Iraq's Economic Doldrums

With reference to my comment on Sunday about Iraq's economy being a mess, and my link to a Guardian article on the anxieties in the Amec Corp. about whether the repairs done in Iraq will last in the face of guerrilla sabotage. An informed reader wrote:

'Note that The Guardian paraphrases an Amec representative to the effect that much of their infrastructure work (electricity, water treatment and distribution, waste disposal) has been repair. The equipment is a mixture from French, Russian and other sources, and is old. What the Amec person was referring to was maintenance and spare parts, even apart from insurgent efforts. There is one plant where spare parts had to be custom-fabricated in Germany, because the machinery was no longer produced. Because of the time limits on the USG financing, there are no contracts or no funds, for maintenance and repair. There was a battle at the CPA early on, which the good guys lost: repair or build and install only new and state of the art . . . A subtle point was that, in addition to better providing services to the Iraqis, the installation of good new equipment would be an example for the future as to how things should be done.

Among the issues next up is how, and with what policies and personnel, the UIA majority will administer the economy. I have concern that, in terms of personnel, they have a limited talent pool of “scientists.” Saudi Arabia is as successful as it is in substantial part because, even now, there are on the order of 10,000 Americans, gradually over time being replaced by Saudis, working for Aramco. A byproduct of the insurgency is that foreigners will be difficult to employ. It is not only technology, which, in theory, can be transferred by contract, but know-how, which cannot.

And, again, where is the $7 billion of 2006 “sustainment costs” (SIGIR Bowen) for the Army and police going to come from?

To a significant extent, the $18.4 billion was wasted. To give only one example, when Bremer lifted tariffs in the interest of “free trade,” 1 million cars came in, but not a liter was added to Iraq’s refining capacity. The amount already sent to Kuwait for gasoline could have financed the cost of two major new refineries plus.

In short, they are either going to have to borrow money or make do and muddle through. Even with the Paris Club debt-reduction, and now the private creditor settlement, which will involve the issuance of $3 billion in bonds this Thursday, at present oil export levels, they will have too much debt. The pressures to enter into less-than-optimum oil-field deals will be substantial.

As you say, it is to weep. '