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The Second Looting of Iraq
IRAQ WAS in effect put up for sale yesterday when the US-backed administration announced it was opening up all sectors of its economy to foreign investors in a desperate attempt to deliver the much-needed reconstruction.
In an unexpected move unveiled at the meeting of the Group of Seven rich nations in the Middle East, the Iraqi Governing Council, appointed by the US occupiers, announced sweeping reforms to allow total foreign ownership without the need for prior approval.
The move, accompanied by swinging cuts in taxes and tariffs, is likely to fuel concerns that Iraq is being turned into a golden opportunity for profiteering by multinational corporations relying on political connections. Already, the biggest reconstruction contracts have been allocated to major US firms such as Bechtel and Halliburton, which have ties to the Bush administration. They were selected behind closed doors, with no opportunity for competitors to present bids.
It is also a dramatic departure from Saddam Hussein's centralised management of the Iraqi economy, which was reasonably successful in capitalising on the country's oil wealth to build state-of-the-art hospitals, schools and other infrastructure, at least until the upheavals of the Iran- Iraq war, the 1991 Gulf War and the imposition of United Nations sanctions from 1991.
One Arab expert, who asked not to be named, said: "There's a fear that privatisation of too many things will lead to things being sold off for a mess of potage."
Kamel al-Gailani, the Finance Minister in the provisional government, said the moves were part of a policy of opening Iraq to free market competition that would deliver investment, job creation and long-term economic growth. It will apply to everything from industry to health and water.
"We are providing Iraqi citizens with the freedom and opportunities they were denied for so long under the Baath party to realise their economic potential," he said. "The reforms will advance efforts to build a free and open market economy in Iraq, promote Iraq's future economic growth, (and) accelerate Iraq's re-entry into the international economy and reintegration with other countries."
The moves presented by Mr Gailani, approved by the US and UK's coalition provisional authority, include:
100 per cent foreign ownership in all sectors except natural resources;
direct ownership as well as joint ventures and setting up branches;
full, immediate remittance to the host country of profits, dividends, interest and royalties;
no condition on the need to source products locally;
no need for clearance for foreign investment.
The council plans to allow six overseas banks to snap up local banks over the next five years, after which there will be no limit on the amount of foreign ownership. Although banks will have to stump up $ 25m (pounds 15m) capital requirement, there is no restriction on where money is invested. Privatisation of everything from electricity and telecommunications to pharmaceuticals and engineering could see hundreds of previously state- owned companies sold off.
There will be a tax holiday for the rest of this year, and income and business taxes for investors will be capped at 15 per cent from next year. Iraq will cut its trade tariffs to show it is a "country that embraces free trade". A 5 per cent surcharge will be charged on all imports, other than humanitarian goods such as food, medicine and books, to fund the reconstruction effort.
The US defended the decision to offer such a generous package of tax breaks to entice investors. "Capital is a coward," said John Snow, US Treasury Secretary. "It doesn't go places where it feels threatened. Companies will not send employees to places that aren't secure."
Iraq's vast oil reserves - the world's second largest after Saudi Arabia's - would remain in government hands. "They're going to run government finances based on oil revenues," Mr Snow said.
Five months after the overthrow of Saddam, despite billions of dollars worth of contracts won by American companies, there are no visible signs of reconstruction. Clean water and electricity are still not available to most people.
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