KRG announces 461 million square foot site for Kurdistan Gas City

Joint venture by Dana Gas and Crescent Petroleum to generate investments of over 40 billion US dollars

The Kurdistan Regional Government (KRG) announced today that a 461 million square foot site for the Kurdistan Gas City has been designated for development by Gas Cities LLC, a joint venture between Dana Gas PJSC, the Middle East's first and largest regional private-sector natural gas company, and its partner Crescent Petroleum, following extensive surveys that have been completed on potential sites within the Kurdistan Region of Iraq.

The groundbreaking ceremony of the Kurdistan Gas City will take place on 21 September in the presence of KRG Prime Minister Nechirvan Barzani, and several ministers, dignitaries and heads of prospective local and international industry leaders.

Kurdistan Gas City is a major new sustainable and synergistic gas-utilisation industrial complex to be built over an area of 461 million square feet, designed to promote private sector investment in a variety of gas-related industries to further benefit the country’s citizens through mass training, job creation in the many tens of thousands, and the promotion of general economic activity.

Kurdistan Gas City will include industrial, residential and commercial components in an integrated city, with an expected initial investment in the basic infrastructure estimated at 3 billion US dollars, preparing the land for possession by prospective residents. This initial investment will in turn facilitate further foreign direct investment exceeding 40 billion dollars (147 billion UAE dirhams) during the operations phase. The Gas City is being structured to hold over 20 varieties of world scale petrochemical and heavy manufacturing plants, and hundreds of small and medium-sized enterprises (SMEs), served by state-of-the art civic facilities.

Prime Minister Barzani: Gas City to create opportunities
Prime Minister Barzani said, “Dana Gas and Crescent Petroleum have made a significant contribution to the Iraqi economy through their work in the Kurdistan Region of Iraq thus far, and the new Kurdistan Gas City will be an extension of the considerable and commendable achievements to date. We highly appreciate their dedication towards our Region and welcome their efforts to support the Iraqi people and the Iraqi economy. Through their professionalism and genuine concern for the community, we are making significant progress in spurring on economic growth and creating opportunities for our people.”

Mr Hamid Jafar, Executive Chairman of Dana Gas, explained the ramifications of this achievement by saying, “The Kurdistan Gas City is an enormous step forward in Dana Gas’ strategy across the Middle East, North Africa and South Asia (MENASA) Region. At this time, we have the KRG and Prime Minister Barzani to thank for welcoming Crescent Petroleum and Dana Gas into the Kurdistan Region of Iraq, as we work towards strengthening the Iraqi economy and bettering the livelihoods of the Iraqi people.”

Kurdistan Gas City is the first in a series of Gas Cities that are being developed across the MENASA region by Gas Cities LLC, a joint venture company that has been established by and between Dana Gas and Crescent Petroleum. Kurdistan Gas City is projected to generate direct and indirect job opportunities for nearly 200,000 Iraqi citizens in infrastructure, industrial projects, support services and other business activities.

Mr Badr Jafar, Chairman of Gas Cities LLC, and Executive Director at Crescent Petroleum, commented on the occasion by saying, “The Kurdistan Gas City is the first in a series of similar gas cities planned for the entire region. Gas Cities LLC, as a new venture dedicated to the introduction and development of this unique concept, are formidable public-private sector partnerships that will generate massive regional and foreign direct investment and unrivalled local opportunities in the communities into which we plan to introduce the Gas City concept.”

Natural gas pipeline and LPG plants near completion

Meanwhile, pursuant to the service agreements signed in April 2007 with the Kurdistan Regional Government, construction is more than 80 percent complete on 180 km of natural gas pipeline and two LPG plants, carried out jointly by Dana Gas and Crescent Petroleum in the Kurdistan Region of Iraq to supply, process and transport natural gas to fuel urgently needed local electricity generation. The project is employing Iraqi contractors, professionals, skilled technicians and labour in phases of construction stages to maximise local content and economic benefit. The entire project is on track for first gas supply of 150 million cubic feet per day in the coming weeks, rising to 300 million cubic feet by early 2009.

