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A New Economic Model for Iraq: Future Vision and Market-Oriented State Corporations Foster Liberalization of Oil-Rentier Economies
Sabri Zire Al-Saadi, 6/1/2012

Introduction

Iraq’s loaded experience is a thought-provoking case for better understanding of the potentialities of the oil-rentier developing countries. Over the last six decades, Iraq underwent radical economic and violent political changes. Since 1952, oil revenues play an important role in the country's economic, social, and political development. During the 1950's, 1960's & 1970's, the governments’ utilization of oil revenues, though not always efficient, was promising for building the country’s infrastructure, increasing economic growth, as well as improving the living standards. Significantly, the economic model of the 1970's was characterized by the dominance of the state where the share of public sector in GDP has substantially increased, especially in crude oil and mining extraction industry, petrochemical industry, banking, trade, manufacturing industries, and agriculture. However, since 1980, Iraq has suffered from major devastating three wars and economic decline and costly political events that resulted in the fall of Saddam’s dictatorial regime which followed by more deterioration of the prevailing conditions. In addition to the political and security problems, Iraq at present is facing many difficult socio-economic challenges: the poverty; sluggish real growth; high unemployment; low productivity; low standards of living; and widespread corruption.

In a wider geopolitical context and given the lessons learned from recent global financial crises and world economic slowdown, Iraq’s awaited economic model that should benefit from the actual experience of globalization positives and negatives, could also generate far-reaching political and economic impact on the security and prosperity of the unstable strategic Middle East region that is rich in oil and gas.

Oil-rentier countries have many differences in their political, social, demographical characteristics, the level of industrial production capacities, the diversity of their natural resources, and their GDP per head. However, they have an important similarity in the dominant role of oil wealth on the political economy and social development' process. All these countries are dependant heavily on crude oil exports for financing the aggregate demand, and the economic dynamics is manipulated by public enterprises and the macro fiscal and monetary policies.[1] Significantly, in addition to using the accumulated oil revenues; i.e. "sovereign funds", the oil-rentier states owned and control the crude oil and gas industries, as well as have the major shares of the basic industries; namely, the petrochemicals, steel, electricity, and banks. Evidently, oil revenues have been stimulus to economic growth, but not enough for the expansion of domestic capacities to produce goods and services and trading. Also, irrational use of oil-revenues restricts the drive for economic and political liberalization because of the negative dynamics of the "excessive" oil revenues that finance the "exorbitant" government expenditures. An outcome of this dynamics has been the increase of financial burden of the public enterprises though most of them were based on technically and economically feasible studies. In addition, domestic energy subsidies and increasing energy consumption add more constraints to its economic reforms.

Also significant, oil exports have been subject to the risk of external unfavorable conditions; namely, the interruption of unpredicted political and economic events in the short-run, and the upwards trend of using renewable and nuclear energy resources by the industrialized countries in the long-run. Therefore, emphasis on lessening the economy's dependence on oil should be considered by those countries as a prime objective of their economic strategy and reform.

This paper analyses Iraq’s experience and prospect as a case that highlights the most likely process of economic growth in the oil-rentier countries under the conditions of economic diversification strategy.[2] The review of oil fortune’s influence on the political economy, especially during the painful and very costly nine years experience of post-Saddam period, suggest that alternative of economic strategy and policies including public investment priorities should replace the current fragmented and irrelevant liberalization measures which have been imposed by the US occupation authority and applied in a disarray practices by the governments. Different from the widely practiced market reforms in developing economies, Iraq needs a profound change for restructuring the economy to be less dependent on oil sector and be more competitive and stable. In view of the causes and actual remedies of the recent global and Eurozone financial crises, the question is; what kind of new economic model Iraq must adopt? Is State Corporations Model (SCM) or in aggregate–term, the State Capitalism Model, where the independent management of big industrial public corporations that are powered with freedom of initiative, innovation capacity, and entrepreneurial skill which fit market competitiveness’ conditions, does the trick of accelerating economic growth and help the efforts for structural changes and liberalizing Iraq's oil-hostage economy? If so, what are the necessary conditions of this new model?

It should be noted that for identifying the required policies, neither the basic assumptions of neo-classical economics where the macroeconomic policies justify the role of the state for increasing growth, nor the classic economics of capitalism where the “invisible hand” of the free market and profit maximization of corporations that stimulate growth, are relevant to tackle the structural economic problems and social development of Iraq as a developing oil-rentier economy.

The Complex Challenge

Although the basic remedies for dealing with the main problem of oil-rentier economies have been widely debated for a long time,[3] elaboration and modification to the earlier proposals are required to match the prevailing new conditions and avoid the crises’ consequences of the economic globalization era including the increasing measures of protectionism. For Iraq’s prospect, new economic planning effort, policies and measures are also essential; namely, formulation of the goals of the “ignored” “national future vision”, refining the priorities of the long-term economic strategy, programming the structural economic reforms, identifying the relevant macroeconomic policies, and developing the incentives for Foreign Direct Investment (FDI) for indigenizing high-technology industries. Also essential, clarifying the conditions and pace for economic integration into the world economy in view of the policy implications of recent global and Eurozone financial crises and the slowdown of the world's economic growth.[4] At the heart of Iraq’s required economic strategy lies a well-defined economic diversification plan that has to be implemented by the government in the medium and long-term.

For the developing and emerging economies, expanding production capacities have been given priority not only for increasing the production of goods and services and trading, but also for improving productivity. In this process, both growth and competitiveness are enhanced by economic diversification that has several benefits for the developing as well as developed countries. Diversification ensures stability against the risk of market uncertainty, promotes diffusion of technologies, and provides flexibility to inter-industry linkages, trade, labor market, and other factors of production. However, unlike the experience of most developing countries, efforts for economic diversification in the oil-rentier countries must not be directed mainly at increasing the role of the private sector that has small capacity and little innovative and entrepreneurial skill. Instead, the state should seize the opportunity of having substantial amount of "sovereign oil fund" for increasing investment in the leading industries. Indeed, oil revenues provide enough financial and foreign currency resources for investment in new industrial enterprises in addition to building the physical, social, and environmental infrastructure projects. The state intervention and facilities coupled with the application of different approach to the management operation and objectives of the public enterprises should be applied in order to lead the nation's effort for fostering economic diversification, increasing production and productivity, and sustaining competitiveness. Such new approach implies that the benefit from globalization and the integration into the world economy should be conditioned by the state long-term economic strategic objectives. Also, it implies that the public enterprises management should learn from the failure of past experience and instead apply the private corporations' management skill, creativity, business initiatives, and entrepreneurial of the market economy. These steps that develop the objectives and operation criteria of the old fashion management of public sector enterprises into big market-oriented state corporations that constitute the base of "SCM,"[5] which is, at this stage of development, essential for the success of economic diversification that paves the way for the liberalization of the oil-hostage economies.

In a wider context, since it is necessary to ensuring the flow of crude oil, minimizing the cost of energy resources, and protecting global environment; liberalization of these economies also serves the interest of maintaining sustainable growth of the world economy. Even the application of partial measures of economic reforms such as the reduction of energy subsidies and rationalizing the consumption of energy must be considered within the overall economic diversification strategy.

In reality, the application of the suggested remedy is not an easy task. It is difficult, but it is also a promising medication. Similar to the cautious use of pharmaceutical drugs in medical treatment that avoids the risk of letting the patient fall in the self-destructive illegal drugs addiction, Iraq’s oil-rent should be carefully utilized in dealing with the existing chronic structural economic problem, the amounting social problems, the political instability, and the stalled democracy. This is in contrast to the adventure of exercising loose liberalizing practices and falling deeper in the harmful spiral trap of continuous increase of government spending that hangs on "excessive" increase of oil revenues and successive finance, which resulting in the expansion of public and individuals consumption beyond the country's non-oil production capacities. At present, the misuse of “exorbitant” spending of the public oil revenues through the inconsistent and inefficient macroeconomic fiscal, monetary, investment, and trade policies and measures have crippled more the Iraqi economy. The effects of misuse of oil power on domestic politics have also been harmful. Equally serious, the continuous dependence on oil revenues affects negatively the good social values of work and nurtures the seeds for over-relaxation in a rentier culture.

While the world’s experience has ascertained the benefits of the globalization thrust; i.e. stimulate the improvement of productivity, business entrepreneurial, and competitiveness, Iraq’s experience provide evidence that no concrete justification allows the dominance of the global financial and trade regulations and priorities over the need for indigenous structural economic reforms and the required macroeconomic policies that fit the domestic market conditions.

Politically, freedom is the most precious right of the human beings that cannot be sustained without ensuring the basic living needs for the people. Fortunately, the Iraqis have regained their basic liberties after painful suffering and huge sacrifices for a long time, with the historically significant help from the US, Britain, and their Allies in toppling the former dictatorial regime on 9th April 2003. This accomplishment has been a necessary condition for preserving the citizen's integrity and paves the road to economic prosperity, social progress, flourish democracy, and culture welfare. Although these objectives have not yet realized, Iraq will ultimately rise again as an independent, stable, prosperous, and democratic country since it is endowed with rich resources, and most likely this free and multicultural nation shall be inspired by the vision of "what Iraq's future ought to be," rather than "what Iraq's future could be."

However, at present, it is even more demanding for Iraq to consider that the growing worrying of certain domestic negative factors: the continuous political instability; ineffective governments; and the paucity of the liberal and democratic parties. These factors that are enforced by the wide anticipation of holding excessive oil revenues in the near future, could quickly drive the ruling authority with the influence of US and IMF - consciously or unconsciously – to follow the prevailing political economy' model practiced by the oil-rentier states in the Gulf region.[6] In fact, such trend has been partially experienced in Iraq by Kurdistan Federal Government (KFG). Unfortunately, this model is neither suitable for Iraq’s economic development as envisaged by the citizens before and after the fall of the former regime, nor would contribute to the political stability of the ME region. Alternatively, based on the predictive dynamics of the Iraqi economy,[7] and reassured by certain successful foreign experiences of state capitalism model,[8] the priorities and criteria for utilizing oil fortune in tackling challenges facing the country should be radically changed.

