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Update No: 028- (25/08/05)

Still waiting for a constitution
The constitutional debate continued to dominate the news on Iraq during August, mainly because of the delay in reaching a deal. The main stumbling blocks remain the same, namely federalism and the degree of autonomy to be granted to the Kurds. The Kurds already won some concessions, such as the adoption of Kurdish as the second formal language of the country and the recognition of their Peshmerga militia as an official force to secure northern Iraq. However, they demand more, including an increase of the share of state revenue from 17% to 50% and the inclusion of Kirkuk and parts of Mosul within the Kurdish region. Their main prize remains federalism, however, and for this they seem likely to settle for a 25% or so share of government revenue. Federalism is mainly opposed by Sunni politicians, who see it as a ruse to divide Iraq one day. Shiite and Kurdish politicians agree on federalism although with some qualifications, but are debating how much revenue should be left to the regions. The risk that an agreement on the constitution might have to be postponed by several months is considered a serious danger by the Bush Administration, who unwisely insisted on setting a deadline for the talks and trumpeted it as a key benchmark of progress in stabilising Iraq, despite all the indications of a complex debate ahead. A draft constitutional document is now to go to parliament, but it is without the agreement of the Sunni negotiators and the Sunni minority is of course, because of their tiny election turnout, heavily under represented in that assembly. No doubt much energy will still be devoted to seeking to cut deals with the Sunni representatives but, as of now, there is absolutely no room for optimism in the circumstances, despite President Bush's upbeat comments.
The constitutional debate is not the only cause of friction between parliamentary factions in Iraq today. Although officially disbanded, party militias continue to operate and to bully opponents. A typical example was the removal of the mayor of Baghdad by the Badr Organisation, a militia affiliated with the majority Shiite Alliance in Parliament. Although the replacement mayor had been elected by Baghdad Council, his installation in power respected neither the timing nor the procedures. Another area where friction could emerge is the fight against corruption. The case concerning corruption at the Iraqi Defence Ministry has been gathering pace during August and several enquiries have now been opened. An official from the ministry has already been removed from his job because of alleged corruption in a deal with Poland. 

IMF reconsider growth forecast
In August the IMF issued a report on the Iraqi economy, which lowered the GDP growth forecast to 3.7% for 2005, down from an earlier forecast of 17%. Given the high oil prices on the world markets, this was hardly a sign of a positive trend, despite claims in part of the press that it showed how the Iraqi economy is not being destabilised by the insurgency. Moreover, the IMF report warned the Iraqi government of a likely shortage of cash in the second half of the year, as it predicted lower oil exports and tax revenues lower then expected. Finally, inflation is reckoned to have been at 37% in the year through to June, which makes earlier forecasts of a 15% inflation rate for 2005 unlikely to be met. According to the IMF report, contractors and donors now report that costs related to security and insurance account for 30-50% of the total. Only US$103 million of the US$1 billion deposited by donors in the reconstruction fund has been spent so far. 

Electricity supply improves
A positive development was in July the fact that Iraq's electricity supply finally reached the pre-war level, at 5,350 megawatts. Electricity shortages, however, continued, due to the high summer temperatures which force many to use air conditioning. In part the improvement in supply was due to imports from neighbouring countries, with even more imports forecast for August, with the aim to increase supply to 6,000 megawatt. The problem is however that these imports are too expensive for a government which is widely expected to run a serous budget deficit. This year US$300 million have already been spent in electricity imports and the forecast for next year is US$1 billion. The increase in domestic production of electricity is much slower, with just a new turbine expected to become operational later this year. Of the original US$5.6 billion in US aid meant for electricity projects, only US$1 billion ended up actually being invested in new plants. 

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