NS 3041

1
The Iraqi Economy II EconomicPrograms at the
Local Level

• NS 3041
• Economic Development and
  
• Comparative Economic Systems
• August 2008
• Dr. Robert E. Looney
• relooney_at_nps.edu

2
Outline I

• Introduction
• Regional Contrasts and General Considerations
• Income Patterns
• Unemployment
• Development and Reconstruction Expenditures
• Internal Migration
• Development StrategiesGeneral Consideration
• Links with Counterinsurgency Strategy
• Economic Development and Provision of Essential
  Services
• Strategy Trade-Offs

3
Outline II

• Elements of a Localized Strategy for Iraq
• Relevant Studies
• Socio-economic Linkages
• Shadow Economy
• Deterioration of Social Capital
• Evolution of Insurgent/Criminal Networks
• Bottom-up Development Strategy
• Integrated Framework for Growth
• Implications for Local Projects
• Vocational Training

4
Outline III

• Questions? -- Break
• Implementing An Economic Strategy At the Local
  Level
• Micro-Credit
• CERP Program
• Provincial Reconstruction Teams (PRTs)
• Al Anbar Case Study
• Areas for Improvement
• Lessons learned -- Possible Strategies for the
  Future
• Suggestions for the Army

5
Regional Income Disparities
6
Employment and Wage Structure by Governorate
(2004)

• ID1450/

7
Iraqi Development and Reconstruction Expenditures
8
Availability of Goods
9
Internal Migration I

• 1.4 million refugees
• Tend to displace to an area where they have
  family or friends and the environment is
  considered safer -- typically an area with
  homogenous Sectarian composition.
• Northern Iraq
• Northern provinces outside Kurdistan are
  multi-sectarian melting pots that have complex
  patterns of migration. In Kirkuk, the situation
  is unstable.
• Sunni areas
• Many Sunnis from dangerous multi-sectarian
  communities, and cannot afford to travel abroad,
  have relocated to predominately Sunni Provinces
  such as Al-Anbar and Salahuddin. Many non-Sunnis
  have left these provinces.

10
Internal Migration II

• Central/Southern Provinces
• Large numbers of Shia left Baghdad for the nine
  predominately Shia provinces of central and
  Southern Iraq
• The majority will seek to settle in new areas
• Baghdad
• The number of displaced persons inside Baghdad
  has doubled since February 2006
• Eighty five percent of these migrants have
  relocated from one part of the city to another
• 72 are Shia Arabs
• 99 feel they are safer since they moved to
  neighborhoods controlled by their sectarian bloc

11
Internal Migration III

• Within Iraq, displaced persons strain local
  economies by
• Inflating rents, and prices of food and
  commodities
• Reducing local access to jobs, healthcare and
  fuel
• Several more stable governorates now restrict
  entry or closed governorates to migrants
• Karbala now requires new residents to demonstrate
  they have family in the local area to sponsor
  them.

12
Internal Migration IV
13
Elements of Development Strategy I

• The Counterinsurgency Field Manuel recommends a
  strategy that relies on first restoring essential
  services, then promoting economic development
• Essential services
• Should be restored immediately regardless of the
  security situation
• These include police fire protection water
  electricity schools transportation networks
  medical aid sanitation food supply, fuels and
  basic financial services
• Economic Development programs to improve living
  standards
• Includes job creation local investment
  clarifying property ownership and resolving
  conflicts protecting property rights market
  creation, and vocational training.

14
Elements of Development Strategy II

• The distinction between essential services and
  economic development is one of timing
• Restoration of services must be begun
  immediately. Economic development must often wait
  until security is restored.
• As a general rule, at present time, economic
  development should be the focus in peaceful
  regions such as Sahul, Irbil, Sulaimaniya,
  Qadisya, Misan and Muthanna
• Essential services are more important in the
  unstable areas of Ninevah, Baghdad, Babil, Anbar
  and Basra.

