Coalition plans market economy in Iraq

BAGHDAD - With the war over, the US-led coalition is starting to focus on establishing a market economy in Iraq to replace the central-planning system dominated by the mammoth state sector.

By (AFP)

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Published: Mon 12 May 2003, 12:44 PM

Last updated: Wed 1 Apr 2015, 9:13 PM

Like the socialist regimes of days gone by, Saddam Hussein's Iraq put the economy largely in the hands of a ministry which drew up fanciful five- and 10-year plans full of unrealistic goals.

"Within the next five to 10 years we can see Iraq turned around," says Simon Elvy, the British career diplomat now serves as the coalition's senior advisor to the planning ministry.

"That, I think, means moving towards a more market-based economy," he says. "It's not going to be easy."

The economy in the new Iraq faces a host of daunting challenges, from enormous debt at the international level down to a lack of cash in the pockets of Iraqis needed to get daily business fired up.

But one of the biggest is the behemoth of the state sector. State-owned oil and industry accounted for about 75 per cent of the country's 28 billion dollar GDP, according to official estimates.

The state also dominated the bulk of cross-border trade, and the private sector was confined to agriculture, small industrial ventures, internal trade and a nascent banking sector.

The total capitalisation of the Baghdad stock exchange, which included 13 private banks, was only 137 million dollars, and most listed companies were actually state firms that partially opened to private capital.

Benham Eliass Puttrus, the Iraqi official appointed by the coalition to run the planning ministry, said Saddam's regime started to privatise in the 1990s to counteract UN sanctions slapped on Baghdad for invading Kuwait.

The sanctions - which the US is trying to have repealed in the UN Security Council - deprived state-run companies of raw material and spare parts, and kept them running at only 30 per cent of capacity.

"This was why we moved to privatisation," Puttrus said. The state sold off dairy and drinks companies, but kept more than 50 massive firms that manufacture other foodstuffs, textiles, machinery, pharmaceuticals, construction material, fertilisers and more.

Analyst Fadhel Ali, who edited the Al-Iqtissadi newspaper when Saddam was still in power, said those firms could compete in an open market - but only if they are modernised quickly.

"Iraq is a big market and it needs everything - cement, medicine, food, fertilisers," Ali said. "More importantly, they are major job providers."

The cornerstone of Iraq's rebuilding process is its vast holding of oil - 112 billion barrels of proven reserves, the second-largest in the world after Saudi Arabia.

The oil will pay for reconstruction and more, but analysts say it will be crucial for the country to diversify and look at other streams of revenue to have a more stable long-term economy. "Obviously the economy is dominated by oil ... but it will be important to diversify agriculture and industry," said Elvy.

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