May 24, 2015
Iraq, Iran push back on US defense chief over Ramadi loss
Last week ISIL took control of the Iraqi city Ramadi and the Syrian city Palmyra, advances that the Iraqi government perversely subsidized. Iraq continues to fund ISIL by continuing salaries to the many Iraqi government employees who live in ISIL-controlled territory. That fact is a reminder of how poorly the country has been governed.
ISIL skims the money Iraq continues to pay public employees who live in areas captured and ruled by ISIL. One official estimate holds that it reaps hundreds of millions of dollars each year from this source.
That’s money that helps ISIL create hundreds of thousands of refugees, behead or crucify scores if not hundreds of people, murder thousands, create sex-slave markets, destroy irreplaceable archaeological and cultural sites, steal property based on religious affiliation or ethnicity of the owner, use and train child soldiers and otherwise make life miserable for millions of people.
The continued gains by ISIL make clear that the group is a major problem. But ISIL is not the only threat to the future well being of the Iraqi people. The country’s backwards economy presents a long-term danger as well. Iraq handing over money to ISIL is just one indication of much broader economic mismanagement.
Never mind Iraq’s security disaster; the country has experienced an economic catastrophe after a decade of nearly nonexistent economic reform that featured rapid government hiring with little action to foster a stronger private sector. Rather than trying to shape a modern economy, Iraq’s leaders have chosen to retain an economy that focuses on redistribution of oil revenues. The patronage and political power that go with that redistribution is evident in the explosion of government employment.
In 2008, Iraqi government payrolls totaled about 2.3 million people.
Oil revenues rose and Iraq tucked the money into more employees, a recurring government expense, even though oil prices are notoriously volatile. And in fact, they fell sharply in late 2008. By 2015, government employment was up to 5 million people—an additional 2.7 million people employed by the government rather than the private sector.
The fact that the government has all these dependents puts it in a bind. It could end payments to employees, effectively cutting off money to ISIL. But not only would that create a humanitarian problem, it would give ISIL a propaganda victory. The group could tell the largely–Sunni recipients—the same sect as ISIL—that the largely Shia government in Baghdad – the Shia being a sect ISIL considers apostates—is abandoning them and that ISIL is their only protection. Or the Iraqi government could continue the payments, and thereby fund ISIL’s war effort.
But expanding government employment is not Iraq’s only economic failure. In late 2006, Iraq agreed to restructure two state-owned banks that constituted 70 percent of all banking assets in the war-torn country. Effectively bankrupt, the banks were failing to do what any normal bank should do—help fund the private sector. Several months later, the International Monetary Fund noted that the restructuring was to be finished in 2008.
Fast forward to March 2015 and an announcement from the IMF: Iraqi officials were “pressing ahead with the restructuring of state-owned banks Rasheed and Rafidain,” the two banks that were to be restructured by 2008. Private banks have emerged, but they are small and lend mostly to trade-related companies. As late as 2013, Rasheed and Rafidain held 70 percent of all Iraqi bank deposits and were likely insolvent, meaning that most private businesses throughout Iraq had—and still have—only limited access to normal business finance.
The government’s willful disregard of economic reform can be seen in the country’s ratings in the World Bank and International Finance Corporation’s Doing Business ratings. The ratings provide a useful, although not complete, snapshot of the environment for private business.
In 2008, when Iraq had only 2.3 million government employees, it was ranked 141 out of 178 economies. In this year’s rankings, benchmarked to June 2014, just when ISIL was storming Mosul, Iraq ranked 156 out of 189 economies, falling 15 steps.
Difficulties in Iraq include starting a business because of all the bureaucratic procedures, getting credit because of the failure to reform the financial sector and trading across borders.
This failure to foster expansion of the private sector and with it, private-sector taxes that could support government activities, has left the Iraqi government almost entirely dependent on oil revenues and at the mercy of oil price volatility.
Oil export revenues have comprised more than 90 percent of the Iraqi government’s total revenues, which is sustainable as long as exports and prices are rising faster than government spending.
