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Bank and IMF role in Iraq taking shape

21 July 2003

The interim Iraqi Governing Council has announced that “the Council, with the coalition and with the involvement of the IMF, World Bank and UNDP, will play a full part in drawing up the 2004 national budget.”

A World Bank team, headed by Joseph Saba, Country Director for Iran, Iraq, Jordan, Syria and Lebanon, is to assess the costs of rebuilding Iraq before a meeting of donors scheduled to take place in New York in October. The Bank team includes units specialising in investment climate, banking and the financial sectors, agriculture, water resources and food security. It is not known when the cost estimate will be completed. American officials will be trying to raise billions from other countries at the conference to finance reconstruction. In response to concerns over the independent use of such funds, American officials have proposed establishing a trust fund to be managed by either the World Bank or the United Nations Development Programme.

Meanwhile in a recent presentation to the Executive Board of the Bank Jean-Louis Sarbib, Vice President for the Africa and Middle East, has outlined the planned allocation of responsibilities on major issues between the Bank and the IMF. The Fund should lead on the budget for the remainder of 2003, the currency and exchange rate regime, the central banking functions and the management of external debt. It will also provide technical assistance for establishing an independent central bank. The Bank should lead on public expenditure priorities and management, as well as “transition to market economy (price liberalization, privatizations, safety nets etc.)”.

This reflects the key priorities identified by the Bank group and the Fund for Iraq in the current context. Among the priorities highlighted for private sector development by the International Finance Corporation, the Banks’ private arm, are:

– assessing the state of public enterprises to determine what approach to recommend (total or partial privatisation, restructuring, other options)

– a review of the trade regime, prospects for integration

The Bank staff has also identified priorities in various sectors. For example proposed long-term priorities for the water sector are to “rebuild/setup the institutional framework” and “set up a program to improve the sector (cost-recovery and tariff systems)”. To implement the first steps of this agenda the Bank is planning “security permitting, a ‘permament’… presence in Baghdad over the coming months” and has hired a number of external experts. This “presence” was highlighted by a recent visit to Iraq by Bank President James Wolfensohn. However on this occasion he made clear that financial support to the country would have to wait: “there is a need first to have a constitution, to have a government, to re-establish Iraq as the Iraqi people would like to have it.”

On the issue of outstanding Iraqi debts, a split is emerging between the US coalition and the Bank. Under proposals being pushed by the US Export Import Bank and a lobbying group that includes key American contractors Bechtel and Halliburton, Iraqi oil revenues may be securitised over at least a decade – allowing Iraqi authorities to borrow large sums up front which can then be repaid over several years – which would be used to pay foreign contractors for reconstruction work and for settling outstanding debts. The World Bank has said such commitments should only be made by a sovereign Iraqi government.