2008 Press Releases
Remarks by Ambassador Charles Ries, Coordinator for Economic Transition in Iraq, U.S. Embassy Baghdad
“Friends of Iraq” Conference
Abu Dhabi, June 17-19, 2008
Welcome, all, to the important part of the “Friends of Iraq” conference, the part that focuses on the economy. As before, we meet as Coalition partners. But we have changed our focus, making this another milestone in our evolving relationship with Iraq. This meeting centers not only on the operational and security issues we face together. It also focuses on Iraq’s growing economic strength. It is no longer solely a “Coalition Conference.” It is a gathering of the “Friends of Iraq,” who know that our role has changed. And we have invited business community representatives to join us. Business interests – pursuing trade and investment opportunities – will do much to cement and improve upon Iraq’s security gains.
Throughout the program today we will look in detail at what Iraq has achieved and what’s to be done. I have been asked to introduce the subject. And because we are a mix of military and civilian participants, I will give you what our uniformed partners call the “Bottom Line Up Front.” It is this: Improved security over the past year has propelled Iraq’s economic development. Iraq’s government – and, increasingly, investors – recognize the country’s resources and its potential for growth. Our new role, as friends of Iraq, is to work with the government as to create an environment that facilitates that growth.
THE CHALLENGES: SECURITY AND RESOURCES
When I arrived in Baghdad a year ago, it was not clear when we would reach this point. My job as the U.S. Embassy’s Coordinator for Economic Transition in Iraq was established because the United States recognized Iraq’s economic potential, and wanted to ensure that our assistance programs worked together to strengthen it. Economic growth, we decided, was as essential to ensuring stability as weapons or manpower.
We also saw the considerable challenges that Iraq faced. Lack of security was the first and most important barrier to economic development. It impacted everything, from Iraq’s ability to attract significant foreign or domestic investors to the ability of street vendors to sell their goods in Baghdad’s Doura market. The military surge changed that picture; it provided a more secure place for business to begin – slowly – growing.
Beyond security, Iraqis faced challenges that are a legacy of its past. Years of economic stagnation under the former regime, as well as sanctions, created crippling distortions in Iraq’s heavily centralized economy. A stifling bureaucracy and Byzantine legal and regulatory structures were hostile to private business. Iraq’s state-run industries were inefficient and unproductive. Its private banking system lacked the ability to provide credit needed for domestic investment, and its state-run banking system served as little more than a cash transfer mechanism. Iraq’s agricultural sector was based on a centrally planned model that limited productivity and market-responsiveness. And one of Iraq’s greatest resources, its people, were hampered by inadequacies in the educational system and vocational training, and burdened by daunting levels of unemployment and underemployment.
With such a wide array of challenges, how could we target our efforts? By defining the major hurdles. The Iraqi government needed to be able to respond effectively to the needs of its citizens. Doing so meant meeting several goals:
• It meant ensuring essential services: electricity, water, health, education.
• It meant forging political compromises necessary to pass key legislation, and delivering services beyond Baghdad.
• It meant battling corruption, making services available equally.
• It meant making effective use of Iraq’s energy resources, both for export and as fuel for industry.
• It meant building the national consensus necessary to support hydrocarbons legislation that harnessed Iraq’s major resource as the catalyst for a vibrant economy.
• It meant attracting foreign investment and the jobs it would create.
As the military surge took hold, so did several key economic reforms, their impact only visible in the improved security environment. To correct over-centralized decision-making, the Iraqi government began shifting resources to provincial governments so these new institutions could address local needs more effectively and immediately. The Central Bank of Iraq put in place and sustained monetary policies that made great strides in achieving fiscal and monetary stability, restoring confidence in the dinar and reining in a galloping inflation rate. By the end of the year, the IMF was prepared to project 7 percent growth for 2008, well over its midyear 2007 projection of 1.3 percent. The Central Bank reduced interest rates twice, from 20 percent to 17 percent.
Most significantly, the Iraqi government passed a 2008 budget that showed Iraq was ready to take the lead in reconstruction efforts. The $49 billion dollar Iraqi budget is up nearly 30% from the 2007 budget – and that is up from $20 billion in 2004. It dedicates 18 percent of its budget -- $9 billion – for the country’s security, and provides $14 billion for the capital investment essential to economic development. Four months later, revenues have grown as the price of oil has risen dramatically. With the budget predicated on oil prices at half their current rate, the Iraqi Government is in the final stages of formulating a supplemental budget to finance pressing capital and operational budget requirements. The total size of the supplemental has not yet been set, but indications are that it will be very substantial. We expect the supplemental budget to be presented to the Council of Representatives – or Parliament – very soon.
Clearly, the Iraqi government is ready to use its own growing resources to address its economic development challenges. That leaves the question: how can we best help this effort succeed? Where should coalition resources be dedicated in support of our mutual goals?
