Iraqis feel pinch of free-market reforms

Iraqis feel pinch of free-market reforms
Published: 24 January 2006

Since 2003, the United States has been pushing for rapid free-market reforms in Iraq. Such policies, U.S. officials say, are necessary to spur development and revive Iraq’s moribund economy, which is still suffering from sanctions and decades of Baath Party mismanagement. But rapid economic liberalization here is taking a toll on ordinary Iraqis. They’ve seen prices skyrocket for everything from shampoo to vegetables to heating oil. Food rations meant to help the estimated 8 million Iraqis who live on less than US$1 a day have been cut by 25 per cent.

Many changes implemented by the U.S. occupation in 2003, after Saddam Hussein’s government fell, are still in effect as Iraqi politicians await election results that will lead to the formation of a permanent government. Tariffs on imports have been cut across the board, allowing cheap goods to pour in from China and driving Iraqi manufacturers out of business. A 2003 foreign investment law continues to anger Iraqi businessmen who say it is squeezing them out of the reconstruction boom.

When the privatization drive kicks into full gear, probably within months, thousands of employees in the bloated public sector are likely to be dismissed. The Iraqi government already has approved the sale of two cement plants.

Raghib Bleibel, owner of a large construction company, heads the Iraqi Businessmen’s Union. He said neither he nor many of the organization’s 4,400 members have yet to win a single reconstruction contract, thanks largely to a US-enacted investment law that gave foreign companies free reign in Iraq. "The Iraqi companies don’t have the ability to compete," Bleibel said. "We want foreign companies to be required to partner with Iraqi companies, so that Iraqi companies can benefit, too."

Many of the foreign firms working on reconstruction projects rely on cheap labor from impoverished countries such as Pakistan, the Philippines and even Sierra Leone. The unemployment rate is 28 per cent. That figure is down from post-war levels, but high enough to be worrisome, especially among young men who may be attracted to the insurgency.

Experts such as Joseph Stiglitz, a former World Bank vice president, have compared the rapid free market reforms in Iraq to the shock therapy many Eastern European countries endured after the collapse of the Soviet Union. Stiglitz and many others now argue that the quick privatization of state-owned assets and abrupt liberalization of trade, prices and capital badly hurt those countries’ economic recoveries. They also produced rampant corruption, another problem in Iraq today.