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The Honolulu Advertiser

Posted on: Sunday, March 20, 2005

Growth hinges on nation's security

By Jim Krane
Associated Press

Two years after the U.S.-led invasion of Iraq, the tattered and dangerous country has become one of the world's poorest, ranking at the level of Haiti and Senegal, with insurgents working to wreck the economy as fast as the U.S. and Iraqi governments can restore it.

Economists see little hope for big improvements in 2005: 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 finally getting better. The country now boasts a freewheeling consumer economy flush with cell phones, Internet cafes and independent newspapers, along with a slew of high-paying government jobs.

"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 with a caveat: "The problem is, we don't know whether we are going to live or die."

Rashid's point is critical; the economy has emerged as one of the country's chief battlegrounds.

Iraq's guerrillas launch 60 to 80 attacks a day, trying 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.

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 U.S. Deputy Defense Secretary Paul Wolfowitz, who said Iraqi oil could generate $50 billion to $100 billion over two or three years.

Production has yet to regain Saddam-era levels. In 2005 it has even slipped from low 2004 levels.

In 1979, Iraq's best year, production averaged roughly 3 million barrels a day. This year, analysts say, it might not reach an average of 2 million. The International Monetary Fund predicts Iraqi production won't reach 3.5 million barrels until 2009.

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

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 figures the average Iraqi lost $1,500 in income that year.

Buildings in Baghdad and whole neighborhoods in Fallujah sit 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 says.

"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.

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

Sputtering electrical power is another ordeal for Iraqis.

Iraq now averages just 8.5 hours of electricity a day, with some provinces getting as little as five hours, according to U.S. State Department figures. Last June, there was power 12 to 14 hours a day.

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 Rashid, the Baghdad bookstore clerk. "We depend on generators."