Violence Eclipses Iraq's Economic Achievement

KUWAIT CITY: The economic achievement in Iraq is often ignored, overshadowed by the violence in the country, Iraqi and American officials said. “The economic team has made significant progr-ess,”said US deputy secretary of treasury Robert Kimmit who was in Kuwait for the International Compact for Iraq meeting. “They have stable currency, they have sizable foreign currency reserves, there are almost back up to pre-war level oil production, and they are able to finance a considerable part of their own government operations,” he told reporters at a conference late Tuesday.

There remains a gap on Iraqis resources however with what the country needs, which is why the government is calling for international support in its Iraq compact. The Iraqi government outlined its economic strategy to put forward, that is hoped to primarily diversify the country’s economy and decrease its reliance on oil. “Agricultural horizons are very promising but we are encountering impediments which need huge investments to overcome. We have been facing the problem of water supplies with our neighbours,” said its Minister of Planning and Development Cooperation Ali Baban.

Iraq however stressed that it will not go back to subsidies policy and will continue to keep its economic sectors “open”. But Iraq also will not expedite privatizations of its industries despite the government’s leaning towards an open economy. “We should not rush as some negative results may accompany any unplanned privatization process,” he said. The government is studying plans to privatize state factories, but most of the factories depend on costly government assistance, and recent move of “keeping the import door open” and without regulations and restrictions has put an end to many factories, he said.

While the Iraqi government remained committed to adopting free market policy, Baban said the removal of subsidies and facilities have hurt the agricultural and industrial sectors. To strengthen the industries, the government is asking the private sector firms to merge. “Many of the private factories are still small and cannot do the required task .. . we are trying hard to urge the Iraqi businessmen to merge their companies and establish big ones,” he said.

The government also believes that merging Iraqi small banks into big banks is necessary. It currently has 25 private banks. “Our idea is to have some kind of minimum capital for banks, to at least 20 billion Iraqi dinar. Some of the very small banks that do not have the capacity will have to merge, or otherwise they would have to raise the capital alone,” he said. The country also has six state-owned banks, the biggest of which are Rafidain and al Rasheed Banks.

Iraqi central bank is also trying to get private banks to participate more in the country’s economic activities, and for Iraq to be less dependent on the Trade Bank of Iraq, which is financed by a consortium of foreign lenders such as Citigroup and JP Morgan to provide trade finance services Iraqi banks are unable to offer. “We would like government’s import activities to be more diversified. We want all banks to participate, this is our policy in the future. Trade Bank is doing fine, but we don’t to have to be completely dependent on that,” he said. Al Shabibi said the central bank is currently succeeding in its fight against inflation.

“We are using interest rate and we sell our own bills to skim liquidity. The inflation rate now is at 51 per cent, down from 70 per cent previously. Whether it will continue to go down, we will have to see,” said al Shabibi. The Iraqi government has given out six licenses to foreign banks in 2004, including to National Bank of Kuwait, Arab Banking Corp, HSBC and Standard Chartered. Only Arab Banking Corp operates a full-fledged branch in the country; the others opted to enter Iraq via a local partner.