Tuesday, August 23, 2005

Iraq's Economic Overview

Dear Friend,

Today I found this interesting article about the economy of Iraq.

Enjoy!

Regards,

Marcel Heersema
Iraqi Dinar Opportunity
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Iraq's economy is dominated by the oil sector, which has traditionally provided about 95% of foreign exchange earnings. In the 1980s, financial problems caused by massive expenditures in the eight-year war with Iran and damage to oil export facilities by Iran led the government to implement austerity measures, borrow heavily, and later reschedule foreign debt payments;

Iraq suffered economic losses of at least $100 billion (G$) from the war. After the end of hostilities in 1988, oil exports gradually increased with the construction of new pipelines and restoration of damaged facilities.

Iraq's seizure of Kuwait in August 1990, subsequent international economic sanctions, and damage from military action by an international coalition beginning in January 1991 drastically reduced economic activity. The government's policies of supporting large military and internal security forces and of allocating resources to key supporters of the regime have exacerbated shortages.

The implementation of the UN's oil-for-food program in December 1996 has helped improve economic conditions. For the first six six-month phases of the program, Iraq was allowed to export limited amounts of oil in exchange for food, medicine, and other humanitarian goods. In December 1999, the UN Security Council authorized Iraq to export under the oil-for-food program as much oil as required to meet humanitarian needs.

Oil exports are now about three-quarters their prewar level. Per capita food imports have increased significantly, while medical supplies and health care services are steadily improving. Per capita output and living standards are still well below the prewar level, but any estimates have a wide range of error.

Iraq's economy is characterized by a heavy dependence on oil exports and an emphasis on development through central planning. Prior to the outbreak of the war with Iran in September 1980, Iraq's economic prospects were bright. Oil production had reached a level of 560,000 m³ (3.5 million barrels) per day, and oil revenues were 21 G$ in 1979 and 27 G$ in 1980. At the outbreak of the war, Iraq had amassed an estimated 35 G$ in foreign exchange reserves.

The Iran-Iraq War depleted Iraq's foreign exchange reserves, devastated its economy, and left the country saddled with a foreign debt of more than 40 G$. After hostilities ceased, oil exports gradually increased with the construction of new pipelines and the restoration of damaged facilities.

Iraq's invasion of Kuwait in August 1990, subsequent international sanctions, and damage from military action by an international coalition beginning in January 1991 drastically reduced economic activity. Government policies of diverting income to key supporters of the regime while sustaining a large military and internal security force further impaired finances, leaving the average Iraqi citizen facing desperate hardships.

Implementation of a UN oil-for-food program in December 1996 has improved conditions for the average Iraqi citizen. Since 1999, Iraq was authorized to export unlimited quantities of oil to finance humanitarian needs including food, medicine, and infrastructure repair parts. Oil exports fluctuate as the regime alternately starts and stops exports, but, in general, oil exports have now reached three-quarters of their pre-Gulf War levels. Per capita output and living standards remain well below pre-Gulf War levels.

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