New Iraqi finance minister announces sweeping reforms

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BBC news reports that Iraq is adopting sweeping economic reforms. Every Iraqi industry is state owned( was owned by Saddam et al) and is now up for sale to the highest bidder except the oil industry. This is a bold plan which could hasten the complete takeover of their gov't by the Iraqis.
Apparently this could provide the money to rebuild the country-----IMO it is a master stroke----if there is anything the Arabs understand it is money ----as each industry is sold money will glow in and jobs will be created----as jobs are created and people start to accumulate money they will not tolerate being victimized by thugs, terrorists or anyone. They will then improve their own police force-----the sooner they do that the sooner most of our guys can come home. Caveat----we must for the forseeable future maintain enough of fighting force to prevent Saddam or someone like him from seizing the country again.

Iraq adopts sweeping economic reforms
All Iraq's major industries - except oil - will be up for grabs
The American-backed administration in Iraq has announced sweeping economic reforms, including the sale of all state industries except for oil.

The surprise announcement by Iraqi Finance Minister Kamel al-Keylani dominated the second day of meetings organised by the International Monetary Fund in Dubai.

The recently-appointed minister unveiled a string of reforms that analysts said read like a manifesto devised by Washington, signing off 30 years of Saddam Hussein and the socialist Baath Party.

Al-Keylani said liberalisation of foreign investment, the banking sector, taxes and tariffs would "significantly advance efforts to build a free and open market economy in Iraq".

A number of the people on the council themselves have financial backgrounds and business backgrounds, and will have strong views about who should be coming into the country.

But US Treasury Secretary John Snow rejected the suggestion that US had dominated the drafting of the reforms, saying they were the "proposals, ideas, and concepts of the Governing Council".

Gold rush

The scale of rebuilding needed in Iraq is likely to attract many investors hoping to secure multi-million dollar contracts, not least from the construction industry.

Experts say reconstruction could take 10 years
Many roads and buildings in Iraq need to be repaired or rebuilt.

Telecommunications is also a major factor, our correspondent says.

Although mobile-phone contracts are going to be awarded in the next couple of weeks, even before the fall of Saddam Hussein telecommunication companies were very prevalent, bidding to rewire the country and bring in new technology.

The changes - set to be implemented in the next few weeks - will allow foreign banks to buy Iraqi financial institutions, while the central bank itself will become independent.

Foreigners will be able to take over businesses and industries that were previously state-controlled.

'Oil'

The most lucrative part of the Iraqi economy - oil - is not included in the reforms.

Natural resources are exempt from the changes, excluding current outside participation in Iraq's oil reserves.

Other measures announced:

* The central bank will have full independence and investors will be allowed full transfer of foreign exchange earnings.

* Under new bank rules, six foreign banks will be allowed "fast-track" entry into the country and will be permitted full ownership of the local banks within five years.

* The reforms also see a new maximum tax rate of 15% for both individuals and companies.

* A 5% surcharge will also be imposed on all imports, with the exception of humanitarian goods such as food and medicine.

The World Bank said on Saturday that a full assessment of Iraq's long-term economic needs should be ready within two to three weeks.

Capitalism could salvage this country for the world and the Iraqis.

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The recently-appointed minister unveiled a string of reforms that analysts said read like a manifesto devised by Washington, signing off 30 years of Saddam Hussein and the socialist Baath Party.

Do you happen to have at your quick disposal a link to the actual transcript of the announced reforms? Sounds like something I'd like to read from the horse's mouth. If not, I'll do a search and see if I can find something.

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Try this:

Transcript no----BBC article yes

http://news.bbc.co.uk/1/hi/business/3126522.stm

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It also sounds like an initiative that originated in Washington, that will actually increase poverty in Iraq. How many of Iraqis can afford to buy their own industries?

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But the BBC's Nick Springate, in Baghdad, says many ordinary Iraqis will see the moves as a big sell-off with predominantly multi-national, American companies viewed as getting "rewards".

One of the parts Percy left out.

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The American-backed administration in Iraq has announced sweeping economic reforms, including the sale of all state industries except for oil.

as well as this bit, note the origin of the plan.

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The changes - set to be implemented in the next few weeks - will allow foreign banks to buy Iraqi financial institutions, while the central bank itself will become independent.

Foreigners will be able to take over businesses and industries that were previously state-controlled.

Perhaps the most important thing to consider. So much for this not being imperialism.

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That's just the point-----Saddam owned everything.

The money to buy the industries must come from outside the country----at least they will have jobs. It's the old American tradition----start at the bottom and work your way up.

Perhaps you'd prefer it if Bremer picked some lucky Arabs off the street and said ok you are now the proud owner of an industry. The guy would say now what do I do?

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perception wrote:

The money to buy the industries must come from outside the country----at least they will have jobs.

Not necessarily -- see below.

perception wrote:

Perhaps you'd prefer it if Bremer picked some lucky Arabs off the street and said ok you are now the proud owner of an industry. The guy would say now what do I do?

What Czecho-Slovakia did after the fall of communism was to pick all its 16 million or so inhabitants off the street, give each of them 1000 voucher points, and auction off the formerly state owned enterprises for those vouchers. Each citizen could then decide for himself wheter to hold the stocks or to sell them off to any buyer of his choice, but he couldn't tell anybody else what to do with their vouchers. The Cato Jurnal has a pretty good description of the process, which you can read (in .pdf) here. (Note that Cato is a libertarian think tank -- you may want to discount their interpretation accordingly.)