15
Elements of Development Strategy III

• The key is to demonstrate that programs are
  bringing prosperity to the average Iraqi
• Where possible, focus on economic development
  projects that have a quick pay-off and create as
  many winners as possible with a stake in the
  future
• Effectiveness is more important than efficiency
• More efficient, integrated state-of-the-art
  systems, like a national electricity grid, are
  fragile and vulnerable to the insurgency
• More robust systems, like community generators,
  are equally effective and much less vulnerable

16
Elements of a Localized Strategy I

• The security situation dictates the role of
  government in the economy
• Active government substitutes for the lack of
  markets
• Government focus should be on establishing an
  institutional framework that will allow markets
  to develop and grow
• The security situation and shrinking budgets also
  dictate strategy
• The first priority is to use aid-related funds as
  a tool to bring about stability, not long- or
  medium-term growth.
• This implies a bottom-up approach, rather than
  the traditional top-down strategy

17
Elements of a Localized Strategy II

• To deal with the insurgency, it is critical to
  address the way projects, programs and policies
  impact and interact with
• The informal/shadow economy,
• social capital formation
• Insurgency/criminal gangs.
• The object of policy is to create positive
  linkages between these elements and the economy
  so as to create virtuous circles of growth and
  development

18
Socio-Economic Linkages Insurgency
19
Large Shadow Economy
20
Deficient Social Capital I

• Social capital deteriorated significantly under
  Saddam and continues to deteriorate under today's
  stresses.
• Social capital can be defined as networks of
  relationships that bind people together
• Trust is a key element of Iraqi social capital.
• There are three main kinds of trust
• Ascribed Trust Kinship groups and family
  members.
• Process-Based Trust Individuals that have known
  each other for some time a key element in
  business networks.
• Extended Trust Transactions between individuals
  with limited information about one another

21
Deficient Social Capital II

• Currently in Iraq
• Most networks are built on ascribed trust
• A smaller number are built on process-based trust
• Few rely on extended trust
• Improving process-based and extended trust is
  critical to establishing a market based economy
• Restoring trust and social capital is a long
  process that can best be done through community
  development and the restoration of stability.

22
Insurgent/Gang Networks I

• Iraq exhibits many of the key elements described
  in the Third Generation (3G2) Gang Model
• Violent networks exist in the context of a state
  constrained by minimal capacity,
• The country suffers from is poor economic
  performance
• There are significant social, political and
  economic disparities
• Many Iraqi insurgent gangs have evolved over time
• Their influence has grown from street to
  sub-national level
• They have evolved from protective groups into
  prominent political and economic actors
• Gangs have been able to expand due to the vacuum
  created by state retrenchment, corruption and
  incompetence
• Gangs have increasingly turned to criminal
  activities in the shadow economy and use violence
  to increase their resources

23
Insurgent/Gang Networks II

• The 3G2 Model divides gang activity into 3
  generations
• Generation 1 consists of traditional street gangs
  which do not pose a major threat to security
• They are localized, turf-oriented, with
  inter-gang rivalries
• They lack sophistication and have a loose
  leadership structure
• In Iraq, they may protect ethnic or tribal groups
• They quickly exploited the vacuum after Saddam's
  overthrow
• They finance themselves through opportunistic
  criminal activity
• Generation 2 gangs are a major threat to security
  and law enforcement
• They evolve from the most successful Generation 1
  gangs through violence and intimidation and often
  have ties to the insurgency
• They have sophisticated structures, similar to
  businesses, and tend to think in markets rather
  than turf
• They finance their activities through shadow
  economy activities, like oil smuggling, drugs,
  and kidnappings

24
Insurgent/Gang Networks III

• Generation 3, the final stage of gang evolution,
  is a major problem for security
• Gen 3 gangs are highly sophisticated and have
  fully evolved political aims
• Their goals are power and financial acquisition
• They are protected by government officials, whom
  they have corrupted
• To increase their support and funding, they form
  foreign alliances with states like Iran
• They may evolve into enclave states that provide
  services and function as de facto governments

