Iraq reconstruction: rebuilding the economy
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A main benefactor to the economic reform of Iraq was the Coalition Provisional Authority (CPA). After the 2003 Invasion of Iraq, the CPA quickly began issuing many orders privatizing Iraq's economy and opening it up to foreign investment. Paul Bremer, chief executive of the CPA of Iraq, planned to restructure Iraq's state owned economy after a free market model. He dropped the corporate tax rate from around 45% to a flat tax rate of 15% and allowed foreign corporations to repatriate all profits earned in Iraq. The CPA issued The Allocation of Economic Support Funds In Iraq many orders as they worked to rebuild the economy of Iraq. They had lasting effects and aided in its growth. The main few are as follows:
Order 12: Trade Liberalization policy
Later amended by Order 54, it suspended all tariffs, thus removing the advantage that domestic Iraqi producers had over foreign producers. However, a 5% "reconstruction levy" on all imported goods was later reimposed in order to help finance Iraqi-initiated reconstruction projects.
Order 17: Status of the Coalition Provisional Authority, MNF - Iraq, Certain Missions, and Personnel in Iraq
This order granted all foreign contractors operating in Iraq immunity from the Iraqi legal process. This meant that any and all suits posed against contractors didn’t affect them.
Order 39: Foreign Investment
It laid out the framework for full privatization in Iraq, except for the primary extraction and initial processing of oil, and permitted foreign ownership of Iraqi assets. It also provided that a foreign investor is entitled to terms no worse than those applicable to an Iraqi investor and that the amount of foreign participation in business will not be limited at all. This means that the CPA has allowed almost unlimited and unrestricted foreign investment and placed no limitations on the expatriation of profit. All to create a favorable environment for foreign investors, thus allowing American and multinational
corporations to dominate Iraq's economy, but grow it at the same time.
corporations to dominate Iraq's economy, but grow it at the same time.
Order 49: Tax Strategy of 2004
This act provided a tax cut for corporations operating within Iraq. It reduced the rate from a maximum of 40% to a maximum of 15% on income. However, corporations working with the CPA were exempted from owing any of the tax.
Iraq's foreign debt
One of the key economic challenges was Iraq's immense foreign debt, estimated at $125 billion. Iraq decided to deal with its debt more pragmatically and approached the Paris Club of official creditors, an informal group of financial officials from 19 of some of the world's biggest economies (the US being one), which provides financial services such as war funding, debt restructuring, debt relief, and debt cancellation to indebted countriesand their creditors. The club agreed to write-off the debts of Iraq, seeing it being rebuilt as one of their most important objectives.
Effects of the us aid
The nominal GDP had reached $55.4 billion by 2007 due to an increase in oil output as well as international prices. In 2006, the real GDP growth was estimated to be almost 17 percent. In a December 2006 Newsweek International article, a study by Global Insight in London was reported to show
"that Civil war or not, Iraq has an economy, and—mother of all surprises—it's doing remarkably well. Real estate is booming. Construction, retail and wholesale trade sectors are healthy, too. The U.S. Chamber of Commerce reports 34,000 registered companies in Iraq, up from 8,000 three years ago. Sales of secondhand cars, televisions and mobile phones have all risen sharply. Estimates vary, but one from Global Insight puts GDP growth at 17 percent last year and projects 13 percent for 2006. The World Bank has it lower: at 4 percent this year. But, given all the attention paid to deteriorating security, the startling fact is that Iraq is growing.”