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Security Pact Crucial for Investment

Saad Salloum
Niqash talks to Ali Baban, Iraq’s Minister of Planning and Development Cooperation, discussing the Iraqi economy and the likely effects upon it of the Obama administration and the signing of the U.S-Iraqi security pact.
12.11.2008  |  Baghdad

Niqash: Obama’s victory is a turning point in American political life. Do you anticipate a change in U.S. policy towards Iraq?

Baban: Obama, in his quest to define U.S policy for the coming period, will adopt a different approach to that of Bush junior especially regarding Iraq. This policy will focus on three main issues. Firstly, he would seek to reduce the financial obligations of the United States towards Iraq in order to provide the American economy with better chances of recovery and ease the burden of U.S. taxpayers. Secondly, he will be less enthusiastic in protecting Iraqi funds and financial assets in U.S. banks and these two major factors will negatively impact the Iraqi economy. Thirdly, I expect reduced flow of U.S. investment into Iraq because President Obama will tend to discourage U.S. companies from investing in the country.

Niqash: Ryan Crocker, the U.S Ambassador to Iraq, said that if the US-Iraqi security pact is not signed, U.S. investors will not invest their money in Iraq. Do you consider this a threat?

Baban: I don’t interpret his words as an implicit threat. He is speaking about a special situation; if the security agreement is not signed, U.S. investors will not feel secure coming to Iraq. In this regard I cannot deny our interest in technical and scientific cooperation with US investors. Allow me to clarify my position: companies fear the deterioration in the security situation in case the agreement is not signed. If this happens, not only will U.S. investors not come to Iraq but nor will other foreign investors come, invest or participate in projects conducted with the participation of Iraqi investors.

Niqash: So, signing the security agreement with the United States will mean more American investment in Iraq?

Baban: So far, the volume of U.S. investment in Iraq is limited, although the U.S. is at present Iraq’s main partner. Signing the agreement may encourage non-U.S. investments, particularly European and Japanese investments. If you mean the future, which God only knows, we need huge U.S. investments especially in the oil sector. In our discussions with the U.S., we are now focusing on Iraqi funds and financial assets in U.S. banks. We have real concerns about their destiny; without U.S. protection Iraq’s creditors will claim part or all of these amounts and assets and will also claim compensations by filing lawsuits worth billions of dollars.

Niqash: Will the improvement in the security situation alone attract foreign investment?

Baban: It is clear that an improvement in the security situation will make investors less hesitant. From our part, we have issued an investment law which will attract investors in different fields. But, Iraq needs a supporting infrastructure, a banking system and a balanced financial market protected from external fluctuations in order to attract investors. This is what we still lack, but we will attempt to establish these conditions in the future.

Niqash: Capitalism is witnessing a worldwide crisis. Don’t you think that if Iraq adopts the market economy it may be following a risky path?

Baban: In Iraq we have no other choice, specifically within the current circumstances, other than the market economy and there is no alternative to the free market. I know the U.S. is undergoing a crisis but I do not think that the whole capitalist system is witnessing a crisis. It is U.S. financial assets which are witnessing the crisis. It is credits that are mostly affected by the crisis. Capitalism is based on freedom of demand and supply and this freedom is the basic principle of capitalism. What has happened is a credit market chaos and this is not the basis of capitalism but an incorrect capitalist practice. In short, we cannot say that the U.S crisis has restored the credibility of the socialist system. For us, it is impossible to go back to the former totalitarian practice of a controlled economy. We have no alternative other than the market economy.

Niqash: Does Iraq actually have the requirements of a market economy?

Baban: Iraq needs strong economic institutions and free markets require an active private sector. We still lack many of the requirements.

Niqash: In a market economy, how can we protect local industries, especially with the huge influx of foreign goods?

Baban: We need to be capable of protecting our local industries and products. And here I do not mean by protection the old traditional methods. Opening the Iraqi market to foreign products without any rules or control does not lead to an open market or free market, it only leads to chaos and this chaos has made Iraq an excellent market for cheap and bad quality products that do not meet standards [due to a lack of] supervision. This situation should not continue and Iraq’s agriculture and industry sectors should not enjoy protection but preferentiality. The government possesses many methods and tools to help the country’s agriculture and industry sectors without the use of protection. We should not protect our agriculture and industry but we should enable them to compete.