25
Insurgent/Gang Networks IV

• To combat the insurgency and slow or stop the
  formation and evolution of gangs, in addition to
  better law enforcement and security, it is
  necessary to
• Rapidly create jobs in the formal sector
• Reduce the size of the informal/shadow economy
• Increase the strength of the legitimate political
  sphere

26
Bottom-Up Development Strategy

• A bottom-up orientation that focuses on the local
  population is best for addressing Iraq's shadow
  economy, social capital deterioration and
  criminal/insurgent gangs
• Instead of a simple free market strategy, opt for
  an "evolutionary" development strategy that
  begins by focusing on a limited number of
  critical development constraints
• Use trial and error at local level to find out
  what works before making major commitments of
  funds and personnel
• Build on established institutions and traditions
  to prevent further economic disruption and social
  capital deterioration
• Sequence activities to generate a virtuous circle
  so that local Iraqis become winners invested in
  advancing reform process

27
Integrated Framework for Growth
28
Implications for Local Projects

• The following general actions are useful at the
  provincial and regional levels
• Improve essential services like electricity,
  water, fuel , sewage, focusing on robust, easily
  maintained technologies
• Encourage labor-intensive employment
  opportunities in agriculture and small business
• Employ local labor to improve the quality of
  transportation and infrastructure, i.e., phone
  system, roads, bridges, pipelines
• To reach those who would otherwise be locked out
  of the economy introduce
• Microfinance
• Vocational training
• Establish more efficient provincial government
  and institutions

29
Vocational Training I

• Vocational training is another key program at the
  local level
• It enables localities to draw on their strengths
  and put underutilized resources to use
• It helps solve the shortage of skilled labor,
  which surveys suggest is a major concern of
  private businesses in Iraq.
• Key elements of a setting up a vocational
  training program include
• Determining locally needed skills and desired
  qualifications
• Choosing a school site, keeping in mind that
  vocational training sites are an insurgency
  target
• Securing buildings and conceal students/instructo
  rs identities

30
Vocational Training II

• Other key elements of a setting up a vocational
  training program
• Training the trainer
• Balance language versus technical skills
• Consider team teaching or sending an Iraqi
  translator to school
• Selecting the students can be the most difficult
  challenge
• Be sensitive to ethnic and gender considerations
• Consider paying students for their participation
  or charging tuition to raise their stake in the
  outcome
• Remember that subsidies are required to cover
  travel and living expenses
• Set up a service to place the students in
  appropriate jobs

31
Questions -- Break

• Questions?
• Next Implementation --- Microfinance, CERP,
  PRTs

32
U.S. Aid to Iraq Overview

• Immense effort between 2001 and 2007 with many
  local successes. However many problems remain
• No meaningful measures of effectiveness developed
• SIGIR has documented immense waste and corruption
• Past aid program 95 dispersed
• Details of combined State and DoD FY2008 and
  FY2008 plan, program and budget request unclear.
  Congress unlikely to fully support request
• Serous shortfalls in qualified aid, PRT and EPRT
  personnel
• No clear plan to transfer success to Iraqi
  government management and funding

33
U.S. Aid to Iraq ( billions)
34
U.S. Aid Spending, Projects Completed
35
Microfinance Institutions (MFI)

• Microfinance institutions are a key component of
  bottom-up development
• Microfinance puts basic financial services within
  reach of the poor
• It provides small loans, typically for working
  capital
• By assessing small amounts of credit at
  reasonable interest rates, it gives people the
  opportunity to set up small businesses
• Based on informal appraisal of borrowers and
  investments, it makes capital available to those
  who would be turned down by conventional banks
• Records show that poor people are a good risk,
  with higher repayment rates than conventional
  borrowers