Oil Governs the Future

The strategic importance of crude oil as a main source of global energy, as well as a major source of income and foreign currency for the developing oil-rentier countries are indisputable facts that need not to be emphasized. For other concerned parties: the oil consumer countries are trying to maintain the supply flow of oil at lowest prices; the major international oil companies are interested in maximizing the profit for their shareholders; and the oil traders and financial speculators are cleverly exploiting the financial benefits of the oil price fluctuations in the world market. However, unlike the interests of the consumer countries, the oil companies, the oil traders, and the speculative investors in oil prices, Iraq has different priorities. It is not only increasing the value added of oil, but it is also essential for Iraq, expanding the non-oil industrial production capacity, improving the living standards, promoting social progress, maintaining "just" distribution of public wealth, sustaining political stability, and encouraging democracy practices. In addition, by appreciating the need for environmental and natural resources development and considering the interests of next generations, especially in regard to the depletion of crude oil and natural gas resources, the call for "sustainable development" is therefore more appropriate than to focus the efforts on only economic growth and stability similar to the practices of the developed countries. A significant difference is that, unlike the guidance of economic efficiency criteria for the allocation of the tax payers' money through the government fiscal policy, oil revenues that finance the government expenditures which dominate the aggregate demand are owned by all "Iraqis" regardless of their individual income and wealth. The implication is that the priorities for the allocation of oil revenues are bound to be different from the macroeconomic policies that are generally suggested for the developing countries.

In a modern state, respect of basic human rights: the liberties; security; rule of law and public order; and the provision of basic education and health services, clean water, housing, and electricity, are all fundamental conditions for economic progress and social welfare. Application of these norms requires good government’s management for the utilization of oil wealth.

The country’s experience showed that neither the mummified policies of the highly centralized and comprehensive socio-economic development planning and the dominance of role of the rigid public sector enterprises of the totalitarian former regime, nor the current loose application of the panacea economic reforms and policies of the IMF and the World Bank that are strongly backed by the US political influence, are relevant to deal with the existing acute economic and social problems. Specifically, the post-war inhomogeneous governments that are flying blind with the application of non-conditional liberalization policies have miserably failed to ensure the minimum conditions for economic and social development despite of the availability of financial and foreign currency resources.

Since the fall of the former regime, Iraq’s problems have not eased and the country is still facing not only the political instability and insecurity miseries, but also the challenges of the faulty structural economy, high unemployment, widespread poverty, lack of basic needs and public services, low private savings, insufficient physical infrastructure, and increasing corruption that put the authority of the government and public institutions at high risk of losing the control completely. Nevertheless, if oil wealth used efficiently, not only the economic objectives could be achieved, but it would also release the social tension arising from the sectarian conflict, combating the religious extremism, and depriving the advantages of the terrorist and the anti-liberal groups from the existing social discontent environment. Under the present circumstances, the government holds the oil power that could positively influence the country’s future development. Hence, a democratically elected and politically committed government can use rationally this massive power of oil-rent for the benefit of Iraq.

Iraq’s Political Economy

With the great power of oil wealth,[9] the Iraqi central government makes the choice between the crucial economic alternatives,[10] rather than the citizens or the labor unions or the public enterprises or the private companies or the business entrepreneurs or the local authorities. Hence, for assessing Iraq’s economic prospect, what matters is the awareness of the behavior and dynamics of the government conduct the allocation of oil revenues.[11] The government’s policies have been influencing the macroeconomic events; i.e. they are making the choice between main alternatives in production, distribution, consumption, and investment, especially for the reconstruction of public infrastructure, but they were deplorably inefficient and insufficient.

Unfortunately, for a long time, the nation could not establish a democratic regime capable of ensuring efficient utilization of the country’s natural and human resources. In post-Saddam period, it was not good enough to change the policy-making players and personalities. What is more important is the right change of the country’s objectives and policies as part of overhaul change in the political culture and economic thinking. The governments have missed the relevant macroeconomic and social priorities and intended to play populist politics that in turn caused more waste of public resources and loss of development opportunities. Indeed, the task of designing and implementing the required economic strategy and policies, as well as identifying the investment priorities cannot be performed by the weak or ideologically rigid government who relied heavily on oil revenues.[12] Instead, Iraq needs a forceful and inspiring political leadership that has a clear progressive future vision and is capable to lead the people, the entrepreneurs, the business community, and the private companies to establish a rigorous economic system with the help of oil wealth. Regrettably, the existing political structure and process is unqualified to allow the emergence of such leadership that could make the right political and major economic choices. So far, the political arrangements – developed under the circumstances of fear and mistrust among social and political groups and lack of confidence in politicians – have produced ineffective dominance of religious; Shiite and Sunni, and the Kurdish nationalist parties, both have strong but vague ideological commitments, though in different degrees, as well as produced very weak and fragmented liberal and democratic parties who should play at least a positive role in opposition.[13] Also, the experience have missed the importance of effective non-governmental organizations and the participation of the civil society groups in monitoring the government’s decisions and enhancing the democratic practices although many of them have been officially licensed.[14]

The weary and farcical experience of the government-forming process and the current inhomogeneous coalition government that followed the successful general election of 7th March 2010 and ended in nominating the Prime Minister on 11th Nov. 2010 and the government finally formed in 21st Dec. 2010, revealed how unstable the political power-struggle and indecisive compromise among the dominant parties is.[15] It perpetuates the ineffectiveness of the political leadership and adds to evidence that the demand for political reform is urgent. The constitutional law, the election rules, the legal and executive rights of the state and the government hierarchy, and the political institutions and facilities for smooth transfer of the authority’s power, must be all reformed. In addition, the stagnation of the non-oil economic activities, especially the public sector enterprises, needs policy and institutional reforms. Also essential, by gradual increase of the contribution of taxes on income and profit,[16] and other sources of public finance, it would generate an impetus that improving economic efficiency and enhancing the democratic practices, as well as restoring the government integrity.

In politics, pragmatism is normally practiced for regulating and manipulating the political processes, whereas in development economics it is essential to strictly observe policy objectives based on pre-determined priority criteria. Also, it is a common knowledge that freedom and political stability constitute necessary, but not sufficient, conditions for economic and social development. In democratic practices, when the country is facing unexpected problematic events, the government usually invites the opinions and remedy proposals from different concerned parties: the political opposition; the independent and non-partisan groups; and the professional experts. Ironically, in Iraq, where there are amounting socio-economic and political problems, the government and the dominant political parties were not open to indigenous opinion and had no appetite to consult independent and qualified native advisors though they had no clear and consistent economic strategy and policies.[17] Indeed, the ruling authority incompetence is beyond imagination as can be shown by the following striking example. The members of the "working group responsible for identifying the economic policy for Iraq": the Vice PM and Head of Economic Committee of the Parliament; Minister of Finance; Minister of Oil; and the Head of Public Finance Editing Diwan (office), have had their first meeting on early February 2012; that is to say nine years after the fall of the former regime, in order to identify the main economic challenges facing the country. The meeting's outcome is astonishingly brilliant! The members of the committee have just discovered that there are seven economic challenges facing Iraq. These are: transformation to market economy; unemployment; chronic inflation; structural imbalances of the economy; foreign debt; rebuilding the infrastructure; and the legacy of the laws and regulations of the former regime.[18] What an outstanding visionary performance!

It is unfortunate that the authorities who are “isolated in their offices”, not only ignore non-governmental views and proposals, but also they shrink from engaging themselves in public debate or giving formal economic policy explanation. Such negative attitude was not only a result of poor economic knowledge and audacity, but most important, it was the temptation of using the abundant oil revenues easily in defusing temporarily the daily demands of the people.[19] The renewable proposal for distributing some of oil revenues among the citizens is an example.[20] Significantly, by relying on foreign consultancies and experts especially of the IMF, WB, USAID, and other institutions for economic advice, the governments surpass the role of indigenous expertise and advisers who are, the least to say, more familiar with the country’s reality.[21] Actually, the non-restricted and non-productive spending of the excessive oil revenues by the government and, indirectly, by the political parties has saved their existence by releasing the pressure of public discontent and demand though temporarily. In general, it is very hard to imagine how these incapable governments and parties could have survived without the use of the public oil revenues. They were very lucky indeed. Oil revenues have been extensively used to carry on the state's functions and activities, especially in maintaining security and rebuilding the army, as well as in influencing the domestic politics in pragmatic ways. In 2010, the total salaries and wages of the civil servants constituted 47% of the annual budget's operational expenditures, in addition to the expenditures of the parliament activities and the presidency office that totaled 8% of the budget. In reality, oil revenues have been used as an extinguisher instrument for fighting brushfires, but not as strategic development factor which needs strict application of efficient allocation criteria under public approval and observation.

In Iraq's extraordinary difficult circumstances, pragmatic measures are not entirely unacceptable. In fact, even in a normal and politically stable situation, pragmatism is followed for dealing with the sudden major political, social, and economic change of events.[22] But the problem with the Iraqi ad-hoc measures and inconsistent policies lies in the fact that both the government and the political parties neither have viable national future's vision and clear economic and social strategic goals, nor committed, individually or collectively, to a specific number of objective' priorities. Such a vague situation confirms that there is no factor more important than the use of oil wealth in influencing Iraq’s reality and shaping its future beyond the interest in increasing non-oil financial contribution to the annual budget.

In addition to the extremely difficult security circumstances, the governments’ incompetence that sustained by the application of the flaw economic policies and self-interest measures, have led not only to the apparent economic failure, but also encouraged the corruption that reached extremely serious edge threatening the effectiveness of the government and public institutions, as well as affected the social morality values. Corruption, as it is known, means the use of public resources and the state power for serving self-interest. This is exactly what is happening in misusing oil power on a large scale.

The citizens’ high expectations vis-à-vis the government’s fading promises have resulted in credibility loss of the government and the dominant political parties as reflected by the widespread skepticism and passive attitude among the citizens. In turn, the credibility wane adds more pressure on the ruling authority to increase public spending and finally increase the economy reliance on oil revenues.

Due to its strategic geopolitical position in the unstable ME region,[23] it is most likely that the following external factors could also affect Iraq’s political economy:

1. The US has strategic interests in the ME region and its military presence and political influence will most likely remain in Iraq for a long- time. However, the fast failure of the US economic strategy has either confirmed the complete inexperience of the country’s economic problems and remedies by the occupation authority, or indirectly supported the implicit suggestion that Iraq's economic policies should remain the same as those practiced by other oil-rentier countries in the region. Or a defect of both suggestions. This is in contrast to the promising future of a stable, democratic, and prosperous for Iraq that has potentialities in terms of human and natural resources, social components and values, and historical roots of mixed and creative culture. Thus, it is neither in the interests of Iraq nor to the US to keep the economy dependant on oil exports since the outcome of this dependence could perpetuate the disappointing conditions and policies.

