May 17, 2003|By Robert Little | Robert Little,SUN NATIONAL STAFF
WASHINGTON - Even as Iraq remains gripped by danger and chaos, its citizens embittered by a lack of security, jobs or such basic services as health care and electricity, the United States has sent a former banker into Baghdad to begin sprinkling the seeds of capitalism.
The immediate goals of Peter McPherson, a former Reagan administration Treasury official, are fairly modest. He hopes to stabilize a national currency, write a budget for government workers and pensioners, and perhaps repair a banking system ravaged by looting and war.
Yet over time, McPherson's job as "financial coordinator" in Iraq could prove every bit as critical to Iraq's future as the work performed with tanks and guns, American officials say - and equally fraught with peril.
For all its vast potential, the Iraqi economy that McPherson will encounter is weak and underdeveloped even by the standards of the Middle East. And it remains poorly equipped to provide the services and opportunities that a frustrated citizenry is demanding. Under the weight of international sanctions, totalitarian repression and war, the foundations of the economy have crumbled.
"There really is no functioning economy in Iraq right now except for the oil industry, and that will require billions of dollars of investment," said Abbas Alnasrawi, an Iraqi economist at the University of Vermont who has written six books about the country's financial history.
"He will have much work to do. A lot of people think the smartest thing for the United States would be to just restore stability and then walk away."
Iraq's state-controlled economy was in a shambles even before the war - saddled with $120 billion in debt from the Iran-Iraq war and crippled by trade sanctions imposed after it invaded Kuwait in 1990. Iraq's gross domestic product was $128 billion in 1980, according to the U.S. Treasury Department. Before the recent war, the figure was estimated at just $30 billion.
What little industry existed before the 1991 Persian Gulf war has mostly vanished - starved and isolated by trade restrictions. The once-bountiful fields of barley, tobacco and vegetables have lain largely fallow.
Well over half of the 30 million date trees that once served as a source of national pride are dead. A net exporter of agricultural products for centuries, Iraq now receives 70 percent of its food from other countries.
The average Iraqi worker, though generally experienced and educated, made less than $1,500 last year, just half what he or she made a quarter-century ago. With joblessness hovering at 50 percent through much of the past decade, many Iraqi citizens had no income and rarely bought goods and services in any conventional sense.
The country's retail system has largely been converted to a distribution system, as nearly two in three Iraqi families have relied on government handouts of grain, sugar, cooking oil and other staples to survive. Spontaneous markets have popped up, yet they are fed mostly by looting and smuggling.
"This is an economy that's been under repression for roughly 25 years and has gone through a huge crash, at a time when the rest of the world was growing," said John B. Taylor, an undersecretary of the Treasury who is one of the Bush administration's point men on Iraq's economic reconstruction. "Most of the government was financed by money creation - they just printed money when they needed it."
Now, the situation is worse. When American and British forces dismantled Saddam Hussein's government and the Baath Party apparatus - Iraq's main employers - unemployment rose to nearly 100 percent, and has only begun to recede as some government employees have returned to work. The banking system and Finance Ministry were looted, financial records burned and currency reserves pillaged.
The Pentagon and the Treasury Department expected disarray. They sent about a dozen economic specialists into Iraq days behind the combat troops, to explore and secure the banks and financial agencies. It's not clear whether they achieved much immediate success, but those specialists are still in Iraq and will make up the core of a team that McPherson will oversee throughout the summer.
McPherson boasts a long career devoted to money and capitalism, including six years with the Internal Revenue Service and three years managing international activities for Bank of America. He specialized in international issues as deputy Treasury secretary in the late 1980s, and is on leave from the presidency of Michigan State University while in Iraq. He will report to L. Paul Bremer III, who replaced retired Lt. Gen. Jay Garner on Monday as head of U.S. reconstruction efforts.
His first priority will be to create a budget for government services, such as police, public works, schools and hospitals. Iraq has not had a publicly released budget for more than 25 years. No economic growth is likely, Taylor noted, until such services are established and government workers are paid.
