View Full Version : Iraq’s Economy At A Crossroads, Interview With USAID’s Vladimir Halama and Thomas Doh

03-25-2013, 04:19 PM
The Tijara Provincial Economic Growth Program is run by the United States Agency for International Development (USAID). Its goal is to help Iraq develop a market economy. At the end of 2012, it released a report, “Assessment of Current and Anticipated Economic Priority In Iraq.” (https://tijara-iraq.com/?pname=open&f=&id=2288&type=html) The paper went over Iraq’s National Development Plan, and the difficulties it is facing in diversifying its economy. The report claimed that Iraq was at a crossroads over whether it would be able to escape the oil curse and its state-led economy. Below is an interview with Thomas Doherty and Vladimir Halama who helped put the document together.

Vladimir Halama, an Australian economist with experience in working in transitional economies, has worked in Iraq from 2005 until February 2013 in a number of advisory assignments, most of which involved working with Iraqi government bodies. From September 2011 until November 2012 he led a team of specialists in putting together “An Assessment of Current and Anticipated Economic Priorities in Iraq” for the USAID-Tijara project.

Thomas Doherty is a U.S. lawyer who has worked on a number of assignments in Iraq at various times since October 2003, including with the Coalition Provisional Authority, the State Department, and USAID. Until December 2012, he was the regulatory advisor of the Business and Investment Enabling Environment Component of USAID-Tijara project.

1. The Tijara report said that Iraq was at a crossroads between its past of being a state-run system and its future of developing a market economy. Can you explain what role the government plays in employment?

Vladimir Halama: The government is the main employer as well as the employer of choice for most Iraqis. Of those employed for 40 hours per week or more, an estimated 60% are on the payroll of the government, the security forces or state owned enterprises. They enjoy security of tenure, generous pension provisions, and other advantages such as grants of land or loans on favorable terms. This distorts motivation on the supply side of the labor market. Much effort and bribery is expended in trying to get onto the government payroll, and resignations are unheard of. Employment in the private sector is less sought after. In, for example, construction and services, some employers resort to employing workers from Turkey or South East Asia.

Thomas Doherty: I agree, and add that often times the main purpose of government in Iraq seems to be to provide perquisites for government workers. For example, recently the Ministry of Housing and Construction announced a new housing development in Wasit province only for employees of the Ministry of Housing and Construction. The reservation of state-owned land for largesse to workers in government and state-owned enterprises also makes it more difficult for private investors to obtain land for housing, industrial, and retail developments.

2. How about the state-run banks?

Vladimir Halama: Lending by state banks is under the direction of the government, and is mostly at concessional interest rates. Even the repayments of the principal are often waived, for example in the case of loans to the agricultural sector. As can be expected under such circumstances, the loans usually go to those with lobbying power. State banks have been directed to make loans covering the payroll costs of many state-run enterprises where revenues fail to cover operating costs. The backlog of unrecoverable loans in state banks is large, and the banks are de facto bankrupt. However, Iraqis still place their savings with them, as they are confident that the government will keep these banks operational.

Thomas Doherty: The concessionary terms given out by the state banks crowd out private sector banking. In this regard, the recent enactment by the Council of Representatives to establish a state-run Islamic bank is troubling, as it will probably make it more difficult for the private Islamic banks now operating in Iraq to grow. There have been orders from the Council of Ministers directing Iraqi government agencies to only do their banking at the state banks, so this is another drag on the private sector.

CONTINUED (http://www.musingsoniraq.blogspot.com/2013/03/iraqs-economy-at-crossroads-interview.html)