Privatization vs. Democracy

Chief US administrator in Iraq Paul Bremer announced that all Iraqi state- owned companies will be sold to private investors, including foreigners, in efforts to accelerate the recovery of Iraq's decayed economy and promote stability.

Iraq's new Finance Minister Kamil Gailani boasted that the new policy would create a "free and market- oriented economy" without precedent in the Arab world. He claimed that the reforms would "promote Iraqi economic growth and raise the living standards of all Iraqis as soon as possible".

Gailani, part of a cabinet appointed by members of America's hand- picked Iraqi Interim Governing Council (IGC), said Iraq would "allow up to 100 per cent foreign ownership in all sectors except natural resources". He said Iraq's oil reserves -- the world's second largest after Saudi Arabia -- would remain in government hands for now.

Gailani, while attending the joint World Bank-IMF conference in Dubai last month, said six foreign banks will be permitted full ownership and control over Iraqi banks that they purchase. Other foreign banks will be allowed to purchase up to 50 per cent stakes in Iraqi banks. Foreigners will also be able to lease land for as long as 40 years. Additionally, the new economic policy will slash Iraq's top tax rate for individuals and businesses from 45 per cent to 15 per cent, starting 1 January 2004.

To produce government revenue beyond oil sales Gailani said all imported non-humanitarian supplies will be subject to a five per cent "reconstruction surcharge". During three decades of Ba'th Party rule, Iraq had one of the world's most centrally controlled economies. A majority of large companies were state-owned or state- operated. Concurrently, foreign investment was severely restricted under UN economic sanctions imposed after Saddam Hussein's 1990 invasion of neighbouring Kuwait. The government also managed the import of most goods into the country.

"The true source of our problems stems from decades of economic mismanagement and corruption by Saddam Hussein," said Gailani, who was nominated to the cabinet by Ahmed Chalbi -- an American darling on the IGC. He believed the policy will provide "Iraqi citizens the freedom and opportunity they were denied for so long".

There was little world reaction to the new Iraqi economic policy, perhaps due to continuing tension between the US and opponents of the war like France and Germany, which promote a swifter return of sovereignty to Iraqis themselves. The United Nations was not consulted by Bremer's Coalition Provisional Authority (CPA) on the matter, despite the CPA's interest in UN resources for rebuilding Iraq. The World Bank, however, praised the new policy. The Bank's Iraq country director, Joseph Saba, said that the steps outlined by Gailani were the way forward in "creating an environment for investment".

But the new policies could prove controversial among the many Iraqis who have not aligned themselves with the US. Some Iraqi businessmen expressed concern that well- capitalised foreign firms will enjoy an unfair advantage and siphon profits out of the country. Most disquieting is the fact that the reforms read like a free-market manifesto devised by Washington to sign off more than 30 years of a socialist-oriented economy that provided millions of Iraqis with subsidised food and services, even through Saddam's costly wars and blunders.

Critics charge that a new economic plan and other policies should not be implemented by the American occupation authority nor by its hand- picked IGC during the transitional period and must be reserved for a fully- functioning democratically elected government. They argue that the CPA's claims that privatisation and a free market promote democracy is an act of pretentious mendacity given the impossibility of knowing whether the people of Iraq want privatisation. For Iraqis, some political and social issues are more important than profits, especially if the profit motive clashes with social and political goals held to be in their national interest.

It is difficult to overstate the deleterious effects of the war on the Iraqi economy. All productive activities have ceased, oil exports are minimal and most economic sectors are halted. Unemployment runs about 70 per cent while most of the population avoids embarking on new enterprises because of instability and lawlessness.

Iraq's GDP growth rate in the first half of 2003 was probably negative. Industrial output is near zero and agriculture is the only still-active sector. Yet in a historically food-exporting country endowed with a generous supply of water and fertile farmland, most staples are now imported and nearly 25 million Iraqis live on rationed food. Even worse, Iraq is burdened by hundreds of billions of dollars in debts and unpaid war reparations.

Estimates of the country's reconstruction bill are already sounding alarm bells, though few nations have shown any real commitment to undertake what economists see as a Herculean task. In short, the Iraqi economy faces a formidable challenge laced with tremendous political ramifications.

It is only natural, then, that Iraqis view their oil, with pre-war exports worth some $20 billion annually, as the cornerstone of any economic recovery. Iraqi officials have said that decisions on privatising the oil industry will come only after a democratically elected government is installed.

Since the fall of Saddam's regime calls for the privatisation of Iraqi oil -- plentiful, of the highest quality and inexpensive to extract and refine -- have maintained that oil revenues were constantly misused or plundered by former governments. In Saddam's case revenues were diverted into the regime's coffers or to his war machinery.

Proponents of privatisation -- mostly multinational American oil companies hoping to dominate the industry in Iraq, believed to be backed by Iraqi collaborators or partners in the new regime -- argue that oil revenues should not again be put into the hands of bureaucrats and politicians. They claim that publicly-held oil will promote corruption, cronyism and inefficiency in the industry. They also suggest that Iraq's oil industry is run- down and in need of rehabilitation. Ultimately, the argument runs that revenues from privatising the oil sector would create a massive inflow of foreign currency which, in turn, would provide substantial backing for the Iraqi dinar, finance reconstruction and provide the financial basis for an emerging private sector.

Beyond the "sell Iraq now" campaign, a big question concerning who should decide this new privatisation policy remains unanswered. Until a truly democratically elected government is installed in Baghdad, a foreign occupying power or members of an unelected council closely connected to corporate oil is neither legally nor morally sanctioned to determine the future of Iraq's economy and, in particular, its oil, both of which belong to its people. If the goal of the war that toppled Saddam's regime is to replace it with a democracy, then Iraq's wealth should remain in Iraqis' hands until they decide otherwise.