Making Democracy Work, Essay Example

Background

In 2003, a U.S.-led coalition force removed Saddam Hussein from dictatorship of Iraq. Security forces have continued to have a presence in the country, with war pursuant of territorial and governmental stability.[i] At present, the elected government led by Prime Minister Nuri al-Maliki took office in May 2006 represents the nation’s foreign policy and domestic interests. Rich with natural resources, Iraq’s oil industry is the main source of hard currency revenue, at 90 percent, but has been affected now by years of neglect due to the conflict, as well as intentional pipeline sabotage, electricity outages.[ii] The following Report outlines the U.S Department of State’s Prospectus for the Economic and Political Reconstruction of Iraq, 2010-20. In response to the relatively high price of barrel oil on the global market, aid from the United States and other national and extra-national financial bodies have found some compensatory strategy for offset of the coup d’etat and its subsequent devolution of Iraq’s economic position. Still affected by ongoing insurgency and instability, the nation is now put to the challenge of improving security for the gradual restoration of the economy, and particularly exportation of oil as part of a capacity building strategy for return to steady eco­nomic growth.[iii] In Iraq, oil is not a privatized sector, and therefore expropriates use and economic derivatives from natural resource to complicated political effect. In the current context, little to no regulatory oversight detracts from adequate management of the oil reserve, and this is also reflected in the insufficient international securitization of the industry through incomplete financial services and administration.

Provincial elections under supervision of international bodies in January 2009 prompted an important step within the overall political climate in Iraq. Historically speaking, the economic and political precursors to the modern nation-state was already present in Iraq dating back to the Ancient Mesopotamian period, and so too, statutory codification of law (i.e. Code of Hammurabai).[iv] In the Post War context, it is likely that the United States Congress will ratify budgetary allocations to assist Iraq in establishing a democratic nation, and an environment for competitive capitalism as is customary in regions where the U.S. has been involved in security interventions. Related involvement by the United Nations and international financial bodies is likely to accompany the demilitarization of Iraq. Policies directed at national investment focus security interests (i.e. landmines initiatives) will be crafted by parliamentarian decision with adherence to international law. According to the international protocols on foreign policy between sovereign states, further monitoring of religious sectarian conflict will be conducted only in response to the elected government’s request. This includes any instigation on Iraq’s borders or in regard international security interests in the region in general.

Prospects for Democratization of Iraq

In assessment of Iraq’s The Index of Economic Freedom, 2010, Heritage Foundation projects that the level of economic freedom in Iraq will remain unrated in the near future due to lack of reliable and sufficient data on the economy. Since 2003, the Iraqi economy has slowly responded to recovery efforts toward mitigation of the hostilities in the country, and in the region. Resultant to wartime occupation, progress has been uneven. Predictions on the capacity of Iraq to sustain itself as a market based, national economy in the face of continued tensions, and including ethnic factions and religious sectarian conflicts, it is likely that Iraq will not be adequately analyzed beyond its 2002 score of 15.6 until  actual  infrastructural reforms are adopted. Institutional administration of fiscal programs necessary to support such a venture, including liberalization and modernization of the nation’s banking system will involve new investment laws, tax reforms, simple and low tariffs, and alternative strategies toward the incorporation of a comprehensive system of oversight of microfinance initiatives; much of which are NGO managed funds intended to target entrepreneurial commerce.[v]

Economic Freedom in Iraq vs. World Average

Absence of the rule of law is a significant factor in the impingement of the overall picture for development of secure financial programs on the ground level, and allocation and oversight on core government infrastructural and institutional projects. Without adequate legal rules in the form of regulatory and statutory application and enforcement, Iraq’s economic picture for the future will continue to be undermined by corruption, incoherent organizational management, and virtually non-existent security.

Ten Economic Freedoms of Iraq

Analysis of Economic Factors Related to Freedom

Reflective of the absence of an official Freedom Index for 2010, the following outlines both rationale for this decision, and current conditions in the nation that have led to inability to provide analysis on those ten (10) factors:

1. Capital Democracy

With exception of some progress in fostering an investment-friendly business environment, those ventures at present are significantly skewed toward wartime economy agreements and market demands, and substantial problems remain as Iraq attempts to administer an uneven or non-existent infrastructure amidst challenges to its security and stability.

