The IMF stands ready to play its part in international efforts to rebuild Iraq, Managing Director Horst Köhler told a donors’ conference in Madrid on October 24. He assured the conference that the IMF would work actively with the international community in the reconstruction and development of Iraq and for the stability and prosperity of the Middle East as a whole.
The IMF has been engaged in the reconstruction effort from the outset, he noted, and “as the next stage of the reconstruction process gets under way, there is much more that the IMF can and wants to do.” The task poses an “immense challenge,” Köhler acknowledged, but it also represents a historic opportunity. He saw six major and interrelated areas for the IMF’s contribution:
Economic policy advice. A stable macroeconomic framework will require comprehensive reforms, sound institutions, and effective policymaking. There is much that can be learned from the experience of transition and other postconflict countries, Köhler said, stressing the vital role that structural reforms (ensuring transparency; establishing legal, institutional, and regulatory frameworks; and designing appropriate safety nets) can play in laying the foundation for sustained private-sector-led growth.
Technical assistance. In the period ahead, Iraq will need technical assistance in virtually every area of IMF expertise. Köhler promised expanded technical assistance for Iraq to develop modern, unified budget and tax systems; design and conduct monetary policy; and rebuild its statistical database. The IMF will also provide training for Iraqi officials.
External debt. Iraq currently has one of the largest external debt burdens in the world. Without substantial debt relief, Köhler said, the country “has no prospect of restoring its creditworthiness and of regaining access to private capital to finance future growth.” The IMF is working with Paris Club creditors and has approached non-Paris Club creditors to develop reliable estimates of Iraq’s debt. While the resolution of this issue will ultimately be a matter for Iraq and its creditors, he assured the conference that the IMF stands ready to help in any way it can.
Financial assistance. The IMF also stands ready, Köhler said, “to provide financial assistance in a phased manner and in line with our policies and procedures.” The IMF could initially make $850 million available in emergency postconflict assistance, followed by amounts between $850 million and $1.7 billion annually under its regular lending arrangements. Over a three-year period, total lending could range from $2.5 billion to $4.25 billion. This financial assistance will depend, he said, on a number of factors, including Iraq’s balance of payments need, the strength of its economic programs, and the ability of the Iraqi authorities to implement such programs effectively.
Reintegrating Iraq into the region and the world. Ultimately, Köhler stressed that the economic futures of Iraq and the Middle East are intertwined. He urged Iraq’s regional partners to be closely involved in the reconstruction efforts and proposed that the IMF would help create both a regional policy framework—aimed at reintegrating Iraq into the regional and world economy—and a regional technical assistance center.
International Advisory and Monitoring Board. Köhler said that the IMF will shortly appoint a representative to this Board, which has been set up to ensure that the Development Fund for Iraq is used in a transparent way and that the country’s oil and gas resources are exported in a manner consistent with international market best practices.
Extensive economic dislocation
Lorenzo Perez, the IMF’s Mission Chief for Iraq, provided the donors’ conference with an IMF staff assessment of the current state of Iraq’s economy, near-term prospects for recovery, and macroeconomic strategy. The report cited extensive economic dislocation that owed much to “pervasive state intervention, costly militarization, three wars, and over a decade of international sanctions” and a remarkable deterioration in Iraq’s human development indicators that had, two decades ago, exceeded regional averages.
Although economic activity continues to be hampered by hostilities, looting, and sabotage, progress has been made, Perez said. A budget has been adopted for the second half of 2003, a banknote exchange program (see interview with Åke Lönnberg, page 315) is under way, and a reform agenda is beginning to be formulated. Assuming adequate security, a restoration of basic utilities, and expanded oil production and private investment, the IMF’s Iraq team projected a strong economic recovery in 2004 keyed to potential oil revenue of $12 billion. Perez also indicated that an ambitious macroeconomic strategy was being developed to establish an open, market-based economy whose strong growth could boost living standards. With the likelihood of substantial uncertainties on the fiscal side, he also underscored the need for considerable reforms in the tax regime and state-owned enterprise areas, among others, as well as generous external debt relief.