Basav Sen / Mobilization for Global Justice and and Hope Chu / 50 Years is Enough Network – 2006-03-23 08:25:38
An earlier version of this article appeared in Economic Justice News, Volume 8 No. 3, September 2005 http://www.50years.org/cms/ejn/story/272.
We’ve updated it in advance of the third anniversary of the US-led invasion and occupation of Iraq. For more on the specifics of a new IMF stand-by agreement with Iraq, go to: http://brettonwoodsproject.org/article.shtml?cmd%5B126%5D=x-126-507685
Operation Corporate Freedom:
The IMF and World Bank in Iraq
While the three-year US occupation of Iraq faces a quagmire in operations, the economic forces of the International Monetary Fund (IMF) and the World Bank are moving full speed ahead implementing various economic reforms that will cause US-based corporations — Bechtel, Halliburton, and others—- to proclaim, “Mission Accomplished!”
As the Bush administration touts its rhetoric of freedom and liberation, the IMF and World Bank are busily “liberating” Iraq’s resources — oil and labor — and “freeing” Iraq’s markets. The recent rise in fuel prices in Iraq and the subsequent riots are just a glimpse of what the future holds for Iraq under IMF and World Bank plans.
Stage One: Debt Cancellation for Iraq, Increased Control for the IMF
Shortly after the start of the US occupation of Iraq, the Bush administration sent former Secretary of State James Baker on a pilgrimage to the capitals of other wealthy countries to seek cancellation of Saddam Hussein’s odious debts. In a move that seemed inexplicable at first, the Bush administration was using the principle of odious debt to ask for cancellation of Iraq’s Saddam Hussein-era debt.
Now, the political motivations behind this unexpected move are clear. The cancellation of Iraq’s debt is a Trojan horse for the IMF, World Bank, and WTO to enter Iraq and start restructuring the economy further, continuing where Paul Bremer’s Coalition Provisional Authority (CPA) left off. In a move reminiscent of the Heavily Indebted Poor Countries (HIPC) program, not only debt but debt relief is being used as a tool to restructure Iraq’s economy.
The Paris Club of Creditors, a cartel of most of the world’s major creditors (including all the G8 governments and the governments of other wealthy countries), agreed on November 21, 2004, to cancel 80% of Iraq’s debt of about $39 billion to Paris Club members, in three steps. The terms of the cancellation are that:
• 30% of the debt would be cancelled outright;
• 30% would be cancelled “as soon as a standard IMF programme is approved,” according to the Paris Club press release announcing the move, essentially conditioning debt cancellation on the subjugation of Iraq’s economic policy to the IMF;
• Another 20% would be cancelled after three years, subject to the IMF Board’s review of Iraq’s implementation of the terms of the agreement, further binding Iraq to IMF conditions.
Two things about the Paris Club “deal” are noteworthy. First, Iraq’s debt to the IMF is only about 1% of its total Paris Club debt, and yet the IMF gets to determine the conditions for most of the debt cancellation being offered to Iraq. This shows that the political clout of the IMF is way out of proportion to its financial clout.
Secondly, the Paris Club made it clear that the offer of debt cancellation was because of “the exceptional situation of the Republic of Iraq and… its limited repayment capacity over the coming years.”
While the initial rhetoric of the Bush administration had focused on the principle of odious debt, the Paris Club was careful not to set a precedent for acknowledging this principle, lest they face pressure in the future to cancel the debts of other repressive regimes such as the apartheid regime in South Africa, the Suharto dictatorship in Indonesia, the notorious Duvaliers of Haiti, or the Mobutu regime in Congo.
Denying the odious nature of the debt also provides the Paris Club political cover to keep 20% of Iraq’s debt off the table.
Even the Iraqi National Assembly, a body that rarely contradicts the United States, has publicly condemned the Paris Club deal for failing to recognize the odious nature of Iraq’s debt and consequently requiring Iraq to repay a fifth of it.
In this manner, a move that appears on the surface to be beneficial for Iraq — debt cancellation — is being used as a tool of control by the World Bank, the IMF and the wealthy creditor countries. What is more, it is a tool of control that will last long after the withdrawal of US combat forces.
Stage Two: The Rule of the Coalition Provisional Authority
In this context, it is worthwhile to review how the Coalition Provisional Authority restructured Iraq’s economy. (See “World Bank Brings Market Fundamentalism to Iraq,” http://www.50years.org/cms/ejn/story/169 / Economic Justice News, September 2004) Paul Bremer passed a series of Executive Orders (without any accountability to Iraqi people) that, among other things:
• Laid off 500,000 government workers — 400,000 of them employees of the Iraqi Armed Forces — in a country with a workforce of 6.5 million. This lay-off thus represented nearly 8% of the workforce.