2. The efficient use of the oil fortune will help the economy grow at higher rates and cope with the globalization competitiveness conditions. Parallel to this target, the likely growing economic and oil power of Iraq could also change the aggressive and/or the passive political attitude of the neighboring states towards its internal affairs.[24] The experience of pre- and post-election of 2010 showed how serious is to minimize foreign intervention and influence in domestic politics. Iraq needs to regain its economic strength that will be transferred to a strong political protective presence in the ME region.

Given the political and security requirements, the institutional fundamentals of the targeted reforms that would ensure the rational choice of macroeconomic policy alternatives should maintain the central government control of the following:

1. The oil revenues purse and allocations.
2. The macroeconomic fiscal and monetary policies.
3. Financing the public infrastructure and utilities projects.
4. Investment in high-technology industrial corporations to be owned fully or partially by the state. 
5. The design and implementation of the privatization program.
6. The regulations and provision of incentives for promoting investment by the indigenous private sector and the FDI.

At the same time, it is important to develop the institutional mechanism and financial capacity of the local authorities of the governorates to be able of designing, partially financing, and managing the implementation of the public utilities and small works projects. In addition, the establishment of local councils within the big cities; i.e. Baghdad, Basra, Mosul, and Erbil are also required to expand and improve the public services and utilities, as well as the follow-up the implementation of public works programs.

Crucial Economic and Social Issues

It was optimistically presumed that the post-Saddam government and the emerging opposition parties would be able to lead the country towards achieving its social, economic, and political objectives. Unfortunately, many causes have jeopardized the people's optimism. In particular, the poor economic performance form a strong ring in the problematic chain of vicious circles; namely, the security problem, social discontent and hardship living, the political instability, the corruption, the crime, and the sectarian conflict. The social problems, especially the religious and ethnic sectarian conflicts, have a strong regressive dynamics.

However, Iraq is endowed with abundant natural and human resources as well financial and foreign currency resources that are necessary for investment for rebuilding the infrastructure and improving the living standards.[25] The huge amount of increasing government expenditures and its non-productive allocation is a clear evidence for potential increase in economic growth.[26] The evidence also show that the misuse of these resources created fiscal problems.[27]

Specifically, Iraq at present is facing many crucial economic and social problems[28] which can be ranked in accordance with their priorities that are relevant to the suggested economic strategy as follows:

1. Sluggish Real Economic Growth and Structural Imbalance: the use of GDP and GDP per capita statistics in assessing the economic performance and the living standards in Iraq, as usually practiced world wide, needs analytical qualifications and explanation due to the high fluctuated contribution of oil value added to GDP. Available GDP official estimates (at current prices) show that it increased from about ID107,828.5m ($84,531m) in 2007, ID155982.3m ($132,770m) in 2008, ID139330.2m ($120,869m) in 2009 and ID171957.0m ($147,826) in 2010.[29] Accordingly, GDP per head increased from about $2,848 in 2007, $4163 in 2008, $3765 in 2009, and $4,466 in 2010;[30] i.e., GDP (current prices) grew at annual average of 44.7%, -10.7%, and 13.3% in 2008, 2009, and 2010, while GDP per capita grew at annual average of 46.2% in 2008, -9.6% in 2009 and 18.6% in 2010. Such astonishing uneven trend is obviously a result of oil price fluctuations during the four years period. Even if we consider the GDP indicators at constant prices, they do not adequately reflect the real macroeconomic performance and the progress made in the living standards in Iraq as usually used for country’s comparison purposes.[31] The reason is not only related to the distortion caused by the change of prices of the consumer and capital goods and raw materials, during the year, but most importantly it is related to the fact that the value added of oil sector contributes about 53.7%, 56.0%, 40.1% and 43.0% of total GDP in the years 2007-2010. Moreover, the contribution of the non-oil sector to GDP shows either deterioration or stagnation of the commodity sectors compared to the services sector. E.g. the value added of agriculture sector contributed 5.0%, 3.5%, 4.4%, and 5.0% to GDP of 2007-2010, while the services sectors, mainly of government services, increased from 12.2%, 12.4%, 17.9%, and 15.9% in 2007-2010, and manufacturing industries contributed 1.7%, 1.5%, 2.4%, and 2.3% in the same years. Demand composition of GDP shows that in 2008, for example, the government consumption shared 46% of the national consumption and the actual public investment (fixed capital formation) contributed 94.1% to total national investment and imports, which were mainly financed by oil exports earnings of foreign currency. It is the oil revenues, not the non-oil economic activities that are behind the GDP growth. In this respect, it is interesting that the IMF estimates of Iraq's GDP for the years 2007-2014 neither adequately reflects reality nor they help in describing the economy dynamics.[32] Therefore, at this stage, the use of GDP estimates has little analytical value for assessing the real performance of the economy. It is a tricky indicator that does not reflect the real factor behind the expansion of the non-oil production capacities and the improvement of the living standards.[33]

2. High Unemployment and Underemployment: published official statistics on employment have estimated the unemployment average rate at about 8% in 2010.[34] The ratio of unemployed male was 7% and 13% for women. However, the underemployed; i.e. those who have temporary and limited work' hours, estimated at 15%. As generally observed in reality, most of the active labor force is either idle or semi-idle except the people working in the government. Therefore, one might assume that the unemployment rate is much higher than 8% and nearly 20%. Significantly, the government institutions employed 40% of the total number of working people, while the private sector employed the rest 59%. Also, unemployment and underemployment was uneven among the Governorates; the highest rate was (16%, 19%) in ThiQar, the lowest (2%, 4%) in Kirkuk, (7%, 12%) in Baghdad, and (4%, 12%) in Erbil. Significantly, the civil servants and the police and the army employees are estimated at about 2,468,422 employees in 2010[35] and most of them are idle.[36] Also important, only less than 1% of the working manpower was employed by the oil sector.[37]

3. Widespread Poverty: poverty in Iraq has been spreading fast since the UN economic and trade sanctions imposed on the country in August 1990, but it increased after 2003 to reach the ratio of 22.9% in 2008; i.e. the number of poor people was 8 millions.[38] Luckily, the “poverty gap” estimated at 4.5% which means that the roots of poverty are not very deep and can be dealt with by investing extra resources. Poverty distribution pattern showed that there exist wide disparities among the Governorates; e.g. the poverty ration in Muthana estimated at 49%, 41% in Babel, 40% in Selah el-din, whereas estimated at only 3% in Erbil & Suleymanya, 9% in Dahouk, and 13% in Baghdad.[39] However, the governments have failed to deal with this serious socio-economic problem, and surprisingly the program of the present government even avoids recognizing the existence of severe poverty in the country[40] since the current staple food ration system show that the problem is much more acute than the official estimates suggest. Regardless of their claims and ideals, the governments have had enough money to make the fight against poverty its central mission by implementing public work programs and promoting small businesses that provide job opportunities and generate income for the poor people. The allocation of oil revenues must address the roots of poverty problem. Private or public charities are not the solution, but creating productive jobs and generating income from economic activities is the remedy. It is the sluggish economic growth, high unemployment, poor public education and health services and utilities, lack of basic needs for infrastructure; e.g. electricity and clean water that have been the pathway to the existing poverty and social breakdown. While it is necessary that the government should put emphasis on improving the primary and secondary education of the poor people; the root of the poverty problem, it should not ignores the economic factors behind the existing poverty. More disappointing, with the availability of abundant oil revenues, the government suggest to rely on the donors and regional and international organization to finance poverty alleviation projects.[41]

4. Wide Disparity in Income and Wealth: low pay to the workers against the runaway salaries at the top of government officials kept poverty and inequality stubbornly high and politically dangerous. Available rough estimates indicate the gravity of the situation where the annual salary and allowances of the parliament member amounted to about $300,000 whereas the senior civil servants and the university academic staff receive more than $12,000 on the average, and the majority of government employee receives about $4,000. However, the average wages in the private sector was about $10 daily.[42] The disparity may also be assessed by referring to the fact that while 21% of the labor force work in the agriculture sector, the value added generated by the sector was estimated at only 3.45% of GDP in 2008.[43] As referred earlier, unemployment and poverty distribution among Governorates have wide disparity patterns.

5. Corruption: the exorbitant government spending, the collapses of the public institutions, the security problems, and the economic failure have all led to the collapse of law and order. While the international comparisons of corruption; i.e. the corruption index 2011, placed Iraq at the bottom rank of 175 among the 182 countries,[44] recent survey showed that most Iraqis agreed that there is widespread corruption practices in the civil servant institutions, the government, the political parties, the parliament, the judiciary institutions, the private sector, as well as in international organization, and in international non-governmental organization.[45] It is essential to emphasize that spread pace of corruption is strongly related to the degree of failure in maintain economic growth and stability, increasing employment and alleviating poverty, controlling inflation, and improving the living standards.[46]

6. The Food Ration System: although the subsidy cost of the food ration system financed by the annual budget estimated at about $2,998m in 2010,[47] the perpetuation of the system and the indirect income support given to the less productive civil servants boost the “little wealth of the poor”. However, the poor are still have no economic means and activities for generating enough income. Thus, instead of the food ration system, a radical comprehensive and well integrated program to eliminate poverty should be initiated by a government entity alongside with other economic growth policies. This is essential especially when the government intend to conclude the food ration system as quickly as possible.[48]

7. Low Non-Oil Exports: at present, non-oil exports contribute very little to the trade balance which has always been a surplus. Crude oil exports contributed 99% and 97% to the value of total exports in 2009 and 2010. It is self-evident that these facts implies very risky structural gap that urgently necessitates the increase of non-oil export- oriented activities.[49]

Future Vision, Economic Priorities, and State Capitalism

"In 2030, an independent, prosperous, and democratic Iraq will hold a prestigious place in the world. In 2030, all three dimensions of "sustainable development"; i.e. economic growth, social progress, and environmental protection and natural resources development, will be maintained. Iraq's competitive and diversified economy that has industrial knowledge-base corporations, innovative technology, entrepreneurial, and science capacities, will occupies an important position in the world economy as a major energy source of crude oil, industrial hub, and a center of financial services in the ME region. Its trade and investment in the region and the world will be significant. The conditions for free market; i.e. freedom of work, property ownership, investment, and trade, will be prevailed, and the state's economic and financial regulations will be minimized. The economy will no longer depend mainly on oil exports. In addition to the leading vigorous public-private sharing of industrial corporations, the private sector; the big companies, medium and small industries, and business firms, will play an important role in production, investment, and exports activities.

