Washington. "I would have hoped that we learned from the Russian experience that a command economy that has been warped for 30 years is not going to be 'jump-started."'

Garner and his team are beginning with basics. One of the first priorities is getting the civil service back to work. The enticement will be one-time $20 payments -- equivalent to more than a month's salary for most government workers. That will be followed by regular salaries once ministries are reorganized, starting in several weeks. With as many as 2 million civil servants eligible for the payouts, some $40 million in initial payments could soon be pouring into the economy. The money will come from an estimated $1.7 billion in frozen Iraqi assets held in the U.S.

American dollars will be allowed to circulate freely -- alongside the now nearly worthless Iraqi dinar, the Syrian pound, Kuwaiti dinar, and the euro. Once an interim Iraqi government is chosen, a 10-person team -- including an as-yet-unnamed vice-president of the Federal Reserve Bank of Boston -- will help Iraq issue a new local currency.

What about the oil industry? Even as British soldiers were still quelling the looting in Basra, ORHA officials headed out to nearby oilfields on Apr. 12 with greenbacks for workers preparing to return to the job. Because damage to oilfields in both southern and northern Iraq was kept to a minimum, production could begin by July. Garner is hoping that oil revenues will eventually be used to fund reconstruction. But that will require the U.N. Security Council to lift sanctions on Iraq, still the subject of a thorny debate.

Lifting sanctions is also the first step to opening the way for foreign companies to move back into Iraq. Kuwait is already abuzz with cowboy investors -- including Iraqi expatriates -- hatching schemes for hotel and tourism projects. Meanwhile, British and U.S.-funded plans are luring major companies from those countries. In the latest deals, the coalition has awarded one-year mobile-phone concessions to Worldcom Inc. in Baghdad and to a British provider in the south, mainly to improve communications for the interim administration. "It's U.S. money, and therefore we don't apologize for passing it out to [coalition] companies," says an ORHA official. With luck, that will mean better services for Iraqis, too. By Frederik Balfour in Kuwait City


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