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IRAQ


 

 

REPUBLICAN REFERENCE

Area (sq.km)
437,072

Population
24,001,816 (July 2002 est.)

Capital
Baghdad

Currency
Iraqi dinar (IQD)

President

 

Background:
Formerly part of the Ottoman Empire, Iraq became an independent kingdom in 1932. A "republic" was proclaimed in 1958, but in actuality a series of military strongmen have ruled the country since then, the latest being SADDAM Hussein. Territorial disputes with Iran led to an inconclusive and costly eight-year war (1980-88). In August 1990 Iraq seized Kuwait, but was expelled by US-led, UN coalition forces during the Gulf War of January-February 1991. Following Kuwait's liberation, the UN Security Council (UNSC) required Iraq to scrap all weapons of mass destruction and long-range missiles and to allow UN verification inspections. Continued Iraqi non-compliance with UNSC resolutions during the past 12 years resulted in the US-led invasion of Iraq in March 2003 and the ouster of the SADDAM Hussein regime. Coalition forces remain in Iraq, helping to restore degraded infrastructure and facilitating the establishment of a freely elected government.

International
During the first three months of military occupation, despite the appointment of General Jay Garner at the head of the Office of Reconstruction and Humanitarian Affairs and then of Paul Bremer to supervise the political transition and reconstruction efforts, little has been achieved in terms of either maintaining security for the civilian population or re-establishing vital supplies. As Iraqi households were rapidly running out of food, the second half of May proved especially critical in this regard. Nonetheless, behind the curtain an intense debate is taking place with regard to the issue of reconstruction and on the exploitation of Iraqi oil reserves. The expectation is that US companies will take the lion's share of both reconstruction contracts and exploitation rights, but both the Russians and the French claim the validity of existing contracts and the payment of outstanding debts. How this will be settled is unclear yet. Some officials in the Bush administration invited the creditors to waive Iraq's debts to help the reconstruction, but given the huge windfall expected once Iraqi oil production restarts in earnest, such position never had many chances of being accepted. Russia, France and Germany have indicated that will not forgive the debts, but only reschedule the repayments, which could also be capped at a certain percentage of Iraq's oil revenues. Overall, Iraq's debts, including war reparations, are estimated to amount to US$350-US$400 billion. 
With the approval of the US-sponsored resolution at the Security Council, during June international bickering around Iraq subsided, without disappearing altogether. There were unconfirmed reports that the Bush Administration has issued instructions to keep French companies out of the reconstruction business. However, most of the attention was focused in June on Russia, whose government officials repeatedly stated that they have been assured that there would be no discrimination against Russian companies in the reconstruction. Despite that, acting Iraqi oil minister Ghadbhan cancelled a maxi-contract with Lukoil, which threatened retaliation. Moreover, the fate of Iraqi foreign debt, owed mainly to Russia, France and Germany, is still not clear. At the beginning of June Paul Bremer called for more generosity by creditors, saying that the moratorium on service repayments, which they have offered, is not enough.

