Economic Questions Raised in Iraqs Draft Constitution

1
Economic Questions Raised in Iraqs Draft
Constitution

• Robert Looney
• Professor, National Security Affairs
• Naval Postgraduate School
• Briefing on Iraqs Draft Constitution
• Stimson Center, Dirksen Senate Office Building
• Washington, DC, October 4, 2005

2
Economic Evaluation of the Draft Constitution

• In Examining the Draft Constitution from an
  Economic Perspective, Several Questions Appear
  Critical
• Will it Assist in Stabilizing and Reviving the
  Economy?
• Or Will it Undermine the Economy Through Creating
  Internal Conflicts over Resources and Tensions
  Between the Countrys Main Regions?
• Will it Lay the Economic Foundation for a Stable
  Federation?
• Will its Main Economic Provisions Contribute to
  Long-Run Stability and Expansion of the Oil
  Sector? The Private Sector?
• Or, Will it Create More Uncertainty for Both?

3
Overview

• Key Economic Areas of Draft Constitution
• The Type of Economic System Iraq Will Have
• Continuation of Neoliberal Policies Initiated by
  the Coalition Provisional Authority Ineffective
  Under Iraqi Conditions Basic Premise Not Valid
  No Investment -- No Winners.
• May Lead to Competing Economic Systems in Three
  Main Regions Relatively Free Market Kurdish,
  State Control Sunni, and Islamic in the Shiite
  Areas.
• Oil Policy
• Much uncertainty over revenue sharing and
  management.
• Potentially Leaves new fields and fields not now
  in production under Discretion of Kurds and Sunni
  mainly in Sunni areas.
• To Much Uncertainty for Investors.
• Makes Stabilization of the Economy Very Difficult.

4
Possible Solutions Avoidance of a Classic
Rentier State

• Critical Variable in Analysis of Economy is the
  Rentier State Draft Constitution May Create
  Incentives for Bad Aspects to Prevail Regional
  Competition Over Rents, Broadly Perceived
  Inequities in Allocation, Revenue Instability,
  Corruption.
• Alternative Direct Distribution FundImmediate
  Distribution of 25 Oil Revenues to All Citizens
  -- Rapidly Creates A Middle Class With State in
  Success of Federation. Transparency Clauses Help
  Control and Reduce Corruption.
• Gives Sunnis An Alternative to Improve their
  Situation Rather Than Trying to Wrest Control
  Over Resources.
• Allows Central Government to Phase out Corruption
  Plagued Subsidy ProgramsMany of Which Have
  Assisted the Funding of the Insurgents Through
  Smuggling and Shadow Economy.
• Since Dividend a Function of Oil Production,
  Pressure on Insurgents to Cease Attacks on Oil
  Production and Distribution System May Greatly
  Reduce Popular Support for Insurgency.

5
Summary -- Iraq Key Constitutional Economic
Linkages
6
Summary Likely Outcomes

• In Assessing the Draft Constitution, One is
  Immediately Struck By the Realization that We
  Know Very Little About the Forces that Will be
  Unleashed if it is Passed.
• As it Stands, a Vicious Circle of Violence and
  Decline is Likely.
• However, There are Modifications That Conceivably
  Could Produce a Virtuous Circle of Growth and
  Prosperity
• While The Constitution Leaves Much To Be Decided
  By Future National Assemblies, In Terms of the
  Questions Posed Earlier, Will the Draft
  Constitution
• Assist in Stabilizing and Reviving the Economy?
  Unlikely.
• Create Tensions Between Main Regions?
  Probably.
• Contribute to Growth and Stability of Oil Sector?
  Unlikely.
• Encourage Regional Competition over Resources?
  Likely.
• Reduce Uncertainty for Private Investors? No.
• Lay a Foundation for a Stable Federation
  Unlikely.