News » May 28, 2003

Privatizing Iraq

The Bush administration’s neoliberal blueprint for the post-Saddam state

By Eric Laursen

By now, it’s no secret that the Bush administration’s plans for its new satrapy in Iraq are as much economic as military. The most visible signs of the future it has mapped out for the Middle East’s second biggest oil storehouse are the huge contracts the White House has awarded its corporate cronies. Halliburton’s Kellogg Brown & Root subsidiary received a contract worth up to $7 billion over two years. Bechtel has a contract worth $680 million the first 18 months and perhaps as much as $100 billion overall.

But the bigger picture of Washington’s Iraqi dreams is forming more gradually. The most important element to date is a document titled “Moving the Iraqi Economy from Recovery to Sustainable Growth,” revealed by the Wall Street Journal in early May. Created by the Treasury Department and the U.S. Agency for International Development (USAID) as a blueprint for prospective contractors, it lays out a series of steps the administration wants to achieve over the next year in Iraq, steps that will launch the country as a test case for exporting the neoliberal economic model to the Middle East. Key goals include privatizing state-owned assets, including oil, creating a “world-class [stock] exchange,” and instituting a consumption tax and a new Iraqi currency.

A USAID spokesperson says the document is not a definitive statement of Washington’s intentions, and that not everything it describes will actually take place. But the scenario it lays out, added to other moves the Bush administration is known to be making, indicate that the path ahead for Iraq will probably look much like the force-fed economic transformations that devastated many ex-Communist states in the ’90s.

Overseeing the reconstruction of Iraq’s financial system is Peter McPherson, head of USAID under Ronald Reagan. USAID has enthusiastically pushed privatization and marketization in countries as disparate as Kazakhstan, Hungary, Poland and Macedonia, often collaborating with the World Bank, which the White House is now also prodding to play a big role in Iraq. The Bank, in turn, has been the driving force behind structural adjustment programs, which are comprised of selling off state-owned enterprises and turning public services into for-profit businesses, often owned by foreign contractors, in scores of countries around the globe. The blueprint is remarkably similar in almost every case.

Here’s how it’s supposed to work. State-owned enterprises, especially those controlling demonstrably valuable natural resources, are sold off, or their shares distributed to the public. This is supposed to provide capital to be sold on local stock and bond markets. To kick-start the markets, state-sponsored retirement systems are converted into individual accounts, in a way similar to U.S. citizens’ 401(k) plans, to which workers contribute to fund their retirements. A consumption-based rather than income-based tax system is supposed to encourage workers to spend less and save more, further fueling capital markets. And a stable currency—or, better yet, a “dollarized” system in which U.S. currency becomes the coin of the realm—serves to reassure foreign investors that they can play, too, without significant risk to the value of their holdings.

Unfortunately, this idealized “virtuous cycle” has seldom come to pass. In Chile, longtime poster child for pension privatization, financial vendors’ marketing costs, passed on to workers in the form of ballooning management fees, have drastically shrunk pension returns.

In 1999, working off a plan that USAID, the Asian Development Bank, and the World Bank funded and helped draft, Kazakhstan required all workers to put 10 percent of their salaries into one of 13 privately managed investment funds. Privatization of the biggest publicly owned companies jump-started the market, and the project received a great deal of laudatory press.

But it didn’t last. Both the privatizations and the pension conversion were rushed into place before the country had the infrastructure or investor sophistication to support them. Net result: Salaried Kazakh workers’ retirement savings have shrunk severely. The dream of a funded pension system that nurtures the local economy and grows alongside it has turned out to be just that.

Indications are that Iraq will follow much the same path. The World Bank has a close relationship with the Adam Smith Institute, a London-based, free-market think tank that recently published a paper advocating the privatization of Iraqi industry and the replacement of Iraq’s state-guaranteed retirement system with private pension funds.

The Heritage Foundation, an influential American neoconservative think tank, is calling for Washington to administer a “comprehensive economic reform” of Iraq that includes preparing “state assets, including industries, utilities, transportation, ports and airports, pipelines, and the energy sector, for privatization.” That recommendation is closely echoed in the Treasury-USAID blueprint document, which schedules the next year for a propaganda offensive to persuade the Iraqi people that privatization is in their best interest, then the following three years for shifting the assets. The blueprint calls for all this to begin by July.

