Thoughts on Assessing the Challenge in Iraq

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Thoughts on Assessing the Challenge in Iraq

• Rob Gilchrist
• Department of Economics and Geography
• United States Air Force Academy

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Agenda

• A Look at the Irregular Challenge
• Economic and Human Development Issues That Must
  be Addressed
• General Observations
• Recommendations
• Questions

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A Look at the Irregular Challenge

• We dont really face a significant irregular
  challenge unless we occupy territory
• Factors intensifying irregular challenges (NDS)
• Rise of extremist ideologies (political,
  religious, ethnic) fuels conflicts
• Absence of effective governance (unable or
  unwilling to exercise control) leaving areas open
  to exploitation
• The irregular challenge by definition implies the
  absence of robust political and economic
  institutions (of whatever form) that can support
  a traditional challenge
• The answer to the irregular challenge is having a
  plan to influence key political and economic
  institutions (pre- and/or post-conflict) in order
  to have a positive, long-term outcome

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Economic and Human Development Issues that Must
be Addressed

• GDP
• Iraq 2100 per capita GDP (PPP)
• Given that a democracy exists, lt3000 unstable
  3000-6000 50/50 chance of stability gt6000
  stable
• Structural economic (fiscal) problems
• Fuel subsidies black marketeering
• Food subsidies adverse impact on agricultural
  sector
• Half of all revenue goes to subsidies
• Reliance on a single commodity
• Iraq 60 GDP from oil gt26 prone to corruption
• Economic management decisions are based on
  political payoffs
• Dutch disease crowds out other developing
  sectors
• Corruption
• 129th/145 countries on Transparency International
  Corruption Index

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Economic and Human Development Issues that Must
be Addressed

• Cash economy
• Weak, undercapitalized banking sector
• Security and corruption issues
• Transaction costs
• Jobs
• Unemployment 25-28
• USG projects generating 150,000 jobs (2 of 6.7M
  labor force)
• Commercial Laws and Regulations/Enforcement
• Pre- and post CPA laws
• 56 of laws partially or fully implemented
• Property rights issues
• Physical and economic risk?

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Economic and Human Development Issues that Must
be Addressed

• Population pyramid
• Iraq median age 19.4 years (population 27
  million)
• Education
• lt45 males in secondary school at risk of
  conflict Iraq 47
• Literacy
• Iraq 40.4 Regional average 83.4
• Infant mortality
• Iraq 50/1000 Regional average 24.9/1000

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General Observations

• Emphasis is on building things in lieu of
  building institutions
• Diversify economy away from oil
• Health Care System
• Education System
• Strong, corruption free central bank
• Commercial laws and functioning judiciary to
  enforce them
• Political and economic development, and security
  are mutually supporting but are not being
  prioritized or coordinated
• Lack of communication and coordination among USG
  agencies in critical non-military areas
  (political, economic)

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General Observations

• Given the planning horizon, the USG lacks a
  realistic strategic vision for Iraq and the plans
  to implement what vision does exist
• Strategic goals and plans are critical in that
  they set the context within which all decisions
  should be made
• At a fundamental level, this is a constrained
  resource allocation problem
• Grand objectives peace, freedom, economic
  opportunity
• Supporting objectives political and economic
  development, security
• Scarce resources money, people, material, time,
  political will
• Some algorithm (plan) needs to be developed to
  allocate resources appropriately

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Recommendations

• Put someone in charge
• Assess the level of political, economic and
  judicial maturity of the target country prior to
  taking action
• Create a coherent, coordinated, prioritized
  strategic plan for rebuilding the target state
• Be assertive in providing on-going advice and
  assistance yet seek local input

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Questions??
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Backup Slides
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Personal Observations

• Talking points tasker
• PME EED (allocation of resources)
• Many organizations (PME, SPA, GRD, IRMO, CA, USMC
  Economics Officers, USAID, NGOs) involved in
  reconstruction (coordination)
• Competition within MNF-I and between MNF-I and
  USEMB (whos in charge?)
• Fallujah (and for that matter Hurricane Katrina)
  as a microcosm of US efforts in Iraq
• Congressional testimony (whos in charge?)
• Positive strategic communications non-existent
  (timing, message)
• Comparative advantage (military-security
  non-military-political, economics) (whos in
  charge?)

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Economic Initiatives

• Tier 1
• Increase availability of capital to business and
  sufficiently capitalize banks and equity markets
• Create jobs in the short-run while enabling the
  private sector to grow and create long term jobs
• Develop clear, stable property rights, financial
  trade, bankruptcy, and contract laws and
  regulations and a judiciary capable of enforcing
  them
• Develop a mechanism for distributing oil revenues
  to the provinces and people
• Remove subsidies on fuels and electricity
• Increase efforts to create a nationwide
  communications system

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Economic Initiatives

• Tier 2
• Continue to develop infrastructure conducive to
  commerce with particular emphasis on oil,
  electricity, and transportation
• Develop social infrastructure (human capital)
  with emphasis on basic skills
• Restructure viable, less complex state owned
  enterprises

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Economic Initiatives

• Tier 3
• Remove subsidies on food
• Restructure viable, more complex state owned
  enterprises