The gas supplied to the two new power plants under construction in Erbil and Suleimaniah, will generate 1,250 Mega Watts of electricity, for the benefit of over four million Iraqi citizens in the Kurdistan Region and the rest of Iraq. The project involves a total investment of 650 million US dollars - the largest single private sector investment in Iraq for decades.

As a result of this investment not only will urgently needed gas be supplied to the power plants cost-effectively but it will also result in savings to the Iraqi government’s budget of over 2 billion dollars annually in fuel costs. The project implementation will also provide work opportunities for over 2,000 Iraqi nationals of all ethnic groups, and provide comprehensive training in oil and gas operations for Iraq’s citizens.

Dana Gas and Crescent Petroleum announce establishment of 461 million square feet site for Kurdistan Gas City

Gas Cities LLC, a joint venture between Dana Gas PJSC, the Middle East's first and largest regional private-sector natural gas company, and its partner Crescent Petroleum, announced today that the 461 million square foot site for the Kurdistan Gas City has been officially assigned by the Kurdistan Regional Government (KRG), for development by Gas Cities LLC, following extensive surveys that have been completed on potential sites within the Kurdistan Region of Iraq.

The groundbreaking ceremony of the Kurdistan Gas City will take place on the 21st of September, 2008 in the presence of the Prime Minister of the Kurdistan Regional Government of Iraq, His Excellency Mr. Nechirvan Barzani, and several Ministers, dignitaries and heads of prospective local as well as international industry leaders.

The Kurdistan Gas City is a major new sustainable and synergistic gas-utilization industrial complex to be built over an area of 461 million square feet, designed to promote private sector investment in a variety of gas-related industries to further benefit the country's citizens through mass training, job creation in the many tens of thousands, and the promotion of general economic activity.

The Kurdistan Gas City will include industrial, residential and commercial components in an integrated city, with an expected initial investment in the basic infrastructure estimated at US$3 billion, preparing the land for possession by prospective residents. This initial investment will in turn facilitate further Foreign Direct Investment exceeding $40bn (Dhs147bn) during the operations phase. The Gas City is being structured to hold over 20 varieties of world scale petrochemical and heavy manufacturing plants, and hundreds of Small and Medium-sized Enterprises (SMEs), served by state-of-the art civic facilities.

His Excellency Mr. Nechirvan Barzani, Prime Minister of the Kurdistan Regional Government, said on the occasion,

'Dana Gas and Crescent Petroleum have made a significant contribution to the Iraqi economy through their work in the Kurdistan Region of Iraq thus far, and the new Kurdistan Gas City will be an extension of the considerable and commendable achievements to date. We highly appreciate their dedication towards our region and welcome their efforts to support the Iraqi people and the Iraqi economy. Through their professionalism and genuine concern for the community, we are making significant progress in spurring on economic growth and creating opportunity for our people.'

Hamid Jafar, Executive Chairman of Dana Gas, explained the ramifications of this achievement by saying, 'The Kurdistan Gas City is an enormous step forward in Dana Gas' strategy across the Middle East, North Africa and South Asia (MENASA) Region. At this time, we have the KRG and Prime Minister Barzani to thank for welcoming Crescent Petroleum and Dana Gas into the Kurdistan Region of Iraq, as we work towards strengthening the Iraqi economy and bettering the livelihood of the Iraqi people.'

The Kurdistan Gas City is the first in a series of 'Gas Cities' that are being developed across the Middle East, North Africa and South Asia (MENASA) region by Gas Cities LLC, a joint venture company that has been established by and between Dana Gas and Crescent Petroleum. The Kurdistan Gas City is projected to generate direct and indirect job opportunities for nearly 200,000 Iraqi citizens in infrastructure, industrial projects, support services and other business activities.

Badr Jafar, Chairman of Gas Cities LLC, and Executive Director at Crescent Petroleum, commented on the occasion by saying, 'The Kurdistan Gas City is the first in a series of similar gas cities planned for the entire region. Gas Cities LLC, as a new venture dedicated to the introduction and development of this unique concept, are formidable public-private sector partnerships that will generate massive regional and foreign direct investment and unrivalled local opportunities in the communities into which we plan to introduce the Gas City concept.'

