This analysis draws on the work of Iraqi economists. It does not pretend to
provide a complete blueprint for the future. Rather, the analysis touches
upon some obvious issues which would need to be addressed quickly to
introduce an element of rationality into a system which seems to have
speculations about the future of Saddam's regime grow, an increasing number
of Iraqi economists in exile have begun to articulate their ideas about the
lifting of the Iraqi economy from its present morass. As recent events in Afghanistan
have demonstrated, some of these economists could one day occupy high
policy-making positions in their country and, for this reason, it is
interesting and, indeed instructive, to listen to what they have to say.
In Iraq today
there is no real or meaningful discussion of economic issues since
everything has been subjected to the personal whims of Saddam Hussein, his
two sons and a small entourage of loyalists. A search for economic analysis
in the only economic weekly published in Baghdad—Al Iqtisadi
(trans: The Economist) would be in vain. A recent editorial in Al-Iqtisadi brags about one of the journal's great
achievements—publishing a centerfold picture of Saddam and his two sons
and, thereby, making the weekly a bestseller as buyers sought the picture
to display on the walls of their offices. We are loath to make comparisons
with a well-known pictorial magazine whose centerfolds make it into a
there a regular budget that records revenues and expenditures. The budget
is known as "open budget" which permits the president to
authorize expenditures and "generous Presidential Gifts" as he
sees fit. In fact, there is hardly a day in which the Iraqi newspapers do
not announce a special grant or "a generous presidential gift"
for projects or for individuals. For example, Babil,
the daily newspaper owned by Saddam's son Uday,
writes on its front page this week that the President has ordered [doesn't
say whom or from what budget line] the allocation of 4.126 billion Iraqi dinars (approximately $2 million) to construct offices
and provide potable water to the Anbar
Governorate. State revenues are also a murky area. While the United Nations
Sanctions Committee maintains, and publish, exact figures on revenues from
oil sold under the "Oil for Food" program and how they are
allocated, there is no record of revenues generated by taxes or from the
sale of crude oil, at discounted prices, to Jordan and Syria, the sale of
diesel oil to Turkey (shipped by trucks) from northern Iraq or the
smuggling of oil by tankers to destinations unknown (the only evidence of
that is the occasional interception of an Iraqi tanker by the U.S., Iranian
or Kuwaiti navies in the Persian Gulf.) Iraq also collects "a
commission" of $0.25-$0.50 on each barrel of oil sold under the
auspices of the United Nations. Attempts to stop the practice by the
introduction of an ex post pricing mechanism of oil has not been successful
because buyers reluctantly pay the "commission" to stay on good
terms with the Iraqi supplier.
Strategy for the Future
The Iraqi economists in exile suggest that the Iraqi economy in the modern
era, meaning after the termination of the Turkish administration in 1918,
has gone through four stages: agricultural economy, oil economy, war
economy and Mafia economy. To correct the damaging effects of the
"mafia" economy which has enriched Saddam and his entourage
through illicit and, often violent means, these
economists present a strategy based on getting rid of debts and
compensation, the introduction of modern principles of financial management
(including budgeting and accountability), the development of the petroleum
sector to its full potential together with the development of non-petroleum
industry, and addressing poverty.
and compensation: In 1980, shortly before the war with Iran, Iraq had reserves of $40
billion. By the end of that war, the reserves vanished and Iraq
borrowed heavily to sustain the war economy. It is estimated that Iraq's
external debt as a result of the war had reached anywhere between $86 and
$100 billion but, in the absence of reliable data, no one but few Iraqis
know for sure. Since most of the debt was owed to the Gulf countries,
particularly Kuwait and Saudi Arabia, Iraq could have negotiated a
favorable rescheduling of its debt after the war. Instead, it invaded Kuwait, and by the time it was expelled from
Kuwait, the Security
Council has required Iraq
to pay compensations to states, companies and individuals harmed by its
failed adventure. To ensure that the compensations are paid, the Security
Council passed a resolution requiring that oil revenues are deposited in a
special escrow account administered by a Compensation Committee appointed
by the United Nations. Twenty seven percent of oil revenues (later reduced
to 25%) were to be earmarked for compensation and another 3% to cover the
cost of the weapons inspection panel as well as administrative costs of the
UN bodies managing the program.
