Iraq's long road to economic independence

WASHINGTON, June 29 (UPI) -- The Iraqis may have regained their sovereignty two days ahead of schedule, but securing financial independence will be anything but a cakewalk.

Once one of the richest nations in the region, Iraq has seen its per capita income shrink from $3,600 a year in 1980 to between $770 and $1,020 by 2001. Meanwhile, the World Bank estimates that the Iraqi economy contracted by 4 percent in 2002, and by another 30 percent by 2003 following the U.S.-led invasion of Iraq. Of course, it is difficult to get an exact idea of how Iraq's economy has fared since global agencies retreated from the country by 1991, but it is certain that over a decade of economic sanctions by the international community under Saddam Hussein's regime has taken a toll on its people.

From building basic infrastructure such as roads, seaports, and sewage systems, to providing for social needs such as schools and hospitals, the laundry list of issues that must be tackled is overwhelming. And that doesn't take into consideration the fact that after decades of being under a centrally planned economy, Iraq must now face the challenge of establishing a diversified market economy.

Earlier this year, the World Bank, the International Monetary Fund, and the United National development group, which represents the UN agencies that would be directly involved in Iraq's reconstruction, estimated that the country needs about $36 billion over the next four years to be able to function fully as an independent country. But that estimate doesn't include non-essential costs such as accessing and delivering Iraq's rich oil supply, which is crucial for the nation's economic recovery, as well as security costs, which the now-defunct Coalition Provisional Authority estimated at $19 billion. Some analysts say that estimate is rather conservative, and that the actual cost of providing security and pumping for oil could be far greater.

One positive factor, however, is that the international community at large is willing to help the newly-established Iraqi government to stand on its own two feet, at least for now. There is evidently a broad consensus, even by those countries that had opposed the United States attacking Iraq in the first place 15 months ago, that it is in the world's interest to see a stable and prosperous Iraq, if only to reduce the risk of future terrorist attacks and violence in the Middle East. For instance, at the latest meeting of U.S. and European leaders in Dublin last week, the question of relieving Iraq of its debt burden was on the top of the agenda, thus presenting a united front on rebuilding Iraq. Iraq has accumulated international debts to the tune of $120 billion, of which about $80 billion is owed to other Middle Eastern countries, and $20 billion to other creditor nations, particularly Russia, France, and Japan. The remaining $20 billion is accrued interest payment from the money borrowed. The United States has taken a pivotal role in seeking debt relief, which would be the biggest such debt waiver in the world, and the Bush administration has appointed former Secretary of State James Baker as its envoy to pursue this one issue.

Yet the 25 member states of the European Union were unable to agree on any specific amount in writing off Iraqi debt. Rather, they pledged to "play a positive role" on the issue, as France in particular objected to the U.S. move to forgive up to 90 percent of the debt.

But no matter how much in previous loans the major lenders are prepared to waive off, it is clear that Iraq will need fresh funds to meet its social needs and also to start up a market economy.

The problem is, however, the patience of major donors may wear thin quickly. As the case of Afghanistan proved, it was relatively easy for international agencies to rally donor countries to commit to the reconstruction of the war-torn country. But it has proved far more difficult to keep that momentum going, and actually making countries follow through on their promises to help the country. The United States has already committed $18 billion to reconstruction efforts to Iraq, while other donors will be footing another $13 billion, but that won't be nearly enough for all the costs the country will incur incoming years.

Of course, one key difference in economic potential between Afghanistan and Iraq is oil, which could drive the international community to be more committed to helping the Middle Eastern nation. Iraq has one of the world's largest petroleum reserves, which industrialized nations are hoping will be quickly tapped into not only to help the country become self-sufficient economically, but also to relieve some of the stress on the world's limited oil supply. Earlier this week, Iraq said that exports from its southern port were close to 2 million barrels a day, and the Bush administration has stated it hopes the country will be able to produce around 6 million barrels a day. That would provide at least $20 billion a year in export revenues.

But in order to make that a reality, Iraq will need substantial aid both financially and technically to access and distribute the supply, particularly as it has no private companies and no real tax base to speak of. Moreover, the work should not be contracted to large U.S. companies if the Iraqis are to believe they have ownership of their own wealth, cautioned former Secretary of State Madeline Albright.

The reconstruction of Iraq "can't be done just by the United States alone," Albright said, adding that public investments must also lead to job creation for the people of Iraq