Iraqis sample free enterprise

Mohammed Hussein sweeps a hand toward shelves laden with TVs and baby walkers from China, plastic chairs from Syria, and coolers from Iran - and proclaims that his business has never been better.

"My profits have roughly doubled" since before the war, Mr. Hussein says at the bustling corner store in the northern Iraqi city of Mosul. Newfound prosperity contributes to Hussein's positive view of the US military presence, which he calls "very reassuring."

Standing nearby, however, Ghalibe Shaker offers a darker view of the American-led occupation. "There is no income," says the out-of-work military factory worker. "Things are worse than under Saddam."

Across Iraq, these two attitudes reflect a schism in the country's economy - between a large, moribund state-run sector and a small, private economy that appears to be growing more vibrant, partly due to new, free market incentives.

The US-led coalition aims to help Iraq move "from a centrally planned economy, dominated by value-destroying, state-owned enterprises to a free market," says Paul Bremer, the top US civilian administrator.

To be sure, more immediate challenges to rebuilding Iraq continue to mount. A surge in apparent economic sabotage by anticoalition forces in recent days saw a Baghdad water main ruptured with explosives and a large oil pipeline fire set off in northern Iraq, causing lost revenues of millions of dollars each day. Other attacks this summer have targeted the electrical grid and oil infrastructure.

Yet in the long run, transforming the Iraqi economy is likely to prove as important to the country's stability as today's short-term efforts to secure basic services, provide cash payments to state workers, and revive the oil industry.

The transition to a market-based system involves major risks, not the least being a possible increase in Iraq's already high unemployment rate of more than 50 percent. "Unemployment may rise even higher in the months ahead as other economic reforms are implemented," Ambassador Bremer warned in a speech last month. Iraq, he added soberly, "will be a poor country for some years to come."

Today, one of the major economic initiatives under way involves efforts to expand Iraq's private sector by promoting free trade, commerce, and investment.

Trade, for example, received a boost when the Coalition Provisional Authority (CPA) suspended all tariffs, duties, and fees through the end of this year. An independent Trade Bank of Iraq has been established to provide financial services to facilitate imports and exports, and the Washington-based Export-Import bank is now free to support US exports to Iraq. In May, the United Nations lifted sanctions that had severely restricted trade with Iraq for more than 12 years.

Free trade is bringing dramatic benefits to some businessmen such as Hussein in Mosul, 70 miles from the Syrian border. "Now I pay no customs so my goods are much cheaper and people are buying things they didn't purchase before the war," says Hussein. For example, he says, with the price of a color TV halved, "no one buys black-and-white televisions."

Satellite TV receivers are also hot items in Mosul and other large cities, where cardboard boxes of imported electronics and other appliances often spill out of shops onto the sidewalks.

A freer movement of people across borders is also boosting business in some localities. In the Shiite holy city of Najaf, south of Baghdad, for instance, an influx of Muslim pilgrims from Iran has meant more customers for retailers like Luay Al Abudi.

"I sell to a lot of tourists from Iran," says Mr. Abudi, who stocks Japanese and Chinese electronic goods in his store at Najaf's main marketplace. Overall sales revenue is still below what the prewar rate, but the influx of visitors has helped, says Abudi, who makes about $200 to $300 a month.

Construction is another area where private firms have gained, with a postwar infusion of cash spurring thousands of new contracts for rebuilding schools, hospitals, and police stations, and other projects. More than $10 million has already been spent on several thousand "quick-action development projects" across Iraq, Bremer says.

Private contractors negotiating for jobs - everything from fixing sewage systems to repairing courthouses - are among the most frequent visitors to a civilian-military operations center in Tikrit, for example.

Moreover, the coalition is working to streamline the process for creating new businesses, reviewing business regulations and licensing rules as well as the commercial code. Toward this end, last month, the US Agency for International Development (USAID) awarded $9 million to BearingPoint, Inc. of McLean, Va. to facilitate trade, regional economic integration, and employment through a broad program of economic reform in Iraq.

The award is aimed at supporting the creation of "a competitive private sector," according to USAID.

Agricultural markets in Iraq appear healthy, with no shortage of food, residents say. Markets brimming with grapes, melons, tomatoes, and other produce are a common sight, and farmers say they are satisfied with the price of basic commodities such as grain.

"Food supplies are better and the payment for our wheat is good," says Haji Nida Thalaj, a wheat farmer, as he hoses down his white pick-up truck on the outskirts of Mosul. Humanitarian deliveries have ensured a plentiful supply of basic foods. In fact, in some areas US officials are concerned that too great a quantity could hold down agricultural prices. About one-fifth of Iraq's territory consists of farmland, mainly in the northeastern plains and river valleys.

While bolstering the private sector, the coalition has offered a safety net for most workers in the lumbering state-run economy - badly looted during the war - while determining which of the country's 192 largest state firms are viable.

"We are evaluating all of the state-owned enterprises to see which ones should be closed immediately," said Bremer, adding that a "well-financed, well-functioning safety net" would ensure workers who lose their jobs are not left behind.

Currently, the CPA is spending almost $200 million a month on salaries, pensions, and emergency payments to the state sector. Iraq has 1.4 million state employees and 1.8 million pensioners.

Such measures are vital because the state-run economy dominates many localities. In Saddam Hussein's home province of Salahuddin, for example, an estimated one in every 10 people is a government employee, pensioner, or former military member. In addition, there is a large disenfranchised group in Salahuddin including some high-ranking regime members and ministerial employees who are excluded from the payment scheme, US military officials say.

Tens of billions of dollars will be required over the next four years to rebuild Iraq's economy and make the transition from a socialist to a market system. To foot the bill, Washington seeks to increase Iraq's crude-oil production to the prewar levels of 2.5 million to 3 million barrels per day by the early part of next year. In the long run, Iraq's estimated 112 billion barrels of oil reserves - the world's second largest - are expected to drive the economic recovery.

In the meantime, the coalition is drawing on about $1.7 billion in Hussein's funds, frozen after the 1991 Gulf War and $3.2 billion authorized by Congress.

Still, Iraq is expected to run a budget deficit of $4 billion next year and is saddled with a sizable international debt. CPA officials are calling for early debt renegotiation and also seeking contributions at an international donor's conference for Iraq scheduled for late October in Madrid, Spain.