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August 20, 2005


Iraq, trapped in a vicious circle of insurgency and economic devastation:

After GDP growth of nearly 50% last year, the IMF’s new forecasts cut projected growth from 16.7% to just under 4% this year, a good rate for a rich industrialised nation, but pitiably slow for an oil-rich country recovering from years of war and mismanagement. This slump in expectations is caused by the unexpectedly low volume of oil production, which is now predicted to reach an average of just 2m barrels per day (bpd) this year, nearly 20% less than the 2.4m bpd originally forecast, and still well below the 2.5m bpd that Iraq was pumping before the 2003 American-led invasion. The report attributes this to the insurgency, which has made Iraq’s oil infrastructure one of its primary targets.
The insurgency is hobbling development efforts in other ways. The threat of violence has deterred investment in the country; to date, says the report, none of the foreign banks granted licences in 2003 has yet opened up shop. It has also required donors and the government to divert an increasing share of funds meant for rebuilding Iraq to protecting its workers and equipment. Security and insurance reportedly make up 30-50% of total reconstruction costs.
The result is economic insecurity that undoubtedly makes recruiting easier for the insurgents. With 96% of households receiving monthly food rations, the United Nations Development Programme says that nearly half the children under five are malnourished. Infant mortality is over 10% of live births, compared with 3% in neighbouring Jordan; and 193 out of every 100,000 births in Iraq end with the mother dying, against 41 in Jordan. Most estimates of unemployment are in the 30-40% range, though one study from the University of Baghdad put that figure at 70%.

And of course Iraq is unable to get to grips with either the insurgency or the economy. The former is growing stronger by the day, despite the combined efforts of the Bush administration, its remaining “allies,” and the under-trained and demoralized Iraqi security forces. Moreover, as Juan Cole points out, the insurgents actually have a plan, unlike their opponents:

First the guerrillas force the Americans and British out. Then they destabilize Iraq. Then they make a coup and kill the elected government, along with Sistani [Iraq’s top Shia cleric] and anyone else who gets in their way. Since the guerrillas have so many former military officers and veterans in their ranks, and since they know where thousands of tons of hidden munitions are buried, they believe they still have an edge over the ragtag Shiite militias such as Badr Corps and Mahdi Army.

The economy is equally intractable. The government has almost no control over spending—partly because it doesn’t know where most of the money is going, partly because it doesn’t have the political will to cut the spending it does control (such as a gasoline subsidy that enables Iraqis to fill up for five cents a gallon). Inflation remains stuck between 20% and 30%, with monetary policy amounting to little more than trying to keep the dinar pegged to the dollar. The country’s financial system is broken, and nobody really knows how to fix it.

And so on and on, with economic hardship fueling the insurgency, and the insurgency fueling the economic crisis. In other words, a quagmire.

You can read the IMF’s (PDF) report on Iraq here.

Posted by Stephen at 12:39 AM in War | Permalink | TrackBack (0)

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