But in the past year, the price of a barrel of Brent crude—a global benchmark for oil prices—has fallen from more than $110 in June 2014 to less than $55 at the end of March 2015. By the end of April, it had risen to about $64, still well below last-year’s prices. So in June 2014, Iraq exported about 2.4 million barrels per day and earned almost $7.5 billion that month, but in April 2015 it exported more than 3 million barrels per day—a recent record high—and earned only $4.8 billion.
The failure of Iraq to reform its economy is understandable, but inexcusable. First, Iraq had a state-controlled economy for decades before the U.S.-led coalition invasion in 2003. Many political leaders and civil servants had never experienced a market economy. To loosen government bonds on the economy proved a difficult concept to grasp, let alone implement.
Second, economics has followed politics in the Iraqi case, and the shape of the political system remained up for grabs throughout this period. In a political competition awash with oil revenues, the most sensible short-term strategy is to use patronage power and government money to hire more government employees and build loyalty.
But Iraq is no longer awash in oil revenues, and it is at war. If ISIL is degraded so that it no longer represents a major threat, Iraq’s political leaders will have to embark on political reconciliation among all groups and settle the fundamental question of how the country will be governed, how minority rights will be protected, and how all Iraqis can be made to feel they have a stake in the country.
And the oil money will still be there, as will the numerous government officials unfamiliar with the needs and governance of a private sector economy. The former will provide a tempting pool of resources for patronage. The latter, combined with the need for numerous approvals, will create a steady demand for bribes and their opposition to reform laws and regulations, either out of greed because fewer approvals will mean fewer bribes, or out of a sincere belief in government controls.
If the international community is concerned about Iraq’s long-term well-being, it will need to uncharacteristically take a long-term perspective toward Iraq to help bring about economic reform. But most of the effort must come from Iraqi leaders, and this may require a new generation with exposure to a modern economy. Relevant steps should include streamlining business regulations and requirements, distributing or sequestering oil revenues based on a technical formula that removes a large share of the political decision-making about such revenues, reducing government payrolls, privatizing state-owned factories and banks and changing the tax system to raise more revenues from people and businesses, thereby making the government more answerable to the country’s citizens.
Iraq’s new government has taken small steps with its 2015 budget, but there is much more to do, with potentially high payoff: reform will decrease the country’s dependence on oil and bring about the opportunity for a sustained increase in living standards.
There is some thought that oil-dependent countries simply cannot shift too far away from oil dependence. There may be some truth to this, and it may be true for Iraq. On the other hand, even if Iraq’s leaders actually try to reform the economy, fixing these kinds of structural issues will be contentious and politically risky, and therefore extraordinarily difficult.
In the meantime, ISIL will continue to enjoy the Iraqi government’s largess.
[You must be registered and logged in to see this link.]
Iraq, Iran push back on US defense chief over Ramadi loss
Last week ISIL took control of the Iraqi city Ramadi and the Syrian city Palmyra, advances that the Iraqi government perversely subsidized. Iraq continues to fund ISIL by continuing salaries to the many Iraqi government employees who live in ISIL-controlled territory. That fact is a reminder of how poorly the country has been governed.
ISIL skims the money Iraq continues to pay public employees who live in areas captured and ruled by ISIL. One official estimate holds that it reaps hundreds of millions of dollars each year from this source.
That’s money that helps ISIL create hundreds of thousands of refugees, behead or crucify scores if not hundreds of people, murder thousands, create sex-slave markets, destroy irreplaceable archaeological and cultural sites, steal property based on religious affiliation or ethnicity of the owner, use and train child soldiers and otherwise make life miserable for millions of people.
The continued gains by ISIL make clear that the group is a major problem. But ISIL is not the only threat to the future well being of the Iraqi people. The country’s backwards economy presents a long-term danger as well. Iraq handing over money to ISIL is just one indication of much broader economic mismanagement.
Never mind Iraq’s security disaster; the country has experienced an economic catastrophe after a decade of nearly nonexistent economic reform that featured rapid government hiring with little action to foster a stronger private sector. Rather than trying to shape a modern economy, Iraq’s leaders have chosen to retain an economy that focuses on redistribution of oil revenues. The patronage and political power that go with that redistribution is evident in the explosion of government employment.
