Latest News

Economy in northern Iraq is hardest hit due to friendship with U.S.

IRBIL, Iraq—Hakim Nurattin's landlord is fed up. After months without being paid she's threatening to evict the middle-school physics teacher and his wife.

"I tell her to be patient, but just today she threatened to move us out," said Nurattin's wife, Jamila Aziz. "She is his mother, so you understand how desperate the situation in Irbil has become."

Even in Irbil, the main city in the part of Iraq that was an autonomous Kurdish region and had the country's best economic conditions before the war, the plunging value of the dollar is devastating families such as Nurattin's and undermining U.S. control.

The Kurds who control the north were allies of the American-led forces that overthrew Saddam Hussein, and many of them don't understand why they are faring worse now than people in the part of Iraq that was under Saddam's iron rule.

The problem stems from how workers are paid. In the north, they're paid in those falling U.S. dollars. In Baghdad and other parts of southern and central Iraq, they're paid in the local currency.

"The decline of the dollar is destroying our economy," said Saad A. Othman, Kurdistan's minister of agriculture and irrigation. "The U.S. must interfere."

He said the consequences of an economic depression in the north could extend far beyond Iraq's borders.

"The people in the Middle East are all looking to Iraq as the model of democracy because the only other democratic nation is Israel, a country many Arabs refuse to recognize," Othman said.

U.S. officials have been reluctant to upset what they call a free market, but said they're working to solve the problem before the allies' economy descends into a depressionary spiral.

"We are actively looking into the issue of salaries in Iraq, including the Kurdish region, for May and June and will make an announcement shortly," said Naheed Mehta, a representative of the Office of Reconstruction and Humanitarian Assistance.

There is even talk among the Kurdish peshmerga fighters—many of whom had fought Saddam since they could wield Kalashnikov rifles—about using the currency of the south, which carries Saddam's photo, because the exchange rate is much higher, about 1,200 to each U.S. dollar compared with 4 to 10 to the dollar in the north.

The Swiss dinar was the currency of all of Iraq before the Persian Gulf War of 1991. After Saddam's forces retreated from the north, they began to print their own money, known as the printed dinar. The north continued to use the Swiss dinar, but couldn't print more since it has no officially recognized government and no central bank to authorize the printing or set exchange rates.

Because no new ones have been printed since then, Swiss dinars are in short supply, while U.S. dollars arrive on pallets.

Trade embargoes also have caused problems. Iraq's north has a self-contained economy untethered to the international free market, which serves to stabilize currency. Add to that a crumbling infrastructure that puts Iraq years behind competitors in neighboring countries, and the consequences are severe.

Agriculture, the primary industry of the north, serves as a good example of the problem.

Over the past 13 years of trade sanctions against Iraq, those farmers who didn't flee to cities faced low market prices for wheat and barley, which were in large supply under the United Nations oil-for-food program. The program allowed the north to sell oil and use the money to purchase food.

That created a reliance on goods processed overseas, driving local food processors out of business. Now cities such as Irbil lack the transportation, equipment and electricity to process farm products.

For farmers who have continued to grow barley and wheat, the United States has set a market price of $105 per metric ton of wheat. But since the dollar has plummeted in recent weeks, farmers who expected to make enough money for the year on their season's labor will earn just a fraction of that.

Samaid Sulaiman farms about 125 acres of rolling golden fields beneath the Salahaddin Mountains. The 30-year-old father of four spent about 1,000 dinars on seed, gasoline and equipment rentals to plant his crop, which will yield about 7 tons of wheat. The World Food Program will buy the crop for $735, the going rate on the international market. The money changers will buy his dollars at the current rate of 4 dinars per dollar. When he returns home with the 2,940 dinars he will have to pay more than half that to the man with the combine who harvested his crop. Add the 40 dinars in fees to transport his grain and the 1,000 he spent to plant it, and he is left with just 300 dinars for a season's work.

An ice cream bar costs 3 dinars. A small bag of groceries costs more than 100 dinars.

On a recent Saturday in Irbil, traders lugged flour sacks of cash and waved handfuls of the red and green Swiss dinar. A rumor that teachers would get paid in U.S. dollars brought people to trade dollars before an influx of teachers trying to trade drove the rate down further.

Nihad Abdul Qadir, who has been trading money in Irbil for 13 years, said dollars first declined here three months before the war began. Many of the big traders speculated that the U.S. would occupy the country, lift sanctions and spend dollars to help Iraqis. In anticipation they bought bundles of the endangered dinar.

The price of the dollar slipped from 13 dinars to 8. The rate has declined steadily ever since, and is dropping all the more because American reconstruction teams spend about $1 million per day.

Qadir said Iraq needed a central bank to set the exchange rate and make the market less susceptible to rumor.

The local government has paid salaries in dollars at an exchange rate of 10 dinars to a dollar. Now they say they will pay flat salaries, ranging from $100 to $250 per month, as set by the U.S.-led reconstruction officials. At the current conversion rates the salaries fall far below what the workers were earning before the U.S. invasion.

The tidy home of Nurattin, the physics teacher, is easy to clean since they sold all their furniture. A new refrigerator purchased before the war is turned off because the amount of electricity they can afford will power only one appliance at a time. Today it's the television.

"Our son sits in front of the television and watches the children play and asks me why he is not like the other children," Jamila Aziz said. She teaches English and makes extra money tutoring. For her colleagues without such a commodity to offer, life is much harder. She said she was exhausted listening to the desperate stories of her friends, who were depressed and always hungry.

Othman, the Kurdish agriculture official, said he understood her plight.

"The people expect so much from the United States and they are disappointed," he said.


(c) 2003, Knight Ridder/Tribune Information Services.

PHOTOS (from KRT Photo Service, 202-383-6099): USIRAQ+ECONOMY