2. Trade Agreements

At present, Iraq is working toward re-establishment of comprehensive market relationships. Broad-based trade, while imperative to the substantiation of the new nation’s economy is slow going. According to the U.S. Department of Commerce, application of a flat tariff rate of 5 percent in 2004 has been followed by non-tariff bar­riers; that create a feedback loop in terms of inadequate infrastructural and trade capacity, mismanaged customs delays, security concerns, and bans on some standard import and export products.

3. Fiscal Administration and Oversight

Tax caps on individual and corporate income tax rates are currently at 15 percent. National tax revenues based on a percentage of GDP are still negligible. Modernization of the tax system to include a sales tax as a precursor to a value-added tax (VAT) for full participation in the international market are under consideration, but will be impacted on the ability of the state to construct reforms toward incorporation of those financial usury rules.

4. Government Spending

Accountability of total government expenditures in Iraq indicated that consump­tion and transfer payments are very high in relation to revenue generation. Approximate estimates indicate that 70 percent of the GDP is spent. Reserve from exports is predominantly reliant upon the oil sector which accounts for over 95 percent of revenues, with usury and sale of state-owned oil fields have been bleak in the past year.

5. Monetary Constraints

Between 2006 and 2008, Iraq saw high inflation rates resulting in a long-term average about 14.6 percent in increased costs to standard of living. The consumer price index was marked by slow price growth, partly responsive to the excess of 65 percent increase inflation rate in 2006. Improvement in the supply of basic necessities, especially fuel resources has bettered as the security situation has stabilized. Subsidies to agriculture and industry are maintained by the government’s rather extensive relationship through public sector administration, which includes imposition of a number of price controls.

6. Investment Speculation

Iraq is currently open to foreign capital in principle, and will be more aggressive toward attracting investment toward 2020. At the moment a range of mitigating factors delimit large scale interest in Iraq as a site for capital growth: 1) corruption; 2) inadequate regulatory capacity; 3) imprecise policy; and 4) regional and national security concerns. Iraq offers much in terms of little restriction on current and capital transactions involving currency exchange accompanied by valid documentation.[vi] Iraq’s National Investment Law, while ratified, but not yet implemented, would enable investors to conduct banking and capital transfer transactions inside or outside of Iraq. Although land tenure is prohibited to non Iraqi nationals, ‘foreign investors are permitted renewable leases for up to 50 years.’[vii]

7. Financial System

As with most developing nations with recent ranking proximate to Iraq’s, the foundational infrastructure of a diversified and well regulated financial system is extremely poor.  Underdeveloped legal and institutional frameworks do not provide the potential for deepening financial intermediation.[viii] This issue poses a substantial problem to the larger investment picture, and Iraq’s ability to state modern measures of investment and securitization. Since March 2004, when the state liberalized and modernized the banking system, Iraq has made advances with privatization of its central bank(s) for allocation of credit on market terms. The national banking system is diversified by equity strategies offered by seven state-owned banks, 32 private banks, and six Islamic banks, with ninety percent of national assets administered by the two largest state-owned banks, Al-Rafidain and Al-Rasheed.  Sector based finance is furthered by specialized state-owned banks serve the agricultural, industrial, real estate, and social services. A large civil servant labor pool dictates the major transactional activity of private banks, in finan­cial transfers from the government to local authorities or individuals. Annuity options through the insurance sector and the new stock exchange are undergoing development.

8. Property Rights

A fundamental factor in interpretation of degrees of democratic liberties in Iraq will be in the area of legal revisionism.[ix] Primacy of social contract thought within international property law, where property ownership constitutes ‘right,’ is critical to legal protections and instantiations within commercial transactions. Property law in Iraq is one largely of prohibitions (i.e. foreign) rather than protections. The war has intensified this disjuncture between individual rights and trespass of property, which means that at this time, at least in consideration of private eminent domain disputes, mostly subject to mediation by an independent Commission for the Resolution of Real Property, which was “established to resolve claims for real property confiscated, forcibly acquired, or otherwise taken for less than fair value by the former regime between 1968 and 2003 for reasons other than land reform or law­fully applied eminent domain.”

Enforcement of protections by U.S. forces in conjunction with Iraqi military and police units continues to be the responsive party in the ‘rule of law,’ but without proper statutory codes and jurisprudence for the examination and application of protections, real reconstruction will be difficult. In regard to personal property and intellectual property, Iraq has insufficient statutory provision for the protection of those rights.

