Do the US administration's grand plans for Iraq include rebuilding the country's devastated economy? John Sfakianakis* asks Sim City is a popular computer game in which players are required to build a complete city on their own. During the construction process, users have to make decisions on issues as varied as financing, landscapes, riots and natural disasters. During the past few months, the US State Department has been building its own Sim City, referred to as "The Future of Iraq Project". The project established more than 15 working groups, which have held more than 12 seminars on various aspects of the country's future. They are examining issues ranging from a transitional justice system, energy supplies and public health to public finance and monetary considerations. A private consultancy firm, contracted by the State Department, has been training Iraqi exiles in economics, accountancy and finance in preparation for transforming the country's state- controlled system into a Western, market-driven economy. The economic training is the work of ICF Consulting, a Virginia-based corporation specialising in providing management, technology and policy skills. Its Web site says: "ICF Consulting can help you find out where your region's economy has been, where it is going, and where it needs to be in order to achieve goals of a high performing nation, state, or region." It is believed that about 100 Iraqis are being trained by ICF. Since August, a group of Iraqis have met a number of times at the State Department to discuss various economic matters. At a meeting held earlier this month, it was agreed that in the first six months of reconstruction, the authorities should concentrate on distributing food, rebuilding hospitals and maintaining order. Moreover, a post-Saddam Iraq will have a new currency and focus will be on raising the level of services, especially telecoms. The group's ideas, however, are a long way from becoming reality. They are contingent upon a swift and relatively orderly change of regime in Iraq, the acquiescence of any later government and the agreement of the US and other providers of finance. Although there is preponderant evidence that the State Department's project might be implemented on the ground, one has to take a look at the economic state of Iraq for a reality check. Innumerable data problems make analysing the Iraqi economy a daunting task. Official government statistics are unreliable. Outside Iraq, the usual repositories for economic data, like the World Bank and the IMF, have scant knowledge of what is going on in Iraq since the 1980s. A number of Iraqi-born economists are attempting to produce more accurate data. Sabri Zire Al-Saadi, a London-based Iraqi economist, wrote a paper entitled Economic Deterioration, Waste of Oil Wealth and Widespread Poverty in Iraq, in which he revealed the discrepancies between Iraqi government and independent GDP estimates. For decades, Iraq had systematically published GDP estimates valued in Iraqi dinars. After 1980, the government stopped producing these estimates to cover up the high inflation rate. A series of GDP estimates in current US dollars was published in the annual Arab Unified Economic Report prepared and edited by the Arab League, the Arab Fund for Economic and Social Development, the Arab Monetary Fund and the Organisation of Arab Petroleum Exporting Countries. The extent to which the government's GDP estimates have been misleading is illustrated by comparing official and independent GDP data for Iraq with that of other countries. According to the government's estimate for 2000 ($83.5 billion), Iraq would have ranked in third highest position after Saudi Arabia ($173.2 billion) and Egypt ($95.8 billion). Other estimates place Iraq's actual GDP at between $20 and $30 billion. Since the 1970s, Iraq's agricultural sector has been badly administered. Problems accumulated throughout the 1990s as the Iraqi government spent less and less on agricultural development. Salinisation and poor maintenance of land and machines have exacerbated the situation. Yields and output in food crops have drastically declined. During the 1970s Iraq was by far the largest supplier of dates, supplying 80 per cent of international market needs. By the 1990s, Iraq's exports had dwindled to an alarming degree. Importing fertilisers and plant parts have been difficult under UN sanctions. Sanctions have also stopped the import of certain agricultural machines and equipment, because they may have a "dual use". Iraq's livestock is afflicted with various diseases, which lowers agricultural output and limits access to meat for food. A more acute problem Iraq faces is the migration of skilled professionals, known as "brain drain". Some of the highest skilled and best educated Iraqis have left the country. Historically, oil played an important role in Iraq's economy, as is the case with all Gulf countries. Iraq is second only to Saudi Arabia in proven oil reserves. Increased reliance on oil has had a significant influence on economic activity -- oil revenues allowed successive regimes either to avoid serious problems in the non-oil sectors or to solve them by throwing more money in their direction. In 1989, 30 per cent of GDP came from oil; now, the figure is 50 to 60 per cent. Oil comprises 95 per cent of Iraq's total exports. Maintenance of fields and equipment has been poor under UN sanctions. The import of parts and supplies under the oil-for-food programme has helped, but the oil sector is still not well-equipped. Aside from the negative effects caused by an economy that is over- reliant on oil, Iraq's oil production potential is huge. Of the 70 fields that have been discovered so far, only 20 per cent have actually been developed. Many of the remaining fields -- eight of which contain over one billion barrels of reserves -- contain cheap and accessible oil. These figures prove an important point. Iraq has the capacity to increase future oil production from the present three million barrels per day. If unrestrained by sanctions, Iraq could have a large impact on the world oil supply. A key concern regarding Iraq's economy is the country's foreign debt. Iraq was an aid donor during the 1970s and until 1982. In the 1980s, Iraq became hugely indebted, owing $80 billion. Currently, Iraqi economists estimate total external debt at $90 billion, including accumulated unpaid interest. Although more than half is probably owed to Gulf countries, Iraq also has commercial and military debts to European states, mainly France and the former Soviet Republics. Claims by other countries, such as Iran, are also likely to be revived if the government in Baghdad is toppled. The US is seeking support for its policies by promising to safeguard other countries' economic interests in Iraq -- a pledge that applies mostly to Russia, which is owed about $8 billion. Iraqi economists fear a post-Saddam era will benefit outside interests far more than their own. Moreover, under UN regulations, Baghdad pays 25 per cent of its oil revenues to a Gulf War compensation fund, a process that would be expected to continue if a new regime took over. Finally, the humanitarian situation in Iraq has been difficult to assess. Only in 1998 was UNICEF able to carry out a nation-wide survey of health and nutrition, which found that mortality rates among children under five was 160 per cent higher in 2000 than in 1990. In contrast, Egypt's rate during the same period was 54 per cent lower. The average calories consumed per capita are only now reaching 70 per cent of the 1979 levels. The country's health system has deteriorated tremendously. As a result, UNICEF estimates said, in 2002, 70 per cent of child deaths resulted from diarrhea and acute respiratory infections. Medicines are sometimes not available even for everyday prescriptions, hence a black market exists that is controlled by those close to power. Problems are compounded if one accounts for the staggering inflation and declining real wages. The average Iraqi had a per capita income of $4,500 before the Iran-Iraq War, now, according to various sources, it is believed to be roughly $700 to $800 in the south and centre and roughly $1,000 to $1,300 in the north. The current US Administration is certainly in the business of nation building. Yet, reality might be more disturbing and unpredictable than the people sitting in Washington and planning for the next Sim City can imagine. * The writer is a research fellow, at the Centre For Middle Eastern Studies, Harvard University.
