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WEEKLY NEWSLETTER
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Iraq
Index
The pattern of Iraqi foreign trade in the 1980s was shaped
primarily by the Iran-Iraq War, its resulting deficit and debt
problems, and developments in the petroleum sector. Iranian
attacks on petroleum industry infrastructure reduced oil exports
sharply and Iraq incurred a trade deficit of more than US$10
billion in 1981. The pattern continued in 1982 as the value of
Iraqi imports peaked at approximately US$23.5 billion, while
exports reached a nadir of US$11.6 billion, leading to a record
trade deficit. In 1983, however, imports were cut roughly by
half. Figures for Iraq's imports and exports from 1984 onward
vary widely and cannot be considered authoritative. Despite the
partial recovery of Iraqi oil exports in 1986, exports were
valued at only about US$7.5 billion because of the plunge in
world oil prices
(see Oil in the 1980s
, this ch.). In 1987
imports were expected to rise to about US$10 billion. Export
revenues were also expected to rise, as Iraq compensated for low
oil prices with a higher volume of oil exports (ssee;
table 8,
Appendix).
Iraq had counted heavily on solving its twin debt and deficit
problems by reestablishing and eventually by augmenting its oil
export capacity. But increases in volume were insufficient to
offset lower prices, and because demand remained low, expanded
oil exports served only to glut the market and further drive down
the price of oil. The depressed price of oil and the low prices
of other raw materials that Iraq exported, coupled with higher
prices for the goods it imported, trapped the nation in the
classic dilemma of declining terms of trade. Although Iraq was
cutting the volume of its imports and was increasing the volume
of its exports, the relative values of imports and exports had
shifted fundamentally. More than 95 percent of Iraq's exports
were raw materials, primarily petroleum. Food stuffs accounted
for most additional exports. Conversely, nearly half of Iraq's
imports were capital goods and consumer durables. According to
Iraqi statistics, 34.4 percent of 1984 imports were capital
goods, 30 percent were raw materials, 22.4 percent were
foodstuffs, and 12.5 percent were consumer items.
Iraq's declining imports resulted not so much from belt-
tightening or from import substitution, as from the increasing
reluctance of trading partners to extend credit. Despite its
socialist orientation, Iraq had long traded most heavily with
Western Europe. Initially, Iraq's debt accumulation worked in its
favor by creating a hostage effect. Western creditors, both
governments and private companies, continued to supply Iraq in an
effort to sustain the country until it could repay them.
Additionally, the debt helped to secure outlets for Iraqi
petroleum in a tight international market through barter
agreements in which oil was exchanged for a reduction in debt. In
1987 however, as some West European companies prepared to cut
their losses and to withdraw from the Iraqi market, and as others
curtailed sales by limiting credits, other countries were poised
to fill the vacuum by offering goods and services on concessional
terms. Companies from Brazil, South Korea, India, Yugoslavia, and
Turkey, backed by their governments' export credit guarantees,
were winning an increasing share of the Iraqi market. In 1987 the
Soviet Union and East European nations were also offering goods
and services on highly concessional terms. Eventually, Iraq's
exports might also be diverted from the West toward its new
trading partners.
Iraq continued to seek Western imports when it could afford
them. In 1987 Iraq was forced to ration imports for which payment
was due in cash, although nonessential imports were purchased if
the seller offered credit. Imports contributing to the war effort
had top priority. Imports of spare parts and of management
services for the maintenance of large industrial projects were
also deemed vital, as Iraq sought to stave off the extremely high
costs it would incur if facilities were shut down, mothballed,
and then reopened in the future. Consumer goods were given lowest
priority.
In 1985 Iraq purchased 14.4 percent of its total imports from
Japan. Iraq bought an array of Japanese products, ranging from
transport equipment, machinery, and electrical appliances to
basic materials such as iron and steel, textiles, and rubber
goods. In 1987, as Iraqi debt to Japan mounted to US$3 billion,
the government of Japan curtailed the export insurance it had
offered Japanese companies doing business with Iraq;
nevertheless, Japanese companies continued to trade with Iraq.
Iraq bought 9.2 percent of its imports from West Germany.
Neighboring Turkey provided the third largest source of Iraqi
imports, accounting for 8.2 percent of the total. Italy and
France each accounted for about 7.5 percent, followed by Brazil
with 7 percent and Britain with 6.3 percent. Kuwait was Iraq's
most important Arab trading partner, contributing 4.2 percent of
Iraq's imports (see
table 9, Appendix).