OUR RESPONSE: DIRECT ASSISTANCE WHERE IT COUNTS
For the United States, our answer has been to shift U.S. assistance from bricks and mortar reconstruction projects to providing expertise to the Iraqi government in key areas. We transformed our Reconstruction Office into the Transition Assistance Office (ITAO) and decided to rely less on our ability to build things and more on our ability to advise our Iraqi partners. Our transition assistance strategy called for our resident experts, advisors and consultants to offer Iraqi ministries not big bucks but big brains; leveraging our expertise to help boost Iraqi capabilities. We are working side by side with senior Iraqi officials to help them use their own financial resources to help themselves.
In 2006, the Iraqis were able to spend only about 22 percent of ministry and provincial capital budget allocations. Lack of personnel trained in the intricacies of project management, contracting and procurement raised real questions about the government’s ability to physically disburse the $49 billion budget for 2008. Our challenge was to help Iraqis improve budget execution.
We decided to accompany the U.S. military surge with a “civilian surge.” We built on the Embassy’s existing expertise by bringing an additional 75 specialists to Iraq. We asked them to provide additional advice and assistance to a range of ministries, helping Iraqis to target public resources effectively. We boosted our specialized training, to ensure officials had the technical skills needed to run power plants and water treatment facilities. In addition, we utilized USAID’s technical assistance program focused on public management. Called “Tatweer,” it trains personnel in budgeting, procurement, human resources, and strategic planning. It has already trained over 7,000 of Iraq’s civil servants in these areas, and plans to train 14,000 more over the next year.
But we did not limit ourselves to assistance at the center. We decided to expand our Provincial Reconstruction Teams. There were ten when the President announced the surge; there are now twenty-seven. Two PRTs are led by coalition partners. As my colleague Phyllis Powers will tell you in detail, our PRTs operate in places as diverse as Nenewa, Anbar, Babil, Diyala, Basrah. They interact every day with local governmental and non-governmental leaders, with businessmen and farmers. PRTs, a unique mix of expert talent, have worked closely with provincial authorities, identifying needs, accelerating their spending -- making contracting more professional and work plans more rigorous. The PRT/PRDC programs have provided critical technical assistance, building the skills and capacity of local government. We are ready to welcome international experts from our coalition partners to join our PRTs/PRDCs to see for themselves the difference they have made.
Our goal – one we share the Iraqi government, is to build its capacity to govern effectively. One measure is the government’s budget execution rates. The latest GOI data shows capital budget expenditures for 2007 exceeding 70%. Admittedly, it will be a challenge to keep those numbers high, given the increased amount of money available this year. But we have already seen an enthusiastic response by ministries and provinces to the prospect of a Supplemental; their project requests have oversubscribed the initial $5 billion forecast. But that is good news; it suggests they are ready to move capital projects forward as funds – Iraqi funds – become available.
The budget supplemental is not the only use Iraq is making of its growing resources. The government has directed emergency funding of $350 million dollars toward projects in Mosul, Sadr City, and Basrah to re-build infrastructure damaged in fighting this spring. In addition to this short-term infusion, there is also discussion of an even broader – potentially $5 billion – capital project construction fund, coupled with a streamlined, but robustly audited, bureaucratic procedure.
IRAQ: OPEN FOR BUSINESS
Security, resources, capacity-building expertise – all of these have made a difference to Iraq’s economic prospects. Doing business in Iraq is still not easy, and the gains we have made are hard-won and remain fragile. We saw the evidence this spring, when, as the Iraqi government moved to take control in Basrah, the International Zone was barraged by rockets and mortar fire. But at the same time, the Iraqi government was meeting with a potential investor, who arrived, on schedule, despite the incoming fire.
There is an astonishing hardiness to hope. Just a couple of weeks ago, CNN’s i-report showed a shaky video from a Baghdad-based contributor, marveling at re-opened businesses in an area previously shuttered. Such reports bolster my own sense that we are seeing signs – small, gradual but nevertheless there -- that Iraq is, increasingly, open for business.
As an economist, I look for data. And the data bolsters what those of us who drive around greater Baghdad have seen for ourselves. New businesses registered nationwide increased 9.1% in 2007, compared to the previous year. Over 30,000 private sector companies have registered since 2003. Over 100,000 microloans have been made across Iraq. Iraqi markets are reviving, and middle market companies are also stronger. In early 2008, Baghdad’s first “Business 2 Business” Expo since the 1991 Gulf War drew more than 5,000 participants, giving Iraqi businesses contact with foreign companies and, perhaps more importantly, with each other.
