WASHINGTON -
A barrage of binding decrees passed during the United
States occupation of Iraq, combined with a lack of
resources, heavy debt and the continuing
presence of a massive US force, provide clear evidence
that the recent handover of authority to Iraqis does not
equal real control over the economy.
Just before
former US administrator L Paul Bremer left Iraq on June
28, he said that one of his biggest achievements was to
transform Iraq into a market-based economy, citing lower
tax rates and import duties, and more liberal foreign
investment laws.
In May 2003, Bremer declared
Iraq "open for business" and for the past 14 months the
now defunct Coalition Provisional Authority (CPA)
promoted major changes to the country's regulatory and
legal frameworks, entered into long-term contracts and
appointed oversight committees with multi-year terms. As
a result, the country's economy looks set on a path that
Iraqis will find hard - if not impossible - to alter.
A report by the Institute of Policy Studies
estimated that Bremer had passed nearly 100 orders that,
among other things, give US corporations "virtual free
rein over the Iraqi economy while largely excluding
Iraqis from a reconstruction effort which has failed to
provide for their basic needs".
Iraqis have had
little input into those changes imposed by the
authority, the report said. Most of the benefits of the
reconstruction contracts signed under the occupation
also went to US companies that appear to have secured
future maintenance and reconstruction contracts in
massive, capital-intensive infrastructure projects.
Meanwhile, a recent report by the Open Society
Institute's (OSI) program to monitor Iraq's
reconstruction said that the US-controlled CPA was
engaged in a last-minute spending spree, committing
billions of dollars to "ill-conceived projects just
before it dissolves", in an apparent attempt to
pre-impose those deals on any future Iraqi government.
The US-controlled Program Review Board, the body in
charge of managing Iraq's finances, approved the
expenditure of nearly US$2 billion in Iraqi funds for
reconstruction projects in just a single meeting.
"With so much money available for cash
give-aways, and so little planning on how the process
will work, it will be all but impossible to avoid
corruption and waste," said Svetlana Tsalik, director of
the Iraq Revenue Watch at the OSI, which is chaired by
leading US financier George Soros. She also said as a
direct result of this last-minute spending, the new
government is left with far less money to spend than the
CPA, including the $20 billion collected for the
Development Fund for Iraq (DFI), authorized by the
United Nations Security Council last May to safeguard
Iraq's oil revenues and other money, already earmarked
by the CPA for government salaries and reconstruction
costs.
The UN Security Council's latest
resolution on Iraq, passed on June 8, requires the new
government to satisfy all outstanding obligations
against the DFI made before June 30, leaving the new
interim Iraqi government with no choice but to honor the
Program Review Board's questionable expenditures.
"All-in-all, the fund collected $20 billion and
by the time the CPA leave, there will less than $3
billion," Tsalik said prior to the handover. "Two
billion dollars were spent in one meeting recently by
the coalition authority. So in one important sense, the
government, even though it'll have formal control over
its economy, it will have much less money to spend."
Although the new interim Iraqi government does
have authority over its future oil revenues - estimated
at $12 billion a year - its control is limited as a
panel with members from the International Monetary Fund
(IMF), the UN and the World Bank will still oversee the
oil revenue fund. Iraqis will exert more control over
the system, but there will still be checks on what they
can do. Media reports state that most of the Iraqi oil
ministry's foreign advisers, appointed by the US- led
coalition, will be withdrawn. Only four advisers will
remain, coordinating with remaining American troops and
contractors.
Aside from oil money, the
government can hope to raise revenue through collection
of income and value-added taxes, as well as customs
duties. Businesses and individuals will pay a flat 15%
in annual income taxes.
In addition, Iraq has
been left with a legacy of unaccountability. A damning
new report by the British group Christian Aid, titled
"Fueling Suspicion: The Coalition and Iraq's Oil
Billions", charges that for the entire year the CPA
oversaw Iraq's finances, it was impossible to determine
with any accuracy precisely what it has done with the
$20 billion of Iraq's own money, including its oil
revenue and funds deposited in the DFI.
According to officials with Christian Aid, the
CPA is in "flagrant breach of the UN Security Council
resolution that gave the CPA control over the DFI on
condition that its operations be independently audited".
The auditor, KPMG, sharply criticized the CPA for the
way it spent more than $11 billion in oil revenues and
charged that the DFI's administration made it "open to
fraudulent acts".
Meanwhile, Iraq Revenue Watch
also says the occupation has left Iraqis burdened with
the hundreds of US "experts and advisors" working in all
of Iraq's 29 ministries as well as other government
agencies. Those advisors, who mostly hail from US market
institutions, wielded enormous influence over decisions
taken before the nominal handover. They are expected to
maintain their influence on future economic decisions.
"Under the coalition they were indeed very
powerful and most of the decision-making within the
ministries came from them," Tsalik said. "We know that
these advisers will remain within the ministries but I
think it's hard to say how much power they'll have. It
may not be an official power but rather an unofficial
one, stemming from the fact that the US will maintain
some 140,000 soldiers in Iraq."
Iraqi control
over the economy will also be diluted from another
quarter after the handover. International financial
institutions, which have often been used by Washington
as a tool to channel its policies, will start working in
the country soon - a move with implications that will
further tighten the already snug noose around Iraq's
financial freedom. The country's huge debts and its
plans to take out more loans for reconstruction are
likely to subjugate Iraq to further conditions by
institutions such as the IMF and the World Bank,
notorious for taking ownership from borrowing nations
over their economies.
The World Bank said on
Tuesday it recognized Iraq's new interim government as
legitimate, a move that opens the door for new lending
to the country. The World Bank's sister institution, the
IMF, has previously signaled its willingness to resume
lending in the second half of this year.
"Iraq
will be very dependent on international aid," said
Tsalik. "It also has a lot of debt and it remains to be
seen whether that will be forgiven. So in such a needy
country it may not have a lot of alternatives to saying
'yes' to the IMF and the World Bank."
Current
estimates put Iraq's debt at around $120 billion.
Members of the Paris Club, which includes 19 of the
world's wealthiest nations, are owed roughly $40 billion
- $21 billion in principal and the remainder in late
interest. Non-Paris Club governments, chiefly the Arab
Gulf States, and private creditors, hold the rest.
Juan Cole, an Iraq expert at the University of
Michigan, sees limited sovereignty for the Iraqis from
another perspective. He says the new US ambassador to
Iraq, John Negroponte, will maintain control over some
$18.3 billion in US aid to Iraq.
"The caretaker
government is hedged around by American power," Cole
wrote on his online blog Wednesday. "Negroponte will
control $18 billion in US aid to Iraq. [US Defense
Secretary Donald] Rumsfeld will go on controlling the US
and coalition military. There isn't much space left for
real Iraqi sovereignty in all that."
resources, heavy debt and the continuing
presence of a massive US force, provide clear evidence
that the recent handover of authority to Iraqis does not
equal real control over the economy. 