In 2008, Iraqi government payrolls totaled about 2.3 million people.
Oil revenues rose and Iraq tucked the money into more employees, a recurring government expense, even though oil prices are notoriously volatile. And in fact, they fell sharply in late 2008. By 2015, government employment was up to 5 million people—an additional 2.7 million people employed by the government rather than the private sector.
The fact that the government has all these dependents puts it in a bind. It could end payments to employees, effectively cutting off money to ISIL. But not only would that create a humanitarian problem, it would give ISIL a propaganda victory. The group could tell the largely–Sunni recipients—the same sect as ISIL—that the largely Shia government in Baghdad – the Shia being a sect ISIL considers apostates—is abandoning them and that ISIL is their only protection. Or the Iraqi government could continue the payments, and thereby fund ISIL’s war effort.
But expanding government employment is not Iraq’s only economic failure. In late 2006, Iraq agreed to restructure two state-owned banks that constituted 70 percent of all banking assets in the war-torn country. Effectively bankrupt, the banks were failing to do what any normal bank should do—help fund the private sector. Several months later, the International Monetary Fund noted that the restructuring was to be finished in 2008.
Fast forward to March 2015 and an announcement from the IMF: Iraqi officials were “pressing ahead with the restructuring of state-owned banks Rasheed and Rafidain,” the two banks that were to be restructured by 2008. Private banks have emerged, but they are small and lend mostly to trade-related companies. As late as 2013, Rasheed and Rafidain held 70 percent of all Iraqi bank deposits and were likely insolvent, meaning that most private businesses throughout Iraq had—and still have—only limited access to normal business finance.
The government’s willful disregard of economic reform can be seen in the country’s ratings in the World Bank and International Finance Corporation’s Doing Business ratings. The ratings provide a useful, although not complete, snapshot of the environment for private business.
In 2008, when Iraq had only 2.3 million government employees, it was ranked 141 out of 178 economies. In this year’s rankings, benchmarked to June 2014, just when ISIL was storming Mosul, Iraq ranked 156 out of 189 economies, falling 15 steps.
Difficulties in Iraq include starting a business because of all the bureaucratic procedures, getting credit because of the failure to reform the financial sector and trading across borders.
This failure to foster expansion of the private sector and with it, private-sector taxes that could support government activities, has left the Iraqi government almost entirely dependent on oil revenues and at the mercy of oil price volatility.
Oil export revenues have comprised more than 90 percent of the Iraqi government’s total revenues, which is sustainable as long as exports and prices are rising faster than government spending.
But in the past year, the price of a barrel of Brent crude—a global benchmark for oil prices—has fallen from more than $110 in June 2014 to less than $55 at the end of March 2015. By the end of April, it had risen to about $64, still well below last-year’s prices. So in June 2014, Iraq exported about 2.4 million barrels per day and earned almost $7.5 billion that month, but in April 2015 it exported more than 3 million barrels per day—a recent record high—and earned only $4.8 billion.
The failure of Iraq to reform its economy is understandable, but inexcusable. First, Iraq had a state-controlled economy for decades before the U.S.-led coalition invasion in 2003. Many political leaders and civil servants had never experienced a market economy. To loosen government bonds on the economy proved a difficult concept to grasp, let alone implement.
Second, economics has followed politics in the Iraqi case, and the shape of the political system remained up for grabs throughout this period. In a political competition awash with oil revenues, the most sensible short-term strategy is to use patronage power and government money to hire more government employees and build loyalty.
But Iraq is no longer awash in oil revenues, and it is at war. If ISIL is degraded so that it no longer represents a major threat, Iraq’s political leaders will have to embark on political reconciliation among all groups and settle the fundamental question of how the country will be governed, how minority rights will be protected, and how all Iraqis can be made to feel they have a stake in the country.
And the oil money will still be there, as will the numerous government officials unfamiliar with the needs and governance of a private sector economy. The former will provide a tempting pool of resources for patronage. The latter, combined with the need for numerous approvals, will create a steady demand for bribes and their opposition to reform laws and regulations, either out of greed because fewer approvals will mean fewer bribes, or out of a sincere belief in government controls.
