Posted today at
Economists for Dean...
As if we hadn't learned anything from the disastrous results of massive privatization in Russia before having the appropriate public institutions in place (see here for example), the U.S. appears to be going down the same road in Iraq.
The Wall Street Journal (subscription required) reported yesterday:
Once the major fighting subsided, administration officials in Iraq wasted little time. In early June, they eliminated all tariffs until the end of the year, allowing a surge of televisions, satellite dishes, used cars and other consumer goods to pour into the country. Last month, the top administrator in Iraq, L. Paul Bremer III, imposed a 15% flat tax on income and issued new rules giving foreign investors carte blanche to open businesses in Iraq in every sector except the oil and gas industries.
The investment law, which allows for 100% foreign ownership and full rights to repatriate profits, is far more liberal than laws in all but a few other Arab countries, most of which require investors to team up with a local partner. One of the law's few restrictions prohibits foreign ownership of land.
Iraq's business community isn't pleased. "This gives ammunition to the extremists who say the war was all about U.S. companies taking over Iraq," says Rubar Sandi, an Iraqi-American businessman who is investing widely in Iraq. Mr. Sandi says he is surprised the U.S. didn't "lay down at least some mandate to involve Iraqis with technology transfer or partnerships or training."
A team within the U.S.-led Coalition Provisional Authority is working out the details of a privatization plan that is stirring even deeper consternation among Iraqis. Thomas Foley, chief of the privatization effort and an old friend of Mr. Bush, intends to present the package to the Iraqi Governing Council early next month. The plan's main provision would create an independent Iraqi privatization agency to handle the gradual selling off of many of the country's state-owned enterprises.
...Iraqis worry privatization will mean more layoffs in a country where nearly seven out of every 10 people are out of work. There is also concern Iraq's wealthy merchant families, many of whom had close ties with Saddam Hussein's regime, could further enrich themselves by scooping up state concerns on the cheap. While many of the companies likely to go up for sale have limped along for years, some, in industries such as mining and construction, could attract substantial international interest. Beyond the rich Iraqi merchants and expatriates, however, few in Iraq would be in any position to participate when the larger companies are put on the block.
"We should not rush into this," says Ayad Allawi, president of the Governing Council. "We support liberalizing the economy, but we need some stability before taking the big steps."
..."I'm afraid the U.S. is emphasizing the wrong things," says Inder Sud, a former Middle East director at the World Bank. "Before privatization, you need a government, a functioning finance ministry and real security."
If we have any doubt as to whether the privatization process will be corrupt we need only look at what's happened so far. See our earlier post on corruption in Iraq and this week's issue of Newsweek which makes for especially painful reading. Here's an excerpt:
Numerous allegations of overspending, favoritism and corruption have surfaced. Halliburton, a major defense contractor once run by Vice President Dick Cheney, has been accused of gouging prices on imported fuel--charging $1.59 a gallon while the Iraqis "get up to speed," when the Iraqi national oil company says it can now buy it at no more than 98 cents a gallon. (The difference is about $300 million.) Cronies of Iraqi exile leader Ahmad Chalabi, NEWSWEEK has learned, were recently awarded a large chunk of a major contract for mobile telecommunications networks.
Do we really want to have Chalabi, who fed the New York Times false stories on WMD and who looted a bank in Jordan of millions during the 1980s, involved in privatizing the Iraq economy?.