Meanwhile, pursuant to the service agreements signed in April 2007 with the Kurdistan Regional Government, construction is more than 80 percent complete on 180 km of natural gas pipeline and two LPG plants, carried out jointly by Dana Gas and Crescent Petroleum in the Kurdistan Region of Iraq to supply, process and transport natural gas to fuel urgently needed local electricity generation. The project is employing Iraqi contractors, professionals, skilled technicians and labour in phases of construction stages to maximise local content and economic benefit. The entire project is on track for first gas supply of 150 million cubic feet per day in the coming weeks, rising to 300 million cubic feet by early 2009.

The gas supplied to the two new power plants under construction in Erbil and Sulymaniya, will generate 1,250 MW of electricity, for the benefit of over 4 million Iraqi citizens in the Kurdistan Region and the rest of Iraq. The project involves a total investment of $650 million - the largest single private sector investment in Iraq for decades.

As a result of this investment not only will urgently needed gas be supplied to the power plants cost-effectively but it will also result in savings to the Iraqi government's budget of over $2bn annually in fuel costs. The project implementation will also provide work opportunities for over 2,000 Iraqi nationals of all ethnic groups, and provide comprehensive training in oil & gas operations for Iraq's citizens.

(AME Info FZ LLC)

Karbala's mayoralty commences 3 billion Iraqi dinar projects

On Saturday, work commenced to execute frequent projects to develop Karbala's streets and inlets, and to construct entertainment gardens," Majid Naji told Aswat al-Iraq – Voices of Iraq.

"The projects' total cost is 3,240,000,000 iraqi dinars, as part of the 2008 regions' development budget of Karbala's mayoralty," he said.

"Those projects are to be finalized within 10 months," he noted.

The holy city of Karbala lies 110 km southwest of Baghdad. (Source)VOI

United Arab Emirates is abolishing 7 billion Dollars of Iraqi debts

The United States is urging Arab governments to support Iraq and follow the example of Western States in exempting Baghdad from foreign debt amounting to 80 billion dollars.

Thus Washington wants from Arab capitals to establish diplomatic representation at a high level in Iraq.

The United Arab Emirates appointed the new ambassador in Iraq last Sunday in a step alleviate the diplomatic isolation of Baghdad during a visit by Iraqi Prime Minister Nuri al-Maliki.

This step came after the Foreign Minister of United Arab Emirates Sheikh Abdullah Bin Zayed Al Nahyan visited Baghdad in June to become the first foreign minister and one of the Arab Gulf States visiting Baghdad since the US-led invasion in 2003.

Stated the official Emirates news agency (WAM) that the debt owed by Iraq is four billion dollars has been provided at different times. As informed diplomatic source Emirati Reuters that the total amount which will be abolished reported seven billion dollars including interest and arrears.

Stated the President of UAE AlSheikh Khalifa bin Zayed Al Nahyan to (WAM) as saying, "The decision of UAE to cancel debts of Iraq is an expression of the brotherhood and solidarity between the two countries and help the Iraqi Government to implement plans and projects of reconstruction and rehabilitation of various institutions and facilities in Iraq."

From his part Al Maliki welcomed this step; he said it would help his government to "support the process of restoring security and stability in Iraq through the opening horizon for Iraq to get rid of the burdens that weigh its economy and its institutions."

Washington also welcomed the decision of the United Arab Emirates to cancel the Iraqi debt and appointing Ambassador in Baghdad after reopen the Embassy.

Stated Gordon Jondro the White House spokesman in Tokyo, where President George W. Bush attends the summit meeting of Group of Eight "We appreciate that Emirates recognized the secure and prosperous Iraq is in the interest of everyone in the region."

During the past three years about 66.5 billion dollars of Iraq's total debt has been cancelled, which totals 120.2 billion. And Paris Club canceled 42.3 billion dollars of debt, including Russia, which up to 12 billion dollars.

And some states are not members of the Paris Club abolished of $ 8.2 billion as well as commercial creditors cancelled 16 billion dollars.

Saudi Arabia last year promised to cancel 80 percent of Iraq's debts amounting to 15 billion dollars but have not yet done so. As for Kuwait, which Iraq condemns them five ten billion dollars was cancelled nothing yet.

