- The Washington Times - Tuesday, April 5, 2005

Two years after the U.S.-led invasion of Iraq, much of Iraq’s infrastructure remains impaired and insurgents are working to wreck the economy as fast as the U.S. and Iraqi governments can restore it.

The tattered and struggling country has become one of the world’s poorest — ranking at the level of Haiti and Senegal — and economists see little hope for major improvements this year.

Overall, Iraq has less electricity each day than a year ago. Oil production so far this year has slipped even below 2004’s disappointing levels, and 60 percent of the people depend on food handouts.

Yet some Iraqis say parts of their lives are improving. The country now boasts a freewheeling consumer economy flush with cell phones, Internet cafes and independent newspapers, along with plenty of high-paying government jobs.

Retail sales on mend

“I think things will get 100 times better,” said Abdul Radha al-Quraishi, 65, who owns a Baghdad bookstore where Saddam Hussein-era stamps and bank notes are sold as souvenirs. “Merchant trade has increased unimaginably.”

His counter clerk, Nassim Mahr Rashid, 28, agreed but said, “The problem is, we don’t know whether we are going to live or die.”

Mr. Rashid’s point is critical. The economy has emerged as one of the country’s chief battlegrounds.

Iraq’s 12,000 to 20,000 guerrillas stage nearly 40 attacks a day, according to Pentagon figures, and do their best to tear down an economy that the U.S. and Iraqi governments are struggling to rebuild with $18.4 billion in U.S. taxpayer money.

Safety an issue

Security has become a key economic variable. Improve it, and Iraq can fight its way to recovery. Let it slip, and Iraq wallows in violence and poverty.

“What’s likely for the coming year is increased attacks,” said Tamara Makarenko , a senior analyst with Global Risk Strategies, a London firm handling security at Baghdad’s airport and other sites in the capital. “It’s becoming quite indiscriminate. You don’t know where they’re going to go.”

Iraq’s chief income source, exported oil, has been a primary casualty.

Despite stratospheric prices, Iraq has earned only about $31 billion from oil exports since the invasion, far below the prewar predictions of Paul Wolfowitz, the deputy U.S. defense secretary who last week was named president of the World Bank. He said Iraqi oil could generate $50 billion to $100 billion over two or three years.

Sabotage cuts oil flow

Oil production has yet to return to Saddam-era levels. This year, it has slipped even from low 2004 levels. Insurgent sabotage cost Iraq $7 billion in oil revenue last year alone, the Oil Ministry said.

In 1979, Iraq’s best year, production averaged about 3 million barrels a day. This year, analysts say, it might not average 2 million barrels a day. Oil Minister Thamir Abbas Ghadban’s target of 2.9 million barrels a day by year’s end — and 3.5 million by mid-2006 — is “totally out of the ballpark,” said Sharif Ghalib of Energy Intelligence Research in New York.

The International Monetary Fund (IMF) predicts Iraqi production won’t reach 3.5 million barrels until 2009.

Despite that, Iraq’s overall economy expanded by 52 percent in 2004 and is expected to grow an additional 17 percent this year, buoyed by the high price of oil, the IMF says.

Cities lie in ruins

Economists caution that such growth is not unusual in postwar economies and is mostly a recovery from a disastrous 2003, when the United States and Britain invaded and the economy shrank by a quarter. The CIA estimates that the average Iraqi lost $1,500 in income the year before last.

Buildings in Baghdad and whole neighborhoods in Fallujah lie in ruins, awaiting rebuilding from U.S. bombardment.

The country groans under $80 billion in external debt, while 60 percent of the population depends on government food handouts, the IMF reports.

“If security improves, you should see pretty rapid growth,” said Keith Crane, a Rand Corp. economist. “But if store owners are getting shot and trucks are getting hijacked, growth will be slower.”

Iraq has tumbled a long way from the late 1970s and early 1980s, when it was considered the Arab world’s most advanced society. The average income was $3,000 a year then. Last year, it was $800.

Economy at nadir

The country ranks near the bottom of the world’s economies in per capita income.

Sputtering electrical power is another ordeal for Iraqis, paralleling the country’s long economic decline.

Before U.S. bombing knocked out 60 percent of Iraq’s generation capacity in the 1990-91 Gulf War, Iraq churned out as much as 9,000 megawatts of electricity a day, Iraqi power officials have said. After Saddam hurriedly patched the grid, it produced about 4,400 megawatts daily.

U.S. engineers promised to increase production to 6,000 megawatts of consistent power by June last year. This didn’t happen.

Insurgents target energy

On March 4, a U.S. reconstruction official said a mere 3,850 megawatts was generated the previous day. Iraq now averages just 8.5 hours of electricity per day, with some provinces getting as little as five hours, U.S. State Department figures show. In June, power was operating 12 to 14 hours a day.

Attacks on repair sites, pylons and oil pipelines have cut power and sent contractors fleeing. Workers have been killed or kidnapped.

“The reality is that’s still an area that’s targeted by insurgents,” said Charlie Hess, director of the U.S. Project and Contracting Office in Baghdad.

Iraqis appear to have given up waiting for Americans to make good on promises to fix the grid.

“We don’t depend on the government’s power,” said Mr. Rashid, the Baghdad bookstore clerk. “We depend on generators.”

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