Did you know the Iraqi economy is booming?
- GDP growth in 2005 was 17%, in 2006 13%
- Salaries have risen more than 100% since 2003
- Real Estate prices have risen several hundred percent in the last two years, indicating a red hot real estate market
- 7,100,000 cell phone subscribers - up from 1,400,000 only two years ago. This nation's leading cell phone company took in $333,000,000 in 2005, and is on track to take in $520,000,000 in 2006
- $41,000,000,000 in oil revenues in 2006
- Since January 2006, the Iraqi dinar has steadily increased in value against the Iranian rial, the Kuwaiti dinar and the U.S. dollar
- A private firm marketing soft drinks has seen profits double since the end of 2003
- The number of luxury cars imported has risen from a few hundred in 2002 to more than 20,000 this year
- Gasoline is .14 cents a liter
All "facts" from a series of articles from Newsweek, the New York Post, Townhall.com and RedState.com. Of course, the MSM is not covering all of this good news from Iraq. And of course, it's all cherry picked facts yanked out of context or flat out wrong.
How do the Iraqis rate their economic condition?
They know far more about the Iraqi economy than any outsider and the majority (59%) rate the economic conditions today in Iraq as "Poor". 26% said, "Fair", 10% said "Good" and only 1% said "Excellent".
But what about the two years of double digit GDP growth?
Didn't happen. The IMF is estimating the 2005 and 2006 real GDP growth to be 3.7% and 4.0% (Link, page 12). The State Dept is estimating a 4.0% 2006 GDP growth. The World Bank is estimating 3.7% 2005 GDP growth and 3.0% 2006 GDP growth.
A better number is per capita GDP growth, which tells you roughly the average income per person. Iraq is a young country and it's population is growing about 3% a year (link), so the per capita GDP is probably less than 1%.
Where did the 17% and 13% come from?
The Newsweek article said:
Estimates vary, but one from Global Insight puts GDP growth at 17 percent last year and projects 13 percent for 2006. The World Bank has it lower: at 4 percent this year.
Using Google, I can't find an estimate for Iraqi GDP growth on the Global Insight Website. The Townhall.com article gives only the 17% and 13% growth figures and doesn't cite a source.
Could Global Insight be right and everyone else wrong?
No. Oil production is 60-70% of the Iraqi GDP and that is known accurately. The World Bank estimated (page 11) that non-Oil real GDP growth in 2006 was 10% for a total estimated GDP growth of 4.0%. To get a 13% real GDP growth, the non-Oil real GDP growth would have to be ~40%, which is nuts. And why would Global Insight have more accurate figures than the US government and World Bank?
How about the salaries rising more than 100% since 2003
The IMF estimated the inflation in Iraq to be 32% in 2004, 32% in 2005 and 30% in 2006, or ~125% over the three years. A salary that rose 100% since 2003 wouldn't even keep up with inflation.
What about the red hot real estate market?
Again, using nominal numbers in a high inflation country greatly overstates any improvement. I am sure that there are many places around Iraq where the local economy is doing well. The New York Post article mentions Um Qasr (Iraq's only port), Basra, the Shi'ite "holy" cities of Najaf and Karbala, Mandali on the Iranian border and much of Baghdad. Um Qasr has gone from a pre-invasion ghost town to a bustling port. Najaf and Karbala are now welcoming Shi'ite pilgrims that couldn't visit before. Towns close to a border can now do cross-border business that they couldn't do while the UN sanctions were in place. But the economy overall doesn't look very good.
What about all those new cell phone subscribers?
The Iraqi telecommunication infrastructure was destroyed during Gulf War I and never was rebuilt. Of the 25 million in Iraq pre-war, 833,000 had land telephone lines (link, page 40). So, the cell phone growth reflects the rebuilding of the Iraqi telecommunication infrastructure. That's good, but it's hard for a country with any level of sophistication to not have a telecommunication infrastructure.
$41 billion of oil revenues in 2006?
Kevin McCullough of Townhall.com couldn't get this simple number right. The Newsweek article said:
National oil revenues and foreign grants look set to total $41 billion this year, according to the IMF.
Per the World Bank, the oil exports were $27.66 billion. Kevin McCullough drops the "foreign grants" portion of the sentence from Newsweek and attributes it all to oil revenues.
About those foreign grants - they are running out. The Brookings Institution Iraq Index isn't not clear at all on this, but based upon page 34, it looks like Iraq has one more year of US reconstruction money left. The Iraqis have some international reconstruction grants, but I can't tell how much they have left of that. Without the grants, the Iraqi government will be running a deficit (link. It currently has $48 billion in debts, which is about 100% of GDP (link). Once the grant money runs out, the Iraqi government must either raise taxes or slash government expenses.
How about that rising Dinar?
Interesting story. RedState.com was very excited about this as a measure of the Iraqi government. But the cause of the rise is laid out in the Military's Measure Stability and Security in Iraq document referenced in the RedState post:
The bank also slowly appreciated the dinar. The exchange rate is now approximately 1,455 Iraqi dinar to US$1. However, a much faster rate of appreciation will be necessary to fight inflation. By increasing the dinar’s value, the Central Bank of Iraq could encourage more Iraqis to hold onto dinars as opposed to converting them to dollars. Appreciation of the dinar would also reduce the dinar value of the Government of Iraq’s dollar denominated
revenue (more than 90% of revenues is from oil), but, as appreciation succeeds in controlling inflation, the government would require fewer dinars to pay for its expenditures. Appreciation of the dinar would not harm the competitiveness of Iraqi exports—non-oil exports are negligible—but it could impair the ability of domestic industries like agriculture to compete with foreign imports. However, the bank has been reluctant to take the necessary stronger measures.
So, the Dinar is rising because of the Central Bank's program to reduce inflation. The reason the Central Bank "has been reluctant to take the necessary stronger measures" is that making domestic industries less competitive will aggravate Iraq's already sky-high unemployment, which is estimated between 25%-40% (link, page 32).
And the success of the private firm marketing soft drinks?
Again, doubling of profits since 2003 doesn't keep up with inflation. As of 3/21, only 9.7 million of Iraq's 28 million citizens have potable water available ((link, page 42). So, soft drinks and water sales reflect the lack of a decent infrastructure.
The rise of luxury car imports?
With the sanctions, it was illegal to export luxury cars to Iraq. Now, it's legal. No surprise it increased.
Gasoline is .14 cents a liter
I think that translates to $0.56 per gallon. But it takes on average an hour to buy gas (link, page 40). Per the Military's Measure Stability and Security in Iraq document:
Fuel subsidies and a limited supply lead to gray market activities and corruption. Gray market prices for refined products in Iraq are considerably higher than the regulated prices and are comparable to those of its neighbors, with the exception of Turkey, which heavily taxes refined oil products.
Summing up - with oil revenues from record high oil prices, reconstruction grants from the US and the rest of the world and the US spending $2 billion a week on its forces in Iraq, Iraq's economy grew 3-4% in 2006 and is suffering from very high inflation and very high unemployment. The right wing considers this a success. They are desperate for any news out of Iraq that will justify the invasion so they have seized upon some cherry picked facts to make them feel better. Don't believe it and don't let the MSM believe it.
Links:
Newsweek story
Kevn McCullogh column on Townhall.com
Kevin McCullogh's economy quiz on Townhall.com
RedState Post - Is the Iraqi economy really a dog?
New York Post article
The Military's Measure Stability and Security in Iraq document
The State Department's Iraqi statistics
The World Bank data sheet on Iraq
The Brookings Institution Iraq Index
