BAGHDAD, 17 August 2006 — If the violence in Iraq ceased tomorrow, its economy would still be in deep trouble. Corruption is endemic, its state-owned industries inefficient and while there is plenty of money around, it has done little to help ordinary Iraqis. Inflation has soared since the 2003 invasion, sapping the living standards of Iraqis as they cope with bombs and sectarian killings, which claim 100 lives every day.
“The prices of everything has gone up but the salaries have stayed the same,” said Nada, a 33-year old laboratory assistant who works for a branch of the Health Ministry on a monthly salary of 200,000 dinar ($135). Nada, who declined to give her last name, now stays indoors as much as possible and with the latest hike in black market petrol prices, has even stopped going to work.
Dire security conditions are a root cause of the problem, according to the country’s central bank chief. “Inflation is a function of the real sector, not the monetary sector ... wages, insurance cover, the smooth delivery of goods. Security is the important factor,” Sinan Al-Shabibi told Reuters in a recent interview.
US officers say rising sectarian bloodshed has pushed Iraq to the brink of civil war and efforts to overhaul the Iraqi economy will be in vain if stability isn’t restored. But success in restoring security demands economic policies that can help create jobs, lift living standards and ease the poverty swelling the ranks of the insurgency. “If these other (security) actions are able to gain some traction, the attention could shift to the economy and if we had not been laying the groundwork, then very quickly it could become the focus of blame for why things were not going well,” said Jeremiah Pam, US Treasury attache to Iraq.
For evidence of progress, Pam points to the debt forgiveness from Western creditors that Iraq won last year to ease its re-entry to the world financial community. It also has the backing of the International Monetary Fund, which agreed a $685 million standby credit in December 2005 and said earlier this month that Iraq remained on the right track.
But the IMF also had some stern words about prices, spiraling by over 50 percent year-on-year, and warned that conditions risked getting worse.
“Inflation remains ... a serious source of concern. The ongoing violence and supply disruptions in the non-oil economy will undoubtedly continue to put pressure on prices,” it said.
Corruption is another major problem. An audit sponsored by the United Nations last week found hundreds of millions of dollars of Iraq’s oil revenue had been wrongly tallied last year or had gone missing altogether. Business is being done, but it isn’t often very productive in nature.
