Using Iraq to remake the economy of Mideast

As much as the Bush administration would like to use Iraq as a beacon of democracy in the Arab world, the bigger impact of the war may be a transformation of the economy of the Middle East.

Even before hostilities had broken out, interest was growing in Washington and in Arab capitals to find a way to spur growth in a region that over the past quarter century has lagged well behind other developing areas. As recently as March, Saudi Crown Prince Abdullah floated a regional economic plan, but virtually no one noticed because of the cataclysm over Saddam Hussein.

Now, with the transition in Iraq moving from conflict to reconstruction, the US is hoping to marry political reform and economic development in a way that could improve endemic problems in the region, such as youth unemployment, which Washington believes underlies terrorism. While some of the initiatives will no doubt find support, carrying out a broader economic plan, like any political one, will prove daunting, in part because of Arab hostility toward the US.

"The war has been like an earthquake under the whole region, and it will be important to take advantage of that shaking up on the economic side as well as the political," says Martin Indyk, a former US assistant secretary of State for Near East affairs. "It may even be easier to get at some of the reforms that are vital to the region's progress through economic initiatives, since to some of the regimes that will seem less threatening."

Already, the US is considering an economic initiative that might include trade incentives and other elements. Last week US Trade Representative Robert Zoellick said the administration is "working on following up military victory in the Gulf with some economic initiatives." Among the ideas being considered is an "enterprise initiative" similar to one the administration launched with Southeast Asian countries last year to spur economic reforms and trade liberalization.

That could foster the kind of economic opening that would work in tandem with the political reforms the administration hopes the war will have encouraged.

Other moves are bubbling up to help the process along. One is to put a priority on including Iraqi and Arab companies in the reconstruction of Iraq - as a way to develop a sense of participation in the country's rebuilding. Another is to promote the empowerment of women in Iraq and its neighbors as a key to democratization and development.

"The war has tormented the Arabs and left them in a moment of tremendous introspection and self-criticism," says Clovis Maksoud, director of the Center for the Global South at American University in Washington. "This can have a desirable outcome if this examination leads to a full spectrum of reforms, because we can't have genuine economic development without some form of democratic governance."

Yet a number of potential pitfalls lie in the path of such a plan. For one thing, Arab shock over America's quick toppling of the Iraqi regime could work against reform by encouraging more of an anti-Western backlash. Too close an association between democratic forces in Iraq and US sponsors could also poison the reform well.

"If the so-called 'moderns' are labeled as forces that need an American occupation to keep them afloat as political contenders, that would complicate the prospects for development," says Mr. Maksoud. "The US and other outside players have a big role in helping economic reforms, but to take hold those ultimately have to be self-generated."

Maksoud is part of a group of Arab scholars who last year published a landmark UN-sponsored report that found three "deficits" - in freedom, knowledge, and womanpower - responsible for the Arab world's poor development. The report was notable because it focused blame for the record within - not on the West or on Israel.

That does not mean resolution of the Israeli-Palestinian conflict is not seen as critical to the region's prospects - almost everyone agrees it is. But everyone also agrees that the region's development is crucial, not only for stability and well-being, but also for drying up some of international terrorism's roots.

Nearly half of all Arabs are 16 or under - the highest proportion of any region in the world. At the same time the Arab countries' economy is somewhat smaller than Spain's, which has about one-seventh the population.

As daunting as the challenge may seem, experts say the US can take early and important steps to help make Iraq's reconstruction a spur to regional development. Francis Lethem, an international development specialist at Duke University, says the US should do in Iraq what it did in Germany, Japan, and Korea - design reconstruction to act as an "engine" of economic growth.

"We often forget how reconstruction in Europe proceeded, with some of the US aid" channeled to other countries" in the region, he says. Just as Korea's postwar reconstruction boosted Japan's economy, "Iraq's reconstruction done the right way could help reenergize the private sector in the whole area."

Some experts say regimes in the region may try to emphasize economic reforms as a way to stave off political change - especially after seeing how quickly Mr. Hussein fell. But others say the US should use the war's aftermath to encourage the stirrings of change that were already there.

Richard Murphy, a former US ambassador to Syria and Saudi Arabia, says that on a recent trip to Ridayh he saw how a government focus on getting young people employed is prompting business to demand educational reforms. The result is the beginning of a broader curriculum, one that may deliver not only more updated work skills, but young minds less susceptible to religious extremism.

"It may seem like small potatoes, but it adds up," says Mr. Murphy, now at the Council on Foreign Relations in New York.