establishment of the program, 1.6 million claims from individuals, public
and private bodies were made for a total of $300 billion. Through September
2000, the committee paid $8.5 billions to individuals and $3 billions to
Kuwait, which was due to receive an additional amount of $12 billions to
compensate for the damage to the Kuwaiti oil fields torched by Saddam
before his forces were driven out of Kuwait. Iraq has not had the money to
service its external debt which could become an explosive issue in any
post-Saddam configuration unless the lenders decide to forgive some of the
debt and reschedule the remainder in an effort to create an amicable
relationship with the country.
economists maintain that the failure to resolve the debt and compensation
issues in the future would jeopardize any effort to reconstruct the
shattered economy and may even cause the conflict with some of the
neighboring countries to persist. In fact, these economists believe that a
that would denounce aggressive intents towards its neighbors and enjoying
the support of the West will eventually cause some of the claims for
compensation to be withdrawn and for the debt to be cancelled or
rescheduled on generous terms. They cite the case of Germany
after WWII as an example.
of Proper Financial Management. Economic statistics on Iraq don't
exist. There are no data on revenues, expenditures, foreign trade, the size
or cost of public administration, or the size of military expenditures.
There are three reasons for this state of data deficiency: first, the
concept of "open budget" which allows Saddam Hussein to determine
national priorities single-handedly; second, the conditions created by the
embargo which deny Iraq full control over most of the oil revenues; and
third, the secretive nature of the regime, particularly with regard to
expenditures on its armament program, a large military and the various
interlocking security agencies under the control of Saddam's son, Qusai. All of these practices will have to be
subjected to financial discipline through transparent budgeting procedures
based on a set of national priorities arrived at through democratic means
or at least through a national consensus.
of the Oil Sector. Oil is the mainstay of the Iraqi economy. However, oil
installations have suffered from air strikes and, in recent years, from unsatisfactory
maintenance. The issue of maintenance is tied to the approval of contracts
for spare parts and other equipment for the oil sector by the UN Sanctions
Committee. For example, Iraq
has submitted to the committee 5,186 contract proposals for oil spare parts
for a total of $3.9 billion. The Committee has approved 3939 contracts for
$2.7 billion but, according to the United Nations, only $1.06 worth of
spare parts have arrived in Iraq by the end of last year.
Iraq exports, legally
(under "Oil for Food" program, and illegally (through Syria, Turkey
approximately 2.5 million b/d. With a proven capacity of 112 billion
barrels and with many regions of the country still unexplored, Iraq could
export as many as 4-5 million b/d relatively quickly if oil installations
are restored to the pre-war condition and new installations are added.
Iraq will require a lot
of capital to develop its oil sector. The Iraqi economists recognize that,
for Iraq to reach its full production capacity, international oil companies
will have to be invited back to invest in Iraq (interestingly enough, Saudi
Arabia has recently done exactly that.)
of the oil sector as a component of GDP has been phenomenal. The oil sector
represented 2% of GDP in 1950s, 15% in the early 1970s and 50% by
mid-1970s. Currently, oil exports represent 90% of total exports and 95% of
foreign exchange. The oil sector depends very much on economic and
political forces, often outside the control of the oil producing countries,
included. Iraq will have to use surplus oil revenues, foreign direct
investments and perhaps even aid money to rebuild its infrastructure,
revitalize its agriculture (which have lacked fertilizers because of restriction
on their importation for fear of linkage with Iraq's chemical weapon
production) take advantage of its enormous gas reserves and develop
petrochemical industry. One economist observed that oil, like coal, is
"a threatened wealth," and it is important for "oil to
become again part of the economy rather than the Iraqi economy becoming a
part of oil."
the Economy from its Shackles. Thirty years of Ba'ath
party brand of socialism both in Syria
have left both economies crippled and shackled by oppressive bureaucratic
controls and an infinite number of counterproductive rules and regulations.
Economic energies were stultified, entrepreneurial spirit all but destroyed
and economic technocrats occupied all critical positions. In the case of Iraq,
private initiative was limited to illicit activities by a small group of
party leaders, as well as senior commanders of the armed forces and the
all-intrusive secret services. Under the Ba'ath
form of socialism, the waqf were
nationalized because they were considered "dead capital," land
was confiscated in the name of agrarian reform, and domestic and external
trade were taken over by the central government to fight exploitation. A
post-Saddam, post-Ba'ath economic regime would
have to liberate the entrepreneurial energies of the Iraqi businessmen,
privatize public and nationalized industries and businesses and encourage
the introduction of modern business practices.
Regional Economic News
Water Struggle in the Nile Basin
This is the title of a third book by Sahib Al-Rabi'i
on the issue of water in the Middle East.
