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Update No: 057 - (23/01/08)

Economy improves despite dysfunctional government
Economic sentiment remained predominantly positive in Iraq during January, as signs of economic recovery which had emerged over the two previous months are being confirmed by prestigious observers. The IMF is now forecasting 7% GDP growth for the coming year, while it expects that oil production will be maintained at 2.2 million bpd. IMF forecast for 2007 show a disappointing 1.3% GDP growth, but Iraqi government sources believe that final figures will be better because the economy picked up during the last 6 months of the year. High oil prices have contributed to lift Iraq’s currency reserves to US$27 billion, US$7billion higher than a year earlier and significantly higher than expected. The improvement is not due to a growing capacity of the government to spend money and rebuild the country. In fact, in the year to August, Baghdad has spent just 5% of its allocated reconstruction budget, even less than during the previous year. The Oil Ministry spent just 3% in 2006; although in 2007 it was reportedly doing much better and by July it was said to have already spent 21%, there are doubts about the official figures. It is acknowledged that high levels of corruption and a dysfunctional diplomacy are preventing the government to spend more and better, contributing to leave high levels of unemployment, currently estimated at 40%. Nonetheless, capital expenditures for 2008 have been increased by 30%. 

Reconciling to fight further
On the political front, however, the news is not quite as good. Although the parliament finally voted to lift most restrictions on former members of the Baath to hold public offices, the change is not quite as wide-ranging as some had hoped. Also the perception that the Shiite groups control the ministries is likely to discourage many from going back to work for the government. One of the two Sunni groups in the parliament, the Iraqi Accord Front, now says it will rejoin the government, but there is no sign that the Sunni Awakening is about to sign a deal with Baghdad. Quite the contrary, many Sunnis complain that the government is sabotaging the pacification effort, for example in Falluja, where police forces are under-resourced. The relationship with the Awakening groups is even worse around Baghdad, where the presence of former Baathists in their ranks is stronger and that of tribal groups weaker. Baathists are particular vocal in their hatred for a government that they consider a bunch of Iranian infiltrators; they dream of luring the Americans onto their side against the Shiites. The Americans themselves are having problems in controlling the Awakening’s militias, who have been taking over whatever is left of the Iraqi state in Sunni areas. 

At the same time, new and odd alignments are emerging. Allawi’s secular front has now made a deal with the former Baathists of the National Dialogue Front and most surprisingly with the Sadrists, who used to be the most bitterly anti-Baathist group in Iraq. The new alliance is meant as an Arab nationalist front opposing Kurdish attempts to wrest as much control as possible away from Baghdad and counts on 100 MPs out of 275, but it is still far from clear how solid this alliance might be. The Sadrists might just be trying to form alliances as a way to get some protection from their enemies in Al Hakim’s group, which has successfully infiltrated police and army and uses its position to hunt down the Sadrists in the streets, with the help of the Americans. As-Sadr might be trying to buy time to re-organise his badly splintered forces and enhance his chances in the next elections, as Al-Hakims forces, paradoxically supported by both Americans and Iranians, are working hard to undermine its popular base, for example competing in the provision of services.

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