Iraq’s oil production and exports are growing. North Oil reported record production of 600,000 barrels a day last month and production numbers continue to climb. Since the sustained reopening of the Northern Oil Export pipeline to Turkey last September, Iraq’s oil exports have remained consistently high, and are now averaging 1.9 mbd. Oil export revenue for 2008 should be considerably in excess of $70 billion.
Developing Iraq’s economy depends on unlocking the potential of its petroleum sector, which currently accounts for nearly 70 percent of Iraq’s gross domestic product and 85 percent of government revenues. Increasing the country’s oil production and exports will require considerable investment. An important condition for attracting this investment is a new hydrocarbons framework law. We encourage the government of Iraq to continue efforts to reach agreement on this key legislation.
Iraq’s government is also pursuing efforts to improve Iraq’s oil infrastructure, including the negotiation of technical service agreements with various major international oil companies. These service agreements, when signed, could help Iraq increase oil production by as much as 100,000 barrels per day at each of the fields under discussion.
International companies increasingly see the potential offered by investment opportunities in Iraq. The Ministry of Industry and Minerals concluded two production-sharing joint ventures with international consortia to revive cement factories in Iraq. Tenders have been issued for similar production sharing partnerships for petrochemical, electrical equipment, and other facilities. Several groups have expressed interest in building international-class hotels in downtown Baghdad. Mercedes Benz has announced plans to open an office in Baghdad. Iraq has passed an Investment Law; publication of implementing regulations will be an important next step.
This, coupled with a more secure environment, has raised business confidence. In December 2007, the Center for International Private Enterprise conducted a poll of the Iraqi private sector. It showed that more than three-fourths of business owners – 78% -- anticipate growth in the national economy over the next two years. Almost half of business leaders surveyed – 46% -- say the business environment is better now than last year. A significant majority – 82% -- of Iraq’s business operators believe that opening Iraq’s borders to international business will improve their own.
Rich in resources, the Iraqi government recognizes that productive partnerships are essential to rapid economic development. It is a message Iraq’s officials emphasized at last month’s meeting of the International Compact with Iraq in Stockholm. Deputy Prime Minister Barham Salih was, perhaps, more blunt than diplomats are used to. He told us plainly that Iraq was “fabulously wealthy” in people and resources, and was not looking for handouts. Iraq, he said, was looking for partners to help it make the best use of those resources.
This is the transition that we must make, as Friends of Iraq – the transition to partnership. It is especially important for countries in the region, but it transcends geography. All of our countries have provided significant assistance – in money, debt relief, infrastructure, and manpower -- to help Iraq reach this point. We have reached a new phase, and must take a new approach.
Increasingly, our assistance dollars are helping Iraqis to do projects themselves. Our technical assistance advisors have helped design new procurement procedures for Iraq’s oil ministry and developed the technical specifications for a billion dollar oil export complex to be built with Iraqi funds in the Arabian Gulf. Iraqis are staffing over a hundred primary health care clinics that we built, around the country. Our PRT in Muthanna transformed a primary school serving a poor, rural community into a modern four-classroom school building. They installed roof-top solar panels to power small, heat and dust resistant laptops with innovative educational software in Arabic. The Education Ministry is taking it from there, providing teachers, books, and an operating budget for the school.
Iraqis know that many tough reforms remain if they are to attract business partners. The banking sector must change and modernize to support the needs of international investment. Hydrocarbons legislation is essential to ensure that Iraq’s oil resources benefit all its citizens. The Iraqi government must fight corruption as hard as it fights insurgency. And Iraqis must decide on the future of Kirkuk. But, as the past few months show, economic growth is inextricably bound to progress on political and security issues. What we in the coalition and the Iraqis are working for is a self-sustaining, successful economy managed for the Iraqi people, by the Iraqi people. That is the economy that can power political progress. That is the economy that can fuel individual initiative. That is the economy international and domestic investors are looking for.
At the ICI Review conference in Stockholm a few days ago, UN Secretary General Ban Ki-Moon chose the word “hope” to describe the situation in Iraq today. I agree. But hope alone is not enough. Hope needs support. That is our new challenge, as Iraq’s partners and friends. In the rest of our discussions today, I suggest we look for ways that we can provide that support.
And now, I want to hand the floor over to our panelists, who will examine economic progress in more detail. Our first panel will focus on the development of Iraq’s economic infrastructure, including agriculture, transportation, telecommunications, and its banking and credit system. Later this morning, we will look specifically at ways to expand employment. This afternoon, we will have the opportunity to discuss ways Iraq is focusing on good governance, and building capacity in provincial governments. And we will look at improvements in Iraq’s delivery of essential services, including water and electricity. These are issues that affect every Iraqi’s quality of life. And, as every politician knows, these are the issues that affect how people vote. I believe you will find these are lively discussions, as we – coalition partners and Iraqi officials – strive to improve the lives of all Iraqis.