Saturday,16 December, 2017
Current issue | Issue 1314, (6 - 12 October 2016)
Saturday,16 December, 2017
Issue 1314, (6 - 12 October 2016)

Ahram Weekly

The IMF salvaging Iraq? Not exactly

An IMF-backed economic shock programme may provide further fodder for destabilising Iraq, writes Salah Nasrawi

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Al-Ahram Weekly

According to the International Monetary Fund (IMF) and the Western media, the sacking of Iraqi Finance Minister Hoshyar Zebari by the country’s parliament last month risks further destabilising the beleaguered nation amid a war with the Islamic State (IS) terror group, ethno-sectarian divisions and a never-ending political crisis.

The warning comes ahead of crucial discussions in Washington next week between Iraqi officials and IMF staff on securing some $5 billion in international loans to cover Iraq’s dire need for financing to replace plummeting oil revenues and pay for the reconstruction of cities destroyed in the war against IS.

Zebari was voted out of office by the country’s legislature on charges of corruption and mismanagement of public funds. The dismissal was part of an ambitious parliamentary reform package to get rid of corrupt and inefficient ministers and senior officials.

But both the IMF and the Western media insist that Zebari’s dismissal was a setback to Iraq’s economic reform and could delay billions of dollars in badly needed budgetary support from international lenders and investors.

Christian Josz, head of the IMF’s Iraq mission, called Zebari, “a big driver behind the reform” and “a champion” of the deal under negotiation with the Fund to provide Iraq with financial facilities.

“Now we don’t know who is going to take over from him,” Josz told Reuters, suggesting that Zebari’s sacking in a parliamentary vote of no confidence could “shake confidence” between the IMF and the Baghdad government.

Reuters, meanwhile, warned that “without Zebari, an avuncular, fluent English-speaker well respected in international capitals, the Baghdad government loses the figure most closely associated with the deal.”

The Wall Street Journal also joined what looked like a single Western chorus of praise and hailed Zebari’s role in a banner headline as “crucial in obtaining critically needed international aid and loans” for Iraq.

It is unclear how the apocalyptic assessment of Zebari’s firing will affect the IMF’s discussions with Iraq, which is struggling to fill a budget deficit left by the fall in global oil prices. But the fund’s emphatic conclusion has already raised eyebrows in Iraq and abroad about whether the rebuff to Zebari’s dismissal is politically motivated.

More importantly, the negative remarks have raised concerns that the IMF and Western media’s support of Zebari strikes at the heart of Iraq’s ethnic and political conflicts. Some critics even fear that it might cloak a hidden agenda, amid speculation that any IMF deal will be crucial in determining the future relationship between the Baghdad government and the country’s ethnic Kurds.

Zebari is a senior member of the pro-independence Kurdistan Democratic Party in Iraq and the uncle of its leader Masoud Barzani, president of the autonomous Kurdistan Region in northern Iraq who has been pushing for Kurdish secession from the country.

For many Iraqis, the IMF’s response to the sacking is reminiscent of the influence the organisation has exercised in many parts of the world where the fund’s policies have affected the social and national fabric of many countries.

Some have even compared the agreement to the IMF’s restructuring programme for the former Yugoslavia and related policies that eventually led to the dismantling of the multi-ethnic republic.

Iraq has turned to the IMF for a loan package that would also serve as the basis for other lenders to provide support. In July the IMF’s executive board said it had approved a three-year $5.34 billion stand-by arrangement (SBA) for Iraq in exchange for a package of economic reforms proposed by the fund.

Baghdad hopes the facility will unlock over $12 billion in additional loans from other sources such as international banks. Last year, Iraq received disbursements under the IMF’s Rapid Financing Instrument of about $1.24 billion.

Details of the conditions of the IMF-supported Iraqi economic reform programme have not been made public, but reports published by the fund suggest a wide-ranging restructuring programme that aims to “bring spending into line with lower global oil prices and ensure debt sustainability”.

Some of the details appear in a letter of intent to Christine Lagarde, the IMF managing director, signed by Zebari and head of the Central Bank of Iraq (CBI) Ali Al-Alak. In the letter the two men pledge on behalf of the Iraqi government to implement the stringent economic and financial policies set by the fund.