In references to ease the growing diplomatic isolation of the Iraqi capital, Baghdad expects close visit from King of Jordan Abdullah, and Turkish Prime Minister Rajeb Tayyip Erdogan. The King Abdullah will be the first Arabic leader visits Iraq since the invasion.

Mean while Sunni Arab governments are reluctant to establish relations with Baghdad since US-led war to topple Saddam Hussein, when they funded the Iraq war between 1980 and 1988 against Shiite Iran justifying of security conditions and the large influence of Iran.

No ambassador of any Arab country permanently in Iraq since the kidnapping and killing of Egyptian ambassador shortly after his arrival in 2005.

The UAE has withdrawn its ambassador from Baghdad in May 2006 after one of its diplomats kidnapped and detained for approximately two weeks at the hands of Islamic extremists.

The diplomatic representation has maintained a low level since that time, but the appointment of Abdullah Ibrahim Al Shehhi UAE Ambassador in India currently represents a major shift. Also pledged to Saudi Arabia and Bahrain to send ambassador to Iraq but the UAE is the only Arab country which went ahead with this step.

The source said that the Iraqi government agreed to the appointment of Al Shehhi and is waiting final signature of the President of the United Arab Emirates and is not yet clear when he would reach Baghdad. (Source)AlSabah

The Iraqi National Investment is flooded with investor’s new proposals

He added in an interview this week with Reuters and a Lebanese magazine; that that who comes early will get cheap labour, support and many privileges because Iraq needs investors now and opportunities for them will be less later.

Iraq needs huge investments for reconstruction after decades of wars and sanctions.

The statistics of the United Nations show that foreign direct investment in Iraq in 2006 did not exceed 272 million dollars.

Redha said that the proposals have been made to include huge housing and tourism projects from Gulf investors in the city of Najaf, sacred to Shiites.

He added that the security situation improved more than 90 percent this year, which encouraged Iraq to invite investors.

The body which was founded in December to grant licenses of investment and set rules for the implementation of projects in Iraq. It covers all sectors from the oil and gas to insurance and banks.

Redha said that the Authority so far granted licenses worth 418 million U.S. dollars, which is partly due to the need for further documentation with respect to certain projects and also because of difficulties in land allocation.

He continued by saying that the proposals presented by a mixture of Iraqis and foreign investors who some of them had cooperated in projects. He added that investors can overcome the Commission to conclude an agreement but that will deprive them from incentives such as tax cuts of up to ten years.

Recently many businessmen delegations visited Iraq from South Korea, Japan and Germany. Redha said that the Arab Gulf States are particularly interested in investment in Iraq.

He said that the scheme of Najaf was submitted by a Kuwaiti company named Al Aquila for investment, includes the setting up of 200 thousand new housing units, schools, medical facilities and industrial island in Lake of Najaf.

The representative of the company in Kuwait informed Reuters that Al Aqila submitted a proposal regarding the project would cost several billion dollars.

Redha added that companies such as Hyundai and Kia South Koreans considering building factories in Iraq.

He said that as long as there are no obstacles to the export from Iraq to any country, it is better to Iraq aimed to manufacture and export abroad.

The Ministry of Defense has promised to protect any project obtained a license to invest.

However, there is another source of concern is the legal and regulatory framework.

But Redha stated that the investment law approved in 2006 has a priority in the application of any other law is inconsistent with making it the main guide to potential investors.

He pointed out that the law granting Iraqi investors and others many privileges. He said that the Iraqi economy was a socialist for 50 years where the government buys and sells, imports and exports everything, but now Iraq has turned into a free economy. (Source)AlSabah

Japan to aid Iraq in rebuilding oil, gas industry

Iraqi Oil Minister Hussain Al Shahristani and Japanese Minister of Economy, Trade, and Industry Akira Amari—voicing concerns over global oil prices—agreed for the two countries to cooperate in a variety of measures aimed at reconstructing Iraq's oil and natural gas industry.

"The two countries confirmed that rebuilding the oil industry and increasing output are important for the stability of crude oil prices, and Japan is ready to fully cooperate to that end," Amari said after meeting with Al Shahristani.

