Administrator’s Weekly Report
Economy
March 20-26, 2004
INFO MEMO
December 289, 2003
TO: The ADMINISTRATOR CPA Exec Sec
CPA Governance
CPA South Central
82d Abn Div Cdr
82d Abd Div G-5
304th CA Bde Cdr
CJTF-7 Polad (for LTG Sanchez as promised).
FROM: Keith Mines, Al Anbar Governance CoordinatorBill Wood, IMU
SUBJECT: HIGHLIGHTS
-- As of March 21, 2004, estimated crude oil export revenue reached $3.4 billion for 2004.
-- The CPA Administrator signed the 2004 revised budget this past week, and sent the approved budget to the Minister of Finance for execution.
I. BUILD FINANCIAL MARKET STRUCTURES
Modernize the Central Bank; Commercial Banking System; Re-establish Baghdad Stock Exchange; Restructure National Debt
§ The Central Bank of Iraq (CBI) authorized two new private banks that will open headquarters branches in Baghdad in early April: North Bank and Industrial Union Investment Bank.
§ The CBI authorized this week the First National Bank of Lebanon to open a representative office in Baghdad. This is the third office authorized under Article 7 of the Banking Law, joining the Housing Bank of Iraq and the Jordan National Bank.
§
The Bank Supervision team from U.S. Treasury completed their assessment of the Central Bank’s bank supervision process using the Basle Committee’s Core Principal Assessment. The Central Bank was in substantial non-compliance with the 25 assessment principals, and the supervision team made recommendations to comply with international bank supervision standards. The bank supervision team is conducting two one-week training sessions on the basics of bank supervision for approximately 60 supervisors from the Central Bank supervision staff.
§ The New Iraqi Dinar (NID) has now been stable the past month and a half. At the NID auction on March 25, the settlement price was 1,425 dinars per dollar, the same as the previous day. The value of dollars sold at the auction varied over the week from $7.7 - $27.3 million. The total net purchases of U.S. dollars by the Central Bank of Iraq from October 4, 2003, until March 25, 2004, was $1.49 billion. The exchange rate on the Baghdad streets was 1,420 dinars per dollar on March 25, the same as the previous day. During the past week, March 20- 25, the NID depreciated 0.5 percent against the U.S. dollar.
§ New Iraqi Dinar monthly fluctuation:
§ December 26 – January 25: NID appreciated 18.4 percent
§ January 26 – February 25: NID depreciated 4.4 percent
§ February 26 – March 25: NID appreciated 0.7 percent
§
Source: CPA Senior Advisor to the Central Bank of Iraq
Source: CPA Senior Advisor to the Central Bank of Iraq
The annualized weekly volatility of the new Iraqi dinar this past week was 1.1 percent.
The following chart shows the month/month change in Consumer Price Index (CPI) from January – February 2004 by category. The Iraqi Central Statistical Office (CSO) in the Ministry of Planning and Development Cooperation conducts the surveys and calculates the CPI. The CPI is not seasonally adjusted, but CPA advisors are working with the CSO to include this type of analysis. The average month-to-month percentage change in the CPI from August 2003 – February 2004, was 3.7 percent. The month-to-month percentage change in the CPI from January – February 2004, was -5.3 percent. Inflation has actually decreased the past two months, confirming some recent polls showing that people believe prices had decreased from January to February. The weighting for the CPI is based on information gathered in the 1997 census. The CSO will update the CPI weighting after conducting a new census.
Source: Iraqi Central Statistical Office
The following chart shows the year/year change in the CPI, from February 2003 – February 2004 by category. The CPI increased by 27.9 percent over the course of a year. While an annual inflation of this magnitude is rather high, for comparison, the average annual percentage change in the CPI from 1991- 2002 was 115 percent. In post-conflict situations, and compared to Iraq’s recent history, this inflation rate is much better than expected.
Source: Iraqi Central Statistical Office
The Iraq stock exchange continues to plan for an April opening. The Iraqi Governing Council is reviewing the securities law.
II. DEVELOP TRANSPARENT BUDGETING AND ACCOUNTING ARRANGEMENTS
Redrafting and Execution of 2004 Budget
The CPA Administrator signed the 2004 revised budget this past week, and sent the approved budget to the Minister of Finance for execution. The revised budget totals are $19.927 billion, an increase of $6.51 billion (48 percent) over the initial 2004 budget. Moving from the 4-tier to the 11-tier civil salary scale and hazardous duty payments increased expenditure by $480 million, and required fuel imports increased the budget by $2.1 billion, among other expenditure increases.
