Agence France Presse, 29 December 2005
Experts predict the formation of a new Iraqi government, following a year of political reforms, will help stabilize the country, revive its stagnant economy and pave the way for contentious measures such as privatization.
"Ordinary Iraqis, domestic entrepreneurs and foreign investors have all been waiting for stability, predictability and greater security," said Thomas Delare, counselor for economic affairs at the US embassy in Baghdad.
The December 15 general election "doesn't guarantee any of those things, but it offers the promise that now we can put it in place."
That all depends on the smooth formation of the next government, which, as various political factions dispute the results, march in the street and threaten to boycott the new parliament does not seem a certainty. Final election results are not expected before next week.
"The economic prospects in 2006 will be good for Iraq, provided we have a consensus government which includes all major groups in Iraq and they agree on an economic program," said Abbas Abu al-Timen, director of the Baghdad Economic Forum.
The economist added that this is the key moment for the nation and failure to reach consensus would be a disaster.
"This country cannot have any more of this chaotic situation," he said, saying if a strong government isn't formed, "I think the country will be in a bleak dark long tunnel."
The battering the country took under sanctions in the 1990s, followed by the chaos and looting during and after the US-led invasion of March 2003, have had a devastating effect on the Iraqi economy.
Unemployment, officially around 28 percent, is estimated by some experts to be twice that, and small business are struggling to compete with the import of cheap, yet shoddy, goods now sold on the streets of the nation's cities.
But US experts see a slow improvement, estimating three to four percent GDP growth in 2005 and increased consumer spending as witnessed by the rise in mobile phone use and car buying.
The best piece of economic news to hit the country in a while was last week's decision by the International Monetary Fund to approve a standby arrangement for Iraq that paved the way for further debt relief.
The decision, however, came at a price and the government is now committed to cutting Iraq's massive fuel subsidies which are disastrous for the budget, but much appreciated by Iraqis, a quarter of whom live below the poverty line.
The initial tripling of the price of gasoline to the equivalent of 10 US cents a liter is only the start of price hikes for what is currently the world's cheapest gasoline.
Already there have been riots and even attacks on gas stations in protest at the subsidy cuts.
Another controversial issue is privatization, deemed a necessity for the moribund state industries by most economists. But while more private sector investment and competition would certainly help these industries, it could also be accompanied by layoffs.
"The Iraqi government has identified two factories for privatization ... two and a half years after the process started, that's pretty slow progress," said a US official, who thinks the process may finally be accelerating.
"We think that in 2006 there is a commitment to finally get it started."
Under Paul Bremer's Coalition Provisional Authority, the issue of privatization was mentioned repeatedly, resulting in public outcry that the nation's industrial patrimony was about to be sold off cheap to foreigners with disastrous effect, as happened in post-Soviet Eastern Europe.
"Privatization is not an issue," demurs the Baghdad Economic Forum's Timen, maintaining there is consensus on the matter. "The debate is how to approach privatization and how to confront the problem."
"You have to look at the issue in Iraq in its context -- the problems in Iraq are different," said Timen, cautioning against a generic approach.
One sector that will not be put on the auction block in 2006, however, is the very sensitive fossil fuels industry which nationalist Iraqis have often said is a target of foreign entrepreneurs.
The IMF, the same organization that pushed through the subsidy cuts, however, has also stipulated that downstream services, such as retail sales of gasoline and the fuel service sector, be opened up to private companies.
----------------------------
Citation: "Next year could see Iraq economic revival," Agence France Presse, 29 December 2005.
Original URL: http://news.yahoo.com/s/afp/20051229/wl_mideast_afp/iraqeconomyprivatizationoil
----------------------------