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Insurgents cripple Iraq's economy through sabotage, attacks

BAGHDAD, Iraq—Four months ago, Walid K. Issa Taha was full of hope for Iraq's economic prospects. These days, that hope has vanished.

Taha represents foreign companies trying to do business in Iraq, and one of his clients is a Kuwaiti firm that drew up plans for a $500 million hotel and shopping complex in Baghdad's affluent Mansour neighborhood.

But now, "they don't call anymore," and Taha rarely leaves his office for fear of being kidnapped. "There's nothing happening," he said. "The security situation has ruined everything."

By snatching foreign workers, attacking civilian convoys and sabotaging infrastructure, insurgents have crippled Iraq's badly needed economic recovery. Despite the lifting of international sanctions and economic reforms that opened Iraq to foreign companies, little foreign investment has materialized. Companies—even multinationals that do business in the farthest reaches of the developing world—aren't willing to take the risk.

Hopeful signs evident in March were dashed by the bloodshed of April and May, when an uprising led by Shiite Muslim cleric Muqtada al-Sadr and one in Fallujah ushered in the deadliest period since the U.S. invasion. That violence has abated somewhat, but July has been bloodier than June, despite the handover of sovereignty.

The glacial pace of the $18.4 billion U.S.-led reconstruction effort has been well documented.

But Iraq's economy is hurting in other areas as well. Iraq's paltry commercial and industrial sector is still controlled by the Iraqi government, which is paying generous salaries to unneeded workers in unproductive state-owned companies.

Iraq's scarce resources also are going to fund a vast government bureaucracy staffed by workers who show up for a few hours each day, if at all, in ministries that consume wealth rather than create it.

"There are people who get salaries without offering anything or even reporting to work," acknowledged Iraq's industry minister, Hajim al Hussani, in a recent interview with Baghdad's al Quds newspaper.

"The Iraqi worker's productivity today is not more than 20 minutes daily."

U.S. plans to privatize state-owned industries were met with furious opposition from Iraqi politicians, and the Americans backed off. As a result, Iraq remains one of the world's last bastions of socialism, where food and gasoline are heavily subsidized by the government.

Even the leading provider of a modern service like dial-up Internet access reflects Saddam Hussein's statist ideology —the State Company for Internet Services. Iraqis trust a government company more than a private one.

Reducing bloated public payrolls, which would free up money to improve oil production, has been deemed too risky because it might feed the insurgency.

"The way to eliminate this phenomenon will only be by creating job opportunities in the private sector," Hussani said. "And the development of the private sector depends on the improvement of the security situation."

But that hasn't happened. American officials have put the jobless rate at 28 percent; the chairman of Iraq's Federation of Industries says it's more like 50 percent.

Higher government salaries have boosted the retail sector, fueling Iraq's consumer boom in used cars, microwave ovens, satellite dishes and the like. That's one reason the World Bank projects that Iraq's economy will grow by 33 percent in 2004, after contracting 22 percent in 2003.

But the only significant area of private economic activity is the U.S.-controlled reconstruction program, which has been slow to spend money and even slower to employ large numbers of Iraqis.

Nine months after Congress appropriated $18.4 billion to rebuild Iraq's infrastructure, less than a billion has been spent, and the Bush administration reportedly is considering overhauling the scheme to launch smaller projects that can be completed faster.

Employment in the program is between 30,000 and 60,000 jobs, instead of the original goal of 250,000 by now.

The slowness of the reconstruction program also has impeded economic growth. It's almost impossible to run a business or factory without reliable electricity, and broken U.S. promises to provide steady power by now have soured even the most pro-Western Iraqis on American capabilities and intentions.

Even the bright spots have a dark underside.

Iraq's stock exchange finally reopened in June, and the start of trading is heralded with the ringing of a small brass bell donated by the Philadelphia Stock Exchange, bearing the words, "Let Freedom Ring."

But exchange officials are so worried about security that they have scarcely publicized the reopening. Trading is two days a week, by appointment only. Armed guards keep out members of the public.

A Hyundai car dealership has opened in Baghdad, one of the only visible signs of foreign investment in the capital. There are shiny new Elantras and Sonatas on the showroom floor, along with a flat-screen television, a high-tech sound system and leather couches for customers.

But since Iraq's banks still aren't fully operational and foreign banks still haven't opened, it's impossible to offer financing—buyers typically pay with stacks of U.S. dollars.

Trucking the cars from the southern port of Umm Qasr is a frightening prospect, and security costs are astronomical. All the company's senior officials need bodyguards because the kidnap-for-ransom business is out of control.

The sales figures tell the story. The dealership has sold 75 cars to private buyers since April, the manager said—and 1,500 to various Iraqi government ministries.

It could have been different, analysts argue, had the security situation not been so bad.

"You have a lot of old Iraqi money, all those well-to-do families that left in the ཮s and ླྀs," said Maria Khoury, chief of research at the Atlas Investment Group in Amman, Jordan. "They're doing very well and they're interested in pouring back some money into Iraq. But a lot of them have decided that now is not the right time."


(c) 2004, Knight Ridder/Tribune Information Services.