http://www.economist.com/agenda/disp...ory_id=1889007

Problems, problems

Jul 4th 2003
From The Economist Global Agenda


Patchy public services, continuing guerrilla attacks on coalition troops,
widespread criminality, confusion over oil revenues and the financing of
reconstruction, and still no sign of a home-grown government-just some of
the problems facing Iraq's interim leaders. Did the Bush administration
spend too much time thinking about how to secure military victory, and too
little working out what to do with the country once Saddam Hussein had been
removed?


EXPECTATIONS ran high in the immediate aftermath of the coalition forces'
quick military victory over Saddam Hussein's regime in April. But the
Americans have proved once again that they are better at winning wars than
they are at the nation-building that is necessary once the old guard has
been booted out. The first, widely derided, post-Saddam administration, led
by Jay Garner, a retired American general, has already been wound up and
replaced by one headed by Paul Bremer, another Pentagon appointee. Some of
the issues that he and his advisers face are less of a problem than had been
feared: the humanitarian crisis that many predicted has failed to
materialise, for instance. But, more often than not, the opposite is true.
The breakdown in law and order; the difficulty in bringing the various Iraqi
factions together to form a representative government; the lack of money for
rebuilding the country's smashed infrastructure; multiple currencies. All
these things are giving Mr Bremer a bigger headache than he might have
expected when he took the job. Here, we provide a checklist of the main
challenges with which he must grapple, and the progress (or lack of it) made
to date.



To what extent has America achieved its war aims?
The removal of Saddam-an American foreign-policy goal since the late
1990s-took barely a month of fighting. The Iraqi forces put up little
resistance and were not ordered to use chemical or biological weapons. Many
Iraqi troops melted away into the general population before engaging
coalition forces.

Iraq's weapons of mass destruction (WMD), the chief justification for war,
have yet to be found. A British government dossier claiming that Saddam
could launch a devastating strike within 45 minutes has been widely
ridiculed. Suspected WMD sites and mobile germ-production laboratories have
so far failed to yield any firm evidence of banned weapons. Moreover,
pre-war talk of a link between Saddam and al-Qaeda, encouraged by Washington
and (to a lesser extent) London, looks no more plausible now than it did
then.

To the intense frustration of coalition commanders, many of the leading
figures in Saddam's regime remain at large. Despite several attempts to kill
them, coalition forces do not know whether Saddam and his sons, Uday and
Qusay, are alive. On July 3rd, Mr Bremer placed a $25m bounty on Saddam, and
$15m apiece on his two sons: the reward would be paid for information
leading to the capture of any of the three men, or for confirmation that
they are dead. Of the 55 "most wanted" officials from Saddam's regime,
around half have been captured or turned themselves in. On June 18th, Abid
Hamid Mahmud, Saddam's personal secretary, and the most senior fugitive
outside of the dictator's family, was arrested, in a coup for the coalition.
A few days later, Iraq's hapless former information minister, Mohammed Saeed
al-Sahaf (also known as Comical Ali), gave himself up to American forces,
but was not deemed important enough to be kept in custody.



When will stability return?
Hard to say, but the current turmoil is likely to last for some months,
perhaps even years. Many parts of the country, including Baghdad, are still
largely lawless. The coalition was taken aback by the speed with which Iraqi
forces surrendered or melted away, and was thus slow to start to fill the
vacuum left by fleeing soldiers and police. Looting broke out in most urban
areas, many of which are still volatile. The new authority has made some
progress: there are now 8,000 policemen operating out of 18 police stations
in Baghdad, with another five due to reopen shortly. A number of courts are
now up and running again, dealing with the many arrests for looting, violent
crime and so on. But many people are still afraid to go out, especially at
night.

The coalition has disbanded the Iraqi army because of fears that it was a
corrupt organisation full of Saddam-supporting Baathists. This has left
400,000 men unemployed and angry. Thousands of them have protested against
their lack of pay; at one demonstration, two ex-soldiers were shot dead by
American troops. In response, Mr Bremer has now agreed that up to 250,000
former soldiers will receive a stipend of between $50 and $150 per month.
Recruitment for a new army of 40,000 soldiers should begin as early as this
week.

American and British soldiers have come under increasing fire since major
combat operations ended almost two months ago, and the number of casualties
is mounting. The attacks on the coalition troops, mostly in areas around
Baghdad, resulted in the Americans launching a series of aggressive
counter-attacks in mid-June. On June 29th another offensive began, with
American troops raiding 20 locations to root out armed Saddam sympathisers.
The mounting casualties have rattled the administration. President George
Bush caused controversy this week when he said of the Iraqi militia groups
"Bring 'em on", adding that the American military was tough enough to take
it. Not surprisingly, Democrats described the invitation from the
commander-in-chief to attack the forces he leads as bizarre and
provocatively belligerent.