In 1985 Brazil was the main destination of Iraqi exports,
accounting for 17.7 percent of the total. France was second with
13 percent, followed by Italy with 11 percent, Spain with 10.7
percent, Turkey and Yugoslavia with about 8 percent each, Japan
with about 6 percent, and the United States with 4.7 percent.
In April 1987, the government attempted to streamline the
trade bureaucracy by eliminating five state trading companies
that dealt in various commodities. Although the state trading
companies had been established in the 1970s to foster increased
domestic production, they had evolved into importing
organizations. In view of this orientation, their operations were
incorporated into the Ministry of Trade. Three Ministry of Trade
departments, which had administered trade with socialist, with
African, and with Arab nations, were abolished. The
responsibilities of these disbanded organizations were
centralized in a new Ministry of Trade department named the
General Establishment for Import and Export.
The Ministry of Trade implemented a national import policy by
allocating portions of a total budget among imports according to
priority. The import budget varied from year to year, depending
on export earnings and on the amount in loans that had been
secured from foreign creditors. The government's underlying
intention was gradually to replace imported manufactured products
with domestic manufactured products and then to increase export
sales. In the mid-1980s, however, the government recognized that
increased domestic production required the import of intermediate
goods. In 1987 state companies were permitted for the first time
to use private agents or middlemen to facilitate limited imports
of necessary goods.
The private sector, which had long been accorded a quota of
total imports, was also deregulated to a limited extent. In 1985
the quota was increased to 7.5 percent of total imports, and the
government gave consideration to increasing that percentage
further. All imports by the private sector had previously been
subject to government licensing. In 1985, Law No. 60 for Major
Development Projects exempted the private sector from the
obligation to obtain licenses to import basic construction
materials that would be used in major development projects. In an
attempt to increase remittances from Iraqis abroad, the
government also gave special import licenses to nonresident
Iraqis, if the value of the imports was invested in Iraq and was
not transferred outside the country.
In 1987 the rules concerning private sector imports were
liberalized further when private sector manufacturers were
granted special licenses that permitted them to import raw
materials, spare parts, packaging, machinery, and equipment
necessary for plant modernization and for expansion. In some
cases no ceiling was placed on such imports, while in other cases
imports were limited to 50 percent of the value of the export
earnings that the manufacturer generated. Such imports were not
subject to quotas or to foreign exchange restrictions. Moreover,
the government announced that it would make no inquiry into the
companies' sources of financing. In a remarkably candid statement
in a June 1987 speech, Saddam Husayn promised that citizens would
not be asked where they had acquired their money, and he admitted
that the private sector had not imported any goods because of its
fear of prosecution by the security services for foreign exchange
violations.
While the government permitted more imports by the private
sector, it nevertheless continued to promote exports at the same
time. Starting in 1969 it maintained an Export Subsidy Fund,
which underwrote the cost of eligible nonpetroleum exports by up
to 25 percent. The Export Subsidy Fund was financed with a tax of
.5 percent levied on imports of capital goods and .75 percent
levied on imports of consumer goods. Most imports were also
charged both duty and a customs surcharge that varied from item
to item. Export licenses were granted freely both to public and
to private sector firms with only a few exceptions. The Board of
Regulation of Trade had the authority to prohibit the export of
any commodity when domestic supplies fell short of demand, and
the control over export of certain items was reserved for the
General Organization of Exports. The degree to which government
economic policies would be liberalized in the late 1980s remained
to be seen. The government had taken several steps in that
direction but state controls continued to play a major role in
the economy in 1988.
* * *
Both primary and secondary source information on the Iraqi
economy tends to be both scant and dated. The government of Iraq
has regarded data on national economic performance as a state
secret, particularly since the start of the Iran-Iraq War in
1980. The government does not publish a budget, although it
releases a yearbook, the Annual Abstract of Statistics,
which contains some economic figures. The Iran-Iraq War has also
diverted scholarly attention from economic issues. One exception
is Phebe Marr's The Modern History of Iraq, which contains
a chapter titled "Economic and Social Changes under the
Revolutionary Regime." The most detailed and authoritative
periodic reports on the Iraqi economy are produced by the Wharton
Econometric Forecasting Associates in their semiannual Middle
East Economic Outlook. The Economist Intelligence Unit's
Country Report: Iraq, a quarterly, contains much useful
information and analysis. Another good source of up-to-date
information is the Middle East Economic Digest. (For
further information and complete citations,
see
Bibliography.)
Data as of May 1988
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