Economic Overhaul for Iraq
Only Oil Excluded From Foreign Ownership
By Rajiv Chandrasekaran
Washington Post Foreign Service
Monday, September 22, 2003; Page A01
BAGHDAD, Sept. 21 -- The
U.S.-led occupation authority here has ordered the overhaul of
fundamental elements of Iraq's socialist economy and instituted
wide-ranging free-market reforms that will allow full foreign ownership
in every sector except oil, U.S. and Iraqi officials said today.
policy, enacted on Saturday by U.S. administrator L. Paul Bremer,
allows foreign firms to enter and potentially dominate key elements of
the economy, from banking to manufacturing, that had been off-limits to
outside ownership. Although the sale of businesses to foreigners could
prove controversial in this fiercely nationalistic country, U.S.
Treasury Secretary John W. Snow said the plan offered a "real promise"
of economic revival in Iraq, which is struggling to cope with rampant
unemployment, crumbling infrastructure and unproductive state-run
The imposition of free-market reforms in Iraq has long
been a goal of the Bush administration. The decision to enact the
changes now is part of an American effort to accelerate the recovery of
Iraq's decayed economy, which U.S. officials hope will help promote
But Snow warned, as many independent analysts have,
that the restoration of security in the country is an essential
prerequisite for economic recovery.
In a reminder of Iraq's continuing security problems,
the U.S. military said three soldiers were killed in two attacks on
Saturday night west of Baghdad, where resistance to the U.S. occupation
among Sunni Muslims has been stiff. The deaths brought to 165 the
number of U.S. soldiers killed in Iraq since President Bush declared
major combat operations over on May 1.
A car bomb exploded early Monday at a checkpoint behind
the U.N. headquarters in Baghdad, killing one policeman and the bomber,
and injuring several others. It was not immediately clear whether any
U.N. personnel were injured in the blast.
The U.N. compound, housed at the Canal Hotel, was
devastated by a car bomb attack last month that killed 22 people,
including the chief U.N. representative, Sergio Vieira de Mello.
A U.S. military official said two soldiers from the
205th Military Intelligence Brigade were killed when mortar shells fell
inside the grounds of the Abu Ghraib prison at 10 p.m. Saturday. The
official said 13 other soldiers were wounded in the incident, one of
the largest casualty tolls from a single attack.
Abu Ghraib, which once housed thousands of political
detainees but since has reopened as a U.S.-run detention center, has
been targeted by insurgents. In August, several mortar rounds were
fired inside the prison, killing six Iraqi inmates and wounding almost
No prisoners were hurt in Saturday's attack, the official said.
Military officials said the incident demonstrated the
increasing accuracy of mortars, which have been employed with greater
frequency against U.S. forces in centers of resistance west and north
Shortly before the prison attack, a soldier from the
3rd Armored Cavalry Regiment was killed near the city of Ramadi, about
60 miles west of Baghdad, when a roadside bomb exploded near his
Humvee, the military said.
The latest U.S. deaths followed the attempted
assassination on Saturday of Akila Hashimi, one of three women on the
25-member Governing Council and a leading candidate to become Iraq's
representative at the United Nations. Hashimi, a career diplomat, was
shot in the abdomen by gunmen as she was being driven to work.
An official with the occupation authority said Hashimi
was in critical but stable condition at a military hospital on the
grounds of a palace that once belonged to former president Saddam
Hussein. The official said Hashimi underwent a second operation at the
military hospital after initial surgery at an Iraqi hospital
immediately after the shooting.
Douglas Brand, a British adviser to the Iraqi police,
said U.S. and British investigators were conducting an "extensive
investigation" into the incident with Iraqi police officers. He called
the shooting, the first assassination attempt against an Iraqi
political leader appointed by the U.S. occupation authority, "a
Hashimi was planning to travel to New York this week
with a small delegation of Iraqi leaders to attend the U.N. General
Assembly, where members of the Security Council will discuss a new
U.S.-sponsored resolution aimed at encouraging more nations to send
troops to Iraq.
Iraq's new finance minister, Kamil Mubdir Gailani,
said at an international banking conference in the United Arab Emirates
that the new rules would create a "free and market-oriented economy"
that would be unprecedented in the Arab world. He pledged that the
reforms would "promote Iraqi economic growth and raise the living
standards of all Iraqis as soon as possible."
Gailani said Iraq would "allow up to 100 percent
foreign ownership in all sectors except natural resources." He said
Iraq's oil reserves -- the world's second largest after Saudi Arabia's
-- would remain in government hands for now. Other Iraqi officials have
said decisions on privatizing the oil industry, which is forecast to
generate $14 billion in revenue next year, would be decided after a
democratically elected government is seated.
Gailani said six foreign banks will be permitted to
purchase and fully take over Iraqi banks. Other foreign banks will be
allowed to purchase 50 percent stakes in local banks, he said.
Foreigners will be permitted to lease land for as long as 40 years, he said.
The new economic policy also will slash Iraq's top tax
rate for individuals and businesses from 45 percent to 15 percent
starting Jan. 1. Collecting even that revenue could be challenging:
Hussein's government never enforced tax collection from most people,
and there is no real tax remittance system in the country.
In an effort to create sources of government revenue
beyond oil sales, Gailani said, all goods except humanitarian supplies
that are brought into the country will be subject to a 5 percent
During three decades of Baath Party rule, Iraq had one
of the world's most centrally controlled economies. Most large
companies were state-owned or state-operated. The government also
managed the import of most goods into the country.
Foreign investment was severely restricted under U.N.
economic sanctions imposed after Hussein invaded neighboring Kuwait in
"The true source of our problems stems from decades of
economic mismanagement and corruption by Saddam Hussein," said Gailani,
adding that the changes would provide "Iraqi citizens the freedom and
opportunity they were denied for so long."
But the new policies, which were developed by the
occupation authority in consultation with Iraq's U.S.-appointed
Governing Council, could prove controversial among the many Iraqis who
have not aligned themselves with the United States. Some Iraqi
businessmen have expressed concern that well-capitalized foreign firms
will enjoy an unfair advantage and siphon profits out of the country.
Snow also warned that a restoration of security would
be essential to attract investment. "Capital is a coward," he said in
Dubai, where the World Bank and International Monetary Fund are holding
their annual meetings this week. "It doesn't go places where it feels
threatened. Companies will not send employees to places that aren't
The World Bank's Iraq country director, Joseph Saba,
told the Associated Press that the steps outlined by Gailani were
"major steps forward in terms of creating an environment for
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