Japan and Iraq will strengthen cooperation in a range of economic fields centering on the energy sector. They said oil and gas development and the reconstruction of existing energy-related facilities are essential for the rehabilitation of Iraq.

Basra refinery upgrade
Japan reconfirmed its commitment to implement development loans it has pledged, including one to help build refinery and export facilities in and around Basra. The 2.1 billion-yen loan to Basra includes installing secondary units such as a fluid catalytic cracker.

In January, the Japan Bank for International Cooperation said it had signed an agreement with Baghdad for as much as ¥182.7 billion to restore war-damaged facilities, including ¥50.1 billion on the oil export facility reconstruction project.

At the time, JBIC said the two countries also agreed to spend ¥36.8 billion for rehabilitation of the Al-Mussaib thermal power plant; ¥30.2 billion for the Iraqi port area rehabilitation project; ¥32.6 billion for rebuilding the power grid; and ¥30.9 billion on other civic rehabilitation and construction projects.

In early June, JBIC signed additional loan agreements totaling ¥57.7 billion for the Basra water supply improvement project and reconstruction of the Kurdistan electric power grid.

Japan's oil and gas firms have reaped rewards from the investments. In April, Inpex Holdings Inc. and three other Japanese companies passed a preliminary screening of potential bidders for Iraqi oil exploration and development.

In addition, Japan Petroleum Exploration Co., Nippon Oil Corp., and Mitsubishi Corp. are among 41 of the 120 applicants to have passed the Oil Ministry's preliminary screening. The 41 include ExxonMobil Corp., BP PLC, and oil and gas companies from China, Russia, and India.

Iraq expressed hope that more Japanese companies will participate in bidding for projects to develop Iraqi oil fields, while Japan offered to train a hundred Iraqi engineers a year during 2009-13.

The Iraqi oil ministry said this week it is planning by the end of the month to announce the first round of tenders to develop its oil and gas fields.

A ministry spokesman said names of the fields, duration of each contract, closing dates for receiving bids, and other details would be made public on June 30.

The oil and gas fields include Kirkuk and Bai Hasan in northern Iraq, as well as West Qurna 1, Zubair, Rumaila, and Missan in southern Iraq. They also said two gas fields—Akkas in western Iraq and Mansoriya in the east—will be included.

(Oil & Gas Journal)

Kurdistan government signs two new oil contracts

Kurdistan region authorities announced that it signed two new oil contracts last Thursday with a Canadian company in spite of the stiff objection of Nuri Al Maliki’s government. The government of the region pointed out that the company will get 40% stake in the Kalar-Bawanoor block.

After signing the two contracts the number of contacts Kurdistan government signed since the issuing of Kurdistan region oil law last august would become 17.
(Al SumariaTV)

Central bank governor: Dinar rose against the dollar by 20% in 16 months

The Iraqi dinar went up against the U.S. dollar by 20 percent in the past 16 months, said the governor of the Central Bank of Iraq (CBI), attributing the rise to the bank's policy.

"The improvement in the dinar was the result of the monetary policy adopted by the bank, which appreciated the dinar against the dollar in its daily auction throughout the past 16 months," the governor, Sinaan al-Shabibi said during a Baghdad-based press conference on Sunday.

The exchange rate cannot be determined because it depends on several factors, mainly inflation, and the supply and demand for the dollar, al-Shabibi noted.

During the past three or four years, Iraq suffered from inflation that reached 65 percent, according to figures announced by the Central Agency for Statistics, he noted.

Al-Shabibi called on the Iraqi government to pay particular attention to economic growth by supporting the industrial and agricultural sectors.

Source : VOI

http://www.whitehouse.gov/news/releases/2008/03/20080327-4.html

Fact Sheet: Achieving Political and Economic Progress in Iraq

President Bush Discusses Ways The Surge Is Helping Iraqis Reclaim Security And Restart Political And Economic Life

Today, President Bush visited the National Museum of the United States Air Force and discussed the political and economic changes currently taking place in Iraq.