His two previous books dealt with the Jordan
River basin and the Euphrates and
Tigris basin (see our report No. 14 on the Euphrates and Tigris
The issue about the Nile basin is similar to the two other basins—a
relatively fixed quantity of water to satisfy the needs of growing
population. Specifically, Al-Rabi'i offers
a number of reasons affecting the struggle for water in the Nile River basin:
First, the building of dams
by countries at the river's headwater reduces the amount of water to the
other riparian countries. Ethiopia's
plan to build a dam on the Nile River will affect the flow of water to Sudan and Egypt.
Second, population explosion
and its need for water, whether for agriculture or personal use (often at
higher rates than before because of the urbanized pattern of living)
Third, there have been waves
of drought in addition to growing desertification due to climatic changes
in the world.
In the concluding chapter of
his book, the author compares between the three principal basins in the
Middle East and concludes that the basins are subject to "an outburst
of struggles in the next two decades and perhaps even earlier if drought
worsens and water declines below its normal levels."
Bank has financed a project to improve the management of the Nile River Basin
in both Sudan and Egypt.
The first phase of the project at the headwater will seek to reduce
desiccation. The second phase will provide an early warning system about
floods to allow measures to be taken to protect agriculture and people,
particularly in Sudan.
Bank May be Established in Cairo
A mission from the European Investment Bank (an arm of the European
Commission) will visit Cairo early next month to discuss the feasibility of
establishing a European-Mediterranean Bank, to be headquartered in Cairo,
in the framework of the Barcelona Initiative for European-Mediterranean
cooperation. International banking sources doubt
the need for yet another multilateral bank in the region.
Countries Attracts Small Share of Global Tourism
A report issued by the Egyptian Federation of Tourism indicates that
inter-Arab tourism reached 24% of total Arab tourism worldwide.
global tourism revenues in 2000 were $475.8 billion of which about $13.2
billion was earned by Middle Eastern and North African countries, or 2.8%
of the total. The report characterizes the amount as
"insignificant" considering the tourism attractions in the Middle East. [It is not clear whether Israel was
included in the report]
in Oil Prices Causes Losses to Gulf
The decline in oil prices in 2001 reduced the oil revenues of the members
of the Gulf Cooperation Council from $120 billion in 2000 to $85 billion in
2001, or by 30%. Dr. Walid Khadouri,
the chief editor of the Middle East Economic Survey (Cyprus) said that OPEC members cannot take
decisions in isolation of global developments, chief among them are the
difficulties faced by the American oil industry, the situation in Iraq and
the common violations of the oil producers of the quota system. OPEC oil is
also facing new challenges of additional producers coming into the market,
and the introduction of alternative sources of energy, particularly in the
transport sector. 
Gas to Jordan
The Arab Fund for Economic and Social Development and the Kuwaiti Fund will
contributed $50 million and $100 million, respectively, to construct a gas
pipeline to carry Egyptian natural gas to Jordan at the first stage and,
ultimately to Syria and Lebanon at later stages. The pipeline will have a
capacity to carry1 billion cu.ft.
of natural gas daily, extracted from the
Mediterranean Sea near El Arish (in Sinai) to Taba on the Gulf of Aqaba and
across the Gulf by underwater pipeline to Jordan [no location was
identified.] The total distance is 258 km or 143 miles.
Egypt is currently
producing 7.93 million tons of natural gas a year of which 4.13 million
tons are for local consumption and the balance for export. Confirmed
natural gas in Egypt
stands at 1500 billion cubic meters and the total estimated but unconfirmed
volume of natural gas stands at 3000 billion cubic meters.
Egypt is increasingly
becoming a significant producer/exporter of natural gas. The country has
already signed contracts with British Gas, Gas de France and ENI (Italy) to supply liquefied gas to Europe.
Al-Azhar Condemns Copyright Infringement At his meeting
with producers of computer programs, Sheikh Ibrahim Atta
Allah, Director General of the Islamic Da'wa
Al-Azhar, said that "piracy is the worst type of theft and is
prohibited by Islam." He said Islam forbids software copying and the
use of profit of copyrighted material without prior approval from the
owners. He added: "Such illegal trade and profit are prohibited by
Islam." He went on to say that "theft is a theft whether it is
between Muslims and Muslims or between Muslims and non-Muslims." 
and Turkey Ease Tensions and Renew Discussions on Water
As a sign of growing relaxation of relations between Turkey and Syria, the
two countries opened their borders to thousands of citizens on the occasion
of Eid Al-Adha
(Feast of Sacrifice) celebrated by the Muslim world last week. In previous
years, citizens of each country exchanged holiday greetings with each
other's relatives across barbed wires.
