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Weapons of Mass Destruction (WMD)

Washington File

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
(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:

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