Socially; all citizens are equal and will enjoy full range of political and social liberties in an open multicultural and tolerant society guided by ethical and human values. The society will benefit from an integrated social securities and welfare system that ensure basic education and health services, as well as helping the unemployed, retired, elderly, and needy people. The middle class will play a pioneer and dominant role in the economic, social, technological, and culture development. Iraqi labor force will be characterized by high productivity and skill and the ability for initiative and innovation. All citizens will participate actively in the management of the state activities.”[50]

Prior to identifying the economic strategy objectives and policy priorities, it is essential to outline in a wide futuristic framework that is based on past experience the notion that the nation must be incited by "what Iraq's future ought to be”, but not, "what Iraq's future would be". This is neither a perfect imaginative political proposition, nor a definite description or prediction of the country's future reality that is compatible with the possible advance of technology; nevertheless, it is definitely an inspiring vision:[51]

Iraq, at present, is a developing country which has a small economy in terms of GDP, low GDP per head, and very low value added of non-oil sectors, shortage of skilled labor, lack of infrastructure, decline in entrepreneurship, weak private sector, and widespread informal sector activities. However, Iraq, as it is well-known, is endowed with human and abundant natural resources; crude oil and natural gas, water for irrigation, cultivatable land, and promising productive manpower. Also, the nation has rich and creative culture heritage deep in history.[52] Iraq, therefore, is qualified and deserve better than the modest future vision recently suggested by the "national development plan 2010-2015" adopted by the government to lead the country for achieving sustainable economic growth and strategic development objectives.[53] An attempt to assess the government's proposed economic strategy and policies during the period (2003-date) in retrospective with the past experiences of using oil revenues by the governments during an "assumed" five periods (1921-1951, 1952-1958, 1959-1968, 1969-2003, and 2003-date), is neither logical nor realistic or even fair to historical judgment. However, it is very important to highlight the ways the decision-makers use oil revenues in order to reveal the extent of the present state of inefficient utilization of public resources. In contrast, even when oil revenues were insignificant in the period (1921-1951), the then governments tried to allocate them to finance some of the most needed public infrastructure projects though they failed to keep their promises under the pressure of improving the public services especially during the difficult period of Second World War. At that time, they used oil revenues for financing the current expenditures of the annual budgets because they were obliged to scrap the implementation of most planned projects of the “development programs.”[54] In the second period, the governments were more cautious in utilizing the oil revenues for financing a number of required physical and social infrastructure projects, as well as for improving public basic services. In (1959-1968) period, although the governments recognized the need for reducing the economy’s dependence on oil sector and put more emphasis on industrial development, they actually reallocated more oil revenues to finance the government current expenditures; i.e. public consumption. During the period (1968-2003), oil revenues were utilized mainly to serve the vague “Arab Socialism” ideology and imposing the political objectives of the former regime disregarding the individual liberties and democracy and the required promotion of the private sector. Though the former regime was well aware, especially prior to the full nationalization of oil foreign companies in 1974, of the risk of dependent heavily on oil revenues for financing the government expenditures, its policies and allocation priorities failed to develop enough non-oil industrial capacities and non-oil exports, as well as failed in generating non-oil financial sources for the state’s annual budget.

As the Iraqis regained their basic liberties, they were inspired by the cause of building a liberal, democratic, and economically prosperous regime. However, the post- 2003 economic reforms were ill advised by implementing the hasty and non-conditional liberalization policy and advocating the pre-mature privatization of the oil industry and the public enterprises prior to their rehabilitation requirements.[55] Also, the recently proposed easy move, though not yet legalized, to consider unconditional accession to the WTO, would be more harmful to the infant industries and agriculture production than would enhance the intended economic reforms.[56] And the promises of improving the investment environment by the introduction of “investment law of 2007” that suppose to promote investment, especially FDI, have quickly evaporated.[57] The unsuccessful IMF, WB, and US policy reforms was a result of misidentifying the economic priorities and the absence of oil utilization criteria that match with the dynamics of the real driving economic, social, and political forces.

On the other side, the lack of the political system in providing wide choices adds to the economic failure, it is extremely difficult to assume that the dominant religious political parties are capable of undertaking the required radical economic reforms and cope with the existing problems, as well as facing the unexpected global economic, technological, and political fast moving events.

Good macroeconomic management needs careful assessment of the public finance, the availability of financial resources for investment, the public debt, and the country’s reserve of foreign currency.[58] Therefore, the following policy areas should have priority importance:

1. Increasing public investment for the erection of the economic infrastructure projects; i.e. dams for water resources, salty land reclamation, roads, railways, ports, modern telecommunications network etc. In addition to developing the existing basic industries; the petrochemicals, oil refining, electricity, sulfur and phosphate mining, aluminum, fertilizer, and finance new high-technology industries; e.g. steel and car industries, in the form of vigorous public and public- private owned corporations that can fit the current conditions of free market; namely, applying independent managerial operations that allow initiatives, innovation, entrepreneurial, and marketing skills. The proposed investment programme in non-oil industries constitutes the base of the envisaged State Corporations Model that is fundamentally different from the past experience of inefficient and politically controlled public enterprises. In pursuing the establishment of the SCM, we need a well-defined program that identifies the required industries and sets of functionally and timely integrated projects. The task could be performed by an independent public entity; i.e. the “Iraqi Reconstruction and Development Council (IRDC). At this stage of globalization, the SCM is extremely important for implementing effective economic diversification strategy. In addition to the public investment in non-oil industries, the IRDC should also prepare a program consist of synchronized physical, social, and environmental infrastructure projects to be allocated for all Governorates that have to be selected on the basis of overall economic and social criteria; e.g. roads, electricity, water dams, irrigation schemes, clean water, sewage systems, town planning, economic free zones, industrial parks, schools, hospitals, and public utilities.[59] The two programs should be financed by at least 60% of oil revenues during the years 2013-2015 and 80% in 2016 and onwards.[60]

2. Modernizing the financial services sector; especially banks, the stock market, and insurance companies. This sector is the vehicle of investment operations and should be regulated in accordance with the main objectives of the country's economic strategy. The CBI should, therefore, take the necessary measures and provide incentives to develop the banking system and associates institutions and increase the credit facilities, as well as activate the influence of the interest rates by increasing public awareness of saving and investment necessities and benefits.

3. A flexible foreign exchange regime must be established by taking gradual liberalization steps and share part of the responsibility for improving productivity and sustaining economic growth and stability as part of the economic diversification strategy but not only for controlling inflation. Even the CBI practice where the foreign exchange regime used mainly as an instrument for controlling inflation, it is not quite effective because of the fiscal policy dominance.[61] Practically, at present, the current foreign exchange regime is US$ peg regime. The exchange rates of ID must reflect Iraq’s economic reality and serve the main objectives of the economic diversification strategy. However, the current practice that reduce imports cost through overvalue of the ID vis-à-vis $US, led to increase in private consumption only. The latter can not be productive and sustain economic growth unless it is generated from non-oil industrial and economic activities.[62] And since there are no idle production capacities, such a situation would result in increasing the pressure on government spending.

4. Alleviating poverty by generating income sources for the poor people in addition to the provision of public services and basic needs. Poverty alleviation can be achieved by improving labor skill through rehabilitation and vocational training, reforming primary education, and the promotion of income generated from small projects, as well as by the implementation of a thoughtful regulated social security benefits system.

5. Redistribution of income and wealth: In Iraq, a "just" distribution of income is not only an ethical or social issue, or an issue related to the lack of market mechanism in dealing with the unfair pattern of income distribution, or it is an issue stemming from the inefficiency of government fiscal policies in tackling the unsuitable wealth distribution. In addition and most importantly, it is the public ownership of oil wealth that justifies the State intervention in putting the income distribution process into a more socially and economically appropriate priority and path. Oil wealth is the major source of government expenditures; for investment and consumption, as well as for financing the required increasing imports which constitute directly and indirectly the major share of the effective aggregate demand that generate economic growth: i.e. oil revenues are the engine that lead to increase profits for the entrepreneurs, rent for the use of the land and assets, interest rates for utilizing the capital, and wages for hiring labor force. But oil wealth is owned by all Iraqis and thus it should not be used in activities that increase the disparities in individual income and wealth. Therefore, the government is obliged to undertake effective policies and measures to reduce the existing wide gaps in income and wealth among the citizens.

In practice, the success macroeconomic criteria of the diversification strategy can be summarized by the following: the contribution of the value added of non-oil activities to GDP should be increased to at least 80%, non-oil revenues should contribute at least 50% to the State’s annual budget,[63] non- oil exports should increase to at least 70% to total exports, the value added generated by the private sector to GDP should increase to 70%.[64] In this respect, though the required macroeconomic policies have to be implemented in view of the suggested economic strategy objectives, they should be flexible for change to cope with any unexpected macroeconomic events.[65]

Privatization, FDI, and State Corporations

The recent global financial and Euro zone crises and the resulting slow growth of the world economy (2008-2009, 2011- to date) has revealed the catastrophic impact of widening gap between the rapid increase of money and credits on one side and the relative slow pace of increasing production on the other in the major industrial economies. The divergence between the fast expansion of financial flows and the limited economic growth is similar to the case of the oil-rentier economies where the government exorbitant expenditures financed by excessive oil revenues through its macroeconomic fiscal policy while the expansion of the real economy is limited and fails to match with the successive financial flows. Hence careful attention should be given to balance the allocation of oil revenues between government current expenditures and public investment on one side, and manipulate the macroeconomic policies so as to mobilize the nation's resources for increasing economic growth on the other. But economic growth should be sustained and, therefore, must be put on the path of the diversification strategy in which the private sector should play an important role in terms of its value added ratio to GDP, exports, and public finance. This also necessitates the need for FDI. The promotion of indigenous and FDI is an essential part of the liberalization reform that would constitute an important element in increasing the economy competitiveness.

The crucial factor in implementing the economic diversification strategy that is guided by the State’s future vision is to increase investment in expanding the industrial capacities, especial of high-technology, as well as in building the physical infrastructure, science and technology promotion projects. At this stage, the State can provide the financial requirements for building those projects. However, the operational management of the assumed new industries should be independent and designed as business-oriented corporations that fit the market competitiveness’ conditions; i.e. corporations have to be characterized by initiatives, innovations, creativity, and entrepreneurship. Such State Corporations Model should not be considered as similar to the public sector enterprises model of the period (1964 – to date). Although the two models are similar as both owned by the State, they have two main significant differences;

1. The socio-economic objectives of the old public sector enterprises are different from the objectives of the new State corporations that have to be operated similar to the private corporation in the free market.

2. The management of the State corporations are free from government political intervention and support but only guided by the market conditions.