Economy
The Iraqi economy has been steadily declining since at least 1991 and by 1999 was estimated to have fallen by 75%. Of course the latest war and the current virtual paralysis of economic activities have made the situation worsen further. The fact that the state used to control so much of the economy makes the political chaos all the more important in terms of negative impact. About 45% of the Iraqi workforce is directly employed by the state. Such schemes as the distribution of dollars to state employees by the occupation authorities are not much more than palliatives. The production of oil almost stopped during the war and is not expected to restart for at least another month and probably longer. The oil fields have been subjected to extensive looting and it will take time and money to repair them. Efforts to repair oil extraction and transport facilities began to produce results only during June, causing acute shortages of oil to hit the Iraqi internal market, to the point that officials in the oil industry stated the need to start importing oil from abroad. There were fears that petrol shortages would cause unrest and contribute to complicate the political situation. However, the oil industry has been paid much greater attention than the rest of the economy and by June the US administration and the Iraqi officials working for it could claim at least some relative successes. The main achievement was the restart of oil exports through Turkey on 22 June. By the end of June production had reached 800,000 barrels a day, up from 310,000 barrels a month earlier. Production is mostly concentrated in the North, where the disruption and looting caused by the war has been less severe. By mid-July, the Iraqi oil industry was still struggling to reach the targets set for June, as sabotage of the pipelines and administrative confusion prevent the full exploitation of this potential. Iraq has only been able to export oil stored in Turkey and in Iraq itself, while freshly pumped oil is being absorbed by internal consumption and smuggling. Even according to the most optimistic estimates, oil exports will not be able to contribute to Iraq's recovery before the end of 2004.
Earlier expectations that oil revenue would have been enough to fund the reconstruction are now giving way to concern that American taxpayers might have to pay at least part of the bill. The latest assessment is that US$90 billion are needed to rebuild Iraq over the next decade. The Bush administration budgeted just US$2.4 billion, which moreover it is unable to spend because of the widespread insecurity. Only about US$250 million have been spent so far. 
The Iraqi power supply system appears to be a major problem for the American occupiers. Damaged by previous wars and lack of maintenance, the CPA has not been able to restore it in such a way to bring energy supply back to pre-war levels. Worse still, it seems resigned to not being able to do so. The building of new power stations is likely to take years and in the meanwhile the insufficient power supply will greatly hamper the economic recovery. Most of the telephone network is also in need of repair, while banks remain closed. Although trade businesses are reopening, many of them are reported to be on the verge of bankruptcy. The dinar, however, recovered from its low of 4,000 to a dollar during the war, to stabilise in June at 1,400. At least something has been done to help the moribund Iraqi agriculture. Production of grain is expected to be half that of 1990 this year and the distribution network has collapsed. The UN are launching the largest food aid program in the world to help the Iraqis, with a budget of US$1.3 billion. More importantly, the World Food Program will buy this year's harvest from Iraqi farmers, helping them to earn enough to sow the land for the coming year. 
One issue which is being raised is currency reform. At present there are three currencies in circulation, the dollar, the Iraqi dinar and the Northern Iraqi dinar. With inflation running at an estimated 70% a year, the need is felt for creating a single currency which would make it easier to stabilise money supply and fight inflation.