Personally, I would prefer the Chech model for Iraq for three reasons. 1) It would give the citizens of Iraq a sense of ownership of their own economy. 2) It would preempt the inevitable perception that this is an imperialist fraud to enrich friends of the administration, 3) It would increase the likelyhood that a democratically elected government, once elected, will honor the property rights assigned by the Bremer administration. Citizens don't like it when the government messes with their own property, but they wouldn't mind 'taking back' property sold to 'the enemy'.

Of course, the Bush administration will never make the Chech model happen. It just makes way too much sense.

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Thomas

On the surface that would seem like a workable plan except : Where does the money come from to rebuild and run the industries in Iraq? Those vouchers don't provide that do they? Until I can read your link I will without my endorsement of the Chech model.

I can't find any mention of this new plan in the NYTimes but I did find some additional news in my local Raleigh News and Observer. This would smack of progress and the NYTimes is not interested in furthering that perception IMO.

Foreigners will not be allowed to own land( it will be leased long term --40 yrs) and the oil and natural resources will be protected.

This would seem to me to be a quick and easy way to bring in foreign investors---once money is invested the owners don't want to walk away from it.

I agree that there will inevitably be the perception of exploitation but if the results ten years from now refute that perception.......it's a big gamble but I would believe the odds of a good result warrants the gamble.

Last but not least---it is a given that security must be improved before the foreign money will be flowing at a vast rate.......can we do that? I'm betting that within the next 6 months security will be improved to the point that investors will be willing to gamble. The phone companies are already there---I don't know about any others

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After reading your link I fail to see the existence of a similar circumstance in Iraq to the situation in the Chech country. Those industries already existed, had trained workers and were producing a product of sorts. In Iraq the industries exist but must be rebuilt (hopefully to modern specs) and production resumed. This all takes a tremendous amount of money. The vouchers system did not provide that money----it did provide a sense of ownership which is extremely desireable and it also eliminates the perception of exploitation which is also very desireable. For these reasons the voucher system should and was probably considered .

The big disadvantage to that type of system is the time element. In the Chech model several rounds of bidding ensued which required several months. We don't have that luxury in Iraq

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Perception wrote:

After reading your link I fail to see the existence of a similar circumstance in Iraq to the situation in the Chech country. Those industries already existed, had trained workers and were producing a product of sorts.

As they do in Iraq. True, Iraqi workers aren't as well trained as the Czechs, and they will earn lower wages as a result. But that doesn't change the underlying economics, so I do think the situation is comparable where it matters. The owners of an Iraqi company will have to work with Iraqi workers no matter what their nationality is. And the money to modernize them will have to come from foreign investors -- as it did in the Czech case -- and again, it doesn't matter whether the owners are Iraqis or foreigners. If it is profitable to rebuild any given Iraqi company, somebody will lend money to its owners even if they're Iraqis. If it isn't, nobody will, even if the owners are American, European or Japanese. The important issue is not who owns these industry -- it's that the rebuildable factories get privatized, and the hopeless cases closed down.

As to your claim that America doesn't have several months to privatize the economy, I don't understand that. America's #1 problem in Iraq is that Iraqis don't respect the legitimacy of the occupation forces, and will stop honoring its contracts at will as soon as they leave. What use is a quick privatization if buyers can't expect it to be persistent? A few months time is a very good investment if that's what it takes to create legitimacy.

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Thomas:

While I agree with a lot of what you speculate on let me bring up a few factors that perhaps you could clarify for me:

1. You say that the industries already exist and have workers and are producing as in Chech'a. It is my understanding that only shells of buildings exist----everything has been looted by the Iraqis. Therefore no products are being produced. The workers may still be available but not trained in new techniques.
2. You say the number 1 problem is legitimacy and you probably meant to add "which leads to the lack of security". You are suggesting that the voucher system of providing a sense of ownership will immediately provide a more secure environment.
This is probably true and I agree it should be tried but Bremer doesn't have time. Everything in today's world is driven by the desire for instant results which is in turn created by the 24/7 news channels. Then there is the election which is 14 months away----hey it's a fact of life. Bremer has only about 6 months to make something good happen and for the results to quiet all the critics.

I think Bremer is gambling that 30 years of arbitrary decision making in Iraq will be accepted by the Iraqis as just "the way things are". He has obviously convinced the members of the Governing Council of the urgency required.

I do think the Chech model has a lot of merit----thanks for bringing it to our attention.

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perception wrote:

1. You say that the industries already exist and have workers and are producing as in Chech'a. It is my understanding that only shells of buildings exist----everything has been looted by the Iraqis. Therefore no products are being produced.

My own understanding is that this is true for only a few Iraqi businesses, but that the un-looted businesses aren't getting any time on TV. Almost all Iraqi companies are in terrible shape, but this has more to do with 30 years of Stalinist economics than with looting -- which makes the situation look so similar to 1990 Czecho-Slovakia to me. But my understanding may well be wrong, and Google didn't seem turn up much evidence one way or the other.

Quote:

The workers may still be available but not trained in new techniques.

... so their wages will be pretty low. No matter how out-of-date their techniques are, there will be always be a wage at which their work will be competitive.

perception wrote:

2. This is probably true and I agree it should be tried but Bremer doesn't have time.

If Bremer manages to make a credible promise today that he will give the Iraqi economy back to the Iraqi people, the expectation that he will do so will make the average Iraqi much less willing to support terrorists. In my opinion that would be an instant enough result even if it takes him a few months to follow through with his promise.

My impression is that it's not so much instant results that Americans want. They rather want to see light at the end of the tunnel. Specifically, they want to be sure Iraq doesn't turn into Vietnam in the long run. Based on this impression, giving the economy back to the Iraqi people takes a few months, but creates a credible expectation today that it will last. In my opinion, this is a tradeoff worth making. But again, it's hard to back this up with hard evidence.

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New Iraqi finance minister announces sweeping reforms

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