9. Corruption

Enforcement against corruption is nearly null in Iraq with an almost devoid response to economic bribes and kickbacks from government officials at all levels. Since capture of Saddam Hussein, little intervention has changed the landscape of economic crimes from that period to the present. In Transparency International’s Corrup­tion Perceptions Index for 2008, Iraq ranked 178th out of 179 countries considered to be unchanged from 2007. The Report predicts that going forward, investors still may have to contend with complications related to corrupt financial practices on into the latter years of the Reconstruction Plan.

10. Labor

Predictably, Iraq’s formal labor market was not fully developed prior to the war, and without planning and implementation of a comprehensive strategy for growth, will continue to be constituted of informal, private sector jobs. Partial employment or unemployment comprise the two most cited classifications of status within the employment prospectus.

Other Factors Affecting Democratization of Iraq

At the outset of Iraq’s forthcoming Post War Society, globalization and its attendant relationships that have been broadly absent from the nation’s landscape (i.e. financial mechanisms, labor, law, industry and technology) will once again be contracted into an participatory relationship with the market. Ascription economic and infrastructural redevelopment schema as priorities within the new government will enable Iraq to address other outstanding issues such as its refugee crisis which is comprised of approximately 295,000 refugees currently registered with UNHCR in neighboring countries.[x] As the UNHCR Report indicates, there are likely significantly more unregistered refugees with 1.5 million internally displaced Iraqis just in response to the single bombing incident at the Samarra Mosque in 2006.   

U.S. State Department record of the crisis reveals that repatriation of Iraq’s refugee population is the most critical in terms of the human factor of economic reconstruction. In 2009, The Bureau of Populations, Refugees and Migration reported:

• Contribution of $ 303.4 million to international organizations and nongovernmental organizations toward assistance of displaced Iraqis inside the country and in the region;
• Admission to the United States is tallied to be 37,573 Iraqi refugees in 2007 with an increase of 622 since the last report in 2009 to 18,838 refugees;
• By 2009, a total of 1,606 Special Immigrant Visa (SIVs) issued to Iraqi translators and interpreters (under the Section 1059 program). A total of 3,028 SIVs were issued to Iraqis employed by or on behalf of the U.S. government (and their dependents) since FY08 (under the Section 1244 program).

On the international front, U.S. Secretary of State, Hillary Clinton announced to the United Nations in July of 2009 that further contribution upwards to $100 million in new assistance will go to the support, return and reintegration of displaced Iraqis.

Effectiveness of legal practice, and especially in regard to corruption and human rights complaints are of core interest to parties on the ground observing the initial stages of democratization taking place in the country. Reinstatement and oversight of the Legislative and Judiciary branches of Iraq’s new government will be essential to its reconstruction, and provision of a system of checks and balances with the Executive branch. The U.S. Department of State also proposes allocation of funds, and supervisory participation in national elections through membership with the United Nations, and at the bequest of the existing Iraqi government and its people. Constitutional reform through rewriting of the Iraqi constitution with adequate protections of persons and property as private and independent citizens of the sovereign state of Iraqi, and especially ratification of constitutional law for mandated and fair presidential elections will be essential to Iraq’s roadmap for recovery.

[i] Iraq Status Report (2010). United States Department of State. Retrieved from: http://www.state.gov/p/nea/rls/rpt/c28010.htm

[ii] Oil in Iraq (2010). Global Policy. Retrieved from: http://www.state.gov/p/nea/rls/rpt/c28010.htm

[iii] Palast, G. (2005). Secret US Plans for Iraq’s Oil. British Broadcasting Corporation (BBC), Wednesday, March 17, 2005. Retrieved from: http://news.bbc.co.uk/2/hi/programmes/newsnight/4354269.stm

[iv] Maddison, Angus (2007). Contours of the World Economy 1-2030 AD: Essays in Macro-Economic History. Oxford: Oxford University Press.

[v] Plotz, S. Seven Ways to Fix Iraq’s Economy. Slate. Retrieved from: http://www.slate.com/id/2082662/

[vi] Investment Gridlock Thwarts Iraq’s Recovery (2010). Financial Times. Retrieved from: www.ft.com

[vii] Ibid i

[viii] IMF Warning  Over Iraq’s Recovery, (2010). British Broadcasting Corporation (BBC). Retrieved from: http://www.slate.com/id/2082662/

[ix] Iraq Law. (2010). Gulf Law. Retrieved from: gulf-law.com/iraq_law.html

[x]  United Nations High Commissioner on Refugees, Iraq. Retrieved from: http: www.unhcr.org.iq