U.S. Pushed Through Decrees That Leave Iraq With Little Cash, Much Debt

by Emad Mekay

(IPS) WASHINGTON -- A barrage of binding decrees passed during the U.S. occupation of Iraq, combined with a lack of resources, heavy debt and the continuing presence of a massive U.S. force, mean that the recent handover of authority to Iraqis may not equal real control over the economy, analysts here say.

Just before he left Iraq on Jun. 28, U.S. administrator Paul Bremer 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 the occupied Arab country "open for business" and for the past 14 months, the Coalition Provisional Authority (CPA) promoted major changes of Iraq'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 to alter.

A report by the progressive Institute of Policy Studies estimated that Bremer has passed nearly 100 orders that, among other things, give U.S. 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 U.S. companies that appear to have secured future maintenance and reconstruction contracts in massive, capital-intensive infrastructure projects.

A recent report by the Open Society Institute's programme to monitor Iraq's reconstruction said that the U.S.-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 U.S.-controlled Program Review Board, the body in charge of managing Iraq's finances, approved the expenditure of nearly two billion dollars in Iraqi funds for reconstruction projects in 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 financier George Soros.

She also said that this way 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), authorised by the United Nations Security Council last May to safeguard Iraq's oil revenues and other money earmarked for reconstruction.

"All in all, the fund collected $20 billion and by the time the CPA leave, there will less than $3 billion there," Tsalik said.

"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."

The UN Security Council's latest resolution on Iraq, passed on Jun. 8, requires the new government to satisfy all outstanding obligations against the DFI made before Jun. 30, leaving the new interim Iraqi government with no choice but to honour the Program Review Board's expenditures, which many consider questionable..

Iraq Revenue Watch also says that the occupation left the Iraqis burdened with a legacy of hundreds of U.S. "experts and advisors" working in all of Iraq's 29 ministries as well as other government agencies. Those advisors, who mostly hail from the U.S. 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 U.S. will maintain some140,000 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 influence policies, will start working in the embattled country soon.

Iraq's already huge debts and its plans to take out more loans for reconstruction are likely to subjugate Iraq to further conditions by such institutions as the International Monetary Fund (IMF) and the World Bank, notorious for taking control of economies from borrowing nations.

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.

The World Bank said on Tuesday it recognised 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, both headquartered in Washington 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."

Juan Cole, an Iraq expert at the University of Michigan, sees limited sovereignty for the Iraqis from another perspective. He says the new U.S. ambassador to Iraq, John Negroponte, will maintain control over some $18.3 billion in U.S. 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 U.S. aid to Iraq. Defense Secretary Rumsfeld will go on controlling the U.S. and coalition military. There isn't much space left for real Iraqi sovereignty in all that."