Internal
The situation in Iraq is inevitably going to remain chaotic for some time. Although the Baath state has been thoroughly defeated, the US-British military occupation is spread rather thinly throughout the territory, mainly because of security concerns. The CPA is becoming somewhat more efficient now, but the start was quite disastrous. The decision to privilege military personnel over civilian reconstruction specialists has proved particularly ill advised. Although a decrease in the looting activity was reported as the end of June approached, patrolling by American troops remained limited, both due to the insufficient number of troops available and to the unwillingness to risk even modest casualties. The about 30,000 Iraqi policemen taken back into service were not enough. Even the announced formation of a small Iraqi army to guard the country's borders will have no short-term impact. Washington sources increasingly acknowledge that the Iraqi post-war plans were based on expectations which completely failed to materialise. It is reckoned that it will not be possible to reduce the level of troops committed to Iraq for several months to come at least, a fact that is pushing Pentagon expenditure in Iraq to around US$4 billion a month, roughly twice as much as it had been forecast. Some sources even claim that Bremer already asked for 50,000 more troops, to help secure the country. It is generally accepted that with current troop levels and given American wariness to risk losses, maintaining security throughout Iraq will not be possible. This left much room of action for several militias that have sprung up, mainly composed of Shiite Islamist militants, but also of neighbourhood associations which are trying to maintain security locally. Northern Iraq, of course, remains under the control of the Kurdish militias, as it has been for many years now. 
There are several factors that are feeding the political instability. First of all is the fact that most parties and factions based in Iraq oppose to various degrees the military occupation. Also, there is tension between exile groups which are coming back to Iraq with the support of the US, and indigenous groups, which feel they are being overtaken by newcomers who know little of the reality of Iraq. Last, but no less important, is the fact that the internal opposition is by no means united. The centre stage in the first few weeks after the fall of Saddam's regime has been taken by Shiite religious groups, which moved quickly to occupy as much ground as possible. However, there are strong currents of secularism in Iraqi society and tensions might arise soon, especially if the Shiite parties tried to monopolise the political scene. At present, however, the competition is mainly among Islamic groups which claim to represent the Shiite community, a situation which has already led to clashes and even the killing of Abd al-Majid al-Khoi, a moderate Shiite leader. 
After more than two months of occupation, the political situation actually appeared to be worsening by the end of June. The US managed to alienate virtually all Iraqi Arab political forces, including the exiles whom they brought back to the country, by postponing the establishment of a proper Iraqi interim administration until after the political elections, which in turn are not expected before a year.
In the areas inhabited by Sunni Arabs, there appears to be starting a guerrilla insurgency, which could develop in a serious annoyance for the US occupiers. 
The political groups rooted among the Shiite majority have so far adopted a cautious approach. Despite not hiding their distaste of the Americans, they have refrained from armed opposition and are focusing on consolidating their hold on the population. In the short term, Shiite parties and their Iranian patrons have no interest in an open confrontation, but the potential threat to American interests will remain. Disappointed by the bickering and ineffective exile parties, the Americans appear to be turning to others in order to find some interlocutors. In particular there is a clear effort to establish links with the tribal chieftains, hoping that this could allow the maintenance of order without committing troops. The tribal chieftains are building up their militias, in a situation that could soon resemble the power-sharing deal with the warlords in Afghanistan. On the other hand, plans to rely on selected former Baathist officials are proving more difficult to implement that initially foreseen. Not only the majority of the population rejects these officials, but few have accepted to serve under the conditions imposed by the US, which include a clear and unequivocal rejection of the Baathist ideology. The presence of an armed opposition to the American occupation and the fact that several Baath leaders are still at large clearly represent a powerful disincentive for former Baathists to join the Americans, not least because of fears of assassination. 
By July the CPA had decided to take another path and it established the Interim Governing Council (IGC), made up of 25 Iraqis of different backgrounds. The establishment of the council itself can be seen as a concession from Paul Bremer, the head of the CPA. The potential contributors to the planned international fund to rebuild Iraq stated clearly that they would not even agree to meet until an interim government composed of Iraqis was in place. The IGC has the power to nominate ministry heads and form commissions to recommend policies concerning the reform of the Iraqi state. Even the composition of the IGC shows that Americans are moderating their earlier ambitions to reshape Iraq in their own image. Although pro-US Iraqi returnees from exile are still over-represented in the IGC, compared to what seems to be their actual following among the population, anti-US factions are fairly well represented too, including seven Islamists and a Communist.

Forecast 2003

International
It appears likely that US military presence in Iraq will continue for the foreseeable period, as the Pentagon is reported to be planning the establishment of permanent military bases in the country. This will inevitably not please the Syrians and the Iranians, who however will mostly try to maintain a low profile in order not to attract the wrath of the Bush administration on them. In the case of Iran, however, the situation is made more complex by the intricacies of factional conflict within its ruling elite and Islamic hardliners within it might want to push their Iraqi allies towards a more confrontational path against the US, hoping to keep the Americans busy for some time. The US will also continue lobbying a number of countries to convince them to send troops to maintain order in Iraq, a task on which few are keen. 

Economic
Any government that invested large resources in paying those debts, rather than rebuilding Iraq, would find it difficult to consolidate its legitimacy. Once the most immediate task of restarting the economy will have been addressed, there is little doubt that wide-ranging economic and structural reforms will be attempted. The banking sector in particular is considered to be completely unsuitable for a "liberal" economy, which is what most people expect Iraq to become over the next few years. It is likely that the dollar will substitute the dinar as the Iraqi currency. The transition from a state-controlled economy to a relatively free-market one will be characterised by all the problems that have been met in (for example) Eastern Europe, with the additional drawback of a post-war situation and (possibly) continuing political turmoil, but with the advantage of a rapidly growing oil revenue. The Iraqi agriculture, on the other hand, might recover quickly, as much of its decline was due to the sanctions and the difficulty to maintain the level of inputs such as fertilizer and seeds. As far as the oil sector is concerned, there was talk to expand production to as much as 6.5 millions in the near future, although this will be subject to which level of investment will be achieved and how quickly. In any case, despite the limited damage caused by the war to the oil production facilities, the acting oil minister, Ghamir Ghadhban did not expect production to reach pre-war levels (2.5-3 million barrels a day) for at least a year, while the 2 million barrels target could be reached by the end of 2003. Production was officially expected to reach about half that level by the end of June, although many were more pessimistic and did not expect this target to be reached before mid-July. Since domestic needs stand at about 550,000 barrels, there was supposed to be soon a modest surplus for export. Oil refineries restarted production at the beginning of June, contributing to reduce the long queues for fuel. However, continuing looting and sabotage activity are hampering the efforts to bring the oil industry back on its feet. The original expectation, that oil revenues would have contributed almost all of the US$41 billion required for the reconstruction within the first two years of occupation, now look wildly optimistic. Apart from claims that the reconstruction will cost much more than US$41 billion, over the next year oil revenues are not likely to exceed by much the US$13 billion of 2002. According to a study, bringing oil production back to the pre-1991 level will take at least 18 months and require US$5 billion of investment. Moreover, due to damage to the oil fields, the price of Iraqi oil is now going to be lower than it used to be, because of higher sulphur content. On this basis, it is estimated that oil revenue will probably not exceed US$5 billion in 2003 and US$15 billion in 2004 and not necessarily will it be possible to spend this whole amount on reconstruction.

