MONGABAY.COM
Mongabay.com seeks to raise interest in and appreciation of wild lands and wildlife, while examining the impact of emerging trends in climate, technology, economics, and finance on conservation and development (more)
WEEKLY NEWSLETTER
|
|
Iraq
Index
Fertilizer plant in Basra
Courtesy Embassy of Iraq, Washington
Cement factory in Basra
Courtesy Embassy of Iraq, Washington
Following the Baath Party's accession to power in 1968, the
government began using central planning to manage the national
economy. The government separated its expenditures into three
categories: an annual expenditure budget for government
operations, an annual investment budget to achieve the goals of
the five-year plans, and an annual import budget. Economic
planning was regarded as a state prerogative, and thus economic
plans were considered state secrets. The government rarely
published budget or planning information, although information on
specific projects, on total investment goals, and on productivity
was occasionally released.
Extremely high revenues from oil exports in the 1970s made
budgeting and development planning almost irrelevant in Iraq. The
responsibility of the state was not so much to allocate scarce
resources as to distribute the wealth, and economic planning was
concerned more with social welfare and subsidization than with
economic efficiency. One consistent and very costly development
goal was to reduce the economy's dependence on a single
extractive commodity--oil--and, in particular, to foster heavy
industry. Despite this objective, in 1978 the government began an
attempt to rationalize the non-oil sector. The process of costcutting and streamlining entailed putting a ceiling on
subsidization by making state-run industries and commercial
operations semiautonomous. The expenditures of such public
entities were not aggregated into the governmental expenditure
budget. Instead, state-run companies were given their own budgets
in an attempt to make them more efficient.
Because Iraqi economic development planning was predicated on
massive expenditure, the onset of the Iran-Iraq War in 1980
brought central planning to an impasse. Despite an effort to
maintain the momentum of its earlier development spending, the
government was forced to revert to ad hoc planning as it adjusted
to limited resources and to deficit spending. Economic planning
became not just a perceived national security issue, but a real
one, as the government devoted its attention and managerial
resources to obtaining credits. The Fourth Five-Year Plan (1981-
85) was suspended, and as of early 1988, the Fifth Five-Year Plan
(1986-90) had not been formulated.
In early 1987, President Saddam Husayn abruptly reversed the
course of Iraq's economic policy, deviating sharply from the
socialist economic ideology that the government had propounded
since the 1968 Baath revolution. Saddam Hussayn advocated a more
open, if not free, market, and he launched a program of extensive
reform. Because the liberalization was aimed primarily at dealing
with the nation's mounting and increasingly unmanageable war
debt, Saddam Husayn's motivation was more strategic than
economic. He had four related goals--to conserve money by cutting
the costs of direct and of indirect government subsidies, to tap
private sector savings and to stem capital outflow by offering
credible investment opportunities to Iraqi citizens, to reduce
the balance of payments deficit by fostering import substitution
and by promoting exports, and to use the reforms to convince
Western commercial creditors to continue making loans to Iraq.
The reform process began with Revolutionary Command Council
(RCC) Decree Number 652, which in May 1987 abolished Iraq's labor
law. This law had institutionalized the differences among white
collar, blue collar, and peasant workers. Under the law, every
adult had been guaranteed lifetime employment, but workers had
almost no freedom to choose or to change their jobs or places of
employment, and they had little upward mobility. One result was
that labor costs in Iraq accounted for 20 percent to 40 percent
of output, compared to about 10 percent in similar industries in
nonsocialist economies. Nonproductive administrative staff
accounted for up to half the personnel in state-run enterprises,
a much higher proportion than in private sector companies in
other countries. The government immediately laid off thousands of
white-collar workers, most of whom were foreign nationals.
Thousands of other white-collar civil servants were given factory
jobs. Previously, all state blue collar-workers had belonged to
government-sponsored trade unions, while unions for private
sector employees were prohibited. After the labor law was
abolished, the situation was reversed. Government workers could
no longer be union members, whereas private sector employees were
authorized to establish and to join their own unions. To
compensate state blue collar-workers for their lost job security,
Saddam Husayn established an incentive plan that permitted stateenterprise managers to award up to 30 percent of the value of any
increase in productivity to workers.
Decree Number 652 aroused resentment and controversy among
government bureaucrats, many of whom were stalwart Baath Party
members, not only because it contradicted party ideology, but
also because it imperiled their jobs. Feeling compelled to
justify his new economic thinking and to reconcile it to Baathist
ideology, Saddam Husayn wrote a long article in Ath
Thawrah, the major government-run newspaper, criticizing the
labor law for perpetuating a caste and class system that
prevented people from being rewarded according to merit and from
using their capacities fully. Perhaps writing with intentional
irony, Saddam Husayn stated that unless people were rewarded for
producing more, some might start to regard the capitalist system
as superior because it permitted the growth of wealth and the
improvement of workers' lives.
In June 1987, Saddam Husayn went further in attacking the
bureaucratic red tape that entangled the nation's economy. In a
speech to provincial governors, he said, "From now on the state
should not embark on uneconomic activity. Any activity, in any
field, which is supposed to have an economic return and does not
make such a return, must be ignored. All officials must pay as
much attention to economic affairs as political ideology."
To implement this policy, Saddam Husayn announced a move
toward privatization of government-owned enterprises. Several
mechanisms were devised to turn state enterprises over to the
private sector. Some state companies were leased on long terms,
others were sold outright to investors, and others went public
with stock offerings. Among the state enterprises sold to the
public were bus companies serving the provinces, about 95 percent
of the nation's network of gas stations, thousands of
agricultural and animal husbandry enterprises, state department
stores, and factories. In many instances, to improve productivity
the government turned stock over to company employees.
The most significant instance of privatization occurred in
August 1987, when Saddam Husayn announced a decree to abolish the
State Enterprise for Iraqi Airways by early 1988. Two new
ventures were to be established instead: the Iraqi Aviation
Company, to operate commercially as the national airline, and the
National Company for Aviation Services, to provide aircraft and
airport services. Stock was to be sold to the public, and the
government was to retain a minority share of the new companies
through the General Federation of Iraqi Chambers of Commerce and
Industry.
In a further move consistent with the trend toward
privatization, the RCC announced in November 1987 that the
government would offer new inducements for foreign companies to
operate in Iraq by loosening direct investment restrictions.
Details of the new proposal were not specified, but it was
expected to entail modification of Resolution Number 1646 of the
RCC, enacted in November 1980, which forbade foreign capital
participation in private sector companies. Changes in the longstanding government policy of preventing foreign ownership of
state institutions might also occur. According to the new
regulations, all foreign firms engaged in development projects
would also be exempt from paying taxes and duties, and foreign
nationals who were employees of these companies would pay no
income tax. At the same time, Saddam Husayn announced that
development projects would no longer be paid for on credit. The
new legislation indicated that Iraq was encountering difficulty
paying for or obtaining credits for turnkey projects and was
therefore willing to permit foreign companies to retain partial
ownership of the installations that they built. Previously, Iraq
had rejected exchanging debt for equity in this manner as an
infringement on its sovereignty.
Data as of May 1988
|
|