UN Sanctions Devastate Iraq's Isolated Economy

Hunger is increasing, but Baghdad regime is buffered by hidden assets, for the moment

ALMOST three years after the international community imposed trade sanctions against Iraq in punishment for its invasion of Kuwait, there are signs that the government is coming to share its citizens' desperation to see the ban lifted.

Government officials say confidently that Iraq's economy can withstand indefinitely the ban on all Iraqi exports and all imports except food and medicine.

But Iraq's agreement July 19 to allow long-term UN monitoring of its weapons program suggests a deeply felt desire to find a way out of its economic stranglehold.

With the true size of Iraq's hidden foreign reserves known only to President Saddam Hussein and a handful of his most trusted advisers, no one can tell how long those undiscovered, unfrozen assets can keep the Iraqi economy afloat and the people alive.

"We will survive," declares Trade Minister Muhammad Mahdi Saleh, who points to such grand projects as the construction of a new twin-level bridge over the Tigris River in Baghdad as "a sign to tell the West that we are a country that will never die."

After several standoffs, Baghdad has agreed to the installation of cameras at two missile-testing sites. That opens the door to negotiations on issues such as a limited resumption of oil exports.

Baghdad's move to cooperate with the United Nations comes at a time when the vast majority of Iraq's 19 million people are at the end of their tether. Wages may have doubled over the past three years, but the increase is meaningless when the price of wheat flour, for example, the most important staple of the Iraqi diet, has risen 355-fold and cooking oil has gone up 106-fold.

Begging boys, previously unheard of in this oil-rich state, are a common sight. Government employees drive taxis or hawk anything they can sell, and women flood jewelry shops to sell their traditional gold bracelets.

Most people spend every dinar they make just to eat. "I buy nothing but food, and it is still not enough," says Hamed, a middle-aged man standing disconsolately in front of a vegetable stall at the Doura market in Baghdad. "I make do with the clothes I have always had, and I still can't afford to buy a fish for my children."

Government rations, costing just 1 percent of their market values, provide each family with the bare necessities of rice, flour, sugar, tea, and vegetable oil.

Those rations "are all that stand between the Iraqi people and catastrophe," says Rudy Joseph, who last month led a UN Food and Agriculture Organization (FAO) mission to estimate Iraq's food needs. The rations offer only 50 percent of a person's nutritional needs, and Iraqis are enduring "persistent deprivation, chronic hunger, endemic undernutrition ... and widespread human suffering," the FAO said.

The mystery over the size of Iraq's real assets, besides the $4 billion frozen by the sanctions, means nobody knows how long the government will be able to subsidize the rations at a cost of about $1.2 billion a year. Nor is it clear how much income Iraq earns from illegal exports of oil, cement, and fertilizer that reportedly cross into Iran and Turkey.

But so long as he has been able to ward off starvation, Saddam has preferred to invest Iraq's resources on projects to rebuild the country's industry after the war, and to boost agriculture.

In a country that once bought everything, including foreign know-how, with its oil income, there is a new sense of self-sufficiency. The new Saddam bridge in Baghdad is only one emblem: The government also has nearly completed the Saddam River, a massive irrigation project between the Euphrates and Tigris Rivers; mostly rebuilt its oil industry and electricity grid; and restored the port of Mina al-Bakr.

"One thing is sure," says a diplomat here, "they've gotten a lot of self-confidence during the sanctions. They know how much they can do and how much it costs. There will be no more favorable contracts on such favorable terms to Western companies in the future."

Despite such confidence, the negative political aspects of the sanctions are also visible. With inflation out of control, thievery and official corruption are on the rise. "People try to cater to their individual needs, rather than those of the nation or the regime," one diplomat says. "There is lack of enthusiasm in the security and police forces, the bureaucracy is getting lax, and this could lead in the end to a slow negation of the regime and the state."

Not that anybody in Baghdad, Iraqi or foreign, sees any immediate likelihood of a revolt. The regime's key supporters are well protected against economic hardship, the security forces still keep an iron grip on society, and nobody can point to a plausible alternative to Baath Party rule.

But if sanctions were to be lifted, and a semblance of normalcy were to return, reformist pressures would be unleashed. The government, mortgaged to the hilt by war reparations and $70 billion in prewar debts, probably would not be able to offer the benefits and services it once did.

"They are going to have to deliver other things, in the political field, if they are going to get the people to cooperate and work hard," the diplomat says. "And the people are going to ask for more say in decisionmaking."

For the time being, though, such demands are muzzled, as Iraqis just try to stay alive.

"We Arabs have a proverb," a merchant in Baghdad's Shorjah Bazaar says sardonically. "A hungry dog follows its master."