The Iraqi Economy: Hope For The Future

Monday, March 1, 2004 - 01:00

The Editor interviews Richard Greco, Director of Private Sector Development for the U.S.-led Coalition Provisional Authority in Iraq.

Editor: Would you provide our readers with something of your background and experience?

Greco:
In June of 2002 President Bush appointed me as a White House Fellow and assigned me to the Office of the Secretary of Defense. In May of the following year, following the conclusion of major hostilities, I was sent to Baghdad to serve as an economic advisor to Ambassador Paul Bremer and to help in the development of a framework for the new Iraqi economy. Over the months that followed I was part of a team of people with backgrounds in economics and finance addressing ways in which foreign investment could be attracted to the country. I now run the New York representational office of the Coalition Provisional Authority, where I continue to work on this issue with my colleagues in Baghdad and Washington.

Editor: When you first arrived in Iraq, what was the state of its economy?

Greco:
At the time of my arrival, there were signs of a bustling economy. The marketplaces and sidewalks were crowded with people buying and selling high ticket items like satellite dishes, refrigerators, air conditioners and the like, items that Saddam never allowed into the country. So the retail sector was robust, and consumers with a lot of "mattress money" were finally finding an outlet. With regard to banking, we found 17 private banks, which, though small in size, were functioning. And some branches of the state-owned bank were in operation.

But the economy faced many obstacles. In the '70s the country had a per capita income on a par with that of Italy and Portugal. Thirty years of dictatorship left it one of the poorest and most isolated countries in the world. Under Saddam, approximately 70% of the economy was state-owned, but the state that had supported it no longer existed, and the factories simply ceased to function. The state-owned companies we found were badly in need of investment. In addition, approximately 60% of the Iraqi economy was oil-based, and at the time of our arrival the oil industry was faced with extraordinary challenges, not the least of which was sabotage throughout its infrastructure.

So, to describe the economy in one sentence, it exhibited an extraordinary consumer demand but, at the same time, an extraordinary need for infrastructure investment across all aspects.

Editor: Please tell us what has happened over the ensuing months.

Greco:
We attempted to address essential services and key structural problems first. These included access to banking services, electricity, and oil. Then we focused on creating the conditions favorable for the development of a market-oriented economy. The biggest structural reform, not to mention success story, was the introduction of a new currency, still called the dinar but without Saddam's picture. 4.6 trillion dinars - old to new - have been exchanged. The exchange was very successful, and the new currency carries a perception of value that the old currency did not. In fact, since its introduction, the currency has appreciated from 2000 dinars to the dollar to 1300 dinars to the dollar, or 35%. The widely shared perception that a national currency is a genuine store of value is crucial to the efficient functioning of an economy. In addition, with the collaboration and enthusiasm of the Governing Council we put into effect an investment law permitting foreign ownership of Iraqi assets (with the exception of real estate and natural resources like oil) in order to attract foreign investment into the country, and several international companies are already investing. In addition, we have disbursed almost $2 million in the form of micro-loans to help stimulate local small and medium businesses. And last, but certainly not least, there is the inflow of billions of dollars of reconstruction money, which will serve to address serious infrastructure needs and create needed jobs.

Editor: Please tell us about the employment situation in Iraq.

Greco:
The figure of 60% unemployment has appeared in press accounts, but recent assessments show a figure closer to 25%. This is still high, to be sure, but much better than we had thought. We are hopeful that, going forward, the inflow of investment and reconstruction money will have a very positive impact on this figure.

Editor: When do you think the economy will be able to create new jobs in any significant number?

Greco:
The National Employment Program has already created 76,000 jobs, and another 210,000 people are newly employed in the national security forces. CPA hopes that, with investment and reconstruction money coming into the country, many hundreds of thousands of jobs will be created. In addition, it is also important to recognize the multiplier effect of each new job. That is, someone who obtains a job in hotel management, for example, supports a fraction of a tailor, a barber, a taxi driver, a waiter, and so on.

Editor: What about Iraq as an investment destination?

Greco:
Money has started to come in. The new investment law, CPA Order 39, is the most liberal in the entire region. I reiterate that this was not imposed by the Coalition. It was the Iraqi Governing Council that recognized the need for a law appealing to foreign investors. In response to a great number of companies expressing interest in Iraq as an investment destination, we have established a satellite office in New York in the downtown financial district, co-located with the Department of Commerce, which has been an excellent resource for businesses looking to do business in Iraq.

Editor: Please tell us about the connection between security and investment.

Greco:
In post-conflict Iraq, security has been a major concern, but the situation is improving. A national defense force, a police force, units trained to protect facilities and other installations are coming into being. This takes time, and in the meantime we are tracking down and eliminating those elements, which for whatever reason, are resisting the stabilization of the country.

Editor: Is there a possibility that Iraq might become an economic model for the Middle East?

Greco:
Most definitely. I think this is something the Iraqis desire for themselves. I mentioned already the new investment law, which itself serves as an example. Also, a new banking law that permits an efficient flow of capital through commercial lending channels has come into force, as has a company law that fosters good corporate governance and transparency. These are matters that will enable Iraq to become a showcase for free and open markets and, in time, influence the entire region.

Editor: We've been hearing a great many negative things about Iraq and its economy in the media recently. What are the positive things, the things that provide some hope for the country's future?

Greco:
Even under Saddam 30% of the economy was in private hands. That sector of the Iraqi economy has managed to survive all vicissitudes. That fact is a tribute to the creative and resilient entrepreneurial spirit of the Iraqi people and a very positive sign for the future. I am certain democracy will take hold in Iraq, and I can only imagine, given this spirit, the possibilities of an Iraqi economy functioning within a democratic framework.