If the international community is concerned about Iraq’s long-term well-being, it will need to uncharacteristically take a long-term perspective toward Iraq to help bring about economic reform. But most of the effort must come from Iraqi leaders, and this may require a new generation with exposure to a modern economy. Relevant steps should include streamlining business regulations and requirements, distributing or sequestering oil revenues based on a technical formula that removes a large share of the political decision-making about such revenues, reducing government payrolls, privatizing state-owned factories and banks and changing the tax system to raise more revenues from people and businesses, thereby making the government more answerable to the country’s citizens.
Iraq’s new government has taken small steps with its 2015 budget, but there is much more to do, with potentially high payoff: reform will decrease the country’s dependence on oil and bring about the opportunity for a sustained increase in living standards.
There is some thought that oil-dependent countries simply cannot shift too far away from oil dependence. There may be some truth to this, and it may be true for Iraq. On the other hand, even if Iraq’s leaders actually try to reform the economy, fixing these kinds of structural issues will be contentious and politically risky, and therefore extraordinarily difficult.
In the meantime, ISIL will continue to enjoy the Iraqi government’s largess.
[You must be registered and logged in to see this link.]
Today at 7:23 am by Rocky
» Central Bank: Importance of cooperation and money transfer to facilitate trade with Azerbaijan
Today at 7:19 am by Rocky
» Iraqi Businesswomen Council: A safe environment to support women’s entrepreneurship and develop skil
Today at 7:15 am by Rocky
» Economist: The value of the dinar will decrease and the financial deficit will increase
Today at 7:12 am by Rocky
» American website: Iraq's budget suffers from a deficit of $49.3 billion
Today at 7:11 am by Rocky
» Good news for journalists and writers.. The "financial grant" will be launched on this date
Today at 7:09 am by Rocky
» Iraq is the third Arab country in gold reserves
Today at 7:06 am by Rocky
» Wanted by Iraqi judiciary.. An "Iraqi-American" diplomatic crisis with Trump's victory in the US pre
Today at 7:04 am by Rocky
» Central Bank of Iraq sells more than $280 million in auction today
Today at 6:59 am by Rocky
» Trump's victory... will it be a lifeline from the "judicial guillotine"?
Today at 6:57 am by Rocky
» After winning the presidential race, Trump talks about a “strong mandate”
Today at 6:57 am by Rocky
» Al-Sudani chairs meeting with IATA delegation
Today at 6:54 am by Rocky
» Central Bank Governor stresses need for cooperation to facilitate trade with Azerbaijan
Today at 6:53 am by Rocky
» utube 11/6/24 Donald Trump's full victory speech
Today at 6:50 am by Rocky
» Deep State Confronted by Trump.. Will Elon Musk Lead America, the World and “Mars”?
Today at 6:43 am by Rocky
» Alsumaria Noon Bulletin Files: Trump's Victory and Objections to the General Amnesty Law
Today at 6:40 am by Rocky
» Parliamentary bloc explains reasons for demanding extension of legislative term
Today at 5:11 am by Rocky
» Al-Sudani discusses with an international delegation lifting the ban on Iraqi Airways
Today at 5:09 am by Rocky
» Axios: Washington warned Baghdad that Israel may attack Iraq if it does not prevent the Iranian atta
Today at 5:08 am by Rocky
» Trump declares victory in US elections: I will not start wars, but I will end them
Today at 5:06 am by Rocky
» Parliamentary Foreign Affairs: Trump is wanted by the Iraqi judiciary, but the country's interest co
Today at 5:03 am by Rocky