Under this programme, Iraq will need to “overhaul its public financial management system to improve fiscal discipline and the quality of spending.” This would include reducing overall public spending to a “sustainable level” by freezing public expenditure, introducing new taxation, and imposing austerity measures.

While the IMF wants the Iraqi government to cut wages and goods and services in order to reduce the country’s budget deficit further, the programme also proposes broadening the tax base on the wages and salaries of government employees and making the tax system “yield additional revenue.”

A reduction in overall pension payments has also been suggested.

In the foreign exchange area, the fund proposes that the Iraqi authorities should maintain the peg on the country’s currency to the US dollar and gradually remove remaining exchange restrictions. The recommendation is in line with the IMF’s traditional recipe to “facilitate the creation of a favourable business climate” for the investor community.

Among other key regulatory measures, Iraq should agree to monitor financial risks to preserve financial sector stability. This would include initiating the restructuring of the CBI and the state-owned banks that dominate the banking system in line with the “fund’s recent safeguards assessment” and with “the support of external consultants”.

Though the reform programme suggests that “implementing fiscal consolidation” should not affect the poor and social spending, the reforms demanded by the IMF target Iraq’s system of state-owned and worker-managed enterprises.

It suggests that the government get rid of some 176 state-owned factories which it says “have limited rationale beyond providing public employment” and are “structurally loss-making and present a large burden on public finances”.

Significantly, the programme attaches special importance to protecting foreign oil companies working in Iraq under so-called service contracts. It aims to ensure that Iraq will not delay existing arrears and payments to international oil companies.

Critics have blamed the Iraqi government for the lack of transparency of its negotiations with the fund, saying that it has never submitted the deal to public or even parliamentary debate.

They also note that the government has done little to address concerns about the harsh conditions laid down in the letter of intent that was negotiated and co-signed by Zebari.

At stake are the lives of millions of Iraqis whose livelihoods will be threatened by the destructive economic model pushed by the IMF that will put basic needs such as wages, food and services beyond the reach of many.

The IMF measures could trigger a spike in inflation since most food and consumer items in Iraq are imported. They could also help a tiny oligarchy of Iraqis to increase their fortunes to almost immeasurable dimensions in the name of ensuring the stability of the exchange system and flow of investment.

The government’s decision to increase electricity charges has already triggered protests in many provinces in Iraq, together with threats by consumers not to pay their bills. Its new policy of ending free medical services has also given rise to public unease and sometimes protests.

Abandoning the state-owned factories would mean that millions of state-employed workers would be laid off, risking exacerbating already difficult social tensions. There are also growing fears that the IMF policies will lead to the selling off of state-owned banks.

Moreover, increasing borrowing from foreign sources is expected to have devastating long-term effects on Iraq’s debt-laden economy while putting a heavy burden on future generations.  

The scheme will tighten the grip of IMF staff on the country through the Iraq Staff-Monitored Programme that will have veto power over the government’s policies and performance.

More strikingly, the programme’s underlying role in the budget-sharing agreement with the Kurdistan Regional Government is expected to exacerbate ethnic tensions between Arabs and Kurds in Iraq and fuel political conflicts.

Many Iraqis believe that the deal will mean that the Baghdad government will be paying accumulated arrears to foreign oil firms working in the Kurdistan Region that are estimated at some $30 billion, even though most of the revenues are believed to have been syphoned off by Barzani’s family and Kurdistan Democratic Party (KDP) leaders.

This probably explains why so many Iraqis are sceptical about the IMF’s defensive narrative regarding Zebari’s role in the loans deal and the Western media’s warning about the fallout from his dismissal on the political infighting in Iraq. 

Judging by the similarly deadly medicine prescribed by the IMF to countries having a similar ethnic and sectarian mosaic, such as the former Yugoslavia, the fund’s deal with Iraq seems certain to open a Pandora’s Box in Iraq and to drag the country into further chaos rather than helping it to deal with the difficult time it faces and the plummeting economy.

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