In 1953, the public sector contributed only 11.8% to GDP, but by 1979, its contribution increased to 80.9%. In 1979, the public sector owned 100% of the oil, electricity, and clean water industries. Also, it contributed 53% to the total value added of the manufacturing industries, 34.4% of the agriculture, and 23.9% of the construction sector.[66] However, since the nationalization of the major industries and banks of the private sector in 1964, it was realized that the “socialist and comprehensive planning” policies have restricted the activities of private sector and fostered the inefficiency of the public enterprises, especially in the manufacturing industries, banking, and trade, and thus contributed to the then economic problems. The expansion of public sector which was promoted by the availability of oil revenues has arrested the development of efficient private sector. Under the pressure of the fall of oil revenues and the costly war with Iran, the former regime has undertaken a partial, tailor-made, and self-interest program for the privatization of certain public enterprises during the 1980s. But those measures have also failed not only to establish the conditions for free market, but also they were unsuccessful to limit the increasing financial burden of the public enterprises. During the period (1990- 2003), Iraq has experienced extraordinary difficult circumstances in which the then policies cannot be considered for fair assessment of the role of the indigenous private sector vis-à-vis the public enterprises.[67]

After April 2003, it was assumed that the ultimate aim of the new economic strategy and policies or as it was called the “economic shock thereby” is to liberalize the economy from government intervention and to establish the conditions for free market and private sector activities that would increase investment and growth, as well as promote competition and in turn improve the economy efficiency. The policies, including the intended privatization program, have quickly failed.[68] However, the failure cannot change the fact that the economy is still in dire need for radical structural and intuitional reforms that promote the role of the indigenous private sector as well as FDI. Therefore, the targeted market reform endeavor should be carefully designed and implemented by a strong government to fit the allocation of oil revenues for achieving the goals of diversification strategy.[69] Part of this strategy is to urgently privatize the public sector enterprises that cannot be developed into market-oriented large industrial corporations.

In addition to the targeted improvement of the investment climate by erecting the physical and institutional infrastructure, privatization of certain public enterprises is also an essential measure. The program should aim not only to ease the financial burden of the inefficient public enterprises, but more crucial is to increase the economic competitiveness by liberalizing the economy from government monopolies and reduce the taxes on income and business profit. However, in Iraq, public ownership of certain strategic enterprises are still essential for maintaining the State’s security and public interests as well as for major industrial projects that have comparative advantages by utilizing the public natural resources; i.e. water, oil, land, and space, such as the petrochemicals and oil refining industries, communication and IT infrastructure, roads, and water dams. Also, when the private sector is not ready to invest in the very costly projects that are essential for the economy and the society, such as production of electricity, the public ownership of those projects is a must. However, Iraq needs to privatize public enterprises that can be owned by the private sector. If successfully prepared and implemented, the privatization program would help to increase investment and improve economic efficiency, as well as mobilize resources for public finance.[70]

To avoid the corruption disease likely associated with the implementation of the program, careful preparation for identifying candidate enterprises for sale to the private sector, its re-evaluation and rehabilitation, and setting the rules and the implementation process must be made under the supervision of the highest executive official authorities.

While incentives should be given to the indigenous private sector to promote investment in all activities, especially in medium and small industries and export-oriented enterprises, particular incentives should be given to FDI for indigenizing high-technology industries. Also, regulations for conditional and temporary protection measures to the infant industries and certain agriculture products must also be applied in a balanced way. In this regard, it is essential that economic policy should reconcile, in a practical manner, the need for high-technology industries and the provision of employment opportunities by expanding production capacities using labor-intensive technology.

For the FDI, the following policy’s guidance and incentives must be observed:

1. For the high-technology industries, corporate tax exemption should be guaranteed and might extend to more than 10 years, as well as full and partial custom duties allowances on imported machines and equipments and raw material, except for similar locally produced. Also, free transfer of profit, wages, and equity returns must be guaranteed. The required physical infrastructure and basic needs of electricity and water, as well as credit facilities must be also provided.

2. Export-oriented industries must also have similar incentives as those for high-technology projects.

3. Establishing free economic and industrial zones and innovation parks.

4. Encouraging R&D projects by providing grants to qualified private enterprises.

5. Set-up preferable incentives for encouraging FDI in the less developed regions.

6. Excluding the FDI from investment in the nation's strategic infrastructure and enterprises; in land, sea, and space.

7. Ensuring equal treatment with the Iraqi private sector.

These suggestions, with the earlier proposed economic priorities, constitute the basic elements that are imperative for increasing the competitiveness of the economy.

In practice, the exact identification of the required measures and incentives could be prepared on the basis of detailed field study that aim to assess the economic environment components; the law and legal regulations, the conditions of the existing infrastructure, education and training facilities, the extent and attitude to transparency and corruption, the state of technology, and R&D facilities.

Conclusions

Iraq, like many oil-rentier countries, is facing serious challenges emanated from the economy’s high dependence on oil exports for a long-time. By broaden its economic base into diverse range of competitive production activities, Iraq would be in a better position not only for achieving sustainable economic growth, accelerating social development, and improving the living standards, but also for developing a dynamic political system with wide democratic practices.

The assessment of past experience and based on our understanding of why and how the macroeconomic variables, including oil exports, and the political actors behave under the current and envisaged circumstances, would lead to the suggestion that until the economy escapes the "oil-hostage trap" and the government respects the tax-payer voters: then the public ownership of oil wealth; the need for democracy; the required competitive economy that is able to integrate into the world economy; the improvement of the living standards; and the demand for social equality; are all necessitate for radical change of the current economic and political conditions. The proposed policies are in line with the lessons derived from the global financial crises and the world economic slowdown (2007-2009 & 2011- to date) which clearly revealed the huge damage caused by the implemented unlimited international and national financial deregulation policies that have resulted in the adaptation of more cautious attitude to the role of national and international macroeconomic policies.

Over the last nine years, nothing radical has changed in Iraq; neither the inefficient macroeconomic policies, nor the political passiveness to economic reforms, or the misuse of money and time consuming efforts in the rebuilding of the country's infrastructure. Since the prevailing political parties lack the vision, the will, and the interest in pursuing the required fundamental change, the governments have relied heavily on spending public oil revenues for performing the state’s normal functions, satisfying the daily financial and socio-political demand of citizens and social groups, as well as for serving their political interests. The government's expenditures, which constitute the major share of the aggregate demand, have not only drained the precious non-renewable energy resource and finally failed to create wealth and restrain the deterioration of the living standards, but also it deepened the chronic structural economic problem and substantially increased corruption. Nevertheless, Iraq has ample opportunity in dealing effectively with the prevailing serious problems, i.e. sluggish production of non-oil sectors, low productivity, high unemployment, widespread poverty, poor public education and health services, lack of public utilities and basic needs and the insufficient physical and institutional infrastructure. Guided by inspiring future national vision and applying effective economic diversification strategy with clear economic policy priorities, but certainly without the reliance only on “illusion magic” of non-regulated market mechanism and the independent monetary policy, Iraq must embark on a radical tailor-made economic and institutional reforms program for increasing indigenous private investment and FDI, as well as public investment by allocating most of the oil revenues to finance the physical, social; especially education, and environmental infrastructure projects that have to be managed by an independent public entity.

At this stage, vigorous state’s owned corporations of high-technology industries must be built and managed, as private corporations, by independent qualified directors that have the required initiatives, innovative technology, entrepreneurial, and marketing capacities which qualify them to be competitive in the markets. The market-oriented SCM would contribute, together with the promotion of medium and small private enterprises, to the economic growth and diversification. Also necessary, public investment for improving primary education and extensive training programs for manpower, promoting R&D and innovation, and supporting creative entrepreneurial initiatives management skill in all sectors.

However, the application of the model should not undermine the urgent implementation of the targeted privatization programme of the public sector enterprises that cannot be developed into the form of state corporations.

Socially, the government policies must reduce the existing wide disparity gaps in income and wealth among individuals and regions by careful allocations of oil revenues for public projects, as well as through the fiscal policy.

The application of the suggested new economic model needs democratic environment, strong political will, and liberal forward-thinking by the policy- makers, as well as competent public institutions and effective non-government organizations and civil societies that are able to invoke the nation’s spirit for building a strong and stable economy, maintaining political stability, and social progress.

Annex: The Dynamics of Iraq’s Macroeconomic Analytical Model

Triggered by the recent financial global and Eurozone crises and the resulted slowdown of the world economy associated with increasing de-globalization measures, the policy-makers and academic debate on the effectiveness of the national and international macroeconomic policies as originally based on the neo-classical Keynesian economics; the macroeconomic policy that justify a role of the state for increasing demand for promoting growth, vis-à-vis the viability of classic economics of capitalism; Adam Smith’s free market and profit maximization of corporations that stimulate growth without intervention of the macro fiscal policy and putting more emphasis on the role of independent monetary policy, have relevance to the problems facing the developed capitalist economies. However, such debate has no practical value in dealing with the structural problems of the oil-rentier economies like the case of Iraq. Although there are significant similarities between the causes and symptoms of the global financial challenges that are facing the developed countries and the problems of the oil-rentier economies: the exorbitant of credits in the global financial markets and disproportionate spending of the excessive oil revenues; investment in opaque financial products in the global markets and investment in non-productive white-elephant projects in the oil -rentier economies; and the widening disparity in wealth and income at the national levels;[71] these challenges and problems need different remedies. Thus, the given policy propositions and analysis for Iraq that are based primarily on its experience cannot be considered in line with the discussion on the effectiveness of classic vis-à-vis neoclassic macroeconomic policies.

As stated in the “Special Theory of Economic-Rent and Free Market Efficiency (STER),”[72] Iraq’s actual economic experience, especially during 1970s,[73] provided enough quantitative and qualitative evidence that allows to put it in a formal dynamic economic model for predicting the behavior of the macroeconomic variables under different assumptions that are adequately define the initial conditions and illustrate how the whole economic system evolve over time; i.e. describes the connections of causes and effects as a result of increasing the government spending that is financed by oil-rent generated beyond the economic surplus generated from normal production activities. In other words, the finance for investment is exogenously available. STER is a predictable economic analytical model which is useful to illustrate the most likely economic development path as assumed in this paper.

It was also stated that the main conditions for increasing economic growth and employment in Iraq can be summarized as follows: raising domestic private saving for increasing investment, in addition to increasing public investment, especially in non-oil industries, and increasing non-oil exports.[74] Also, success criteria have been suggested to assess quantitatively the advance in satisfying theses necessary conditions.[75] At present, and like the situation during (1974-1980), there are no financial and foreign currency constraints that constitute binding restrictions on economic growth and the investment for the reconstruction of the public economic (physical) infrastructure.