» "Al-Eqtisad News" publishes the full decisions of the Cabinet session
Today at 5:01 am by Rocky
» Bitcoin Hits All-Time High in Early Trading
Today at 4:58 am by Rocky
» Iraq tops the list of countries importing Arab products related to construction activity
Today at 4:56 am by Rocky
» 2025 Strong national economy and sound banks
Today at 4:53 am by Rocky
» Government stresses the need to secure petroleum derivatives for energy production
Today at 4:52 am by Rocky
» Anbar: The second phase of the electricity connection with Jordan has reached its end
Today at 4:51 am by Rocky
» Iraq's gold holdings rise to more than 152.5 tons
Today at 4:50 am by Rocky
» Al-Alaq stresses to Azerbaijani ambassador the importance of cooperation in transferring money to fa
Today at 4:49 am by Rocky
» 7 decisions on the general population census
Today at 4:47 am by Rocky
» The world awaits the new US president
Today at 4:45 am by Rocky
» Sudanese demands stopping the Zionist aggression
Today at 4:44 am by Rocky
» Wasit: Distribution of seeds among farmers with a support rate of 70 percent
Today at 4:43 am by Rocky
» Trade: Central markets {hypermarkets} to officially open in 2025
Today at 4:42 am by Rocky
» Civil Service Council: Controls for appointing land donors
Today at 4:41 am by Rocky
» Baghdad Municipality: Measures to avoid damage from oil spills in the Tigris
Today at 4:39 am by Rocky
» The Board of Trustees discusses a number of topics related to developing the work of the media netwo
Today at 4:38 am by Rocky
» Sovereign guarantees boost labor market
Today at 4:36 am by Rocky
» Mazhar Saleh: No impact of oil price drop on operating budget
Today at 4:35 am by Rocky
» Iraq's share in the IMF
Today at 4:35 am by Rocky
» Trump's "Historic" Victory: World Leaders Congratulate Him
Today at 4:33 am by Rocky
» Amid US Elections, China Hopes for Peaceful Coexistence with US
Today at 4:31 am by Rocky
» Judge Zeidan discusses with the Special Representative of the Secretary-General of the United Nation
Today at 4:30 am by Rocky
» The President of the Republic congratulates Trump on winning the presidential elections in the Unite
Today at 4:29 am by Rocky
» Following Trump's victory, EU leaders call for emergency meeting
Today at 4:28 am by Rocky
» Nineveh Education: We completed 52 schools under the Chinese loan
Today at 4:26 am by Rocky
» With Arab and foreign participation...the launch of the sessions of the Ninth International Scientif
Today at 4:25 am by Rocky
» Al-Sudani chairs a meeting to follow up on fuel procedures for energy production
Today at 4:24 am by Rocky
» Bitcoin Touches $75K for First Time as Investors Bet on Trump Win
Today at 4:23 am by Rocky
» Trump's Trading Gains Momentum... Markets and Stocks Rise Strongly
Today at 4:22 am by Rocky
» Parliament responds to the framework’s call and sets the extension period for its legislative term
Today at 4:20 am by Rocky
» After the decision to compensate the region for the costs of oil production and transportation.. an
Today at 4:19 am by Rocky
» For the first time in 4 years, Republicans win the majority in the Senate
Today at 4:18 am by Rocky
» Challenges of Trump's Arrival to the White House and Its Impact on Iraq
Today at 4:16 am by Rocky
» Zidane discusses with Al-Hassan the judicial procedures for achieving security and social stability
Today at 4:14 am by Rocky
» US Stocks, Bitcoin Gain as Trump Surges in Election Race
Today at 4:13 am by Rocky
» Dollar price drops against dinar in Iraq
Today at 4:11 am by Rocky
» Workers in Iraq: Continued "marginalization" and calls to "ratify" the retirement and social securit
Today at 4:10 am by Rocky
» “Pharmaceutical Cities”: A Step Towards Self-Sufficiency or a New Challenge for Local Industry?