Political
The political future of Iraq is very difficult to predict at the time of writing. The occupying coalition forces do not seem to have confronted yet the issue of how to secure the country for the civilian population. As a result, warlords and militias are likely to continue to rapidly expand their hold over vast regions of the country, offering at least some semblance of security to the local population. Because most of these militias are politically aligned, conflicts are likely to arise in the medium and long-term if this situation persists. At the same time, complex political negotiations will be required to determine the future of the Iraqi state, both in terms of coalition governments and in terms of institutional reconstruction. The role to be played by the Kurdish parties and exile politicians on one side and the relationship with occupation forces on the other will likely prove the most contentious issues. The IGC will have to struggle to maintain the confidence of the majority of Iraqis, while many forces do not recognise its authority.

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Update No: 004 - (29/08/03)

An elusive security
Following the attacks to the UN compound and the Jordanian embassy and a number of US civilians killed, plus the attacks to the pipelines and the US military, security became more than ever the primary concern of the US occupation administration during August. Unable to increase the level of US troops for reasons of internal policy and also because of objective overstretching of available resources, the Bush administration tried hard to convince more countries to send additional contingents. With the support of the British, it even went to the UN to get a new resolution approved, but being unwilling to relinquish the command of all troops in Iraqi territory it met little enthusiasm. Quite a few countries are likely more worried about sending troops to Iraq than about being commanded by the Americans, but the issue of the UN role offered a good cover. During July and August there were rumours that James Baker III, the experienced American diplomat, had been offered the top job in Iraq, but that he refused it. Such a move seems to point towards a desire of the Bush administration for a rapprochement with as many countries as possible in order to share the burden of the reconstruction, although always without relinquishing command. Even the President of the World Bank Wolfensohn said that his institution will not lend money to Iraq before there is a representative government and a constitution. While the US are likely to be disappointed in this regard, the Iraqi Governing Council (IGC) that they have established is slowly winning some support. The UN recognised it and although the Arab countries mostly refused do so, most Arab neighbours are accepting to deal with it on an provisory basis. During August the members of the council toured the region, meeting officials and political leaders.

Diverging opinions
Efforts to contain the lawlessness continued in August. The US started forming a 6,500-men militia to help fighting against the various guerrilla groups active in the country, while according to the CPA Iraqi police are tackling the wave of kidnappings which had spun completely out of control after the fall of Saddam Hussein. However, Iraqis show few signs of satisfaction. The same applies to the reconstruction effort. The CPA claims that imports of medicines have increased sevenfold, that 1,000 schools have been rebuilt and that the irrigation ditches in southern Iraq are being cleaned up, but Iraqis are more concerned by the continuing lack of electricity and sometimes water. At present the CPA estimates that there is a 30% shortfall in electricity production. Just to meet demand investments of about US$2 billion will be needed. 