36
Microfinance in Iraq I

• Currently in Iraq there are 5 MFIs
• Three are run by international NGOs and two by
  domestic NGOs
• Together, they have twenty-six branch offices in
  fifteen provinces, with four more branches being
  organized
• Outstanding as of 2007
• 19,019 loans totaling 26,765,000 total loan
  value
• Average loan size 1,407
• Since their establishment, MFIs have made 52,768
  loans with a total value of 109,471,000.
• Less than 1 of MFI loans are delinquent 30 days
  or greater.
• This success rate is the result of careful
  selection of potential borrowers and proper loan
  management
• Additional grants to start up microcredit
  financial institutions are an excellent
  investment in both economic development and Iraqi
  goodwill

37
Microfinance Outreach, November 2006
38
Microfinance in Iraq II

• Microfinance is an indirect conflict resolution
  tool.
• Microfinance works best for poverty reduction but
  is also an efficient job creator. 
• Micro-loans create about one and a half direct
  new permanent jobs per every 2,000 loaned to
  small businesses
• These small businesses tend to provide essential
  goods and services that have stable demand over
  time (e.g. localized clothiers, small electronic
  retailers, grocers, etc.). 
• Military support of MFI should be invisible
• The greatest challenge is hiring and training
  quality MFI staff

39
CERP I

• The Commanders Emergency Response Program (CERP)
  enables commanders to respond to urgent requests
  for humanitarian relief and reconstruction
  assistance
• Under MNC-I 092, commanders are directed to use
  CERP funds to focus on projects that will employ
  substantial numbers of Iraqi workers.
• CERP funds can be used for goods or services, as
  long as the best effort is made to
  identify/employ local Iraqi firms.
• All projects must be coordinated with local Iraqi
  governorate and regional coordinators, civil
  affairs elements, and provincial reconstruction
  teams.

40
CERP II

• Since FY04, 2,315.9 million in CERP funds have
  been allocated to Iraq. These funds have been
  used for
• Emergency repair of critical facilities
• Critical infrastructure shortfalls that could be
  rapidly resolved
• Projects to reduce the risk of injury to the
  local populace
• Procurement of critical equipment to replace
  lost, stolen, and non-repairable items or to
  establish critical community essential services
• Rapid reconstruction following combat operations

41
CERP III

• Projects are chosen on the basis of
• How quickly they can be executed
• How many Iraqis can be employed
• How many Iraqis will benefit
• How visible the project is
• Approval levels
• MNC-I CG Projects requiring over 500K
• Division CG Projects requiring less than 500K
• Brigade/Lower At the discretion of the Division
  CG
• Projects exceeding 200K must be contracted by
  warranted contracting officer

42
CERP Aid Obligations 2003-2008
43
CERP Project Completions 2003-2008
44
CERP Project Selection

• How CERP projects are selected
• Commanders, in coordination with Iraqi government
  officials, agencies and other staff, identify
  projects to meet urgent humanitarian and
  reconstruction needs
• Units examine the proposed project, developing a
  statement of work or a project proposal that
• Describes what project is and what it will do
• Identifies the estimated cost of the project
  based upon similar projects and other supporting
  information
• Units provide information to the CERP Project
  Manager to identify it as a planned project

45
Authorized CERP Projects I

• Here are some examples of the range of CERP
  projects authorized in Iraq
• Water and sanitation
• Food production and distribution
• Electricity
• Healthcare
• Education
• Telecommunications
• Economic, financial and management improvements
• Transportation
• Rule of law and governance

46
CERP Authorized Projects II

• Range of CERP projects authorized in Iraq (contd)
• Irrigation
• Civic cleanup activities
• Civic support vehicles
• Repair of civic and cultural facilities
• Repair of damage
• Condolence payments
• Payment to individuals upon release from
  detention
• Protective measures
• Other urgent humanitarian or reconstruction
  projects
• Micro-grants

47
Areas Not Authorized for CERP

• Areas not authorized for CERP funding include
• Anything that directly/indirectly benefits MNC-I
  or coalition forces
• Entertaining the local Iraqi population
• Weapons buy-back programs
• Rewards
• The provision of firearms, ammunition, and the
  removal of unexploded ordinance
• Services duplicating those provided by municipal
  governments
• Support to individuals or private businesses
  (exception for condolence battle damage)
• Salaries and pensions funded directly by GOI.