Today at 4:09 am by Rocky
» In a phone call with the US Secretary of State... Al-Sudani warns of the dangers of the continuation
Today at 4:07 am by Rocky
» It has not happened in 132 years.. Trump is on the verge of a historic achievement
Today at 4:06 am by Rocky
» Iraqi Drilling: Drilling and rehabilitating 15 oil wells in October to boost production
Today at 4:04 am by Rocky
» Iraq Facing Challenges: Hopes of Establishing a Waste Recycling Plant in the East... Will It Succeed
Today at 4:03 am by Rocky
» Interior: Unprecedented decline in crime rates across Iraq
Today at 4:02 am by Rocky
» ILO: Enacting the Social Security Law in Iraq is a Historic Step Towards Protecting Workers
Today at 3:59 am by Rocky
» Iraqi Tourism Companies Association participates in World Travel Market
Today at 3:58 am by Rocky
» Al-Sudani stresses to Blinken the need to double efforts to stop the war
Today at 3:57 am by Rocky
» The Iraqi Council of Ministers approves a set of service, economic and urban decisions
Today at 3:56 am by Rocky
» Trump's Win Prospects Lift Stocks, Markets Strongly... Dollar at 5-Year High
Today at 3:53 am by Rocky
» A look at the latest results.. Republicans swallow the House of Representatives, the Senate and the
Today at 3:51 am by Rocky
» A look at the latest results.. Republicans swallow the House of Representatives, the Senate and the
Today at 3:50 am by Rocky
» Fox News: Trump is the 47th president of America with 277 votes
Today at 3:48 am by Rocky
» Morning list of dollar exchange rates in Iraqi stock exchanges
Today at 3:47 am by Rocky
» Al-Araji and Al-Sabah at one table in Kuwait.. Discussing several files and issues
Today at 3:46 am by Rocky
» Highlights of Trump's speech after winning the US presidential election
Today at 3:44 am by Rocky
» Iraq and Saudi Arabia's trade achieves tangible convergence and investment cooperation
Yesterday at 7:08 am by Rocky
» Ports Authority notes the fate of the five berths in the Grand Faw Port
Yesterday at 7:03 am by Rocky
» MP: Why is the regional government fighting the civil banks war and leaving the core of the issue?
Yesterday at 6:57 am by Rocky
» Political researcher: The amendment will include sovereign ministries
Yesterday at 6:54 am by Rocky
» Retirement: End of service bonus paid to more than 7,000 retirees
Yesterday at 6:50 am by Rocky
» Al-Mashhadani stresses the importance of the role of the Audit Bureau in combating administrative an
Yesterday at 6:48 am by Rocky
» Al-Mashhadani and Al-Hakim discuss parliament’s approval of important laws
Yesterday at 6:47 am by Rocky
» Parliamentary consensus to pass controversial laws soon
Yesterday at 6:45 am by Rocky
» Currency Auction.. Increase in the Central Bank of Iraq’s sales of foreign remittances
Yesterday at 6:43 am by Rocky
» Interior Ministry dismantles 600 drug networks, electronic passport to be introduced soon - Press co
Yesterday at 6:41 am by Rocky
» utube 11/2/24 MM&C Report-Iraq 3 Presidents-National-Constitutional Entitlements-Open Market Operati
Yesterday at 5:22 am by Rocky
» Foreign Minister warns of major and dangerous economic repercussions
Yesterday at 5:12 am by Rocky
» Roadmap for Reform
Yesterday at 5:10 am by Rocky
» Government reshuffle looms over Al-Sudani’s cabinet.. The compass of change is heading towards 4 min
Yesterday at 5:08 am by Rocky
» Parliamentary move to legalize foreign labor in Basra
Yesterday at 5:07 am by Rocky
» Parliament intends to amend the retirement law and return the service age to 63 years
Yesterday at 5:06 am by Rocky
» Parliamentary move to question a senior official and complete procedures against the Minister of Com
Yesterday at 5:04 am by Rocky
» Legal expert explains the mechanism for forming the Kurdistan Regional Government
Yesterday at 5:03 am by Rocky
» Silk Road imposes a state of maximum alert suddenly
Yesterday at 5:01 am by Rocky
» Sheikh Raouf: There is an urgent need to find a constructive, corrective opposition in Kurdistan
Yesterday at 5:00 am by Rocky
» Green light from Baghdad to build the first waste recycling plant in eastern Iraq
Yesterday at 4:59 am by Rocky
» MP: Al-Mashhadani discussed 3 important files with parliamentary blocs
Yesterday at 4:58 am by Rocky
» MP: Al-Mashhadani's election will not affect the completion of legislation
Yesterday at 4:56 am by Rocky
» Parliamentary Oil: Investment in associated gas in fields exceeds 60%
Yesterday at 4:54 am by Rocky