20 June 2003
"Operation Iraqi Prosperity," by L. Paul Bremer III
(Wall Street Journal op-ed) (1180) (This column by U.S. Ambassador Bremer, who is the U.S. Presidential Envoy and Chief Civilian Administrator to Iraq, published in the Wall Street Journal June 20, is in the public domain. No republication restrictions.) (begin byliner) Operation Iraqi Prosperity By L. Paul Bremer III Success depends on the birth of a vibrant private sector. Baghdad -- Much has been written since the war about the political liberation of Iraq, one of the remarkable events in the history of human freedom. Never before in warfare have so many been freed with so few casualties, in so short a period of time, with so little damage done to the country and its people. The removal of Saddam Hussein also offers Iraqis hope for a better economic future. For a free Iraq to thrive, its economy must be transformed. Tomorrow, I will lead a delegation of Iraqi business and financial leaders to a special meeting of the World Economic Forum in Amman, Jordan, where we will discuss the economic aspects of the Coalition's overall strategy. Iraq faces unique problems, but we have the experience of formerly socialist countries, as well as analysis of successful capitalist ones, to inform our perspective. While the ultimate future of Iraq's economy will be determined by the Iraqis themselves, economic growth will depend on the birth of a vibrant private sector. And this will require the wholesale reallocation of resources and people from state control to private enterprise, the promotion of foreign trade, and the mobilization of domestic and foreign capital. In the near term, any economic plan for Iraq must address the consequences of the conflict that liberated it. The first prerequisite to growth is the establishment of law and order. Looters and saboteurs have destroyed offices, stores, factories, and government buildings. Deliberate attacks on oil facilities and electricity lines continue to undermine our efforts and hurt the Iraqi people. Fortunately, we have made the streets of Baghdad safer, and Coalition forces are working to root out the last remaining vestiges of the former regime. The formation of a political system reflecting the goals and viewpoints of all Iraqis is the second prerequisite. Here too, the Coalition has made progress. With the crucial assistance of a number of forward-looking Iraqi citizens, we are on track to realize the president's vision of a free Iraq led by a democratically elected, representative government. Against that backdrop, my primary focus now is working with Iraqis to put their country on the right economic path. The immediate situation is daunting, but it could have been much worse. Humanitarian crisis was avoided. Early operations by Coalition forces protected Iraq's oil infrastructure, and production has already resumed. Iraq should export more than $5 billion worth of oil in the second half of this year. Still much work remains. To address the population's immediate liquidity needs, we have placed more than $400 million of purchasing power in the hands of the Iraqi people through the rapid payment of public-sector salaries, pensions, and emergency payments. Baghdad's streets are now alive with traders and merchants selling goods that were unobtainable only a few months ago. The Coalition has committed billions of dollars to further spur economic growth by funding infrastructure and development projects around the country. But simply rebuilding government buildings or repairing damaged pipelines will not bring about sustainable growth. That growth will require a transformation from three decades of economic mismanagement and neglect and a Stalinist industrial structure. Most production in Iraq was undertaken not by private firms seeking to meet the demands of the market, but by state-owned enterprises overseen by government officials, with Saddam himself at the top. Capital allocation was made on political and bureaucratic bases, not in response to market forces. More than one-third of the economy was geared toward supporting Iraq's voracious military establishment, which contributed little if anything to consumer welfare. Because these state-owned enterprises did not face market discipline, they destroyed value rather than created it. To keep these firms afloat, the former regime oversaw a vast system of costly subsidies, which distorted prices and raised the financing requirements of the government. Bad fiscal policy led to bad monetary policy, as the Central Bank of Iraq was often forced to print money in order to finance government deficits. Predictably, inflation raged and, in only a few years, the domestic currency weakened to less than a hundredth of its value. The international economic policies of the old regime were just as damaging as the domestic ones. The sanctions of the 1990s, brought about by Saddam's hostile military adventures and its subsequent intransigence before the international community, isolated the country from the rest of the world. Even before the sanctions, foreign investment from outside the Arab world was outlawed. In fact, an Iraqi businessman marveled at a recent meeting on foreign investment. "Under the old regime," he said, "they would have cut our throats." What will it take to undo this legacy? The central lesson from past transitions is that the private sector must be encouraged to rapidly allocate resources to their most productive uses. In other transition economies, the switch from value-destroying public enterprises to value-creating private ones has been accomplished by stimulating the growth of small and medium-sized private enterprises, which are best able to create jobs quickly. This encouragement takes place by reducing the subsidies to state-owned firms and establishing a clear and transparent commercial code (as well as honest judges to enforce it). More generally, a well-established system of property rights must be established in order for the economy to grow. The most difficult part of the transition will come from reductions in the subsidy system. But first, an adequate social safety net must be put in place for workers affected by the closure of certain state-owned firms. While subsidy cuts will be a crucial component of economic policy, it must also be merciful. Opening Iraq to the rest of the world also promises to pay big dividends. By limiting foreign investment, Iraq was denied the chance to import capital, management know-how and new technologies that would have raised productivity and living standards. Access to all these resources should be encouraged, both by domestic investors free to shop in the world marketplace or by foreign investors with specific expertise. Domestic and international reforms are related, as many countries have found that opening their borders to trade and investment forced their domestic industries to face more market discipline and become more productive. Following a disciplined, market-based approach will require difficult decisions and entail near-term sacrifices. For this program to be successful, it must be endorsed by the Iraqi people. But higher living standards -- and political freedom -- cannot emerge if economic freedom is denied. And so rebuilding the Iraqi economy based on free market principles is central to our efforts. (Mr. Bremer is the chief civilian administrator in Iraq.) (end byliner) (Distributed by the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)
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