warming up of relations between the two countries is reflected in more than
12 rounds of negotiations at the ministerial level, the visit to Damascus of more than
1000 Turkish businessmen and the formation of a Joint Businessmen Council.
Trade volume has increased in 2001 by 35% compared with previous year and
reached $1 billion, including $750 million of Syrian exports to Turkey,
primarily crude oil.
result of these developments, Turkey
has agreed to re-convene the tripartite technical water committee
comprising Turkey, Syria and Iraq. The committee has been in
abeyance for the last 9 years. It is also expected that President Asad will visit Turkey—the first for a Syrian
Trade Delegation Will Visit Baghdad
A delegation of 150 Turkish businessmen, under state secretary Kursat Tuzmen,
will visit Baghdad
on March 4 to negotiate trade agreements with Iraqi officials. The timing
of the visit will coincide with the opening of the fourth exhibition of
Turkish products which will be hosted by Baghdad on March 1-5.
is seeking to expand its trade relations with Iraq Turkey is concerned that
an American attack on Iraq
will undermine one of Turkey's
major markets. Turkey is
also concerned that the destabilization of Iraq
will lead to the creation of a Kurdish state on its border which Turkey
opposes strongly. 
Moscow Threatens "a Price War" with
Indications are that Russia may terminate the
restrictions on the export of its oil, beginning the second half of next
month. Russian oil companies are pressing their government to withdraw from
any ceiling on production agreed with OPEC and allow Russian oil companies,
almost all privatized, to garner a larger share of the market. This would
mean, according to OPEC sources, "a price war" between OPEC and
the second largest exporter of oil (after Saudi Arabia.) At the same
time, the Russian Minister of Energy, Igor Yusufov
said that Russia
should refocus its oil exports from crude oil to oil derivatives.
Exports to Iraq May Reach $3 billion
Iraqi Minister of Trade Dr. Muhammad Mahdi Saleh said that Egyptian exports to Iraq have reached
$2 billion and will reach $3 billion at the end of this calendar year. It
was not clear in what time frame the $2 billion of Egyptian exports have
taken place. He said Iraq
gives priority to Egypt
in the spirit of "brotherhood and collaboration" and in
recognition of the efforts by Amru Musa, the Secretary General of the Arab League to
restore Arab unity. 
Egypt and Syria have agreed to establish a committee
that would review the feasibility of strengthening telecommunications
between them as well as with Lebanon
The equipment would be supplied by a joint Egyptian-German company and a
joint Syrian-Korean company. 
Oil sources indicate that Syria is receiving 150,000 b/d of Iraqi crude oil
through the Kirkuk-Banias pipeline which was
reopened in November 2000 after being closed for about 2 decades. The flow of
oil is a violation of the Security Council resolution establishing an
embargo on the export of Iraqi oil other than through the "Oil for
Food" program. Syria,
which occupies a seat on the Council since January 1, told the Council that
Baghdad and Damascus have only "tested" the
pipeline, but it is not used for the transfer of crude oil on a regular
Country Economic News
and Hesitation about Privatization in Egypt
Economic circles in Egypt
found themselves in a quandary regarding the government's policy with
regard to privatization to which it has committed itself during the recent
donors' meeting in Sharm Al-Sheikh. The
Minister of Public Works, Mukhtar Khattab, declared on February 20 that the sale of
companies in the public sector will be stopped because of failure of
domestic and foreign investors to submit bids to buy them. Twenty four
hours later he reversed his position and declared that the state was
determined to continue the privatization program "due to the successes
achieved." In a press conference, he said the program is progressing
satisfactorily despite the economic circumstances after September 11. He
added that the program is an important instrument to innovate the Egyptian
industry because it brings new styles of management to the privatized
regard to the privatization of the power and telecommunications companies,
there appears to be a disagreement between the prime minister and a
majority within his cabinet about the timing for action. The prime minister
favors immediate privatization in the national interest (and fulfilling
commitments made to the donors at the Sharm
al-Sheikh donors' meetings) while the majority counsels a delay for reasons
that were not made public (most likely concerned about the employment
status of a large number of workers who may be thrown out of work by a
private employer.) 
Egypt has also decided
to postpone the privatization of banks. According to Al-Hayat,
control over the banks allows the government to make grants and loans to
ensure the loyalty of the "national capitalist class"
Fellowships for Males Only
The Iraqi Ministry of Higher Education and Scientific Research
announced the availability of a number of graduate scholarships for studies
in Russia in the fields of science, engineering, agricultural
mechanization, accounting, and financial management.
ministry also announced the availability of fellowships at the Indian
Institute of Technology for graduate studies in alternative water energies.
instances, the scholarships and fellowships are available for males only.