48
CERP Allocation by Function
49
CERP Lessons Learned I

• As the number of CERP projects increase, valuable
  lessons have been learned
• The issue of project maintenance must be
  addressed while the project is being
  conceptualized so that the beneficiaries get a
  realistic idea of future costs.
• Transition of CERP projects to the GOI are more
  successful when local GOI ministries have been
  involved in the project throughout its life-cycle
• When the ministries trust the quality of
  construction, they are more willing to accept
  final product.
• Transition to GOI is difficult when GOI
  ministries do not know the contractor awarded the
  project.
• Ministries should be involved in the contractor
  selection process.

50
CERP Lessons Learned II

• Additional CERP lessons learned
• Dont let GOI ministries get too involved in
  projects
• Often ministries direct contractors to do work
  outside contract scope
• Work together before the project starts to define
  roles and responsibilities
• Be familiar with the local culture and the labor
  skills available in the project area
• Do not build a complex system if the user does
  not have training, funds or parts to sustain it
• Great benefits are usually obtained by providing
  Iraqis with vocational training in building,
  maintenance and repair
• Training Iraqis helps sustain the project and
  prevent rapid deterioration.
• Specific staff should be assigned to this task.

51
CERP Issues

• SIGIR and others have raised a number of issues
  about CERP
• No mechanisms exist for measuring the outcomes of
  CERP projects
• The high turnover of military personnel in Iraq
  produces little continuity in the management and
  oversight of projects
• Little emphasis has be placed on handing-over
  projects to Iraqis and, thus, insuring their
  sustainability.
• Spending CERP funds to meet local needs may
  conflict with PRT efforts to make local
  governments assume responsibility and work with
  provincial and national authorities to address
  problems
• Those allocating CERP grants are not development
  specialists and have been provided with little or
  no training in the selection and management of
  reconstruction activities

52
PRT Program I

• The Provincial Reconstruction Team (PRT) Program
  for Iraq began in mid-2005
• Under the program, the military provides
  protection to U.S. civilian officials and
  development specialists, allowing them access to
  parts of Iraq that otherwise would be
  inaccessible
• The purpose of the PRT Program is to help Iraqs
  Provincial and local governments govern
  effectively and deliver essential services.
• PRT teams, coach, and mentor provincial and local
  government officials in core competencies of
  governance and economic development

53
PRT Program II

• Toward the end of 2007, the PRT program consisted
  of
• 7 PRTs led by the United States and 3 led by the
  coalition
• 7 provincial support teams (PSTs), which are
  small cells of advisors
• PSTs reside on a military forward operating base
• They provide advice to provincial officials as
  needed
• 15 recently deployed ePRTs, embedded with brigade
  combat teams (BCTs) in and around Baghdad and Al
  Anbar province.
• They form Provincial Reconstruction Development
  Councils (PRDCs) to identify local projects that
  can be implemented with the help of increased
  U.S. security
• They help provincial governments improve their
  relations with the central government
• ePRTs show local governments how to more
  effectively use the Iraqi government funds
  allocated to each province.

54
PRT Program III

• The five main areas of PRT emphasis at the
  grassroots level are
• Governance
• Rule of Law
• Economic Development
• Reconstruction
• Political Reconciliation
• Results have been mixed, depending on the region,
  due largely to differences in local stability

55
PRT and EPRT Locations, March 2008
56
Security by Province
57
Transferring Provincial Control
58
PRT Stability Matrix I
59
PRT Stability Matrix II

• The Stability Matrix shows stability by plotting
  its two primary components legitimacy and
  effectiveness.
• Upper right -- Most stable. Authority has
  effective security forces, population supports
  authority and resistant to criminal activity
  Essential services are usually in place--good
  environment for emphasis on economic development
• Lower right population supports ineffective
  government authoritiescriminal and other violent
  activity frequently occur due to lack of
  government control some services, small
  projectsemphasis on up-grading local police

60
PRT Stability Matrix III

• Upper Left authoritarian model. Government able
  to deliver services and monopolizes use of force.
  Criminal activity low, but dissident groups have
  significant influence and must be engaged to
  bring about stability. Services, economic
  development possible, private investment
  unlikely.
• Lower left most difficult. Government
  ineffective, criminal elements run rampant,
  dissident groups, insurgency may thrive, creating
  instability few or no services -- economic
  activity on hold until stability restored.