Disappointing oil flow
The CPA appears pleased of the performance of the Iraqi officials that they have appointed at the top of the oil ministry and in August they announced that after all there will be no need to supervise them. They will therefore be given a free hand. Still the oil industry has been performing well below expectations. In the first half of August exports averaged 545,000 bpd, up from the 385,000 bpd of July but still well below the 800,000 target. The hopes that the northern oil fields would have given their contribution were quashed after they were sabotaged just a couple of days after their reopening. More guards are being recruited to help guarding the pipelines, but they might not be enough. Some experts say that to bring production to the 3.5 million bpd which was the original target will take as much as US$30 billion, which might not be easy to gather. Western oil companies are reported to have told the Bush administration that they are not going to make large investments in Iraq for the foreseeable future. 

Rising reconstruction costs
The more is known about the reconstruction, the more it looks an expensive business. Paul Bremer, the boss of the CPA, for the first time in August hinted that reconstruction could cost as much as US$100 billion. US$13 billion should be needed for the electrical grid and another US$16 billion for the water system. For the next year, the UN estimates a need for US$20 billion as a bare minimum and Iraqi revenues are not expected to exceed US$15 billion at best. The US$5 billion gap should be covered by donors. Inevitably, the US will have to contribute more money than it expected. The oil industry rehabilitation plan approved by the CPA and oil ministry already calls for the US to contribute US$1 billion, which had not been budgeted before the war.
The need to attract contributions from as large a number of countries as possible is not preventing the CPA from organising the bidding for the mobile phone licences according to its own criteria. During August the CPA faced opposition after it decided that only companies with state ownership lower than 5% will be allowed to bid for the three available mobile licences. This rule alone would exclude most European and Arab companies from bidding and there are other rules which can be described as similarly biased. After the protest the CPA decided to increase the percentage threshold to 10%, but most of those companies will still be excluded. The CPA is also moving to invite international banks to help restructure the two largest Iraqi banks, which in the future will have to operate in a market economy. 

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ENERGY

Iraq to offer crude oil contracts in bid toward resuming exports


Iraq said it will begin offering long-term contracts for the delivery of crude oil, signalling for the first time since the war that it believes it can pump a steady stream of oil to world markets, the Wall Street Journal Europe reported on July 23rd.
The sales, if they are successfully completed, will represent another small step toward resuming significant exports. Initial volumes for the contracts, which will begin next month, are expected to be small, and the announcement didn't affect world oil markets significantly.
Iraq's State Oil Marketing Organisation said recently it plans to start offering so-called term contracts to buyers, beginning August 1st and running through the end of the year. The contracts will lock Iraq into providing a set amount of crude oil for specified time. That is a departure from previous postwar Iraqi exports so far, which have been sold in spot tenders, or one-off deals, much of that for oil produced and stored before the war.
The spot tenders allowed Iraqi oil officials to sell some crude without locking themselves into contracts they weren't sure they could honour in the future.
Since Iraqi production resumed after the war, massive looting, power outages and a lack of communication across the country have hampered operations in the oil fields, making the prospect of steady exports difficult.
SOMO didn't say how much oil it is prepared to provide for the long-term contracts. A spot tender of stored and freshly pumped oil awarded earlier to major oil companies worked out to just over 360,000 barrels of oil per day. It's unlikely the term contracts in August will be much higher than that.
The oil for sale will come from Iraq's southern fields and will be shipped from the country's Mina al-Bakr terminal in the northern Persian Gulf.
Overall Iraqi production has varied widely since it resumed after the war, but volumes haven't gone much above 900,000 barrels of oil a day, about 500,000 barrels of which are for domestic use. Pipeline disruptions have stymied plans to export oil from Iraq's northern fields, and Iraqi engineers are reinjecting surplus crude into wells because they have nowhere else to put it.
Major oil companies are likely to compete for the term contracts. ChevronTexaco Corp, BP PLC and Royal Dutch/Shell Group successfully bid for the spot tender and are likely to be in the market again.

