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Economy in Iraq Goes in All Directions

Showcase projects and lively entrepreneurs run counter to a bloated public sector and antiquated farming. Violence casts a shadow.

January 02, 2006|Borzou Daragahi, Paul Richter and Doug Smith | Times Staff Writers

BAGHDAD — The crowded sidewalks along Sanaa Street offer one picture of Iraq's economy, a bustling entrepreneurial mecca that's a cross between Silicon Valley and the HBO western "Deadwood," where the young and ambitious can make their fortunes if they're not shot dead first.

The staid hallways of the Interior Ministry's residency office show another glimpse. Here, idle men and women shuffle papers and look ambivalent as desperate foreign visitors trudge from office to office in search of the elusive stamp that will let them stay in Iraq.

Umm al Shabab, a sleepy farming village along the Euphrates River, shows yet another side of Iraq's patchwork economy: Sharecroppers use ancient tools to plow the last bits of wheat and barley from the tired soil.

Taken as a whole, Iraq's economic landscape remains wasteful and primitive, with a touch of the postmodern, a touch of the feudal and a heavy dose of tedious state bureaucracy that sucks up much of the country's resources and energy.

Analysts estimate that Iraq's gross domestic product grew from $20.5 billion in 2002 to $29.3 billion last year, and President Bush has touted the visible signs of economic vitality, such as consumer sales and private business start-ups. But analysts believe these stirrings have had a limited effect, thanks to a lack of basic infrastructure and decades of neglect.

Although American officials in Baghdad recently said Iraq's economy grew between 3% and 4% in 2005, one commercial service, the Economist Intelligence Unit, said Iraq's GDP fell 3% in 2005, though it predicted that it would rise in 2006.

"To be fundamentally optimistic would be to go too far," Michael O'Hanlon, senior fellow at the Washington-based Brookings Institution, said of the Iraqi economy. "The economy is only changing very gradually. In 2005, Iraq was treading water, with a slight forward motion. 2006 will be largely the same; the insurgency will impede the recovery."

U.S. officials at a recent briefing in Baghdad said Iraq's December election of a four-year government would bring the stability necessary to improve economic conditions. More than $18 billion in U.S. funds have been allocated for relief and reconstruction.

On a recent helicopter tour of Baghdad, American officials pointed to a water treatment plant, the Baghdad International Airport terminal, the Ministry of Environment building, two electrical power plants as well as a police academy to show that U.S. reconstruction money was being put to good use.

Such showcase projects may please U.S. taxpayers, but they rarely mollify Iraqis. Americans and Iraqis use different measures in assessing Iraq's progress, with Americans praising big steps forward since the March 2003 U.S.-led invasion, and Iraqis unable to forget the relatively good times of the late 1980s, before the Persian Gulf War and a dozen years of sanctions that destroyed Iraq's middle class and infrastructure.

Besides, many here and abroad say, such investments are sometimes wasted on Iraq's bloated public sector, which remains unreformed and stifles Iraq's commercial potential.

Beefed up under Saddam Hussein to mask joblessness, the public sector employs as much as half the country's working population. Since the invasion, government salaries have risen dramatically, further entrenching a culture in which Iraqis expect handsome paychecks for showing up for jobs that are essentially unnecessary.

For instance, all foreign visitors to Iraq, including businesspeople, must spend hours after arriving and before leaving Iraq checking in with the Interior Ministry's residency office, a Kafkaesque warren of hallways filled with idle functionaries doing little more than taking bribes for moving papers from office to office.

To Iraqis, the system is even more merciless, ignoring merit and rewarding connections. Hind Abdulmunim, a 26-year-old art school graduate, applied for a job as a teacher. Her application went nowhere until her mother, who knew somebody who knew somebody, intervened.

"I applied as everyone else does at the Ministry of Education, but as everybody knows, you need connections to get your work done in any office in Iraq," she said.

Endemic corruption and the constant threat of insurgent attacks have kept foreign investors away. A recent U.S. Senate report said that "corruption has not abated, and we should not expect that it will for some time."

On the bright side, PepsiCo has renewed a partnership with a Baghdad soft drink company it originally set up in 1990 but had to rescind because of sanctions.

But of the foreign banks licensed to open shop in Iraq, none has done so because of security worries.

The handful of Western businesspeople who do come to Iraq spend thousands of dollars to hire armored cars and helicopters to make the six-mile trip from the airport to Baghdad's business hub.

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