61
PRT Economic Activity by Region I

• Northern Provinces
• There is healthy economic growth in Kurdish
  region
• As a result, they are able to attract
  international donors and investors
• However, shortages of fuel and reliable power
  constrain development in the other provinces
• PRT activity in the North
• The PRT is attempting to develop financial
  sectors and assist small business and
  agricultural efforts
• Their efforts to date are fairly small and focus
  on teaching management skills to provincial
  officials, rather than funding construction
  projects

62
PRT Economic Activity by Region II

• Western Province (Anbar)
• Efforts at economic development are underway but
  have been hampered by
• The lack of programs to create permanent jobs, a
  lack of fuel, and sporadic power access, which
  undermine factory restarts and other projects
• Initial slow spending of GOI funds for the
  reconstruction and rehabilitation of essential
  services
• PRT efforts in Anbar
• Since the arrival of the PRT in Mid-June 2007, a
  factory has been restarted and a main market
  reopened
• The PRT has also been teaching management skills
  to provincial officials

63
PRT Economic Activity by Region III

• Central Provinces (Baghdad, Diyala)
• Security issues and sporadic power supplies
  hinder growth in Baghdad
• North Diyala has stable growth South Diyala
  remains dysfunctional due to a tenuous security
  situation.
• PRT Efforts
• Although the lack of security hinders PRTs,
  efforts have been made to secure and reopen
  Baghdad's markets, promote micro-lending, and
  assist the government in determining the
  viability of state-owned enterprises
• PRTs are managing reconstruction efforts and
  working to teach their provincial counterparts
  how to take responsibility for maintaining their
  infrastructure.
• An example from Tikrit.

64
PRT Economic Activity by Region IV

• South-Central Provinces (Najaf, Karbala)
• The region is economically stagnant, with little
  evidence of growth or permanent job creation
• There is a pressing need to reduce unemployment
  to counter recruitment by the militias
• Security has restricted commercial credit and
  discouraged Iraqi and foreign investment in small
  and medium sized businesses
• Religious tourism and small-scale agricultural
  production are the main economic activities.
• PRT Efforts
• PRTs have opened business development centers and
  plan to use quick response funds to increase
  agricultural production
• The security situation limits PRT mentoring of
  Iraqi officials.

65
PRT Economic Activity by Region V

• South-Eastern Provinces (Basra)
• Until violence subsides, little progress can be
  expected
• Except for the oil industry and ports, there is
  little new economic activity
• Unemployment is 40-60 and subsistence
  agriculture is main source of jobs
• Efforts to restart small-to-medium sized
  businesses that flourished before 2003 have been
  stymied by lack of skills or interest.
• PRT Efforts
• The PRT has tried to relax travel and commercial
  restrictions between Basra and Kuwait
• PRTs plan to introduce a micro-lending program
  and encourage the start of small and medium-sized
  enterprises in Dhi-Qar

66
PRT Issues I

• SIGIR and others have reported a number of PRT
  problems stemming from the lack of security in
  some areas
• Travel by PRT personnel required a minimum of 3
  armored vehicles and 8 shooters
• Many PRT members cannot regularly meet with local
  government officials to carry out tasks.
• Many local Iraqis are too intimidated to meet
  with U.S. staff
• There is little coordination between PRTs and the
  U.S. military in places where security has been
  handed over to the Iraqis
• Shortages of basic equipment often hinder PRT
  efforts.