Tiny oil firm sets sights on Iraq

While the world's major oil companies wait for the smoke to clear in Iraq, a Houston outfit with three employees is trying to steal a march on them, the Wall Street Journal Europe reported on July 29th.
Closely held Gulfsands petroleum Ltd hopes to parlay a recent oil-exploration deal in neighbouring Syria into a lead over its larger rivals across the border in Baghdad, even before any new Iraqi government starts handing our contracts. Its campaign provides a window on the rush for deals that will break out should the US succeed in restoring order in Iraq.
In late May, Gulfsands and its larger partner, Devon Energy Corp, of Oklahoma City, signed the first US oil contract in Syria in 15 years. They agreed to drill at least four wells in Syria's Suwaidiyah field, which extends across the border with Iraq, and to spend US$17m looking for oil and gas there. In exchange, they secured the rights for four years to explore the region. Devon will operate the exploration and production and owns an 80% interest in the venture. Gulfsands has a 20% working interest.
Now Gulfsands is hoping to use the freshly signed Syrian deal to jump the queue of eager oil executives who are hoping to snare business in Baghdad once Iraq's new oil authorities complete plans on how to develop its oil reserves.
"Oil development in Iraq is not just about the big bang from the majors," says Gulfsands Vice President, Mahdi Sajjad. "If I can get a foothold on one development, I can attract other companies later on."
Iraq will need to turn to foreign oil companies, notably for their drilling and exploration technology, if it intends to increase oil production much above pre-war levels. The potential is vast, as the country has the world's second-largest oil reserves, after Saudi Arabia.
But despite early expressions of interest, the oil majors are off to a slow start in postwar Iraq because the country is still a frontier economy, with perilous security and no legal guarantees. Until a new Iraqi government is firmly in place, companies won't have anybody with whom to officially negotiate.
That leaves an opening for the little nimble players, says Sajjad, who describes his strategy of targeting the small fields on the Syrian border as "a back-door approach." In the past, oil majors such as Total SA of France and OAO LUKoil of Russia have tended to focus their attention on Iraq's so-called "supergiant" fields in the south. Those fields including Majnoon and West Qurna, have estimated combined reserves of 18 billion barrels. The scattered northwest fields that Gulfsands is hoping to explore are small by comparison, with only about one or two billion barrels of proven reserves.
Gulfsands thinks it can use its executives' political connections, plus its interest in the shared fields, to act as a pilot fish for other, larger partners later on. "We had the ability to say to the (Iraqi) oil ministry, 'Look, we're going to have to be talking anyway because of the shared fields,' so we should be able to say later, 'Let's talk about one of these Iraqi fields,'" Sajjad says.
Gulfsands says it is negotiating to team up with a larger partner in Iraq, in a deal similar to its agreement with Devon in Syria, but won't name the company. Devon executives declined to say whether they plan to extend their partnership with Gulfsands to Iraq.
Gulfsands, founded by US oil executive John Dorrier in 1997, depends largely on the political smarts of its staff trio, notably the Iraqi-born Sajjad. The Syrian contract signed in May was the company's first major exploration deal. Dorrier previously had been a founding officer of Seven Sea Petroleum Inc, another Houston oil boutique that aimed to acquire small oil prospects around the world and then attract larger partners to develop them. But Seven Sea's only significant development was a shallow oil field in Colombia. That failed to produce as much oil as expected, and the company filed for bankruptcy-court protection from creditors late last year when a deep well failed to find oil. Dorrier left Seven Seas in 1997 to start Gulfsands.
This time around, Dorrier is replying on Sajjad's connections in the region, developed in two decades of working with various Dubai-based commodities and project-development companies. In the course of his dealings, Sajjad once allied himself with Marc Rich, the fugitive financier pardoned by former US President, Bill Clinton. Still, Sajjad seems to have developed enough political connections to be able to negotiate Middle Eastern oil circles. He claims it was his friendship with Syrian President, Bashar al-Assad and Oil Minister Ibrahim Haddad that proved useful in securing the Syrian exploration contract earlier this year. It was Gulfsands' access that attracted Devon Energy. "They are relationship folks," says Earl Reynolds, vice president for international development at Devon Energy.
Now Sajjad says he is already using "a little of the old Iraqi personal touch" to get ahead in Baghdad. He spent almost two weeks there in June, flying in on a jet chartered by Sheriff Ali bin Hussein, a London banker vying to restore the Hashemite monarchy to Iraq. Once there, Sajjad says, he spent 10 days speaking to American and Iraqi officials. He made another three-day visit in mid-July, he says, touching base with members of Iraq's nascent political council.
Interim oil officials in Baghdad, still subordinate to the Coalition Provisional Authority, run by the US, aren't meant to hold talks with foreign companies until an official government is formed. Interim Oil Minister, Thamer Ghadhban, speaking through press officials, said that he hasn't held formal talks with representatives of any foreign oil companies.