Last year, the President ordered 30,000 additional soldiers and Marines into Iraq, and gave them a new mission, to focus on protecting the Iraqi people, and to hold the gains that had been made. The other goal of the surge was to open up space for political and economic progress after security returned. So the U.S. deployed additional civilian experts and more than doubled the number of Provincial Reconstruction Teams, with a mission to ensure the security gains were followed by improvements in daily life.

Civil Society Is Beginning To Grow In Iraq

The surge is yielding major changes in Iraqi political life. With security improving, local citizens have restarted the political process in neighborhoods, cities, and provinces. Grassroots movements have sprung up all around the country. These groups of citizens are determined to protect their communities, they are determined to fight extremism, and they increasingly participate in civic life.

• Today, some 90,000 Iraqis belong to local citizens group bearing the name "Sons of Iraq." The Iraqi Government has pledged to incorporate about 20 to 30 percent of these "Sons of Iraq" into the Iraqi army and police forces.

• Leaders in Baghdad are responding and the legislative achievements in Baghdad over the past four months have been remarkable.

• In December, the government enacted a pension law that will allow tens of thousands of Sunnis to collect the retirement benefits they were promised.

• In January, leaders enacted a de-Ba'athification law that allows mid-level Baath party members to re-enter political and civic life.

• In February, leaders enacted a budget that increases spending on security capital reconstruction projects and provincial governments.

• The same day in February, leaders enacted an amnesty law to resolves the status of many Iraqis held in Iraqi custody.

• Last week, leaders reached agreement on a provincial powers law that helps define Iraqi federalism, and sets the stage for provincial elections later this year. That is an important piece of legislation because it will give Iraqis who boycotted the last provincial elections – such as Sunnis in Anbar or Ninewa provinces – a chance to go to the polls and have a voice in their future.

The U.S. more than doubled the number of Provincial Reconstruction Teams. Karbala PRT helped local residents establish a women's center to provide education and promote equality.

• With support of PRTs, Ramadi now has a fully-staffed mayor's office and neighborhood councils have formed. Judges are presiding over courts and restoring the rule of law.

Iraq Has Great Economic Potential

The improvements in security resulting from the surge are enabling Iraqis to make progress on their economy. Since the surge began:

• Business registrations have increased by more than nine percent;

• Total inflation has fallen by more than 60 percentage points;

• Investment in energy and telecom industries has increased;

• Oil production is up, particularly north of Baghdad;

• The national government has announced a plan to reform the food rationing system; and

• Economic growth is projected to be a robust seven percent this year.

• Iraqis still have work to do in their economy. The reforms needed to transition from a command-and-control economy to a modern market-based system are complex and will take more time. Centralized electricity generation is now above pre-war levels, but it is not sufficient to meet the needs of Iraq's growing demand. Other key infrastructure needs to be upgraded, especially energy pipelines and storage facilities. Unemployment is too high, and corruption remains a challenge.

Iraq's Government Has Stepped Forward To Meet More Of Its Own Expenses

Early in the war, the U.S. funded most of the large-scale reconstruction projects in Iraq. Now the U.S. is focusing on encouraging entrepreneurship. The Iraqi government is stepping up on reconstruction projects. They have outspent the U.S. in recent budget 11 to one, and soon we expect the Iraqis will cover 100 percent of these expenses.

• Initially, the U.S. paid for most of the costs of training and equipping the Iraqi Security Forces. Now Iraq's budget covers three-quarters of the cost of its security forces, which is a total of more than $9 billion in 2008. Soon, we expect Iraq to shoulder the full burden of their security forces.

• The national government has now committed $196 million to fund jobs programs so that brave Iraqis who stand up to the extremists and the murders and the criminals can learn the skills they need to help build a free and prosperous nation.

Iraq Is Strengthening Its Relationship With Other Nations

Iraq wants to solidify its relationship with the United States. Last year, Iraqi leaders requested to form a long-term strategic partnership with the U.S. This partnership would help assure Iraqis that political and economic and security cooperation between the nations will endure. This partnership would also ensure protections for American troops when the U.N. mandate for Multi-National Forces in Iraq expires this December. This partnership would not bind future President's to specific troop levels. This partnership would not establish permanent bases in Iraq.

