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IRAQ


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Area (sq.km)
437,072

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

Capital
Baghdad

Currency
Iraqi dinar (IQD)

President

 Update No: 017 - (30/09/04)

Lack of security may compromise elections
For all the determination of the Iraqi interim government to claim that the elections planned for January 2005 will not be delayed, by September there seemed to be little hope that this would happen. The security situation showed no sign of improving. Despite the (temporary) end of the Shiite insurrection in the centre and south of the country, the number of attacks showed no sign of abating. Moreover, Prime Minister Allawi did not dare to bring his decision to retake Najaf from the rebels of Muqtada Al-Sadr to its extreme consequences, with the result of going far enough to alienate a growing number of Shiites from the central government but not far enough to eliminate Al-Sadr and his militia, which might cause more trouble later on. The Iraqi security forces did not look up to the task during the crisis and were affected by large-scale demonstrations. In the process, the authority of Ayatollah Al-Sistani, considered a moderate, over the Shiite community began to show signs of erosion. Many began to accuse him of having run away from Najaf when the trouble started and he may not have recovered all of his popularity when he came back to negotiate a deal between Al-Sadr and the government. 

Foreign policy horizons get a little confused
The alienation of the Shiites reached such a stage that the Iraqi government felt it was necessary to mend fences with the Iranians, following an upsurge in hostile declarations between the two countries in August. At the end of August Iraq's vice-president Al Jafari traveled to Mashad, where he met Iranian president Khatami, while deputy prime minister Saleh visited Teheran a few days later. On the other hand, in the medium and long-term, US support for the Baghdad government might turn out not to be as solid as often assumed. After the Halliburton scandal, another issue was raised towards the end of August, concerning the inability of Coalition authorities to account for US$8.8 billion received from the US government. The money, which was channeled to the Iraqi ministries, is feared lost due to the endemic corruption of the Iraqi government. Many funds deriving from Iraqi sources, including oil revenues, are also unaccounted for. Many thousands of ghost employees exist in the ministries, allowing officials to easily misappropriate funds.

A recovery with weak bases
Outward signs of economic recovery are more and more evident in Iraq. Growing imports of cars, satellite dishes, televisions and the fact that the demand for mobile phones is outstripping the supply are undeniable. However, this is mainly due to the increase in the wages of 1 million public employees, which dates back to a year ago, and not to any increase in actual production. While the Coalition and the government have been successful in stabilizing the currency, with inflation now below 30%, the industrial sector does not show any sign of recovery. The early plans to privatize the state industries have been shelved after the transfer of power to the Iraqis, as they would entail a massive loss of jobs. Even cement companies remain inactive, despite the rising demand which has to be met with imports. As far as reconstruction goes on, it involves few Iraqis, even among subcontractors. The workforce employed in the reconstruction is also often foreign, despite the fact that by May 2004 already half of the foreign workers had left the country due to security concerns. 
The prospects are not good for the immediate future either, since little effort at capacity building in the ministries is taking place and US assistance funds are still strictly monitored by US advisers. On the whole just US$1 billion of US reconstruction funds out of US$18 billion have been spent. 
Despite the signs of recovery, almost all Iraqi households still receive free food from the government, at a total cost for the government of US$3.8 billion, with considerable waste. The same applies to subsidies to the purchase of gasoline, which cost the central government US$5 billion. 

Oil industry now lags behind
Initially one of the few Iraqi success stories, the oil industry is now struggling to develop further. International investors are held off by the fear that the future elected government might void the contract signed by the current interim one. Attacks to the pipelines, on the other hand, continue to wreck havoc and are reducing daily production by an average 100,000 bpd, at the cost of US$1 billion per year. The spate of attacks to the pipelines increased after sovereignty was returned to the Iraqis. For all these and other reasons, while the original plan was to increase oil production to 3 million bpd by the end of 2004, likely the actual figure will remain below 2.5 million bpd. Significantly, in September the Bush administration asked to divert an additional US$450 million to increase oil production. 

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