• Changed laws governing foreign investment, to “make Iraq one of the most liberalised economies in the developing world and go beyond even the laws in many rich countries,” according to the Financial Times. (CPA Order No. 39)
• Made it illegal for Iraqi farmers to plant saved seeds and to exchange knowledge freely. Now they are allowed to plant only “protected” crop varieties which remain the property of the multinational seed companies. Previously, the Iraqi constitution did not allow patenting of plants. The CPA, however, changed the law to allow “intellectual property” control over plant varieties. (CPA Order No. 81)
Every single one of these policies fit the neoliberal framework, and sound as if they were World Bank and IMF conditions. But they aren’t. Even before the IMF and World Bank made their entry into Iraq to any significant extent, the US occupation was unilaterally coercing Iraq to conform to policies identical to what these institutions would have required — and at a more accelerated pace.
There are more ways to restructure economies than through loan conditions. What Iraq has undergone under the CPA can best be described as a structural adjustment program imposed at gun-point.
Stage Three: Economic Occupation by the IMF and World Bank
Not content with the extent to which Iraq’s economy has already been restructured on neoliberal lines by the US, the IMF and World Bank have more designs for the Iraqi economy, and are using debt cancellation as leverage to compel Iraq to comply with their conditions. In addition, they have begun normalizing their relations with Iraq, thereby strengthening their hand in the country.
The IMF made its first-ever loan to Iraq in September 2004. In July 2005, the World Bank made its first loan to Iraq since 1973. This was followed by a $100 million World Bank loan for the education sector last November, and an IMF Standby Arrangement in December. The cancellation of Iraq’s debt under the Paris Club plan, referred to earlier, is conditioned on Iraq entering into this Standby Arrangement, and implementing it to the satisfaction of the IMF.
Timing the IMF deal immediately after the elections is a move that appears designed to prevent Iraqis from having a say in the deal. If the deal had been signed before the elections, it would have been an election issue. “The timing of the decision spared politicians from voters’ wrath,” the Washington Post pointed out in a December 28 story.
The recent increase in domestic fuel prices was a requirement of the Standby Arrangement with the IMF, under which prices of petroleum products are to rise to the levels of corresponding products in other countries of the region by 2007.
The price increases required by the IMF are staggering: the initial increases implemented in December on the eve of signing the Standby Arrangement were 400% for regular gasoline and kerosene (from 20 dinars to 100 dinars per liter, and from 5 dinars to 25 dinars per liter, respectively), and 800% for diesel (from 10 dinars to 90 dinars per liter), with further quarterly increases planned through September 2006.
The IMF makes clear its intentions of keeping tabs on the price increases: “Progress in adjusting petroleum product prices will be assessed in the context of the programs’ (quarterly) reviews,” according to the language of the Standby Arrangement.
Fuel is an input to the retail price of most goods, since they need to be transported. Inevitably, the prices of most goods, including food, have risen sharply as a consequence of the increase in fuel prices.
Other conditions imposed by the IMF and World Bank on Iraq include the following:
• Privatization of all state-owned enterprises in Iraq except oil. This IMF-imposed condition will lead to the lay-offs of an estimated 145,000 workers. It will also provide foreign corporations with control of vital sectors of Iraq’s economy. As for the oil industry, while it will not be totally privatized, legal changes are underway to provide for partial foreign ownership.
Former Finance Minister Adel Abdul Mehdi (who is now one of Iraq’s two Vice-Presidents) admitted that these legal changes would be “very promising to the American investors and to American enterprise, certainly to oil companies.” The IMF calls for “expanding the participation of the private sector in the domestic market for petroleum products” in its press release announcing the Standby Arrangement.
• An end to food subsidies. Subsidized food rations have been a lifeline for 60% of Iraq’s population, and often their only protection against starvation, but the IMF and World Bank want to eliminate them. The elimination of subsidized food distribution will facilitate the control of Iraq’s market for food by corporate agribusiness.
• Liberalization of food prices. The World Bank wants to eliminate regulations that keep food prices under control. “Liberalization” of food prices has led to severe food shortage, even famine, in many countries, most recently in Niger and Mali.
• Further layoffs and/or wage and benefit freezes in the public sector. The Standby Arrangement requires a ceiling on the Iraqi government’s non-security/defense wage bill, as a “performance criterion” (i.e. a criterion that will be used by the IMF to evaluate Iraqi compliance with its conditions). It is significant that the only sector of government expenditure that is exempted from the IMF payroll budget ceiling is defense!