The surge is helping give Iraq's leaders the confidence to expand their international engagement.

• Iraqi leaders are working hard to meet the criterion required to join the World Trade Organization, which would help its entrepreneurs benefit from the opportunities of a global economy.

• Iraq has taken steps to attract foreign investment, including hosting its first "Business to Business" expo since the Gulf War.

• The government is meeting its pledge to reform its economy in exchange for development assistance and debt relief through the International Compact for Iraq.

Much of the world is increasing its commitment to Iraq. The United Kingdom, Italy, and South Korea are leading PRTs in Iraq. The United Nations is playing an expanded role in Iraq, and will help prepare for this year's provincial elections.

• Next month, the third Expanded Neighbors Conference will meet in Kuwait City to discuss ways the region and the world can further support Iraq's political, economic, and security progress. This is a key diplomatic initiative. It will include all of Iraq's neighbors, as well as the permanent members of the United Nations Security Council, the G-8, the Arab League, and the Organization of the Islamic Conference.

The Progress In Iraq Is Real, It's Substantive, But It's Reversible

Helping Iraqis defeat their enemies and build a free society would be a strategic victory that would resound far beyond Iraq's borders. If al Qaeda is defeated in Iraq after all the resources it has poured into the battle there, it will be a powerful blow against the global terrorist movement. If Iran is turned back in its attempt to gain undue influence over Iraq, it will be a setback to its ambitions to dominate the region. If people across the Middle East see freedom prevail in multi-ethnic, multi-sectarian Iraq, it will mark a decisive break from the long reign of tyranny in that region. And if the Middle East grows in freedom and prosperity, the appeal of extremism will decline, the prospects of peace will advance, and the American people will be safer here at home.

Retreating from Iraq would carry enormous strategic costs for the United States. It would increase the likelihood that al Qaeda would gain safe havens that they could use to attack us here at home. It would be a propaganda victory of colossal proportions for the global terrorist movement, which would gain new funds, and find new recruits, and conclude that the way to defeat America is to bleed us into submission. It would signal to Iran that we were not serious about confronting its efforts to impose its will on the region. It would signal to people across the Middle East that the United States cannot be trusted to keep its word. A defeat in Iraq would have consequences far beyond that country – and they would be felt by Americans here at home.

http://www.imf.org/external/pubs/ft/survey/so/2008/CAR021308B.htm

Iraq Makes Progress on Economic Front

By Erik De Vrijer, Udo Kock, and David Grigorian
IMF Middle East and Central Asia Department

February 13, 2008

* Despite difficult conditions, Iraq has made progress toward stabilizing the economy
* Under new IMF program, focus is on increased investment and output in oil sector
* Iraq's economic outlook hinges on improved security

Although the very high level of violence abated in 2007, Iraq continues to experience a difficult security situation in parts of the country.

Yet the country made significant progress under an IMF Stand-By Arrangement, which was approved in December 2005. The IMF's Executive Board approved on December 19, 2007, a new Stand-By Arrangement for Iraq. In light of Iraq's strong international reserves position, the authorities will treat the new arrangement as precautionary, which means that they do not intend to draw these resources. The decision to continue supporting Iraq's economy recognizes the significant progress the country made under the first program

But the IMF noted that much remains to be done to put Iraq on a path to sustainable growth. The main objectives of the new program, which will run through March 2009, are to maintain macroeconomic stability, facilitate higher investment and output in the oil sector, and advance structural reforms and institution building.

Progress under first program

Inflation, which spiked at 65 percent at end-2006, was sharply reduced with a policy package that included exchange rate appreciation, monetary tightening, and fiscal discipline. These policies, together with measures to reduce fuel shortages that resulted in declining black market fuel prices, limited the increase in consumer prices to less than 5 percent during 2007. Core inflation, which excludes fuel and transportation prices, fell to about 12 percent from 32 percent in 2006.

Because of the security conditions, however, the implementation of the public investment program fell short of budget plans, and oil output and economic activity in general did not expand as much as was hoped. Before oil exports through the northern pipeline to Turkey resumed in the last quarter of 2007, oil production hovered around 2 million barrels per day (mbpd) (see Chart 1).


