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economic reform in iraq
govt trapped by fear of its own people

Nagih al-Obaidi
The Arab Spring protests have scared the region’s rulers. And, as an Iraqi economist in Berlin writes, when it comes to much needed economic reforms, the Iraqi government is also trapped by a fear of those on…
19.01.2012  |  Berlin

To bend until the storm has passed: This is the Iraqi government’s new motto – and especially when dealing economic reform, even urgent economic reform.

For example in February last year, the government suspended the enactment of a new tax law until further notice. The decision to freeze the law was not made because lawmakers were unsure of the economic benefits of the law. Nor were they unconvinced that the law would help prevent excessive and unhealthy foreign competition.

None of these are reasons behind the suspension of the law. The only reason was fear. It was that the government was afraid to enact a law that might lead to popular resentment.

And since then, it seems this tactic has become a permanent one. And the tactic applies not just to Iraq but also to other countries in the region: since the Arab Spring protests broke out, rulers in the region have been obsessed by the thought of popular uprisings against them.

There is no doubt that the Arab Spring-style protests are a positive development in a region with a history of authoritarian governments and dictators. But fear of more populist uprisings is causing many governments to only make decisions that please the general populace, aimed at calming those on the street. In doing this, they just want to see the storm pass with minimal losses.

And this attitude has become even more common in regard to economic issues. Many governments in the region have apparently taken measures to try and resolve some of the economic issues that make their people’s lives so difficult. But in actual fact, much of what they have been doing is dealing with the symptoms of these economic issues, rather than their root causes.

Interestingly, as a result, the Arab Spring has actually become an obstacle to economic reform. It should have been the catalyst for a new economic model that is capable of confronting the huge challenges facing the region’s nations. Which is where the Arab experience differs from the experience of Eastern Europe, after the collapse of the Soviet Union. In most of the countries involved there, the political domination by one party ended and so did the economic policies that went with it: that is, the central planning and the dependence on the public sector. Not necessarily so in the countries of the Arab Spring.

This phenomenon – fear of populist wrath in policy making – is also obvious in Iraq. Much needed economic reforms are being postponed due to fear of what those on the street will do. The never ending conflict between the members of the ruling coalition in Prime Minister Nouri al-Maliki’s government also keeps the government from making any real decisions. The Iraqi government is not dealing with the most urgent issues and, at the same time, making hasty decisions that make no economic sense, in the short term - decisions that will not serve the long term, sustainable development of the nation.

The delay in the new tax law is only one example in these policies.

Another example of treating the symptom rather than the cause was the al-Maliki government’s solution to the ongoing power cuts that plagued the country during 2011’s long hot summer. The government came up with the “brilliant” idea of distributing free fuel to generator owners and asking the generator owners to help provide their neighbours with power, when there were cuts. Of course, the generator owners worked out quickly that it was easier to sell the fuel on the black market, rendering the scheme useless.

Then while the government was busy coming up measures to force generator owners to do what they wanted, no long term, sensible solutions to the country’s ongoing power crisis are found. It is a vicious circle.

The Iraqi ration card is another example. The ration card system was instituted in the early 1990s by Saddam Hussein after international sanctions were imposed on Iraq following the country’s invasion of Kuwait. Hussein did this in an attempt deflect popular anger when living conditions deteriorated in the wake of those sanctions. And the system still exists today even though the original reasons for it no longer do.

The government’s fear about what would happen should it try to get rid of the ration card system mean that it is not seeking better and more effective ways of fighting poverty in Iraq.

The policy of postponing real reforms is also obvious in the way that the Iraqi government deals with the flabby public sector, the country’s major employer. Political parties compete to announce tens of thousands of job vacancies in the state agencies they run, which leads to the squandering of billons of the oil revenues the country earns, in the form of salaries. If the government managed to use those same funds from oil more efficiently it would have succeeded in creating and encouraging sustainable employment for Iraq’s citizens.

Then there’s privatization. After the fall of former Iraqi leader Saddam Hussein’s regime, there were many proposals on the table aimed at privatizing or restructuring state institutions. However since 2005, successive Iraqi governments have simply ignored this issue.

Additionally the government’s avoidance of economic challenges is also reflected in the way it deals with tax reform. After 2003, the Ministry of Finance held a number of seminars, and even approved plans, to introduce a real taxation system and reduce the state’s dependence on oil revenues. But none of this appears to gone much further than planning. Currently the Ministry of Finance is like the whole country’s cashier, collecting oil revenues then distributing them. The use of the instruments of fiscal policy, such as taxation, is being ignored.

When it comes to fiscal instruments, this paralysis has also reached Iraq’s Central Bank. The announcement that three zeroes would be removed from the end of Iraqi currency was made some time ago; it was considered to be a necessary step in the rehabilitation of the Iraqi dinar. However there don’t seem to have been any real steps made in this direction either and there seems to be a lack of political will to make this happen.

After all, the parties of the ruling coalition are busy with more important issues such as their own influence, positions and privileges.

And slowly it also becomes clear that this lack of desire to address any of Iraq’s most serious economic problems must also stem from the fact that oil revenues have been rising over the past few years. The government seems happy just to sit and watch billions of dinars flow into the country, as if this money alone will be sufficient to solve basic economic issues and achieve sustainability. While the oil money flows, there’s no need to implement any serious reforms that might extract a high political price, or which could be exploited by the political opposition.

In conclusion one thing is clear: lagging behind like this on the topic of reforms will, eventually and like it or not, extract its own high price for Iraq, its people and its politicians.