From: Paul Bullock (paulbullock@EBMS-LTD.CO.UK)
Date: Tue May 27 2003 - 13:53:56 EDT
Subject: Bush Officials Devise a Broad Plan For Free-Market Economy in Iraq > Bush Officials Devise a Broad Plan For Free-Market Economy in Iraq > > by NEIL KING JR., THE WALL STREET JOURNAL > Contact: neil.king@wsj.com1 > > > By NEIL KING JR. > Staff Reporter of THE WALL STREET JOURNAL > May 1, 2003 > > WASHINGTON -- The Bush administration has drafted sweeping plans to remake > Iraq's economy in the U.S. image. > > Hoping to establish a free-market economy in Iraq following the fall of Saddam > Hussein, the U.S. is calling for the privatization of state-owned industries > such as parts of the oil sector, forming a stock market complete with > electronic trading and fundamental tax reform. > > Execution of the plan -- which is expected to be complicated and possibly > contentious -- will fall largely to private American contractors working > alongside a smaller team of U.S. officials. The initial plans are laid out in a > confidential 100-page U.S. contracting document titled "Moving The Iraqi > Economy From Recovery to Sustainable Growth." The consulting work could be > valued at as much as $70 million for the first year. > > The U.S. Agency for International Development plans to award part of the work > to BearingPoint Inc., a Virginia-based consulting firm known previously as KPMG > Consulting, an AID official said. BearingPoint, which received a similar $40 > million job to do economic work in Afghanistan, was approached as a sole-source > bidder. AID plans to open the larger share of the work, including privatization > and small-enterprise development, to a limited pool of competitors likely to > include Booz Allen Hamilton Inc., Deloitte Touche Tohmatsu and International > Business Machines Corp.'s recently acquired PricewaterhouseCoopers' consulting > unit. Unlike some of the construction companies that have won contracts, > BearingPoint has made few political contributions to either party in the past > two years. > > AID has been criticized by some in Congress for the secretive way it has > awarded other Iraq reconstruction contracts over the past two months. But AID > officials said these contracts will be awarded under the same expedited rules > to launch work as quickly as possible. > > AMERICAN BLUEPRINT > > The Bush administration envisions sweeping reforms of Iraq's economy, based on > free-market principles and carried out by private contractors. These include: > Privatization of state-owned enterprises, possibly including oil companies > Modernizing the Baghdad Stock Exchange by creating a new settlement system and > tough oversight Reforming the Central Bank and the commercial-banking system > Jump-starting the private sector with fresh credit and training Rewriting the > tax code and tariff system Source: White House documents > > The document provides the most detailed look to date at the ways U.S. officials > contemplate restructuring an economy that had been almost entirely > government-run, and long mired in a slump aggravated by wars and international > sanctions. It is likely to intensify already-sharp international criticism of > Washington's unilateral actions in Iraq. > > Treasury Department officials, who helped draft the document, maintain that the > plan reflects a broader vision for Iraq's future economy, and that not all the > goals will necessarily be followed. "Everything in there is notional," one U.S. > official said. > > For many conservatives, Iraq is now the test case for whether the U.S. can > engender American-style free-market capitalism within the Arab world. In a > February address, President Bush spoke of "a new Arab charter that champions > internal reform, greater political participation, economic openness and free > trade." A new regime in Iraq, he said, "would serve as a dramatic and inspiring > example of freedom for other nations in the region." > > On the economic side, the AID plan serves as a detailed road map for achieving > that end. The proposals for possible mass privatization of Iraqi industry are > likely to be the most controversial. The document -- first drafted in February > and circulated among financial consultants -- calls for liquidating some > insolvent Iraqi companies, while assessing others for possible sale. Some state > companies might be sold through "a broad-based Mass Privatization Program," > which could distribute ownership vouchers to ordinary Iraqi citizens, similar > to a program used in Russia in the mid-1990s. > > The document says that the contractors would help support "private sector > involvement in strategic sectors, including privatization, asset sales, > concessions, leases and management contracts, especially in the oil and > supporting industries" that dominate Iraq's business activity. > > Any attempt at privatizing Iraq's oil industry, which controls the world's > second-largest petroleum reserves after Saudi Arabia, would be a gargantuan > business deal. It could be contentious, especially if assets wind up in the > hands of foreign oil companies. In the Mideast and Europe, there is a > widespread belief -- despite White House denials -- that the U.S. invaded Iraq > to get control of its oil. > > According to the timetable in the documents, officials would spend a year > building a consensus for industry privatization, and then transfer assets over > the following three years. > > The administration also envisions converting Iraq's rudimentary prewar stock > market, within a year, into a "world-class exchange" for trading the shares of > newly privatized companies. The work would entail developing a centralized > share registry as well as a new clearing and settlement system, the document > says. U.S. officials, working with the AID contractors, would write rules for > membership in the exchange and would train Iraqi stockbrokers. The plans also > call for forming a tough securities commission to prevent abuses. > > At the same time, the contractors would be designing by year's end "a > comprehensive income tax system consistent with current international > practice." They would be preparing regulations to impose a consumption tax. The > plan also envisions extending as much as $8 million in loans to small and > medium-size Iraqi businesses within the first year. > > The AID contractor would help revamp Iraq's battered banking system by working > out problem loans. The traditional Islamic money-transfer system would be > incorporated into the banking system, the document says. > > The Treasury Department has been careful in recent weeks in talking about a > possible new Iraqi currency, saying any decisions will be up to the Iraqi > people. The AID contract is less shy, stating that the contractor "is to carry > out an extremely rapid and thorough exchange of currencies" and to collect and > destroy the old bills -- all by July. > > Under the consulting division of labor worked out by AID, BearingPoint will be > hired to do all of the regulatory and legal reform work with the Central Bank > and Iraq's various financial ministries. The contract will also entail > BearingPoint's taking over the distribution of cash to Iraqi civil servants, > now being handled by the Pentagon. The U.S. has so far shipped $20 million in > cash to Iraq. > > The other, larger contract will handle privatization, modernizing of the stock > market, loans to smaller Iraqi enterprises and international-trade and private > sector development. > > The plan makes scant mention of any involvement of multilateral organizations > such as the World Bank and the International Monetary Fund, both key players in > similar reform efforts in Russia and Eastern Europe. Still, Bush administration > officials have said they would welcome World Bank and IMF help in Iraq, but how > those would be reconciled with projects such as the AID restructuring blueprint > remains unclear. > > "This will not be credible to the Iraqi people or anyone else if we try to do > it ourselves," said Edwin Truman, a former top international finance official > at the Federal Reserve who served in the Clinton administration's Treasury > Department. "The World Bank and the IMF have a lot more experience and a lot > more credibility in this than the U.S. government." > > Other experts on post-communist reform efforts say it would be a mistake for > the Bush administration to stress swift privatization, a policy that met with > mixed success across the former Soviet bloc. In many countries, rapid > privatization of state-run enterprises led to sharp disruptions in jobs and > services, as well as rampant corruption. > > Treasury Department officials caution that whoever is picked to perform the > jobs will work under the strict guidance of Bush administration officials -- > some of whom are in Baghdad as part of an overall Pentagon-led reconstruction > effort -- as well as senior Iraqis. > > > > > __________________________________ > Do you Yahoo!? > The New Yahoo! Search - Faster. Easier. Bingo. > http://search.yahoo.com >
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