67
PRT Issues II

• House Armed Services Critique
• PRTs do not receive adequate support from the
  U.S. government
• They have been given no clear mission or
  operation plan
• There are no established metrics to judge PRT
  effectiveness
• There are no clear lines of authority, which
  complicates PRT funding by creating a confusing
  array of funding pots
• PRTs draw heavily on CERP money
• Funds from other sources, like USAID and the
  State Department can take months for approval
• These funds often come with restrictions that
  preclude meeting local needs.

68
PRT Issues Staffing

• Staffing Problems
• The State Department has had difficulty enticing
  its personnel to volunteer for PRT posts
• Some slots have been filled by military civil
  affairs personnel, who often lack the skills
  needed for local government, city management,
  business development and agricultural outreach
• The October 2007 SIGIR Report found that many
  PRTs were at half-capacity and had a mismatch of
  skills to requirements
• Of PRT 610 personal, only 29 were bilingual
  Arab-speaking cultural advisers
• PRT positions are often viewed as career
  disrupting, rather than career enhancing

69
What Works Al-Anbar

• The US military's experience in al-Anbar province
  has shown that these types of simple strategies
  work
• Demonstrate in practical ways that peace will
  bring progress and a better standard of living
• Incorporate local authorities into the
  development process by
• Asking them to design their own projects and
  present the completed plans for approval
• Using them to help identify contractors
• Requiring local officials to work through their
  provincial governments
• Establish working relationships with governments,
  NGOs and others involved in reconstruction
• Focus on smaller, cheaper, more visible projects
  that can be completed quickly

70
Provincial Reconstruction Status
71
Improvement Needed IRMS

• Iraqi Reconstruction Management System IRMS
• IRMS is an MNC-I mandated database for
  reconstruction projects
• It contains a lot of information, but it is not
  very accurate
• A recent MND-I assessment of IRMS usability
  issues found
• It suffers from poor connectivity
• Outside players are not updating information
• It is too difficult to correct errors
• There are no established rules for use
• No one person is in charge

72
Strategies for the Future

• A number of innovative approaches are available
  to consolidate and expand successful programs.
  Taking into account the needs for improvement
• Build on integrating and expanding the scope of
  existing programs, CERP and PRTs.
• Focus on short-run, employment-intensive projects
  at the community level.
• Let local communities set development priorities,
  draw-up budgets, and participate in
  implementation
• Local participation encourages social capital
  development and trust-building activities.
• Expand CERP to include funding for private sector
  activities larger than those supported by
  microfinancial institutions.
• Projects could involve expanding informal sector
  firms into the formal sector
• Give priority to labor intensive activities that
  produce an immediate increase in output.

73
Suggestions for the Army I

• Because of the security situation the Army will
  continue to play the key role in reconstruction
  and development. Some general guidelines in
  expanding economics-based counterinsurgency
  strategy
• Develop a two-tiered strategy to
• Assist with local community-based economic
  development of formal sector activity
• Create projects targeted to reduce the size of
  the informal/shadow economy.
• Projects and activities should be evaluated in
  terms of their contribution to these two goals,
  with traditional economic rate of return analysis
  secondary.

74
Suggestions for the Army II

• Let local governments take the lead and make
  their own mistakes.
• Select projects/activities that have linkages
  that make them capable of initiating a virtuous
  circle of economic activity and institutional
  change.
• Treat aid and economic development as short term
  operational necessities until sufficient security
  exists for longer term activities.
• Give top priority to local jobs, local services
  and other efforts that are immediately visible to
  and have an impact on local Iraqi citizens.
• Focus on sustaining and expanding key sources of
  government revenue including sources of local
  revenues.

75
Suggestions for the Army III

• Do not attempt ambitious efforts to restructure
  infrastructure unless these can be managed,
  maintained and implemented at the local level.
• Do not rely on or use US contractors or other
  outside contractors unless absolutely necessary.
• Provide on-going US, allied, or local military
  security or do not attempt the effort.
• Accept the fact that some level of waste and
  corruption is inevitable and that meeting urgent
  needs on local terms has the higher priority.

76
Questions?

• End--The Iraqi Economy II