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Books on Iraq


Area (

24,001,816 (July 2002 est.)


Iraqi dinar (IQD)



Update No: 016 - (26/08/04)

No improvement in sight
Despite the launch of the new Iraqi government in June, the situation in Iraq showed little sign of improvement throughout August. Although the government of Prime Minister Allawi earned a significant degree of support among the middle classes and some tribes, it has been steadily losing support among the Shiite majority of the population, which was previously rather sympathetic to the occupation authorities and now feels that it does not have the degree of representation that it deserves. The violent confrontation with a radical Shiite cleriq Muqtada al-Sadr led to a polarization between those Iraqis who support him and those who stand behind the government. As the end of August approached it was not clear who was gaining the most from it. Significantly, the authorities of three southern governorates (appointed by the occupation authorities) threatened to secede from Iraq if the fighting in Iraq was not halted. Not only has the security situation deteriorated in the central and southern areas populated by the Shiites, but even if the new government has brought back to its side many members of the Arab Sunni minority, there remain enough support for the insurgent activities to continue and prevent the reconstruction of the country even in the Sunni heartland. The Kurdish parties remain on the government's side, but tension between them and Baghdad is also increasing, as the centralization efforts of the central government are not welcomed in Kurdistan. The latest row emerged in August, when the Iraqi oil ministry declared invalid the contracts signed by the local Kurdish authorities for the exploitation of oil fields. The Kurdish parties, of course, are very keen in establishing their own independent source of revenue. 
The outcome of the convening of the national assembly was also seen by many as disappointing, not so much because of the turmoil caused by the supporters of Muqtada al-Sadr, who withdrew from it, but because of the failure to democratically elect the 81 members of the Iraqi National Assembly, which will act as interim parliament until the future elections. The vote was list-based and predictably ended with little space being left to smaller political groups and independent personalities. 

Relations with Iran worsen quickly
A string of incidents between the end of July and the second week of August led to a war of words between the Iraqi and Iranian governments. In July the Iraqi Interior Minister had accused Iran of being involved in the unrest in Iraq, while the Defence minister was even more blunt. Teheran reacted by dismissing the accusations as the product of the "inexperience" of the ministers involved. The initial controversies were apparently settled when a spokesman for Iraqi Prime Minister Allawi declared that the views of his ministers were not those of the government as a whole. At the beginning of August another row emerged when Iraqi Prime Minister Allawi postponed his visit to Teheran, alleging the presence in Teheran of a "political opponent". Furthermore, the Iraqi Defence Minister continued his verbal attacks on Teheran, asking on 4 August that Iran immediately returns 130 planes held since Saddam Hussein sent them to Iran in 1991. By mid-August rumours were circulating in Baghdad that 30 Iranians had been caught fighting with the Shiite rebels and that Iranian weapons had been found in the hands of the followers of radical cleric Al-Sadr. Then four alleged Iranian intelligence officers were arrested by the Iraqi police. Finally, four staff members of the Iranian news agency (IRNA) were arrested in Baghdad, presumably because of their reporting, very favourable to al-Sadr and his movement. As the end of August approached the confrontation between the two governments did not seem about to dissipate, not least because the Bush administration appeared keen to add fuel to the fire. 

Oil industry struggles
Attacks and threat of attacks against the pipelines continued to prevent the Iraqi oil industry from exporting to capacity. While until this spring the attacks were mainly concentrated in the north, in recent weeks the disruption has mostly affected the southern fields, a result of the confrontation with radical Shiite leader Muqtada al-Sadr. During much of the month exports run at just half of the 1.8 million bpd planned. The potential for even greater disruption was certainly there, as each southern oil well produces on average 10,000 bpd and setting on fire even a limited number of them can affect production significantly. On the positive side, Iraq took a further, if relatively small, step towards restarting the development of its oil industry by inviting bids for advice on how to develop the Kirkuk and Rumail oil fields. Another item of good news was that the Iraqi and Russian governments finally reached an agreement on how to deal with the oil contracts signed by Saddam Hussein. Representatives from the two sides will be appointed and will scrutinize the deals. 

Increasing controversy over reconstruction
The Iraqi economy is now forecast by the World Bank to grow by 33% this year, but this is mainly due to the massive increases awarded to state employees, which are boosting the trade sector. Even the recovery of the tertiary sector is now called in doubt as the worsening security in the previously relatively safe areas of the south is driving down commercial activity. Little real reconstruction or economic development is taking place. The faults of the reconstruction program put together by the occupation authorities are coming under increasing scrutiny. By August the job-creation schemes were supposed to have delivered 250,000 jobs, but in reality they have not exceeded 30-60,000. US funds for reconstruction continue to be spent very slowly, standing at just US$600 million out of US$18.4 billion authorized. Reconstruction projects contracted so far leave little space to entrepreneurial Iraqis and the local workforce, privileging instead specialist contractors with international experience (i.e. mostly US companies). 
Private investors are even less keen to come to Iraq and plans for massive investments are on hold until security will improve. The difficult political situation also prevents the government from taking steps aimed at improving labour productivity, which now stands at abysmally low levels. The large majority of state employees are in fact virtually inactive and often do not even turn up at work. 

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