Seven ways to fix Iraq's economy.

Seven ways to fix Iraq's economy.

Seven ways to fix Iraq's economy.

The best new ideas for rebuilding a nation.
May 7 2003 1:06 PM

An Alan Greenspan for Iraq

… And six other ideas for fixing Iraq's economy.

(Continued from Page 1)

4. "Publish What You Pay." Another oil idea, this one pushed by George Soros. Karin Lissakers, who advises Soros on Publish What You Pay, says the premise is that oil (and mineral) rich countries suffer huge corruption and waste because no one ever accounts for their wealth. The countries sign secret contracts with foreign oil and mining concerns. The companies don't disclose what they are paying the government; the government does not disclose its mineral revenues. As a result, it's easy for corrupt individuals to steal: Billions of dollars end up in Swiss bank accounts because no one knows how much revenue the government ought to collect. This veil of secrecy not only robs a nation of cash, it trashes government accountability. If citizens can't know what money the government should have, how can they hold the government to account?

The British government is now pushing a voluntary transparency initiative for "extractive industries" that would make public the terms of such oil and mineral contracts. Lissakers and Soros are also lobbying for securities regulations here and in Europe that would force companies like ExxonMobil to report the terms of their contracts. The oil companies, Lissakers says, are surprisingly sympathetic. They are beginning to recognize that corruption is destabilizing for them, bringing terrible publicity, and endangering operations in places like Nigeria.

In Iraq, Publish What You Pay would restore some trust in the corrupt oil business and would help redirect revenue from corrupt officials to the coffers where it belongs. Such transparency would also be essential for the success of any oil trust, since Iraqis couldn't trust a trust if they didn't know how much was supposed to go into it.


5. An Alan Greenspan for Iraq. Hyperinflation used to be a common global malady: Everytime you turned around in the 1970s, some country's currency was falling apart. (Remember those places where it took a thick stack of bills to buy a loaf of bread?) Central banks would print money like crazy; economic chaos ensued. But as Steve Radelet, senior fellow at the Center for Global Development, points out, hyperinflation is disappearing because of the rising competence of central bankers—a Greenspan in every pot.

Better central banking has kneecapped inflation in developing countries and helped stabilize monetary policies. In the past decade, the IMF and other international donor groups have insisted that central bankers run a tight ship if they want to keep getting loans. More important, central bankers in even the most backward places now understand their jobs. This is partly the result of a concerted effort. The IMF and various top universities now offer crash courses for central banking officials. In three weeks to six months, they learn the basic technical skills and economic principles they need to construct a sound monetary policy. The result, says Radelet, is that "the level of competence of central bankers is much, much higher than it used to be."

In Iraq, able central bankers will help establish a single viable currency, rein in the inflation that prevailed in the final months of the Saddam administration, and keep monetary policy disciplined enough to satisfy international aid groups.

6. Democracy by Development. IMF jockeys, World Bankers, USAIDers, and the like will be champing to shove wonderful projects down the throat of the new Iraqi government: schools here, roads there, restore these marshlands, fix that port, that bridge, that power station. Unfortunately, the record of big, top-down foreign development projects is mixed, leaning toward lousy: Corrupt officials steal too much of the cash, the locals don't really want the project and so don't maintain it, too many villages are demolished, etc.

But at the World Bank—still the 800-pound gorilla of development—the past decade has witnessed a tilt toward grass-roots development that might bode well for postwar reconstruction. The most promising idea here for Iraq may be a 5-year-old World Bank experiment in Indonesia called the Kecamatan Development Project, which is pouring nearly $1 billion into thousands of villages. The innovation in KDP is that each village decides—after a community debate and competitive bidding process—what project it wants: Some choose to build roads, others irrigation projects, others schools. Local participation in the decision vastly increases the success (and popularity) of the projects. (Traditionally such grass-roots development has been stifled by governments because it doesn't produce grand results, like dams, and because it undermines central control by granting each village autonomy.)

The second and perhaps more important new idea of the KDP is that it uses development to promote democracy. It is, as a World Bank staffer puts it, a "democracy project disguised as a development project." The bidding process for KDP teaches villagers democratic habits: debate, lobbying, peaceful dissent. These are new, deeply necessary skills in a nation making the transition to democracy from authoritarianism. (The bank is now studying whether these KDP skills are energizing other kinds of democratic activism in the villages.) The bank is pitching a version of the KDP for Afghanistan, and it's expected that it will propose something similar to develop and democratize Iraq.

7. Net Business. The Internet won't revolutionize the Iraqi economy. Its tech infrastructure is ancient. Silicon Desert won't be springing up outside Basra. isn't going to challenge the bazaar. But the Net can give a small kick to would-be entrepreneurs. Eurasia Society President Bill Maynes describes a project that Iraq should imitate. Western NGOs have scattered Internet business centers around the former Soviet Union. These kiosks can advise on how to set up a business, keep your books, pay your taxes (or, in Russia, not pay your taxes). This information was only sparsely available in the pre-Web age. Its accessibility probably increases the rate of business creation. Iraq is wired enough that a similar program could encourage entrepreneurship there.

So far, this series has ignored what may be the greatest obstacle to Iraq's recovery: its vicious ethnic and religious divides. The next installment of Iraq's Progress will examine some of the most promising ideas for minimizing these hatreds, everything from truth commissions to controversial laws against hate speech.