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FINANCIAL NEWS

Paris Club's restructuring of Iraqi debt acceptable for Russia

The restructuring of Iraq's foreign debts in the framework of the Paris Club is an approach that Russia would welcome, Oleg Vyugin, Bank of Russia's first deputy governor, said, Interfax News Agency reported. The Paris Club had earlier made a communiqué public in which it says that it has decided to restructure Iraq's foreign debts. Iraq reportedly owed Russia over US$8bn. Deputy Prime Minister and Finance Minister, Alexei Kudrin has repeatedly made it clear that the issue of Iraqi debts must be tackled by the Paris Club rather than on an individual basis as desired by the United States. "The Paris Club's decision is a consensus of all creditors, and is acceptable to us," Vyugin said. Restructuring the debt within the Paris Club is a standard technique of tackling such issues, Vyugin said. Restructuring the Iraq's debts is an essential step. The Paris Club announced recently that it is prepared to restructure Iraq's debts to the Club, which exceed US$21bn, as much as possible. The club admitted that Baghdad would not be able to resume payments earlier than 2004. The above amount included, according to the Club's methods, loans that were granted by Russia and debt to the former Soviet Union. Ad of January 1st, 2003, Japan was Iraq's largest creditor with US$4.1bn, followed by Russia with US$3.45bn, France at US$2.99bn, Germany with US$2.4bn and the United States with US$2.19bn. Those amounts do not include overdue interest payments.

Program will increase Iraqis' access to credit

The US led occupation forces in Iraq have announced a new program that will allow Iraqi ministries easier access to credit to purchase imported food, commodities, materials and other basic necessities for reconstruction, the International Herald Tribune reported on July 23rd.
With Iraq's shattered economy and weakened financial institutions, many foreign companies have been reluctant or unwilling to sell goods on credit either to the ministries that control public services and most large industries, or to independent businesses.
The newly established Trade Bank of Iraq will use funds, set aside and earmarked for reconstruction, to guarantee that the sellers will be paid.
According to a decree issued recently by L Paul Bremer 3rd, the top civilian administrator in Iraq, the new trade bank will be liable for up to US$100m worth of credit guarantees. Bremer is head of the Coalition Provisional Authority, the US led alliance that is rebuilding Iraq.
The money backing the bank will come from the US$1.2bn Development Fund for Iraq, according to Peter McPherson, a top economic adviser to Bremer. The development fund is a pot of money already being used to help finance the US$2.2bn budget deficit projected for the second half of this year. The trade bank will be capitalised initially with up to US$5m from the development fund.
If it is unable to meet its obligations with available cash, the trade bank will be able to consume up to US$95m more from the development fund.
The trade bank, and independent Iraqi governmental agency, will back up guarantees issued by a consortium of banks and financial institutions to sellers of goods and services to Iraqi ministries and businesses. The ministries, remnants of the old government, are now overseen by occupation officials.
In an interview recently, McPherson said that it was possible that up to US$100m in transactions each month could be made using the trade bank. Private companies could also use the new guarantees, but the businesses would have to post some form of collateral or margin to cover the purchases, he said.
The new bank will speed the acquisition of materials needed for rebuilding Iraq, including power generators, sewage pipes and oil field equipment.
"The first step that a country in deep distress usually takes to get out of such distress is trade credit," he said.
But the finances of the Iraqi reconstruction effort remain uncertain, and officials are still grappling with how to find the billions of dollars for the huge infrastructure projects that are needed just to get Iraq to where it has even marginally acceptable systems for sewage, electricity generation and distribution, and other public services.
As of July 1st, the coalition had US$5.4bn available to fund reconstruction. But that is expected to dwindle to US$1.1bn by the end of the year as the coalition burns through cash to finance the budget deficit as well as to help the Iraqi Central Bank support its currency.
Ending the year with US$1.1bn may itself be an optimistic projection, as it depends on Iraq's generating net oil revenues of almost US$3.5bn during the second half of the year.
Some oil analysts say that level of revenue may not be possible because of the looting and sabotage that have undermined Iraq's already dilapidated oil-producing infrastructure.

