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Iraq: Authorities Hope To Draw Foreign Investments

Officials in the U.S.-led authority in Iraq have announced a program of economic reforms aimed at attracting foreign investment to help the country rebuild. The U.S. chief civil administrator in Iraq, L. Paul Bremer, has signed an order that allows for full foreign ownership in almost all sectors of the economy except oil and real estate.

Prague, 23 September 2003 (RFE/RL) -- Iraqi interim Finance Minister Kamil Mubdir al-Kaylani unveiled a plan over the weekend to open Iraq's economy to foreign investors.

He told an international banking conference that a new foreign investment law would make Iraq one of the most open countries in the world. The program was worked out together by the U.S.-led Coalition Provisional Authority and members of Iraq's U.S.-appointed Governing Council.

One of the main points of the plan is that foreigners would be allowed to own up to 100 percent of enterprises in every area of the economy except real estate, oil, and natural resources. Land would be leased for periods of up to 40 years. Otherwise, foreign investors would be treated as locals.

The announcement was greeted with cautious optimism by international financial officials.

Horst Koehler, the head of the International Monetary Fund, says, "I take it as a huge step forward that there is a plan set up by the Iraqi people, by representatives of the [Governing] Council. So this is for me a remarkable step forward to bring order in this development and also to help the Iraqi people themselves to define a economic strategy for recovery and development."

Iraq was starved of foreign investment during the three decades of Ba'athist rule when most large companies were state-owned or state-operated.

British Chancellor of the Exchequer (Finance Minister) Gordon Brown linked the reforms to other efforts to rebuild Iraq, such as an upcoming donors' conference in Madrid in October.

"We welcome announcements about reforms that will make for a better and more successful reconstruction of Iraq. I think the important thing, however, is to look forward to both the donors' conference and to further and more detailed announcements from within Iraq about what is going to happen," Brown says.

Some observers say the reforms could prove controversial in practice, allowing foreigners to buy up the best assets for themselves while most Iraqis remain too poor to take part. British analyst Neil Partrick at the London-based Economist Intelligence Unit says the U.S.-led coalition was probably hoping the reforms would create the impression that economic progress is being made.

"We are in an environment where there is enormous popular suspicion as well as some elite suspicion about the motives of the Coalition Authority. It creates the impression that significant stakes in the Iraqi industrial sector are about to be sold off. And I think there is a question mark about the timing of such an announcement. On the other hand, it seems that both the Coalition Authority and at least aspects of the Interim [Iraqi] Authority want to create an impression of progress and movement," Partrick says.

He says the new laws are unlikely to unleash a huge -- and unfair -- wave of outside investment. He says the oil sector holds the most interest, and this for the time being is off-limits.

"[Oil sector investment has] been ruled out and banned in terms of this initiative. So, we are talking about other areas of the economy, which are much less interesting. Although in time, there might be some interest, for example, from foreign banks. But I don't think we are really going to see as a consequence of this decision significant shifts in ownership occurring over the next year or two," Partrick says.

In any event, large amounts of capital are not likely to pour in while the security situation remains precarious. Partrick says resolving the security issue is important both to encouraging outside investment and also development of Iraqi businesses:

"What is much more important at the moment is to try to provide a secure environment for the existing publicly owned Iraqi oil sector, but also an environment in which Iraqi businesses themselves can try to form themselves. The big question mark is the extent to which Iraqi money can be safely returned to the country. At the moment, obviously investors of all kinds -- Iraqi and non-Iraqi -- are very hesitant," Partrick says.

Neighboring Arab countries are seen by many as potential sources of investment. Partrick says Kuwaitis may pour a lot of cash into Iraq -- not only for business purposes but also to encourage a more stable political relationship. But it will take time.

Iraqi Finance Minister Kamil al-Kaylani himself tried to contain expectations. "All of us want quick results," he said. "But we know from the experience of other countries that economic transitions take time.... We cannot rebuild an economy overnight."