Given these growth and development conditions, there are at least three main practical reasons that necessitate the application of a simple formal macroeconomic model for Iraq:

1. To identify and trace the behavior of the main economic variables through time.

2. To highlight the first causes of the economic dynamics under current circumstances and in perspective conditions.

3. To identify the role of the economic agents; i.e. the state, the private sector, and the consumers in the economic growth process.

Also, as stated earlier, the proposed macroeconomic model consists of the following main components:[76]

• The endogenous variables; i.e. GDP, wages, profit, consumption, and imports.
• The exogenous variables; i.e. oil exports, non-oil exports, and investment.[77]
• The parameters; income distribution pattern, the propensity to save in public and in private sector, oil revenues ratios for government current expenditures and for public investment, the technology coefficient as reflected by the capital-output ratio, the ratios of investment, intermediate, and consumer goods and commodities to GDP.[78]

In testing the model’s behavior, the values of the exogenous variables and the parameters are to be determined by the actual macroeconomic policies of the government (as reflected in the annual budget’s revenues and expenditures, total investment, and exports) which are described qualitatively in this paper.

Since the government control most of the macroeconomic variables, it provides the external costs and benefits to all economic activities that are not reflected in prices and ignored by the market economy; i.e. the externalities, as well as maintains the instrument to determine the criterion for influencing the distribution pattern of income and wealth. Hence, given the described prevailing economic and political conditions, the first cause that initiates the dynamics of growth and distribution process, is the exorbitant government spending of the available excessive oil revenues, not the tax payers contribution or the private savings. Once the effects of government spending starts, the resulting “snow ball” of expenditures keep rolling and grows due to the increasing demand of the people for better public services and maintaining low prices of their basic needs and essential imported products. As the ruling authority struggle to maintain its political power, the size of the rolling “snow ball” continues to be bigger and bigger with the successive increase of oil revenues which lead to: the improvement of the living standard in terms of cheap public services; increasing income and consumption but without matching the required increase in domestic production; increasing productivity; and increasing investment in non-oil industries. Therefore, unless the government controls the expected change of the macroeconomic variables behavior in a systematic way, this situation pushes the government further to allocate more investment for increasing oil exports (revenues) in disregard to the depletion of this valuable public natural resource and consequently increase the economy’s dependence on it. It is the successive increase of oil revenues that lead to the increase of non-productive expenditures which comes first in the dynamics process of the macroeconomic activities which eventually deepening the economic structural problems.

Since the government ability to manipulate the macroeconomics events over the functioning of the individual economic activities will be increased by the growing power of oil revenues, then the role of producers (investors), the consumers, and the workers, who make their decisions on the basis of prices and wages, cost, and profit, become less effective.

Excessive spending of oil revenues in less productive economic activities acts against the targets of achieving sustainable economic growth and efficient use of the oil wealth. It is interesting to compare this actual negative dynamics process of the relationship between oil revenues and economic development with the dynamics role of the new technology in advancing science that is in turn improving the technology which opens more doors to scientific achievement.[79] Nevertheless, if oil revenues utilized efficiently under the described reforms, it would increase economic growth and maximize employment of resources which create the wealth for the nation.

References

1. In general, there are three main criteria set for defining the oil-rentier economies: first, the contribution of oil sector to GDP is more than the total contribution of industry and agriculture sectors. Secondly, oil revenues finance more than 50% of the state annual budget, and public investment contributes more than 50% of total national investment. Thirdly, the value of crude oil exports contributes more than 50% of total national exports. These criteria were proposed by the author in a study entitled “al-qeema al-iqtisadia lil mawarid al-naftia al-arabia baina al-daawa lil takamul al-iqtisadi al-arabi wa baina shoroot al-nimow wa al-tanmia al-qutryia” (Arabic) “the economic value of arab oil resources and the call for arab economic integration vis-à-vis country’s growth and development conditions”, paper presented to the 11th scientific conference of the Arab Economists Union held in Casa Blanca in Morocco (2-5th October 1989) and published in the monthly journal “Dirasa’at Arabia”, issued by “Dar Al-Talia” publishers, Beirut, Lebanon,26th year no.4, Feb. 1990.

2. The case of Arab authoritarian-autocratic oil-rentier countries is more complex, and the given analysis and suggested remedies in this paper do not completely fit their required changes. Some of these countries need comprehensive radical socio-political overhaul: freedom of religion; combat religious extremism; clear discrimination based on ethnic, sectarian, and gender; lifting the restrictions on education; allowing free thinking and criticism; and ensuring equality of opportunities.

3. On the early writings about these economies, see; Mahadvy, H. "The Pattern and Problems of Economic Development in Rentier States: The Case of Iran", in Cook, M. A. (ed.) "Studies in Economic History of the Middle East", Oxford University Press, London, 1970.

4. Most obvious, the wide practices of governments’ fiscal stimulus and monetary policy intervention that have bailed- out and eased the toxic debts of the big banks and investment institutions and crippled industries which have resulted in severe cut in governments’ spending, as well as raise the temptation for trade protectionism and manipulation of the foreign exchange regime to maintain external balance. See; Sabri Zire Al-Saadi, “The Global Financial and Economic Crises and the Hidden Crisis of Oil-Rentier Economies: Back to Basics”, published in “Strategic Insights” issued by “Center for Contemporary Conflict”, vol.8 no.1 (January 2009). (http://www.ccc.nps.navy.mil/si)”, and “Crucial Challenges to Global and Oil-Rentier Economies", published in "Contemporary Arab Affairs", volume 2, no. 2, April 2009, issued by the "Centre of Arab Unity Studies", and published by Routledge: Taylor & Francis Group Ltd., London.

5. In this paper, the use of the term “State Capitalism”, which was widely referred to in the socialist thinking of different views in contrast to Marxism ideology, was motivated by recent initiative of "The Economist" of London, which debate the efficiency and sustainability of the model as cited in the emerging economies, especially of China. See; The Economist, "emerging-market multinationals: The rise of state capitalism" & "and the winner is …: For all its successes, state capitalism has fatal flaws" 21st Jan. 2012 (www.economist.com)

6. An interesting recent study on the problems that caused the failure of the Gulf oil states (Kuwait, United Arab Emirates, Qatar, Saudi Arabia, Bahrain, and Oman) in achieving development and security, highlighted the following: the oppressive and monopolistic family inheritance' ruling regimes which have the oil wealth but without community control, participation, and accountability; and the dependence on foreign power. See; Yusuf Khalifa Al-Yusuf, " dowaal majlis al-taawin al-khaligee wa muthalath al-wiratha wa alnaft wa alqiwa al- ajnabiya" (Arabic), "The GCC States and the Triangular of Inheritance, Oil, and Foreign Power", published in "al-mustaqbal al-arabi", a monthly journal issued by the Centre of Arab Unity Studies, Beirut, Lebanon, no. 383, January 2011.

7. See; Sabri Zire Al-Saadi, “Success Conditions for Iraq’s Oil- Rentier Economy: Special Theory of Economic- Rent and Free Market Efficiency”, Strategic Insights, Center for Contemporary Conflict, Vol. 6, Issue 6, (December 2007). (http://www.ccc.nps.navy.mil/si/). Also see; Sabri Zire Al-Saadi, “A Formal Growth and Distribution Model: The Case of a Developing Crude Oil Exporting Economy", OPEC Review, vol.13, issue 3, pages 227-242, September 1989.

8. E.g. the remarkable well-known economic success of South Korea’s state-led economic and social development planning prior to the 1990’s especially in building the industrial and institutional infrastructure and the improvement of education. Most recent successful experience is China impressive economic advancement during the last two decades which has been characterized as State Capitalism Model.

9. It was recently confirmed by the Iraqi minister of oil that the country's oil proven reserves have increased to (143.1) billion barrel from (105.0) bb; i.e. Iraq becomes the world's second largest holder of crude oil resources after Saudi Arabia (264.59) bb. Also, the unproven reserves increased to (505.408) bb. See; "Al-Sabah", the Iraqi semi official daily newspaper dated 5th Oct. 2010. (www.alsabaah.com). Also, oil production in 2012 will be increased to 3 m b/d compared to 2.6 m b/d in 2011according the Deputy PM for energy; (reported in MEES 6th March 2012). The information add more credibility to the government targeted increase of average annual oil production to about (12.0) million b/d in 2016/2017 in accordance with the investment agreements made with the foreign companies. On the implication of the likely growing Iraq's oil power, see; Sabri Zire Al-Saadi, "The Political Economy of Iraq's Growing Oil Power: A Crucial Phase", published in "The Culture and Conflict Review", vol. 4, no. 1, Spring 2010, a web-journal issued by the "Program for Culture & Conflict Studies at the US "Centre for Contemporary Conflict". Republished in Arabic under the title "al-iqtisad al-siyasi li-tanami qowat al-naft in iraq: marhala hassima", "al-mustaqbal al-arabi", a monthly journal issued by the Centre of Arab Unity Studies, Beirut, Lebanon, no. 378, August 2010.

10. At present, the KFG plays similar role though less important than the central government in terms of the amount of oil revenues as 17% of total oil revenues have been annually allocated to the region.

11. See; "The Political Economy of Iraq's Growing Oil Power: A Crucial Phase", ibid.

12. This issue was raised earlier, see; e.g. Sabri Zire Al-Saadi, “Iraq’s Vicious Circles of Economic Priorities, Misuse of Oil Wealth, and Political Weakness”, MEES, vol.50 no.16, 16th April 2007.

13. The general election of March 2010 has resulted in the following parliamentary power: the Al-Iraqiya coalition, mainly Sunni held 91 seats, the Law State, mainly Shiite held 89 seats, the National Coalition, mainly Shiite held 70 seats, and the Kurdish Coalition, mainly Kurdish nationalists held 43 seats. Except from insignificant number of liberal personalities, the liberal and democratic parties have failed to secure seats in the parliament.

14. By the end of November 2010, there were 628 non-government organizations registered at the "Iraqi Ministers Council, NGOs Directorate"; among them there are more than 20 organizations where economic development and interests were expressed in their official names. See; the Iraqi cabinet web site, (www.cabinet.iq).