The shortfall in oil production was offset by higher world market prices (see Chart 2). Iraq's international reserves position has continued to strengthen, allowing the country to repay in advance the full amount outstanding from a 2004 loan under the IMF's Emergency Post-Conflict Assistance (EPCA), which preceded the first Stand-By Arrangement.



Aside from improving macroeconomic stability, Iraq also made progress on structural reforms. The authorities significantly increased the initially very low domestic official fuel prices to levels that are in line with those in the region's other oil-exporting countries. Direct subsidies on fuel products, which amounted to almost 13 percent of GDP in 2004, were eliminated in 2007, except for a small subsidy on kerosene. This has released much-needed resources for reconstruction and reduced the incentives for smuggling fuel products out of the country. Other achievements include amending the new pension law to make the pension system fiscally sustainable and modernizing the payments system.

Aiming for stability

Maintaining macroeconomic stability remains a key objective of the authorities' program for 2008. The Central Bank of Iraq will gear its monetary and exchange rate policies toward achieving this objective. Fiscal policy will help contain inflation by keeping current spending, notably the wage and pension bill, in check to limit pressure on Iraq's small non-oil economy. The envisaged increase in government investment, in view of its high import content, should have only a limited impact on inflation.

In light of Iraq's large reconstruction needs, the government has prepared an ambitious investment program for 2008. It is taking steps to speed up projects that could not be undertaken in previous years, in particular to rebuild infrastructure and improve the provision of electricity, water and sanitation, education, and health care. Provided that further security improvements allow execution of the public investment program and a return to a more normal functioning of the economy, economic activity outside the oil sector should pick up.

The authorities' program will also focus on the oil sector and the need for higher investment to raise output and for greater transparency. Raising oil production will be crucial to provide the resources needed for reconstruction over the medium term. Projects to increase production and export capacity in the south and better protect the northern export pipeline are either under way or planned. With continued exports through the north, oil production is projected to increase to 2.2 mbpd in 2008, helping to boost economic growth overall to about 7 percent.

Following the installation of a metering system in the Basra export terminal, metering systems in other ports and oil installations are also being put in place. During 2008, an all-Iraqi Committee of Financial Experts will prepare to take over the audit oversight role of the Development Fund for Iraq, through which all oil revenues are channeled, from the International Advisory and Monitoring Board, which has performed this role since December 2003.

Under the new program, restructuring Iraq's banking sector will be a major challenge. The sector is dominated by state-owned commercial banks, which account for 90 percent of the banking sector's total assets (70 percent for Rafidain and Rasheed banks alone). The banks lack expertise in commercial banking and market finance. There is very little extension of credit to the private sector, and the banks' asset composition is heavily tilted toward government securities.

Compared with other banks in the region, Iraqi banks' deposit base and loan portfolio are small. Most banks lack the expertise to assess risks and, thus, few offer loans with maturities of more than one year. As a result, financial intermediation is weak (see Chart 3). Banks' total loan portfolio at end-2006 was only $2.2 billion (4 percent of GDP), mostly in the form of overdrafts. Total deposits stood at $12.9 billion (26 percent of GDP).



Under the program, financial and operational audits of the two largest banks will be undertaken and a restructuring program adopted, with IMF and World Bank technical assistance. Other structural reforms include modernizing public financial management and strengthening the accounting and reporting framework of the Central Bank of Iraq.

Outlook hinges on security

Iraq's medium-term outlook is favorable, provided security continues to improve. The sustainability of its external debt situation would, however, still require the third and final tranche of Paris Club debt rescheduling (worth 20 percent in net present value terms) planned for end-2008 and further progress in reaching debt reduction agreements with Iraq's other creditors. Disbursement of the last Paris Club tranche is contingent on good performance under the new Stand-By Arrangement.

Although much remains to be done, Iraq has registered a number of successes. Significant progress was made in stabilizing the macroeconomic environment and in advancing the structural reform agenda. The 2008 program will focus on similar objectives to capitalize on the momentum achieved by the first program and, in particular, to help the economy begin growing again. Continued progress, however, will depend on the success of efforts to stabilize the security situation and strengthen the political consensus.