When will Iraq have its own representative government?
As the war began, the plan-even then subject to intense disagreement in
Washington-was for an interim American-led administration to be formed once
the fighting was over. After that, a constitutional convention was to be set
up, with the aim of having democratic elections within two years. In
practice, Baghdad was so lawless that Mr Bremer decided to concentrate on
law and order rather than on introducing democracy. He now plans to appoint
an Iraqi political council by the middle of the month, though Kurdish and
Shia groups have deep reservations about this and may refuse to join. The
United Nations is pressing for the council to have executive powers, rather
than being merely advisory. The timetable for the new constitution and
national elections has slipped and remains unclear.

Coalition leaders have tried to appoint local officials and councils
quickly, to speed up the return to normality. However, they can often pick
the wrong man: on June 30th, the coalition-appointed mayor of Najaf was
arrested on charges of corruption. He is also suspected of kidnapping,
attacking a bank official and other activities not generally consistent with
American ideals of democracy.

One of the challenges for the coalition is that Iraq is not a homogenous
nation, but was cobbled together after the first world war. The biggest
group is the Shia Muslims, most of whom live in the south, and who were
downtrodden by Saddam, a Sunni Muslim. They deserve fair representation, but
the Americans worry about the growing influence of their religious leaders;
the last thing the Bush administration wants in Iraq is an Iran-style
theocracy. The Sunnis, meanwhile, worry that they will not only lose their
privileged position in Saddam's Iraq, but that they will become the new Iraq
's whipping boys: it is no coincidence that most of the attacks on coalition
forces and sabotage of electricity installations have occurred in Sunni
areas. The third-largest group are the Kurds. While they are delighted to be
rid of Saddam, they have had to trade their autonomous enclave in the north,
with its own (stable) currency, for a minority position in a lawless Iraq.
Moreover, America has insisted that Iraq must remain intact, so dashing
their hopes of creating an independent Kurdistan.

Quite apart from the differences between ethnic groups, there are fierce
rivalries within them. The leaders of the two Kurdish factions, Jalal
Talabani and Massoud Barzani, would be expected to take part in an Iraqi
power-sharing government despite their long and often violent rivalry.
Similarly, a power struggle has broken out among conservative Shia clerics.
Grand Ayatollah Ali Sistani was forced to flee Iraq after being challenged
for leadership of the Shias by Moqtada Sadr, who is just 22. Mr Sadr's
faction is suspected of being behind the assassination of a senior Shia
cleric who had returned to Iraq from Britain a few days after the war ended.
Mr Sistani is trying to reassert his authority: on June 30th, he called for
an elected body, rather than an American-appointed council, to draw up the
new constitution.



How about Iraqis' humanitarian needs?
This is the dog that didn't bark: the humanitarian crisis that aid agencies
feared and that Mr Garner had focused on did not occur. Some 27m are Iraqis
being fed with food rations, as they had been before the war. The UN says
that food aid for the rest of the year is fully funded, and food is now
being distributed to Marsh Arabs, who didn't receive rations before the war.

Emergency works, and the delivery of water from Kuwait, mean that water is
once again widely available. Baghdad, for example, now receives 70%-90% of
its pre-war supplies. However, sewage continues to be pumped untreated into
rivers and canals, risking infection of the water supply. And widespread
stealing of water by piercing water pipes means that the pressure is low by
the time water reaches the towns. As for electricity, the UN reckons that by
the first week of June Baghdad was able to cover 50%-60% of its demand,
compared with just 40% before the war. However, there are frequent
blackouts.



Is the economy on the mend?
Mr Bremer believes that economic progress is more important to Iraq right
now than establishing a representative government, and he has highlighted
the payment of $400m to Iraqis, including public-sector salaries and
pensions. The effect of this money is already evident on the streets. Iraqis
can now purchase imported televisions and fridges duty-free, and are doing
so with enthusiasm. There are still three currencies circulating in Iraq:
the "Saddam dinar", the "Swiss dinar" (in the Kurdish north) and the dollar,
which the Americans use. The coalition has not decided yet what it will do
about the currency, though there is talk of extending the Swiss dinar
throughout the country.

The financial system remains rudimentary. Banks have reopened in both
Baghdad and Basra, but it is impossible to wire money into Iraq: the
Americans have literally shipped $550m in hard currency from the Federal
Reserve to the country. Oddly, while the administration has issued a request
for proposals on a wide range of economic work, including preparing
state-owned companies for privatisation, it is yet to start on the
commercial-banking system.

