Economic Challenges in Post-Conflict Iraq
March 17, 2010
Economics are as important to Iraq’s stability and political accommodation as security and governance, and they are equally critical to creating a successful strategic partnership between Iraq and the United States. It is far from easy, however, to analyze many of the key factors and trends involved. Iraqi data are weak and sometimes absent. U.S. and Coalition forces generally failed to look in detail at many of Iraq’s most serious economic problems, or they issued heavily politicized reports designed to show that Iraqi “reconstruction” had been far more successful than it really was.
It is clear, however, that any analysis of a U.S. and Iraqi strategic partnership must examine these issues, which fall into four major categories:
- Iraq’s near-term and mid-term dependence on its petroleum sector for much of its economic growth and most of its government revenue and self-financed development and security efforts.
- The critical problems in other sectors of the Iraqi economy, including industry and agriculture, and in many areas of government services like health and education.
- The impact of outside aid, where the Special Inspector General for Iraqi Reconstruction (SIGIR) and other reporting indicates that U.S. and other international aid efforts have fallen far short of their goals and sometimes done more harm than good.
- Iraq’s ability to develop levels of security that will allow a normal economy to develop, which will reassure investors that foreign and domestic investment is safe, and that will ensure that investments in infrastructure and development are not attacked.
The Burke Chair has published a report addressing these issues titled Economic Challenges in Post-Conflict Iraq and it is available on the CSIS website at http://csis.org/files/publication/100317_IraqEconomicFactors.pdf.
In the next few years Iraq will depend on oil revenues to fund most of its stability and reconstruction operations. However, there are still many political and economic factors that may impede this process and it will most likely take several months if not years for Iraq to increase its exports to the point where it can cover all of its reconstruction costs.
In the short run Iraq must find a way to fund these projects, particularly through foreign aid programs and loans. In the long run, Iraq must find a way expand other sectors of it economy at least to the point of self-sustainability—right now Iraq imports many of its products from neighboring counties, especially agricultural goods from countries like Iran. The government should also focus on improving business laws in the country and passing an oil law to ensure that current and future oil contracts are legitimate, and that the process of issuing these contracts runs smoothly. Otherwise Iraqis will have a hard time attracting foreign companies to invest in these industries.
Most importantly, Iraq must find ways to fund its development programs, especially its health and education sectors which are extremely lacking in funding and personnel. These aspects of reconstruction are crucial to meeting the needs of the Iraqi people and preventing a return to sectarian violence. If the Iraqi people do not perceive that the government is providing them with security and basic services then it cannot succeed at creating long-term stability and development.
There are never any easy answers to the economic problems of post-conflict reconstruction and long-term development but there are areas in which the Iraqi government must now focus on improving, and areas in which the United States can help by providing additional funds, logistical support and advice. This is an essential part of the U.S.-Iraqi Strategic Framework Agreement and the United States must continue to follow up with the programs it started to ensure that Iraq has the resources and capacity to provide for its people.