The short timetable has some longtime observers worrying that Iraq will suffer from another problem that has plagued privatization projects in developing countries: a headlong rush to get it all done fast. “There’s a political imperative to dismantle the centrally planned state, and they’re more concerned with that than with setting up proper regulatory structures,” says Bea Edwards of Public Services International, the international trade union federation. “Regulation takes a long time. You have to make sure the people you put in charge are credible and ethical. But there just isn’t time to vet them, and it’s not the priority.”

With tensions rising in the Middle East and the Bush administration eager to furnish Iraq as a shining new example of the “Washington consensus,” the race is on.

• Help In These Times publish more articles like this. Donate today!
• Subscribe today and save 46% off the newsstand price!
• Or win a subscription to In These Times by taking this short survey!

• subscribe to print magazine

• stay in touch with our email newsletter

  Subscribe to our regular weekly e-mail newsletter. It's packed with updates on recent and upcoming stories, events, campaigns and things every progressive should be informed about.

   

• email this article to a friend

  Your Name Your Email Recipient Email

  Personal message Thought you might be interested in this article from In These Times.

   

  Please help us prevent spam by verifying the word you see in the image above

  Send to multiple recipients. Just separate each email address with a comma.

• Reader Comments

  Mr. Laursen’s statement—“Salaried Kazakh workers’ retirement savings have shrunk severely. The dream of a funded pension system that nurtures the local economy and grows alongside it has turned out to be just that.”—is blatantly incorrect.  Since the inception of the accumulation pension system in 1998, salaried Kazakh workers’ retirement savings have grown steadily every year and in the aggregate currently stand at approximately USD 2.0 bln—which, for Mr. Laursen’s information, is slightly more than total household deposits in Kazakhstan’s commercial banks, which have grown to USD 1.8 bln currently from about USD 300 mln in 1998.
  Kazakhstan’s pension system has funded solid growth in the country’s corporate bond market where cumulative issuance is currently at USD 730 mln, including USD 4.5 mln of mortgage-backed securities—the first in the former Soviet Union.

  Mr. Laursen’s egregious inaccuracy speaks poorly for the editorial integrity of this magazine—non-profit and progressive or not.  A more accurate, if more expensive, review of Kazakhstan’s financial sector appears in the May 29 edition of The Economist.

  Posted by Steve Moody on Jun 3, 2003 at 4:40 AM

  Everybody is talking about Halliburton and Bechtel.  How does hiring companies and paying them with US taxdollars to rebuild and build in Iraq hurt Iraq?  I would certainly welcome halliburton in my house if they want to rebuild there - in fact, if they want to run my economy, they can have and good luck to them.

  Posted by Nus on Jun 3, 2003 at 7:55 PM

  Why am I not hearing and seeing the word “impeachment” on electronic TV, radio and in the newspapers?  Where are the media?  Where are those who have the most to gain…the democrats?

  Posted by Bob Mendes on Jun 3, 2003 at 8:54 PM

  My question(s) with the article outlining economic reform (privatization) in Iraq is that of what industries other than oil are available to privatize? Are there any functional industries left in that country to employ iraqi’s many citizens? Who would want to invest money in a newly created stock market when the country hasn’t shown that all the different religous groups can work side by side to ensure the greater good of Iraq? How can a people with little to no income support industry? You can privatize hospitals, airports etc. but how many people can they employ? Without a government with a revenue stream (oil), how will it address the many needs going forward to build a sustainable economy? Maybe they just need a tax cut!

  Posted by cynical sam on Jun 4, 2003 at 3:54 PM

  Sleep tight Nus, they do run your economy.
  Careful what you wish for.

  Posted by Faf on Jun 6, 2003 at 10:25 PM

• extended discussion >>>Continued...

  Discussions with more than 5 comments are continued on our special discussion page to encourage continuity and ease of use. There are currently 11 posts.

Also featured Meet Howard Dean
Civil Liberties Take a Dive Post-9/11
Economic Fix

Full contents
Previous issues
Subscribe and save!