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| Volume XII, Spring 2005, Number 1 |
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| EXCERPT: Postwar Iraq's Financial System: Building from Scratch |
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| Robert Looney |
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Dr. Looney is a professor at the Naval Postgraduate School.
In the midst of daily reports of suicide
bombings, insurgents, coalition
casualties and the relentless toll of
civilian dead and wounded, any appraisal of Iraq's economy has seemed irrelevant when set against the greater military and security concerns. Yet the long-run health of the economy will be crucial in determining whether Iraq will be able to make the transition to a stable democracy.
Many authorities on post-conflict reconstruction feel that the interim government's most significant challenge will be delivering measurable improvements to the Iraqi people. The importance of this goal was summed up by Amatzia Baram, senior fellow at the U.S. Institute of Peace: "I think the new government will gain legitimacy in the eyes of the people on one condition: if it delivers on security, infrastructure and employment. . . . If [Iraq's leaders] manage to deliver, even on the latter two, it will make a major difference. If not, the whole thing will fall apart."
Significantly, a large proportion of interim Prime Minister Iyad Allawi's initial address focused on the economic issues confronting Iraq. Allawi, a Baathist who served in the Iraqi intelligence services until falling out with the regime and leaving Iraq in 1971, cited inflation, unemployment and weak purchasing power as the main economic problems. He indicated that the government planned to stabilize the dinar's exchange rate, improve living conditions and boost oil output. While he offered no specific plan for addressing these issues, he did at least acknowledge that, a year after the fall of Baghdad, the country's economy is at a watershed.
If the security situation does not improve considerably, efforts to rebuild the economy will be fruitless. Yet improvements in the economy are critical for dampening the insurgency. In testifying before the Senate Foreign Relations Committee, senior Iraqis have stressed repeatedly that a key reason Iraqis have not cooperated with the coalition against the insurgency has been resentment over the lack of progress in improving conditions and solving unemployment.
The interim government's economic strategy to date is a continuation of the basic approach3 laid down by the Coalition Provisional Authority (CPA). Briefly, the plan encompasses the creation of (a) openness and transparency of Iraq's institutions, (b) strong incentives for private-sector development, (c) close economic and financial integration with the international community, (d) international standards and best practices, and (e) a social safety net that addresses the needs of all Iraqis.4
3 Cf. Robert Looney, "Iraq's Economic Transition: The Neoliberal Model and Its Role," The Middle East Journal, Vol. 57, No. 4, Autumn 2003, pp. 568-587.
4 John B. Taylor, "Financial Reconstruction in Iraq" testimony, Senate Banking, Housing and Urban Affairs Committee: Subcommittee on International Trade and Finance, February 11, 2004. |
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