- BAGHDAD -- Controversy is
raging in Iraqi planning and business circles over the potential impact
of economic reforms introduced by the US-led Coalition Provisional Authority,
CPA, two months ago.
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- The controversy centres on the new foreign investment
law enacted on September 19 by CPA administrator Paul Bremer, as well as
plans to privatise Iraq's state-owned firms.
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- The law allows foreign investors the right to 100 per
cent ownership of companies, to send profits out of the country free of
taxation, and to lease land for up to 40 years.
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- Overseas firms will not be allowed to own key elements
of Iraq's nationalised oil industry, since the law explicitly rules out
foreign ownership of "the natural resources sector involving primary
extraction and initial processing".
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- Opinions are sharply divided over the impact of the new
regulations, and even about whether the CPA had the right to introduce
them.
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- Finance Minister Kamil al-Gailani told a recent conference
that a liberal law was needed so as to attract investment away from other
states in the Gulf. Al-Gailani denied he was "selling out" the
country, saying that such criticism showed a lack of understanding of the
new laws.
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- Michael Fleisher, the CPA official in charge of promoting
private development, acknowledged that healthy competition might cause
some Iraqi businesses to fail, but he tried to reassure Iraqi businessmen
by saying, "The best of you will survive."
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- Other experts disagree. Sanaa al-Umari, professor of
economics at Baghdad University, believes the law will leave no role for
the Iraqi private sector. Al-Umari claims that private firms were "stunted"
under the previous regime, and will be unable to compete with foreign investors.
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- Al-Umari thinks the law should be brought into line with
investment legislation in other Arab countries, where foreign investors
must have a local partner. That would enable Iraqis to develop the business
skills needed to compete at international level, and not leave them to
the mercy of the market after years of isolation.
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- In Baghdad's trading districts, some merchants complain
that the new law will allow foreign firms to come in and drive them out
of business. Others fear that foreign economic interests are a danger to
national security.
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- "Because of Ba'athist brainwashing, people regard
foreign investment as the theft of our wealth," Governing Council
member Samir al-Sumeidi was quoted as saying by the Baghdad newspaper al-Sabah
newspaper on November 11.
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- Abu Hassan, who runs a cosmetics store off al-Rashid
street, agrees with this view, saying the law will open the Iraqi market
to "speculators" who will raise prices as they like.
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- As for repatriation of profits, Abu Hassan says "there
must be state supervision or monitoring, otherwise they will steal our
wealth and take it to their home countries".
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- Abdel Hamid al-Rawi, manager of the Al-Nur General Trading
Company, even thinks foreign companies will "serve American interests"
by hiring Iraqis to "spy for themî.
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- Plans to privatise a large portion of Iraq's public sector
companies meet with similar objections.
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- The policy would not require any new legislation since
a privatisation law was enacted under the former regime. But Iraqis are
sceptical, since Saddam Hussein used that law to sell off state firms to
members of his family.
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- Yaqub Shonia, director general of the ministry of industry
and mining, which controls much of the state sector, earlier announced
that 52 companies would be "evaluated" to see whether they should
be privatised.
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- Shonia said the timetable for the sale of state firms
would be two years but that companies would be sold "only after making
sure that the principles [of privatisation] are acceptable to the Iraqi
people".
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- Few Iraqis are reassured by such claims.
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- Hana Abdelhussein, professor of economics at Baghdad
University, predicts that the main Iraqi beneficiaries will be people who
flourished under the old regime. He says they will use "capital [made]
illegally at the expense of the Iraqi people" to buy up shares, or
will be hired by foreign investors seeking to make use of their connections.
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- Abdelhussein also expects the privatisation process to
be dominated by foreign buyers who will import workers to replace Iraqis
at former state-owned firms.
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- As a result, Abdelhussein says the law will further exacerbate
the unemployment crisis in a country where the jobless rate is already
estimated at between 60 and 70 per cent.
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- For some observers, the real question is not whether
the reforms will be effective but whether the CPA, as an interim administration
of occupation, was legally entitled to enact them.
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- Thamer Razouqi, head of administrative commission for
Iraqi businessman's association, acknowledges that the law "meets
Iraq's economic needs" ñ but he says it should not have come
from the CPA. "Bremer's law needs to be issued by a legal constitutional
entity," he said, adding that his association will do its best to
denounce the law.
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- Mohammed al-Mahdawi, a lawyer, agrees that the CPA was
not in a position to introduce such a law, saying that "the order
should have taken the form of a new law on investment, issued by the Governing
Council".
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- Whatever the legal questions surrounding the reform,
even its supporters fear that they will not be enough to stimulate investment,
since potential buyers are likely to be deterred by the uncertainties of
post-war Iraq.
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- Amal Shalash, head of economic studies at the Beit al-Hikma
research centre, acknowledges that loose ownership requirements, tax breaks
and incentives might exert a "calming influence" on investors
worried by Iraq's current chaos.
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- But she thinks the law will ultimately fail simply because
of the "political and regional stability [issues] that will face the
foreign investor, in particular the absence of security".
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- - Salaam Jihad and Osama Redha are trainee journalists
with IWPR in Baghdad.
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- © Institute for War & Peace Reporting
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- http://www.iwpr.net/index.pl?archive/irq/irq_39_1_eng.txt
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