Another crying need is for trade credit. Few of Iraq's banks are
creditworthy enough to reassure foreign businesses that they will be paid if
the banks stand as guarantor. J.P. Morgan Chase, Citigroup and Bank of
America are among those reported to have discussed with the American
Treasury how they might help to set up working payments systems, foreign
exchange and trade finance in Iraq, though there are no firm plans for how
this will be done. The Treasury is also looking into establishing an Iraqi
Trade Bank, under the auspices of the Export-Import Bank, America's official
export-credit agency. One option would be for Iraq's oil sales to be used as
collateral for reconstruction loans from commercial banks. However, a
Democratic congressman has written to the Ex-Im Bank angrily pointing out
that such a plan would "conflict fundamentally" with America's repeated
insistence that Iraq's oil belongs to Iraqis.

The coalition this week invited commercial airlines to apply to resume
flights to Baghdad international airport, which is currently being used by
American troops. So far, Scandinavia's SAS, KLM of the Netherlands,
America's Northwest Airlines and EgyptAir have expressed an interest in
operating regular flights. The airport should be reopened by the middle of
the month, though no date has been set for the resumption of commercial
flights.



What is happening to Iraq's oil?
Iraq has the world's second-largest oil reserves, but its production
capacity had been devastated by two wars and a decade of sanctions and
under-investment. Iraqi oil is now under the control of the coalition,
thanks to a UN resolution passed in May. The coalition has made a lot of
progress in both preventing any big attacks on Iraq's oil infrastructure and
repairing what damage had been done: all refineries are now working and on
June 22nd Iraq made its first shipment of crude since the start of the war.

However, just how quickly Iraq will build up its production and exports is a
matter of some dispute. The country's interim oil minister, Thamer
Al-Ghadban, said on June 26th that he expected the country to produce 1.3m
barrels per day (bpd) in July. But Philip Carroll, the former Shell
executive put in charge of the industry by the coalition, expects total
production to be 1.8m bpd by then, with 1m of those barrels being exported.
Mr Carroll has stepped up security around installations and pipelines
following a spate of recent sabotage attacks, which have delayed the
awarding of contracts for the repair of Iraq's oil fields until later this
month. (Kellogg, Brown & Root, a subsidiary of Halliburton, a company once
run by American vice-president, Dick Cheney, was controversially awarded the
$235m contract for immediate repairs in March). The longer-term future of
the industry, including the thorny issue of when and how it will be
privatised, will be a question for the elected government, once it is
installed in power.



Will there be enough oil to finance Iraq's reconstruction?
Before the war, some American officials likened Iraq to an underperforming
company with enough assets to fund its own takeover. Not so. Iraq is
expected to sell around $5 billion-worth of oil by the end of this year. Of
that, the government would get $3.5 billion after various expenses
(including reparations to Kuwait for the first Gulf war). Revenues are
projected to reach $13 billion next year. But Iraq is expected to need
considerably more than that over the next couple of years. The UN has called
a donor conference in October to discuss the shortfall.



How long will coalition forces have to remain in Iraq?
Longer than expected. There is now no question of any scaling-back of the
coalition military presence in the short term. Some 145,000 American troops
remain in Iraq, with a further 15,000 from Britain and other allies, and
they are likely to remain until troops from other countries arrive to do
peacekeeping duty. Donald Rumsfeld, the American defence secretary, has
asked more than 70 countries to send troops, to enable some of the American
soldiers to leave Iraq for "a rest". On July 4th, Japan's lower house of
parliament passed a landmark law allowing the country to send troops
overseas in a non-peacekeeping role for the first time since the second
world war: 1,000 troops are expected to be deployed to "non-conflict" areas
of Iraq, wherever they might be.

There are signs that the American public is beginning to get nervous about
the stream of bad news and casualties coming from Iraq: an opinion poll this
week put the number of Americans who believe things are not going well there
at 42%, up from 13% at the beginning of May, when Saddam was toppled. Such
is the level of disquiet that Mr Bush was forced to address public concern
in a speech on July 1st. "The rise of Iraq, as an example of moderation and
democracy and prosperity, is a massive and long-term undertaking," he said.
That wasn't quite what the American public signed up for before the war,
though.



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"If this were a dictatorship, it'd be a heck of a lot easier, just so
long as I'm the dictator." - GW Bush 12/18/2000.

"To announce that there must be no criticism of the president, or that
we are to stand by the president right or wrong, is not only unpatriotic
and servile, but is morally treasonable to the American public."
---Theodore Roosevelt

"Feels Good!"
---George W. Bush on the Brink of Declaring War on Iraq.