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FOREIGN ECONOMIC RELATIONS

Polish firm opens office in Baghdad

Bartimpex has become the first Polish company to have opened its office in Baghdad, Chief Executive Officer Aleksander Gudzowaty said on 13th August. "Our office there was opened four days [ago] now," he added, PAP News Agency has reported.
Gudzowaty also revealed that his company headed a consortium of 20 Polish firms and wanted to take part in large infrastructure projects.
The Baghdad office came into being as a result of cooperation with Arab firms, another Bartimpex official explained. "We act in many directions: through contacts in the USA, Britain and with local firms and these actions are taken independently," he said.
Asked about concrete plans for operations in Iraq, the official referred to Bartimpex's experience with oil pipeline construction under the Yamal project. "This makes us a suitable partner for similar tasks," he noted.

Slovak companies might get road construction contracts in Iraq 

Chances to participate in reconstruction of the post-war Iraq can be used mainly by strong Slovak companies with previous experiences from the region, Slovak Economic Minister Robert Nemcsics said on 13th August, TASR web site has reported. 
Good business opportunities for Slovak firms are mainly in road construction and demolishing of war-damaged buildings, as well as supplying boilers to Iraqi power plants, minister told journalists.
But Nemcsics stressed that initiative in negotiations with the US contractors and local firms must be taken by Slovak applicants themselves. "This is not on the interstate level," he pointed out.

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TRANSPORT

In northern Iraq, economic base gets lift from US Army

The first train from Syria through northern Iraq to Mosul was a few minutes late, but after more than a year without service, the residents of Rabiyah did not complain, reports the International Herald Tribune on August 1st.
The train, consisting of dozens of freight and tanker cars, one sleeper and several passenger cars, resumed service only recently, but it was sold our with goodwill.
"It brings us tot eh future, this train," said Mohsin al-Naif, a leader of the Schamar tribe that has strong ties with Rabiyah, an Iraqi border town of 25,000 residents, and in Syria as well. "We are bound by blood on both sides of the border."
"This is like bringing the family together. There is peace here," he said.
The train is running again thanks in part to the US army and its 101st Airbourne Division, which oversees a 17,000 square kilometre, or 6,564 square mile, region in Iraq's north. The area is a blend of cities like Mosul, 386 kilometres, or 240 miles, north of Baghdad, scattered towns and villages and vast stretches of wheat and barley fields. The people are mainly Arabs, Kurds and Turkoman.
Government financing for economic development here was rate in the aftermath of the 1991 Gulf War because the area was in the northern no flight-zone set up to protect the Kurds from Saddam Hussein's retribution, said Colonel Michael Linnington, commander of the 187th Infantry Regiment.
Soldiers here have made it a priority to secure the region's economic base by spending liberally to improve water wells, rebuild schools and train policemen.
"These guys have experienced 35 years of hardship," said Lieutenant Colonel Joe Buche, commander of the 187th's Third Battalion in Rabiyah. "They'd like it to be improved in 35 days."
That won't happen given the sheer number of projects that need tending, but there is plenty of money, said Captain Pat Costello, of the 187th.
The money is given to area commanders throughout Iraq, Linnington said, and they spend it at their discretion.
"It's Iraqi money for Iraqis," said Costello. It comes from Iraqi assets frozen after the Gulf War. Any work done is by local contractors, vetted by area leaders and army officials.
The American-led coalition said the train included mainly oil tanker cars that were held in Syria at the start of the war. A coalition official, speaking on the condition of anonymity, said the return of the cars would allow Iraq's petroleum industry to increase refinery output by one-third.
In the nearly three months the regiment has been at work, nearly US$1.4m has been spent in small hamlets and major cities. Potholes are being filled in Mosul, and schools are being repaired in the countryside.
Some projects are obvious - like the train and refurbishment of the railway in Rabiyah, Buche said. Others are less visible, like updating antiquated water pumps or trucking in drinking water for families without wells.
"It's a big mission," Buche said, as hundreds of local sheiks, the mayor and others scrambled around the crossing between Iraq and Syria.

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