South-Western College Publishing - Economics  
Iraq's Economy Slow to Grow
Subject Infrastructure and Security
Topic Developing and Transitional Economies
Key Words Infrastructure, Security, Privatization, Investment, and Democracy
News Story

Although major military action is declared to be over in Iraq, the country's economy remains in shambles. Public capital goods, which are so important to private investment, either never existed or were destroyed and disabled in the war. Poor roads and bridges, inadequate railways, little gas and electricity production, poor communication systems, and meager educational and public health facilities loom over the country as a huge obstacle to rapid economic growth.

The privatization of Iraq's previously state-owned industries is going very slowly as foreign investors remain uninterested. In order to attract foreign dollars, the public infrastructure will have to be improved and the overall security of the citizens will have to be assured. The economy will grow slowly at best, until the streets are safe for trade and commerce. Terrorist attacks continue to threaten the occupying soldiers as well as the Iraqi people themselves. "Without security, you can's make any growth, any progress," said Sami Matti, director general of Iraq's Planning Ministry. "No one will be encouraged to come."

The Bush administration hopes that Iraq will become an economic model for the entire Middle East, serving as a regional example that free markets work to provide opportunity to many. According to George Wolfe, director of economic policy for the American-led occupation authority, low tariffs and a strong financial system is expected to attract foreign investment over time. "I view our mission as working in support of Iraqis to help them build a platform from which their economy could grow," Mr. Wolfe said. This kind of success would provide opportunities to young Iraqis and help curb the frustrations on which terrorist recruiters thrive.

On a positive note, many Iraqis are optimistic about the future. "Despite everything, it's better than before," said Haidar Ghazy, who owns a clothing store in Karada. "Of course we're optimistic. We have a saying: 'If you are optimistic, you'll find good things.' "

Iraq is starting out in a very large hole. Unemployment exceeds 50 percent and per capita production ranks 162nd worldwide at $2,400 per year, according to the Central Intelligence Agency. Assuming that the transition to democracy is swift, and free elections provide leadership to the country, economic growth will be slow under the best of circumstances. Iraq's problems will not be solved quickly, but the occupying forces are trying to plant the seeds for growth.

(Updated January, 2004)

Questions
1.

Explain the notion of privatization of industries.

2. Discuss the importance of a sound educational system to the economic development of a transitional economy.
3. Discuss the role of government in providing the infrastructure necessary to attract foreign investment.
Source Alex Berenson, " Iraq's Economy Is Mostly Stagnant, Propped Up by U.S. Cash and by Hopes of Safer Days," New York Times Online, November 4, 2003.

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