The IMF celebrates the fact that the Iraqi government withdrew legislation in the National Assembly requiring pensions to be set at 80% of final salary — making it clear that neither the existence of a democratic process in Iraq, nor retirement security for senior Iraqis, are any concern to the IMF.
The Iraqi reaction to IMF and World Bank policies in general, and to the recent fuel price increases in particular, has been one of near-unanimous disapproval. Thousands have demonstrated against the fuel price increases throughout the country; the Oil Minister, Ibrahim Bahr-al-Uloum, resigned in protest in early January (and has been replaced by the notoriously corrupt Ahmed Chalabi); and some provinces, including oil-rich Basra, have refused to implement the price increase.
A number of Iraqi labor unions issued a joint statement on January 16 (see below), condemning the oil price increase, and unequivocally rejecting the entire IMF and World Bank agenda of privatization and deregulation.
Paul Wolfowitz: Master and Commander
The economic restructuring of Iraq to benefit foreign investors was most likely one of the main motivations for the US invasion and occupation of Iraq — or at least a highly profitable windfall.
The fact that Paul Wolfowitz, the newly appointed president of the World Bank, was one of the major architects of the invasion only heightens the probability of a conscious plan on the part of the Bush administration.
With the goal of maintaining US control over the resources of Iraq after the occupation, installing Wolfowitz — a leading member of the Project for a New American Century and already on record as an advocate of expanding US influence and dedicating foreign policy to the service of US interests — at the head of the World Bank makes perfect sense.
It is clear that the consequences of the US occupation, and of the subsequent economic occupation and restructuring of the country in the interests of foreign investors by the IMF and World Bank, will last well after the withdrawal of US troops. Getting US troops out of Iraq, while an important first step towards winning self-determination for Iraq, is exactly that — a first step.
If the US anti-war movement is serious about standing in solidarity with the people of Iraq, and challenging the deep-rooted economic motivations of an interventionist US foreign policy in Iraq and around the world, then it needs to make resistance to the neoliberal economic agenda of so-called international institutions a central plank of its campaign.
A Joint Statement Concerning the Programs of the World Bank and International Monetary Fund in Iraq by Iraqi Trade Unions
The Iraqi economy has been severely affected by decades of sanctions, wars and occupation. The Iraqi trade unions and federations believe in the capacity of the country with all its oil and mineral resources to provide a decent living standard for Iraqis.
The federations and unions consider that the wars and occupation have caused a dramatic decrease in the living and social standards of Iraqis and especially of workers.
The federations and unions stress the importance of complete sovereignty for Iraq over its petroleum and natural resources so as to develop them in a way that assures a complete reconstruction of the country. We wish to stress the following points in regard to the policies of the IMF and World Bank in Iraq:
• 1. Increasing transparency and additional representation for Iraq in the decision-making structures of the IFIs.
• 2. To stop imposing structural adjustment conditions for loans.
• 3. Agreeing to provide funding for public services and state-owned enterprises without demanding their privatization.
• 4. Canceling debts owed by Iraq that have resulted from the policies of the former regime.
• 5. Rejecting the reduction of spending on social services especially the elimination of government support for the food distribution system or the reduction of the number of items covered.
• 6. Strongly rejecting the privatization of publicly owned entities and especially of the oil, education, health, electricity, transportation and construction sectors.
• 7. Rejecting the increase in the price of petroleum products, considering the negative impact of the increase on the living standards of Iraqis.
• 8. Adopting a new labor law and a pension and social security law that assure workers’ rights and are in conformity with international labor standards and human rights conventions. The World Bank and the IMF must also respect these standards .
The unions and federations that have signed this statement announce the formation of a permanent coordinating committee that will make its positions known to the Iraqi Government and to the IFIs. They also demand that the IFIs engage in dialogue, discussion and negotiations with the trade union federations regarding their policies in Iraq.
Finally, they request the assistance of international trade union organizations to provide all possible support to the above-mentioned demands.
General Federation of Iraqi Workers Oil Unions Federation in Iraq / Basra Federation of Workers Councils and Unions in Iraq Kurdistan General Workers Syndicate Union / Erbil Iraqi Kurdistan Workers Syndicate Union
Amman, 16 January 2006
Basav Sen, Mobilization for Global Justice http://www.globalizethis.org , and Hope Chu, 50 Years is Enough Network http://www.50years.org