In the finalized budget, salaries account for 12.7 percent of the budget, the Facilities Protection Service receives 0.3 percent, capital costs are 12.7 percent, and the operating costs (not including salaries) represent 74.3 percent of the budget.
The estimated revenue for the 2004 budget is $14.486 billion, consisting primarily of $14.2 billion in projected oil revenues. The reconstruction levy and other minor taxes provide the balance of the estimated revenue. The $5.41 billion of uncommitted funds remaining in the DFI account on December 31, 2003 ($4.4 billion greater than projections in October 2003), and transferred assets from abroad ($200 million) will finance the budget deficit, resulting in ending financial capital worth $170 million.
§ As of March 25, the balance in the Development Fund for Iraq (DFI) was $7.3 billion, comprised of $6.3 billion in the original Federal Reserve Bank of New York (FRBNY) account, and $1 billion on deposit in DFI-Baghdad. Of this, $4.1 billion is already committed to projects, and the remaining $3.2 billion is slated for projected 2004 budget items. Since establishment, the DFI investment program at FRBNY earned $17 million in interest. As of March 25, the total payments out of the DFI amounted to $7 billion.
§ State Department and U.S. Agency for International Development (USAID) assistance to Iraq disbursed in FY 2003/2004 totals $3.2 billion as of March 26, 2004:
§ USAID/ Asia and Near East (ANE): $2.6 billion
§ USAID/ Office of Foreign Disaster Assistance (OFDA): $101 million
§ USAID/ Food for Peace (FFP): $426 million
§ USAID/ Office of Transition Initiatives (OTI): $104 million
§ State Department/ Bureau of Population, Refugees,
§ and Migration (PRM): $39 million
§ The Program Management Office (PMO) intends to commit $10.4 billion (56 percent of the $18.4 billion supplemental) toward contracts by July 1, 2004. As of last week, $4 billion are currently committed to Iraq relief and reconstruction efforts, 39 percent of the July 1 goal. As of last week, $2.1 billion of funds are obligated with contractors (20 percent of the committed fund’s goal). The following chart shows the money committed by sector against the July 1 target as of March 24.
Source: Program Management Office
Section 2207 of the Emergency Supplemental Appropriations Act for Defense and for the Reconstruction of Iraq and Afghanistan, FY 2004 (Public Law 108-106) enumerates the allotments granted to CPA for each sector and levies a quarterly reporting requirement to Congress detailing PMO’s spending.
III. PRIVATE SECTOR INITIATIVES
Streamline existing commercial code/regulations; Facilitate lending to private businesses; Technical Assistance for Small and Medium Enterprises (SMEs); Iraqi Participation in Reconstruction Subcontracts; Business Development
The Minister of Trade signed all instructions for the different types of corporate registration (foreign branches, domestic companies, domestic companies founded by foreigners), effective immediately. CPA will assist the Ministry of Trade with the implementation of new systems and hardware at the registrar.
CPA continues to follow-up with companies that participated in the foreign investment road show in Europe. Insurance is a major concern for potential investors, and CPA is working to understand insurance options for companies who are interested in investing here. CPA is updating the investor packet to reflect any new information.
IV. DESIGN OIL TRUST FUND
Proposal for Oil Trust Fund
As of March 21, 2004, estimated crude oil export revenue reached $3.4 billion for 2004 (crude oil export revenue for 2003 [June - December] was $5.1 billion).
V. LAY FOUNDATIONS FOR AN OPEN ECONOMY
Provide IG Staff Capability; Trade Bank; WTO Observer Status; Draft Intellectual Property law to IGC by April 15, 2004; Develop Framework for Collateralizing Movable and Immovable Property
As of March 24, the Trade Bank of Iraq has issued 123 letters of credit, totaling $516.3 million, covering imports from 24 countries. An additional 36 letters of credit are pending, including one letter of credit that will be guaranteed by the Export-Import Bank of the United States and 13 Oil for Food letters of credit.
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VI. PURSUE NATIONAL STRATEGY FOR HUMAN RESOURCES DEVELOPMENT
Begin to employ workers in Public Works programs around the country
The Ministry of Labor and Social Affairs (MoLSA) operates 17 employment centers nationwide. MoLSA is on target to have 28 centers nationwide openby June 30. The Baghdad employment center registered 2,171 new job seekers this week, bringing the total registered job seekers for Baghdad to 51,303. The Baghdad employment center also placed 326 unemployed people in permanent jobs this week. MoLSA is beginning to collect data on registered job seekers for all of its employment centers, and will report this in the coming weeks.