15. The published ministerial program of the new government clearly reflects the same old governments’ practices of unqualified big promises, absence of priorities, especially in economic sphere, artificial way of political compromise among the political parties. The program promises include rosy targets for dealing with the political, social, economic, and oil issues, maintain law and judiciary, ensuring security, building military capacity, increasing employment and housing units, accelerating rural development, empowering women, flourishing culture, improving foreign relations, heritage protection, supporting the media, protecting liberties and democracy…etc. Noticeably, the program failed to highlight the severity of poverty and unemployment and the lack of public services. The text of the program was published in “Al-Sabaah” the semi official Iraqi newspaper, Wednesday, December 22, 2010. (www.alsabaah.com). It is a program that cannot stand the practical reality and thus would add more to the people disappointment.

16. In this respect, the application of a flat low tax-rate in some foreign experiences proved to be effective in increasing economic growth that resulted in an increase of the absolute value of taxes.

17. There are media reports that the Prime Minster has more than 60 advisers in his office, most of them are from his supporters and recruited from the universities. However, few of them have rich economic experience and very few addressed the crucial economic issues to the public.

18. The meeting's outcome was reported on 9th February 2012 by the ministry of Finance see; (www.mof.gov.iq) the said group was established by the PM office, decree no.64 of 2011.

19. Total cash value of oil exports received by the government during the last nine years is estimated to exceed $300 billion. See footnote 25.

20. Sabri Zire Al-Saadi, Iraq: Does Distribution of Some Oil Revenues among Citizens Help? MEES vol.55 no.10 5th March, 2012.

21. The following two examples clarify this view: the first shows how the government institutions conduct discussions on serious economic policy reforms with foreign advisers. Regardless the lack of official and public consensus of the IMF “two-year stand-by arrangement" in the amount of $3.6billion approved by the government, a recent IMF report revealed that IMF-Iraq meetings held to assess the progress made in implementing the program which assumed to provide temporary budget support, ensure macroeconomic stability, and provide a framework for advancing structural reforms. The resulted report was “based on discussions held during May 12-13, 2010 in Istanbul (Turkey), and July 13-17, 2010 in Amman (Jordan) where IMF staff met the Governor of Central Bank of Iraq (CBI), Adviser to Deputy of PM, Senior Advisor to Minister of Finance Azez, and other senior officials and management from two largest state-banks”. The report concluded that the Iraqi authorities have “met all the performance criteria for end-March 2010, with the exception of the floor for the CBI’s net international reserves” See; IMF, "IMF Country Report No. 10/316, October 2010", available on CBI web-site, (http://www.cbi.iq/). In contrast, a clear, thoughtful, and rare statement made by an Iraqi senior official on the state of the economy, a professional economist Dr. Ahmed Ibrihi Al-Ali, the Vice Deputy of CBI's Governor admitted the bad state of the economy and the failure of the governments' reconstruction and revival efforts. He confirms that the Iraqi economy has no sign of revival and no preparatory arrangements were made for the provision of its requirements, in addition to the failure in solving the electricity problem. The State have done nothing, he said, to improve the capacity of the government institutions responsible for the reconstruction as the management of public enterprises is still following the same old procedures and running by the same old departments and employee. He admitted that there have been no efficient indigenous private or foreign companies capable of implementing the Sate big projects or even building schools, swage networks, and hospitals. He also said that the annual budget of 2011 is almost the same as the budget of 2010. Even in the oil sector, there have been little positive signs that foreign companies have starting the implementation of the recent "oil service contracts" for increasing oil production. See, "Experts: the economic scene of 2010 shows the economy is still have structural imbalances", Almada newspaper no. 2001 dated 30/ 12/ 2010. (www.almadapaper.net).

22. The most recent example was the governments’ bail- out given to the failure banks and major industries in the US and European countries during the global financial crisis (2008-2009 & 2011- to date) in order to prevent the collapse of their financial and economic systems.

23. A thorough analysis of the driving forces of Iraq and the region political complexity was given by the well-known veteran politician ?Mr. Fakhri Karim, the editor-in-chief of Almada newspaper, in his editorial column entitled, “the Arab and Regional Sectarian Intent and Iraq-Iraq Conflict”, (Arabic), Almada paper, no. 2378, Monday 30th January 2012. ( www.almadapaper.net )

24. On the influence of oil power in the Middle East region, see; “Oil Power and Adversity in Iraq’s Experience: Case History of the Middle East”, ibid.

25. Total net cash from oil exports sales during the period (22nd May 2003-31st December 2010) Iraq received through the "Development Fund for Iraq" amounted to $ 250.956 billion, while the grand total cash Iraq received during the same period was $270.721 billion. Total disbursements; i.e. government expenditures was amounted to $ 263.169 billion. See; International Advisory and Monitoring Board for Iraq (IMBI), Final Report-revised version 2011.(http://www.iamb.info/) The country’s foreign currency reserve was amounted to $60.0 billion by the end of 2011, see; Central Bank of Iraq, (http://www.cbi.iq/)

26. It was estimated that in 2008, the total planned government expenditures of the annual budget was $72.236 billion; i.e. current expenditures were $51.124 billion (71% of the total), and the government investment was $ 21.112 billion (29% of the total). However, actual expenditures were as follows; current expenditures were $40.857 billion; i.e. the execution ratio was 80%, total government investment was $8.646 billion; i.e. the execution ratio was 41%. This also reflects the fact that actual investment constitutes 17% of total actual government expenditures. It was also estimated that in 2009, the total planned government expenditures was $58.615; current expenditures were $45.888 billion (78% of the total), and government investment was $12.727 billion (22% of the total). In 2010, total revenues of the annual budget were estimated at about $ 52.764 billion; oil revenues were estimated at about $47.906 billion (90.8%). Total expenditures were estimated at $72.356 billion; i.e. the budget has planned deficit of 27.1%. 72% of the total expenditures were allocated to current expenditures and 28% for financing investment projects. In 2011, total revenues of the budget were $69.1 billion and total expenditures were $82.6; i.e. the planned deficit was $13.5 billion. In 2012, total revenues of the budget were $100.5 billion and total expenditures were $105.0; i.e. the planned deficit was $12.8 billion. The current expenditures were 68.4% of the total budget expenditures out of which 34.2% were salaries and wages, and about 10% were subsidies and grants and social benefits. Investment expenditures were 31.6% of the total out of which 28.7% allocated to the oil sector and 12.9% to the electricity. Oil revenues were estimated to contribute about 94% of total revenues.

27. As a result of the government “exorbitant”, but not productive spending, the deficit of the annual budget was 21.9% in 2009 ,14.2% in 2010, 16.2% in 2011, and 12.8% in 2012, and the deficit of the balance of payment to GDP was 14.4% in 2010.

28. There are no enough reliable updated statistical data and indicators to quantify in more accurate way the economic and social problems. However, the given statistical data supports the general conclusions given in the section, and they are published in the "Annual Abstract of Statistics 2008-2009", issued by the Central Organization for Statistics and Information Technology (COSIT) of the Ministry of Planning and development Cooperation. See; (http://www.cosit.gov.iq/english/index.php), and the "Annual Economic Report 2009" issued by the Central Bank of Iraq. See; (http://www.cbi.iq/documents/Annual_economic_report2009_f.pdfc

29. Central Bank of Iraq, “the annual economic reports for the years 2007-2010”.

30. Ibid.

31. It has no practical or analytical value at all to use the available GDP estimates at 1988 prices in order to neutralize the price fluctuation of GDP current values. See; the "Annual Abstract of Statistics 2008-2009", ibid.

32. The lack of updated and detailed official estimates of GDP and other macroeconomic indicators may invite the interested parties to use the IMF GDP estimates for the years 2007-2009 and projected for 2010-2012; i.e. $57,0m, $86,526m, 65,8m, 84,1m, 92,9m, 109,2m. See; IMF, "IMF Country Report No. 10/316: First Review Under the Stand-By Arrangement ", March 2011& "IMF Country Report No. 11/75: Second Review Under the Stand-By Arrangement ", March 2011. (www.imf.org). Accordingly, GDP per capita estimated at $1926, $2845, $2087, $2626, $2827 & $3400 in the same years. Obviously, IMF estimates are always presented in a consistent, and elegant, macroeconomic framework, but they are not necessarily reflect the reality, especially those predicted for the years 2010-2012, or the assess the economic efficiency performance as widely indicated by the GDP growth rates for other countries, as well as give correct assessment to the contribution of sectors to GDP. The IMF projected GDP growth rates, in particular, that are office- made exercise derived by applying a certain macroeconomic model that is based on certain assumptions relevant to pre-perception on economic reforms in the developing countries which are different from Iraq's economic reform requirements.

33. E.g. In 2008, only 65% of families got their water from the public water network, and only 30% have proper sewage system, 32% of families have public collection rubbish service, and 70% of families have the problem of more than 12 hours cut of electricity. See; Central Statistical Organization and Information Technology, "Iraq Knowledge Network Survey", Ministry of Planning and Development Cooperation of Iraq, January 2011.

34. See; Central Statistical Organization and Information Technology, ibid.

35. See; MOF, “the annual budget 2010”, available at (www.mof.gov.iq).

36. The minister of planning admitted that 70% of the State's employees are without real work and without real product. See; "al-awqa'at al-iraqia", (Arabic), (the Iraqi times), a weekly economic journal, 10/10/2010. (www.iraqitimesmg.com).

37. See; Arab Monetary Fund (editor), “the unified Arab economic report 2009”, available at (www.amf.org.ae).

38. On the data and the national strategy for poverty reduction in Iraq; See, Central Statistical Organization and Information Technology, “taqreer khatt alfaqr wa malamih alfaqr fi aliraq”,(Arabic) “ a report on poverty line and poverty aspects in Iraq”, Ministry of Planning and Development Cooperation, March 2009. Also see; Ministry of Planning and Development Cooperation, press release on 25/11/2010 issued by the High Committee for Poverty Reduction Policies in Iraq. (www.mopdc-iraq.org).

39. Ibid.

40. Ibid.

41. Ibid.

42. An interesting recent assessment of the deterioration of the socio-economic indicators was made by Dr. Ahmed Ibrihi Al-Ali, in which the following indicators were mentioned: in 2007, 23 percent of total population estimated at about 30 million - and about 30,8 million in 2009 - are below poverty line, only 26 percent of total population are economically effective, 32 percent of the population spend less than ID 100,000m ($83) a month per person, 38.2 percent spend more than 100,000 and less than ID180,000 ($83-150), while 29.2 percent spend more than ID180,000.0 ($150.0) per person per month. The overall average was estimated at ID145, 800 ($121.5). The average individual spending in Kurdistan Federal Region is almost twice the average in the rest of the country. See, Ahmed Ibrihi Al-Ali, "maeishat al-usra wa rafah al-am fi thaoue al-masih al-iqtisadi wa al-ijtimaie lil-iraq" (Arabic), "the family living and general welfare in view of the economic and social survey of Iraq", paper in private circulation, Baghdad, 2009.