$2.5 Billion Transferred Illegally through Travel Agencies
In the absence of private banks, the inefficiency of government banks and
the restrictions on foreign exchange (forex),
Syrian businessmen and citizens have found alternative, if illegal, means
to address their needs for forex.
agencies work in complete secrecy and through reliable intermediaries who
can transfer any amount of money overseas, charging a commission of 1-5%.
the Syrian ministry of transport there are 400-500 such agencies. It is
estimated that 50% of Syrian imports, or LS125 billion (approximately $25
billion) are financed through these agencies. They are the main channel for
the transfer of money from Syrians working abroad to their families. In
fact, they are so efficient that they are also used for a quick transfer of
money within Syria.
penalty for illegal trading in forex is up to 15
years in prison. 
Lebanon Concerned About
'Ali Qansu, the Lebanese Minister of Labor
said that Lebanon
is being subjected to economic siege by the great powers for political
reasons. This siege may mean the cancellation of Paris Conference 2 (to
reschedule Lebanese debt) as well as the termination of aid to Lebanon.
The cancellation of the meeting, says Qansu, does
not mean that Lebanon must surrender its principles, particularly with
regard to the resistance movement, the relations with Syria and the
spreading the army to the south [on the border with Israel, currently under
the control of Hezbollah].
expressed his regret about the public debate in the country that has
acquired an open communal orientation, following the government decision to
abrogate the exclusive dealerships [which were under the Christian domain].
Assumptions on Deficits
The International Monetary Fund (IMF) maintains in its semi-annual
consultation with Israel
that the budget continues to deviate from the government's medium-term
objective of reducing expenditure and debt as a share of GDP. The IMF
questions whether the government can achieve its deficit target of 3% of
GDP this year. It suggests that this figure could be higher by as much as
1.5 or 3%.
other hand, the IMF says that the Israeli economy has withstood major
exogenous shocks remarkably well so far. Once global demand begins to
recover, there is a good chance that the economy will return to its high
potential growth path relatively quickly. 
to Sell its share in Cement Company to Palestinian Authority
The Jordanian Government has decided to sell its 41% share in the Jordanian
Cement Company to the Palestinian Authority. The company is one of the five
largest companies in Jordan
is one of leading markets.] Jordan
has previously sold 33% of its share to Lafarge, one of the major French
companies. No price was quoted.
 Kadhem Jawad
Shibr, "Oil for Food," Al-Mu'tamar, February 2-8, 2002; Shibr,
"Economists call for a Strategy to Rid the Iraqis of Debts and
Compensations;" 'Adel Abdel Mehdi, "Early Strategic Consideration to Deal with
Foreign Debts and Compensations;" and D. Ayyad
‘Abbas, "Capitalists in Socialist Garb," all three articles
appeared n Al-Mu'tamar, February 9-15, 2002.
 Recently, Vice Premier Tariq Aziz's son spent more than 100 days in prison for
cheating Uday Saddam Hussein of his share in a
business transaction. His sentencing last September for "economic
crimes" was a first page news item in the Iraqi newspapers.
 United Nations Office of the Iraq Programme
–oil for food. Weekly Update (16-22 February 2002), February 26, 2002.
 Al-Mou'tamar (London), February 16-22, 2002.
5] Al-Hayat, February 18, 2002.
 Al-Hayat, February 25, 2002.
 Al-Sharq Al-Awsat, February 26,
 Al-Hayat, February 19, 2002.
 Al-Hayat, February 26, 2002, and
Al-Ahram, February 27, 2002,
 Al-Hayat, February 26, 2001.
 Al-Hayat, February 22, 2002.
Net/economics. February 26, 2002.
 Al-Hayat, February 22, 2002.
 Al-Thawra (Baghdad), February 25, 2002.
 Al-Sharq Al-Awsat, February 26,
February 22-3, 2002.
 Al-Hayat, February 22, 2002.
 Al-Hayat, February 24, 2002.
 Al-Iqatisadi, February 23,
 Tishreen, February 16, 2002;
Al-Hayat, February 24, 2002.
 Al-Safir, February 25, 2002.
 IMF, "Israel – Interim IMF Staff
Visit," February 26, 2002. Also, Al-Hayat,
February 27, 2002.
 Al-Hayat, February 26, 2002.
*Dr. Nimrod Raphaeli is Senior
Analyst of MEMRI's Middle East Economic Studies