Wednesday, December 06, 2006

Iraq Study Group Stacked with Business Leaders Weighs In (Part I)

This summer I noted the business connections of many members of the Iraq Study Group. The media just released their report, so I decided to check out their economic assessment.

The Economics section begins with “there has been some economic progress in Iraq”. The encouraging signs include stable and growing currency reserves, new business development and construction in low conflict areas, and consumer imports of cell phones, computers and appliances.

The report goes on to brag about the government’s progress in meeting International Monetary Fund goals which include reducing gasoline subsidies. The price per liter rose from 1.7 cents to 23 cents, a 1,252% increase. Despite this increase the burden of energy and food subsidies remains high at $11 billion a year.

More disturbing are the major economic statistics. Growth is well below expectations at only 4%, inflation is high (above 50%), and unemployment ranges from 20 to 60% depending on the estimate. Why should anyone believe the growth projections when unemployment is all over the map in varying degrees of bad?

Later the report zeros in on the Oil Sector. It states “problems with oil production are caused by lack of security, lack of investment and lack of technical capability”. What it saved for later is the U.S. has companies that can meet all three needs for the people of Iraq.

The analysis shifts into "the politics of oil", highlighting the competition between regions and the federal government to develop and receive revenues from these resources. It once again dangles the Alaskan Oil Trust concept in front of the owners of all that oil, the Iraqi people. But just like Paul Bremer and President Bush before them, the Iraq Sutdy Group jerks the tantalizing bait away by citing significant challenges in implementing such a system.

As for the U.S. led Iraqi reconstruction, the report states “the coordination of assistance programs… has been ineffective” and “there are no clear lines establishing who is in charge of reconstruction”. U.S. Agency for International Development has a number of long term projects but “funds have not been committed to support these efforts into the future”.

As for the infamous Special Inspector General for Iraqi Reconstruction and his documented numerous instances of waste and abuse, the study says “they have not all been put right.”

Of the $21 billion appropriated by the U.S for “Iraq Relief and Reconstruction Fund”, nearly $16 billion has been spent. Other countries committed $13.5 billion for reconstruction but less than $4 billion has been received.

The United States is working with the United Nations on an “International Compact” on Iraq. This involves making the country ripe for American and foreign corporate interests. In return for debt relief, Iraq must achieve certain economic milestones and provide a fair legal framework for foreign investors.

In the detailed recommendations for the Iraqi government, the report offers a suggested timeline. Selected items are below:

Approval of the Petroleum Law-end of 2006/early 2007 (page 62 & 65)

The Central Bank of Iraq will raise interest rates to 20% and appreciate the Iraqi dinar by 10% to combat accelerating inflation-end of 2006 (page 63)

Iraq will continue increasing domestic prices for refined petroleum products and sell imported fuel at market prices-end of 2006 (page 63)

The Iraqi government should stop using the process of registering nongovernmental organizations as a tool for stopping or politicizing their activities (page 66)

The U.S. should support more and better equipment for the Iraqi army by encouraging the Iraqi government to accelerate its Foreign Military Sales requests. (page 75)

The Iraqi government should provide funds to expand and upgrade communications equipment and motor vehicles for the Iraqi Police Service (page 77)

The U.S. in conjunction with the International Monetary Fund should press Iraq to continue reducing subsidies in the energy sector… until Iraqis pay market prices for oil products, drastic shortages will remain. (page 85)

The U.S. should encourage investment in Iraq’s oil sector by the international community and by international energy companies. (page 85)

The U.S. should assist Iraqi leaders to reorganize the national oil industry as a commercial enterprise, in order to enhance efficiency, transparency and accountability. (page 85)

The U.S. should support the World Bank’s efforts to ensure the best practices are used in contracting. This support involves providing Iraqis with contracting templates, and training them in contracting, auditing, and reviewing audits. (pages 85-6) (How does the U.S. qualify to give advice to Iraqis on contracting given the report's harsh findings?)

On its neighbors and their role in the region, the report cites Saudi Arabia as “for the most part passive and disengaged”. Did James Baker and Lee Hamilton not recall the Saudi’s warning pre-invasion that U.S. action would destabilize the region? Was this report the reason V.P. Dick Cheney scampered to Riyadh recently?

Was Dick giving them a head’s up on their portrayal? Is that why the Saudi’s talked about becoming more engaged in the region on behalf of Iraqi Sunnis? Did Shooter Cheney prime them to add a chip to the bargaining table? Later the report suggests this could be a concession to Iran (page 48).

Estimates run as high as $2 trillion for the final cost of U.S. involvement in Iraq. With $400 billion spent to date for a country bordering on disaster, it appears we haven’t gotten our money’s worth. But James, Lee and the other corporate icons on the Iraq Study Group are paving the way for their capitalistic buddies to profit. Unfortunately the report suggests the first franchisee to take advantage of the new freedom in Iraq is al-Qaeda, now like McDonald’s according to one Iraqi official (page 34).

Both the American and Iraqi people are disillusioned by the U.S. lack of progress to date in the country. As both are democracies, a true test will be whether either government listens…

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