43. See; "Annual Economic Report 2009”, ibid.

44. See; Transparency International, (www.transprency.org) .

45. The survey results show that 74% agree that the political parties influenced by corruption, only 9% disagree, 69% agree that the parliament infected by corruption, only 11% disagree, 63% agree that the government infected by corruption, only 17% disagree, 74% agree that corruption widespread among the civil servants, only 7% disagree. Even in the private sector, corruption spread as 62% of people noticed, 11% disagree. The survey also shows that 54% of the people agree that corruption increased during the last two years has increased. See; Central Statistical Organization and Information Technology, “Iraq knowledge network survey”. (www.csoit.gov.iq).

46. Quantitative and qualitative analysis of country experiences show strong relationship between the economic factors and corruption. See; Paolo Mauro, “The Effects of Corruption on Growth, Investment, and Government Expenditures: a cross-country analysis” in “Corruption and the Global Economy”, Institute of International Economics. (www.iie.com). Shang-Jin Wei, “Corruption in Economic Development: Beneficial Grease, Minor Annoyance, or Major Obstacle?” Harvard University and National Bureau of Economic Research. (www.nber.org). IMF, “The Economics of Corruption: An Overview”, George T. Abed and Sanjeev Gupta, September 2002. Institute of International Economics, “Corruption and Global Economy”, Kimberly Ann Elliot (editor), 1997. (www.iie.com).

47. See; “the annual budget 2010”, ibid.

48. The government intention is revealed in its proposal for the annual budget of 2011.

49. See; “the annual abstract of statistics 2008-2009", ibid.

50. Iraq has had a short- lived “technical” experience of long-term economic planning in the 1970’s. The then concept of long-term planning widely used in the development planning was limited to the economic perception of the country but not its socio-political dimensions as pioneered by the government of Malaysia. See; Ahmad Sarji Abdul Hamid, Chief Secretary of the Government of Malaysia (editor), “Malaysia’s Vision 2020”, Pelanduk Publications, 1993. About Iraq’s past experience, see; "the economic experience of modern Iraq: oil, democracy, the market, and the national economic project (1951-2006)" (Arabic), ibid.

51. The concept of future vision for Iraq was initiated earlier, see; Sabri Zire Al-Saadi, " Iraq's National Vision, Economic Strategy, and Policies", published in Strategic Insights, Center for Contemporary Conflict, Vol. 5, Issue 3 (March 2006). (http://www.ccc.nps.navy.mil/si/).

52. In Mesopotamia, Iraq’s ancient name, the first civilization appeared on earth around (3500-1000) BC. See; e.g. Roberts, J. M. “The Penguin History of the World”, penguin books, third edition, London, England, pp48-63.

53. Against the advocates for free-market policies given to the governments, especially by the US advisors, the new "National Development Plan 2010-2015" – regardless its little practical value - follows the same old approach in dealing with the prevailing economic and social problems. Indeed, except from the different wordings and the use of the popular concepts such as sustainable development, participation of private and public sector in development efforts, and the integration into the world economy. The document which was prepared with the assistant of IMF and WB experts put all policies and priorities in one basket of a "collection of bright promises". A glance at its main objectives and the explicit and implicit policies confirms the failure of the applied economic strategies and policies since 2003. It clearly states that "the plan was prepared in response to the failure of the annual investment programs, lack of projects priorities and projects integration, and the difficulties of formulating medium and long-term comprehensive development vision". See: Ministry of Planning and Development Cooperation, “Summary of the National Development Plan 2010-2015", www.mopdc-iraq.org .

54. See; Sabri Zire Al-Saadi, “al-Tajribah al-iqtis?a¯di¯yah fi¯ al-Ira¯q: al-naft? wa-al-di¯muqra¯t?i¯yah wa-al-su¯q fi¯ al-mashru¯e al-iqtis?a¯di¯ al-wat?ani¯, 1951-2006”, (Arabic), "the economic experience of modern Iraq: oil, democracy, the market, and the national economic project (1951-2006)" dar al-meda, Baghdad, Damascus, and Beirut 2009 “the economic experience of modern Iraq: oil, democracy, the market, and the national economic project (1951-2006)" (Arabic), ibid

55. Early assessment was given in "Iraq's Post - War Economy: A Critical Review", ibid.

56. It is astonishing behavior on the side of authorities that such move ignored the big lesson of recent global financial crisis that even the States of the highly developed market economies intervened heavily in the course of economic process to protect their failed major industries, banks, investment institutions, and insurance companies by bailing out huge amounts to them.

57. Aspects of the given views and policy proposals have been presented by the author earlier; e.g. “Iraq's National Vision, Economic Strategy, and Policies, published in Strategic Insights, Center for Contemporary Conflict, Vol. 5, Issue 3 (March 2006). (http://www.ccc.nps.navy.mil/si/). And ” Liberalization Strategy for Iraq’s Oil-Hostage Economy: Alternative to Oil Power Dominance and Neo-Liberal Subordinate Economic Policy, Part 1&2, MEES, Vol.49 Nos. 42& 43 16th& 23rd October 2006.” And “Success Conditions for Iraq’s Oil- Rentier Economy: Special Theory of Economic- Rent and Free Market Efficiency”, ibid.

58. It is noticeable that the government annual budget of 2010 has ignored completely the economic strategy and policies in regard to the future reliance on oil revenues. Instead, it identified a number of economic challenges that Iraq is facing as follows; the commitment to IMF and the UN Assistant Mission for Iraq (UNAMI), the new economic policy that aim for decentralization, gradual government withdrawal from direct management of public enterprises, provision of the infrastructure, proved favorable environment for the private sector, rationalizing the government subsidies policy, and building the implementation capacity of the ministries and public departments. Five objectives were highlighted; ensuring security and law and order, satisfying the basic needs of the citizens, increasing investment in human development, reconstruction of the infrastructure, and contribute to reduce unemployment through investment in public projects. On its economic reforms, the budget document included inhomogeneous mixed eleven sets of policies ended with "increase of GDP". The annual budget is a typical mixed and inhomogeneous political and economic high promises and an artificial attempt to show professionalism in dealing with the existing economic problems. See; (http://www.mof.gov.iq/).

59. The establishment of the IRDC would help to better integration of the public infrastructure projects, evaluation of cost-benefits of projects, effective follow-up of implementation, and ensuring accountability against corruption. The IRDC proposal was first initiated and presented to a meeting held in Washington on 24-26 October 2002 as part of the "Future of Iraq Project" sponsored by the US Department of the State. On the functions and structure of the IRDC, see; Sabri Zire Al-Saadi, “The Iraqi Development and Reconstruction Council “, unpublished paper, Future of Iraq Project, US Department of the State, Oct. 2002. It should be mentioned that the US occupation authority in Iraq implemented after 9th April 2003 under the same name IRDC different concept in terms of objectives, functions, and institutional structure and employed experts of different disciplines and qualifications as originally suggested by the author.

60. About this proposal also see, "The Political Economy of Iraq's Growing Oil Power: A Crucial Phase", ibid.

61. It was clearly stated by the IMF that “the exchange rate remain the CBI's main policy instrument to keep inflation low, given the very level of financial intermediation”. See; IMF, "IMF Country Report No. 10/316, October 2010", page 8, available on CBI web-site, (http://www.cbi.iq/).

62. Theoretical analysis of the issue was given in: Sabri Zire Al-Saadi, "foreign Exchange rates and Optimal Crude Oil Production in Oil Exporting Developing Countries", OPEC review, vol. 12, no.2, June 1988.

63. It should be ascertained that increasing tax contribution to public finance does not mean, at this stage, an increase of tax rates or adding new taxes on economic activities.

64. See; Sabri Zire Al-Saadi, Liberalization Strategy for Iraq’s Oil-Hostage Economy: Alternative to Oil Power Dominance and Neo-Liberal Subordinate Economic Policy, Part 1&2, MEES, Vol.49 Nos. 42& 43 16th& 23rd October 2006.

65. If the present government policies and the economy’s dependence on "excessive" oil-rent continue in the future, the Iraqis may enjoy the looking at the high and beauty architect of mushroomed skyscrapers in Major cities such as Baghdad, Basra, Mosul, and Erbil. They may also experience high level of consumption and receive better public services. Success stories of certain Iraqi business entrepreneurs and contractors companies will also dominate the media daily. However, in 2030, the nation would then realize the gravity of misusing the country’s non-renewable oil fortune.

66. See; Statistical details on role of public sector in Iraq are given in: "the economic experience of modern Iraq: oil, democracy, the market, and the national economic project (1951-2006)" (Arabic), ibid.

67. See; “oil wealth and poverty in Iraq”, Ibid.

68. See; “Iraq post-war economy: critical review”, ibid.

69. Earlier assessment was given in, “Economic Liberalization and Oil Policy in Iraq: Vision and Priorities", ibid.

70. See; “The Global Financial and Economic Crises and the Hidden Crisis of Oil-Rentier Economies: Back to Basics”, ibid. & "Crucial Challenges to Global and Oil-Rentier Economies", ibid.

71. See; Sabri Zire Al-Saadi, "The Global Financial and Economic Crises and the Hidden Crisis of Oil-Rentier Economies: Back to Basics”, published in “Strategic Insights” issued by “Center for Contemporary Conflict”, vol.8 no.1 (January 2009). (http://www.ccc.nps.navy.mil/si). & "Crucial Challenges to Global and Oil-Rentier Economies", published in "Contemporary Arab Affairs", volume 2, no. 2, April 2009, issued by the "Centre of Arab Unity Studies", and published by Routledge: Taylor & Francis Group Ltd., London.

72. See; “Success Conditions for Iraq’s Oil- Rentier Economy: Special Theory of Economic- Rent and Free Market Efficiency”, ibid.

73. See; "the economic experience of modern Iraq: oil, democracy, the market, and the national economic project (1951-2006)" (Arabic), ibid.

74. See; “Success Conditions for Iraq’s Oil- Rentier Economy: Special Theory of Economic- Rent and Free Market Efficiency”, ibid.

75. Ibid.

76. Ibid.

77. There are also the endogenous variables of the lagged time- span, e.g. GDP at previous year.

78. Ibid.

79. See: John Gribbin, “Science A History”, Penguin books, 2003.