House of Paine

what happened to" a shining chile on the tigris "?

   the neo con
            eye rack-oons 
           had a nice 70's vision
        its gonzo

tah tah 


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  a side walk
stock 'n bond 
           pundit 
          wrote  recently :

"What is striking to me
    is not that the US started out 
with dreams of creating a conservative's
 idealized version of a market economy,
 something that would serve 
as an economic as well as political model
 for the region. "

( Think a flat tax, 
no barriers to trade 
or 
foreign investment 
 no more oil-for-food welfare,
 immediate privatization of all
 state owned firms
outside the oil sector,

   Think of an oil sector partnered up 
with the big international oil firms,)
  
no   what's striking to me 
is how quickly those dreams got scaled back"



"An oil bonaza? 
 Oil production remains well below the 2.5 mbd 
Iraq produced before the war".

"Privatization - or even partial privatization -- 
of Iraq's oil industry? 
  Not likely.   
Iraq's leaders cannot even agree 
which part of the country 
should get the existing oil revenues,
 let alone how to divvy up 
a privatization windfall."  

"End subsidies 
that keep the price 
of "premium" gasoline in Iraq 
at 13 cents a gallon, 
and keep the price of diesel
 at under 5 cents a gallon? 
 Well, when conditions permit".

----------- by the way a nice sink hole this
the iraqi peons zoom around blowing off their own reserves
while the world market supply is nicely reduced
a  big oil two-fer -----------------------

 " The IMF estimates those subsidies 
cost Iraq about $8 billion,
 or about 1/2 of total government spending.
 Some of the loss is revenue foregone 
by giving away oil inside Iraq 
rather than selling it abroad;
 but Iraq also has to import 
refined gasoline 
because of a lack of domestic refining capacity"

"Wean Iraq's state from its dependence on oil? 
 Non-oil revenues are expected to provide 
less than 2% of Iraq government's
  total funding in 2005." 

"Reduce the role of the state in the economy? 
  2005 government spending is estimated to be
 bigger than Iraq's GDP."

 "  Oil revenues do not cover
 the government's current spending, 
making it hard to do innovative things 
like set up an Alaska style oil fund 
that gives some of the oil revenue 
back to the people."

---------- except in kind
by the give away fuel pricing --------------------

"Open Iraq to foreign investment? 
Yes, laws that leave Iraq open 
to foreign direct investment
 remain on the books.
  But it is pretty clear 
that those laws are meaningless 
when private militias 
are in de facto control 
of much of the country 
 and no doubt control 
much of the economy as well."

"   The IMF optimistically estimates
 that Iraq's liberal foreign investment laws 
will help Iraq attract $300 million 
in foreign direct investment(FDI) in 2005."


--------- 
           China 
- "with one 
of the most regulated 
capital accounts 
in the world "
         attracts FDI
at about three or four times that rate -------

"Iraq's banking system?  
Not worth talking about.  
Iraq is a cash economy,
 and an informally dollarized economy"

"Enough electricity 
to keep the lights on all day long? 
 Make sure Baghdad 
has more electricity 
than it did when the Iraqi economy 
was crippled by sanctions?
 That was something that was supposed 
to happen last summer. 
 we are still waiting.    
Electricity shortages remain endemic. 
  Electricity production (per Brookings)
 is about three quarters
 of the US goal 
for the summer of 2004 (4,500 MW v 6000 MW)"

"An Iraq that could pay for 
its own reconstruction? 
 That got abandoned back in 2003. 
  But the initial low-balled estimate
 of the cost of rebuilding Iraq 
still had an impact. 
  There was no aid 
 in the pipeline when the war ended,
 and it took time 
to push up reconstruction spending.
  Actual grant aid disbursed in Iraq in 2004, 
according to the IMF :
 $3.4 billion. 
  2005 will be a bit better 
- the IMF now estimates there will be
 $8.9 billion 
in grant aid for Iraq. 
But compare the $3.4 billion 
in grant aid in 2004 
to the $5 billion a month cost
 of maintaining the US economy in Iraq...."
----------- nb "economy " ----------------

" - or to the $1.3 billion
 Iraq pays Kuwait 
in reparations for the first gulf war 
and $4.8 billion Iraq paid 
to import refined gasoline.

---------- nb sold domestically 
         at the belowest price imaginable --------------- 


 " Right now, money flows
 from (poor) Iraq to (rich) Kuwait,
 not the other way around "  

" Moreover, the US scramble 
to find funds to spend in Iraq 
in the early stages 
of the occupation
 meant drawing on a whole bunch
 of different pots of money"

 "- frozen Iraqi assets in the US, 
dollars cash that US troops seized in Iraq,
 the leftover funds in the UN's oil for food program, 
you name it (see box 4 in the IMF report).  

"  The result: Iraq's budget is a mess.  
 The IMF of course 
  does not put it in quite that way, 
but it does note:
 "Budgetary management remained weak in 2004, 
although some improvements 
were made in 2005." 
Best I can tell, "weak" means 
  the ministry of finance has no real idea 
how much the rest of the government is spending.  
 That makes "timely and accurate assessment 
of the fiscal and monetary stance 
in 2004 and 2005 has been problematic "   

"It is not just in the political realm 
 where the US has scaled back its ambitions. 
  And to be honest,
 it was not just in the political realm 
 where the US started out with unrealistic goals"   

 "The initial phase of shock therapy
 involves a lot of shock 
- workers at state owned firms get laid off,
 domestic products sheltered by sanctions 
face international (or even Iranian) competition,
 redundant workers 
in make work state jobs get laid off.
    Markets do adjust.   
 But the process is not always pleasant.
  Wages fall as old industries are shut down, 
and only start to rise 
when new industries are created.
     In an economy with low wages 
and high unemployment 
even with bloated state payrolls, 
the US military (wisely) insisted 
that the US economic planners hold off on the shock. 

  That has not changed. 
 the US is busy trying to add
 to the state's payroll 
(an army, a police force),
not to reduce it ... "


------------ now the cakes icing

some lessons for next time ....------------


"A market economy requires a functioning state"

--------- by way of contrast
  before the  market miracle 
          was implemented
     the chicago darling
                chile
   had a well functioning
          coup installed
   bare knuckle miltary dictatorship
               in total cxontrol 
of the country -------------------


"the initial economic planning
 put too much emphasis on
 eliminating state interference
 in the Iraqi economy
 and too little emphasis on 
maintaining a functioning state" 


- - --  again vide chile circa '73-76  --------------

"It is hard to create a modern market economy 
without a state that works."

--------and where the customers are rough
that may mean 
        errh a free market caudillo  -----------------

"  You cannot carry off 
a massive privatization campaign 
without a functioning state "

-------- final burst of bitter sweet
             wall street wit  ----------------

"  Competing private militias
 rarely produce a free-market nirvana, 
even with a flat tax and no  barriers 
   to trade and investment"



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