[Marxism] Notes on the development of capitalism in Iraq

Jurriaan Bendien andromeda246 at hetnet.nl
Tue Jul 20 14:53:49 MDT 2004

Iraq Bodycount now says the number of civilians reported killed in Iraq as
being between 11,252 and 13,213 people, but business goes on, regardless.

1. Stock market

Closed for 16 months because of war chaos, the Iraqi Stock Exchange is back
in session since June 24, after a U.S.-backed reorganization. 500 million
shares traded on its opening day, more then the former Exchange ever did.
Only 27 companies are trading so far, mostly banks, utilities and a chemical
company, but 100 will be listed in the coming months.

The chairman of the Iraqi stock exchange, Talib al Tabatabaie, said that
last Sunday, "We were selling and buying and around us they were fighting
and bombs and explosions and nobody cared, nobody gave it a second thought".

2. Bond market

On advice of the US Treasury, Iraqi finance minister Adel Mahdi has launched
a bond market, beginning with an issuance of 150 billion dinars ($103m)
worth of treasury bills on 18 July. These bills have a 91-day maturity
period and yield 6.8% annual interest, quite low even by emerging market
standards. Almost all of them will be bought by commercial banks. "The
ministry had to find a way to pay local banks back," said George Gianaris, a
US Treasury Department official in Baghdad advising on Iraqi debt. "If it
didn't roll over the debts the banking system would not be solvent."

The government plans to hold twice-monthly auctions to raise as much as $1.2
billion by year-end. The government also made its first payment on domestic
debt to banks since 1981, paying 507 billion dinars for three-month 6
percent-interest bills bought by banks under Saddam. The bond issue will
help repay another 600 billion dinars of debt that comes due on October 1.

At the moment bank activity is really lacklustre, and the banks have to make
some money; the idea is to establish "market-based interest rates" over
time. A group of 11 Iraqi bankers have gone on a two-week course held by the
Bahrain Institute of Banking and Finance to acquire expertise in areas such
as "checking and shipping documents, uniform rules for collections, uniform
customs and practices for documentary credits, bank-to-bank reimbursements"

"The establishment of a bond market is an essential kick-starting of the
financial markets," Jan Randolph, chief economist at World Markets Research
Centre, claimed. "Without the turnover of borrowing and lending, the banking
system can't function properly. But before governments can issue 25- or
30-year bonds, they have to establish creditworthiness and a track record in
payment. At the moment, banks are not earning anything and they have nothing
to offer their customers. This has nothing to do with politics. It's
strictly economics."

3. State-owned enterprises

The Iraq government aims to start leasing out state-owned factories, for 10
to 15 years, by the end of August, to draw in much-needed investment. This
would secure new funding, while avoiding privatization until an elected
government is in place.

With 150,000 people on the payroll, the 239 firms under the control of the
Ministry of Industry and Minerals are overstaffed. A third of the state
factories were damaged by the US invasion, many were looted in the
aftermath, and most suffered years of underfunding under the UN sanctions
regime. Security worries and power shortages remain a deterrent to foreign
investors, and prevent 24-hour shift work in the the firms (such as
clothing, electrical and tobacco factories).

4. Foreign assistance and investment

The World Bank pledged $3 billion to $5 billion through to 2008. The
International Monetary Fund has promised support of between $2.5 billion and
$4.25 billion over three years. Japan's government has pledged $3.5 billion
in medium-term loans to bring its total promised aid to $5 billion. Saudi
Arabia offers a $1 billion financing package, split equally between project
finance and export credits. The European Union is providing combined aid for
rebuilding Iraq in 2004 of $826 million. Qatar pledged $100 million, the
United Arab Emirates $215 million, and Kuwait $500 million.

Of the $18.8 billion marked for Iraq by the US Congress recently, only about
$3.7bn has actually been spent so far. $2 billion of that went into
restoring Iraq's electricity infrastructure, another $500m went to security
forces like the police and the rest has been used to try and guarantee
clean, running water. Most of Iraq's other revenue is from oil sales.

The multinationals claiming much of the $18.4 billion in contracts which the
CPA is expected to award this year are legally required to use small
companies for subcontracting. But, so far, the CPA's Program Management
Office organized only two U.S. conferences for prime contractors to network
with entrepreneurs. Annual per capita income in Iraq is now said to be about
$500-600 or so.

The newly-formed Iraqi Business Council (IBC) based in Abu Dhabi has
meantime identified around 500 viable industrial and infrastructure
projects. It is providing business information and coordination with
government officials, to facilitate foreign investors who want to invest on
a 100-percent ownership basis.

5. Debts

Iraq is burdened with $120 billion in foreign debt, but many nations are
considering an appeal by the Iraqi government to forgive part or all of the
bilateral loans. However World Bank Chief Economist Francois Bourguignon
said at a press conference in Tokyo that "If 98% or 100% of the Iraqi debt
is simply canceled, then it may be seen by other middle-income countries
like Turkey as a kind of unfair treatment, in the sense that they also have
a lot of debt and find it very difficult to live with that debt."

In Holland, Dutch Development Minister Agnes van Ardenne said it was not yet
clear how much of Saddam's debt would be forgiven, because more information
was needed as to how much Iraq is really able to repay. She said the
Netherlands is claiming $302.6 million in export credit (larger than the $98
million ex-interest claim tabulated by the Paris Club last July).

In Romania, Foreign Minster Mircea Geoana said the Romanian debt claim
against Iraq was about $2.5 billion, an increase on the $1.7 billion figure
quoted in April 2003. Geoana said "It's is important to understand that for
the short run, the Iraqis will need all the resources they can get," and he
said "creative methods" for dealing with the issue are needed, such as
boosting Romanian investments in Iraq, or the import of Iraqi oil.

6. Oil contracts

As one US official put it, Iraq basically has a "one-item budget: oil". The
Oil Ministry has drafted a law that will revive the Iraqi National Oil
Company. The Ministry plans to boost exports from about 2.5 million barrels
a day to about 3 million barrels a day by 2005, in part by drilling 2,000
new wells and constructing an 1,850-mile domestic gas pipeline. Recently
Taiwan's state-run Chinese Petroleum Corporation (CPC) reached agreement
with Iraq's State Oil Marketing Organisation (SOMO) to import 1.8 million
barrels of oil from Iraq.

The first three Iraqi oil contracts up for grabs are for developing the
Khurmala Dome field ($100m)  in the north of the country, the Suba-Luhais
field ($150m) in the south, and the smaller Hamrin field ($80m), again in
the north. Shell said it was initially interested in taking on Khurmala
Dome, but turned it down because it was not happy with the risks and rewards
involved. The interim Iraqi government wants to increase current production
levels to more than the pre-war level of 3 million barrels.

7. Public mood

The latest opinion survey of 3,000 people in seven major towns by the new
"Iraqi Center for Strategic Research and Studies" found that 54 percent of
Iraqis consider that the toppling of Saddam Hussein's regime by the US-led
coalition was a worthwhile effort. Respondents had little faith in the new
interim government of Ayad Allawi, with only 27 percent approving the
formation of his cabinet. However, more than two thirds (81 percent) said
they would like Allawi's government to disarm local militias, or bring them
under its control. Restricting the authority of the interim government was
favored by 72 percent of respondents, but 78 percent agreed to give the
government the right to ask the foreign troops to leave. Some 66 percent of
respondents objected to the presence of foreign troops while only 29 percent
said their presence was necessary. But only 41 percent - said they would
feel safe if the troops left.  64 percent said power supplies were worse
than under the ousted leader Saddam Hussein, but 58 percent said the overall
economic situation was better than before.

(compiled from press reports)


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