Combined Joint Task Force 7 (CJTF-7) Civil Affairs units estimate that the CPA has created 394,717 jobs for Iraqi citizens (46 percent of the CJTF-7 target of 850,000):
Security/National Defense employs 229,665
Regional Jobs Programs employ 42,521
CJTF-7 employs 51,673
Civilian contractors working under CPA contracts employ 69,308
Governorate Teams employ 1,550
VII. INITIATE PUBLIC SECTOR MANAGEMENT REFORM
Civil Service Salary Review
Welcome Home - Information Management Unit Why are the Attacks Down in Al Anbar Province – Several Theories
1. Over the past month attacks against Coalition Forces in Al Anbar province have gone from over 20 per day to next to none. There are a number of theories for why this is. It is entirely possible that it is merely a blip on the screen or a statistical aberration and we will return to larger numbers of attacks, but it has held for nearly five weeks now and both military commanders and Anbar’s citizens are starting to openly talk about it and offer their theories for why it is happening. Among the reasons given:
Ø Rounding up the Bums: MG Swannack and all military commanders (as well as GC) believe that the many high yield raids of the past weeks have made a difference both in getting off the streets some of the leaders and financiers of the resistance and especially some of the technical experts that attackers rely on to carry out their attacks. This has had the spin off effect of causing others to go underground out of fear that they might be next. Most raids also leave in their wake a number of innocents who were either rounded up and detained or had their houses busted up. These can conceivably lead to bitterness over the occupation and spawn new attacks. But there appears to be sufficient care in how the attacks are carried out, adequate information in the community about the mild reality of detention, and sufficient civil affairs clean up afterwards that this has not been a major factor.
Ø Crossed the Line: Violence in Iraq is a form of political discourse as well as being culturally acceptable for settling disputes and scores. Thus for a people which is nearly universal in its opposition to being occupied, attacking the occupier is a natural reaction and is widely accepted, even by those who are friendly to us. “It is nothing personal,” one businessman told me, “I like you and believe you could be bringing us a better future, but I still sympathize with those who attack the coalition because it is not right for Iraq to be occupied by foreign military forces.” Thus a low level of violence has been widely accepted in Al Anbar and those carrying out the attacks have even been the recipients of admiration and praise. But with the spate of attacks in mid to late November, culminating with the shootdown of the Chinook, there may have been a sense that the insurgents had crossed a line. This was reinforced strongly by General Abizaid when he came here on the heels of that incident and told some 70 Sheikhs and community leaders that he planned to unleash hell if they kept it up. It was further reinforced by the dropping of several JADMs which may have served to get the attention of the province. It is possible that Anbar’s leaders realized they had crossed a line and reeled the attacks in.
Ø Operational Pause: A boring theory is that the terrorists are in an operational pause, needing to regroup after the recent spate of roundups. There are very few persons we have met who subscribe to this.
Ø Occupation Ending: A number of individuals have expressed satisfaction at the announcement of the new political calendar, although they don’t appear to fully understand it. What has caught their attention is the simple expression that in June a sovereign Iraqi government will be in place. What they have gotten wrong is the idea that the military will be leaving Iraq in June, which one individual said he was sure was a major factor in the diminishing attacks. Oh well, this is one time it might be best that folks don’t fully understand things. By June, when there is a transition of the force rather than a pullout, we will have a new set of challenges anyway, but if this bought us some months of peace it will be worth the confusion.
Ø Project Money Flowing: Some individuals have expressed satisfaction that project money is flowing in greater quantities and believe this has made a difference in the public perception toward the occupation. While the amounts of money are still modest, especially in Fallujah, there are a number of visible projects ongoing that have employed some people and given the appearance that help is on the way.
Ø Engagement: We’ll take some credit here. We have been engaging widely with all the various groups of losers in the new Iraq – intelligence officers, ex-Ba’athists, ex-Army. While many are tiring of the refrain that if you stay with us things will get better, for some they actually have improved and that may have given hope to entire groups. The Veteran’s Affairs office, for example, has created some very positive interaction with the ex-military, and it has helped some of the senior leaders to go on to employment. The simple fact that we are engaging with these people sends a positive signal, even though many others are still waiting for something that will help them.