Ryan Harvey

Privatizing Iraq: The IMF and the Economic Invasion

In History on October 22, 2006 at 5:45 pm

The U.S. invasion and occupation of Iraq has created one of the largest business opportunities since the Marshall Plan, the economic reconstruction after World War 2 spearheaded by the U.S. to insert it’s influence into the European economies. The Marshall Plan resulted in the formation of the International Bank for Reconstruction and Development (World Bank) and International Monetary Fund (IMF), along with the beginnings of USAID and the World Trade Organization (formerly the General Agreement on Trade and Tariffs).

STRUCTURAL ADJUSTMENT PROGRAMS

The IMF has come a long way since the late 40s, moving from the general reconstruction of countries destroyed during World War II into more offensive economic programs, largely starting in the intense days of outsourcing and “Free Trade” (read: Legal Theft) in the early 70s. The IMF and World Bank manipulated countries’ economies through debt repayment schemes called “Structural Adjustment Programs”, usually with the partnership of government, banking and corporate officials from the host countries.

SAPs imposed debt-repayment conditions that almost always require the opening of the country’s markets to corporations via the privatization of natural resources and other sectors of the economy (like the school system or medical services systems). It was said that the introduction of SAPs and the opening of markets would lead to the ability to repay the national debt and a stable economy; the actual outcome in almost all situations was a super-sizing of the debt due to the increasing amount of resources and wealth being taken out of the country by multinationals.

THE CHICAGO BOYS

In 1973 the CIA engineered the overthrow of Chile’s first democratically elected president, Salvador Allende. On September 11th troops stormed the capitol, killing Allende and seizing power for the U.S. Government’s choice, General Augusto Pinochet. During Pinochet’s reign, over 3,000 people, mostly union organizers and human rights and student activists, were “disappeared”, many being thrown into the ocean from helicopters. Pinochet has been hailed by such groups as the U.S. military’s School of the Americas at Fort Benning (Columbus, GA) Galtieri and Panama’s Noriega. The SOA (now the Western Hemisphere Institute for Security Cooperation or WHISC) commemorates Pinochet with a plaque dedicated to him in their lobby.

The less mentioned details about Pinochet’s reign was the complete restructuring of Chile’s economy under “shock therapy” reforms, designed and seen through by a group of economists from the University of Chicago headed by Milton Friedman. “The Chicago Boys” as they we’re known, oversaw some of the harshest privatization schemes to date and the highest rate of inflation in history.

SHOCK AND AWE

A declassified CIA “Counterintelligence Interrogation” manual from 1963 describes how a victim, when shocked in multiple places at once, is unable to identify the sources of pain due to a “suspended animation, a kind of psychological shock or paralysis . . . . [A]t this moment the source is far more open to suggestion, far likelier to comply.” This applied 10 years later to the economic plans of the Chicago Boys, creating so many economic changes and SAP conditions so quickly that no one could effectively challenge them. These “Shock Treatment” economic policies mirror the “Shock and Awe” mentality of the planners of the invasion if Iraq, using terror and fear to achieve economic aims.

The changes in Chile in 1973 mirror the U.S. invasion of Iraq for two main reasons. One, they both left a power-vacuum to be filled by a leader of the U.S. government’s choosing. Unlike Chile, the insurgency in Iraq has prevented the new U.S. puppet government from taking effective control of the country. Second, they both ushered in an almost immediate series of record-setting neoliberal economic reforms, creating the largest “free trade areas” to date.

SETTING THE STAGE

Two months before the invasion of Iraq, USAID began drafting a work order, to be handed out to a private company, to oversee Iraq’s “transition to a sustainable market-driven economic system.” The document states that the winning company (which turned out to be the KPMG offshoot Bearing Point) would take “appropriate advantage of the unique opportunity for rapid progress in this area presented by the current configuration of political circumstances.”

In May 2003, just 2 months after the invasion, the UN Security Council provided the US and UK with a mandate to take control of Iraq and to use the revenue generated by the export of oil to rebuild the country. This translated to the opening of Iraq’s markets to multinational control and the handing out of open-ended contracts to corrupt and politically connected contractors and construction and telecommunications companies, banks, insurance groups and other investors.

DIVIDING THE SPOILS

In the early months of the war, USAID and the Army Corps of Engineers (funded through the Pentagon) handed out 8 contracts to be bid on by 21 companies for shares in the Iraq market. The companies, all American, were hand picked by USAID and the Army Corps and were exclusively groups in bed with the Bush Administration. Stevedoring Services of America (SSA), the largest marine and rail-cargo handler in the U.S. and the largest terminal operator in the world, won a 4.8 initial contract to take over the port at Umm Qasr in Southern Iraq, while War-profiteer behemoth Bechtel received a multi-hundred million dollar contract to repair the port facilities. SSA is known to Longshore Workers in the U.S. as a notorious union buster as a primary member of the Pacific Maritime Association (PMA), the trade association responsible for paying Longshorers. Bechtel’s contract also included repairs of hospital, schools and ministry buildings, irrigation systems and transportation infrastructure.

Bechtel has a solid history of water privatization, including the Cochabama, Bolivia “Water Wars”, when massive protests literally drove Bechtel from the country after they tripling water costs for residents. Now in charge of Iraq’s water and irrigation systems, we can only imagine what hardships lie in store of Iraqis. Bechtel has a long-revolving door with the federal government. Caspar Weinberger was a Bechtel executive before becoming Ronald Reagan’s Secretary of Defense. Former CIA director William Casey was also a powerful Bechtel member. George Shultz, a current Bechtel board member, used to the president and director of the company before becoming Reagan’s Secretary of State in 1982. Shultz went on to become a member of The Committee for the Liberation of Iraq (CLI), a bipartisan-corporate lobbying machine urging an Iraq invasion. CLI also included Newt Gingrich, Sen. John McCain and Sen. Joseph Lieberman. Riley Bechtel, the CEO, was appointed by Bush to the Export Council, a group that oversees U.S. export market planning. Bechtel Senior Vice President Jack Sheehan advise the Pentagon through the Defense Policy Board and Senior Vice President Daniel Chao serves on the U.S. Export-Import Bank, a notorious funder of war profiteers, oil companies and far-right politicians.

ABT Assosicates, Inc, a Boston-based government and business consulting firm, won a $10-43 million contract to deliver health services, provide medial equipment and supplies, train and recruit health staff, provide health education and determine the specific needs of the health sector across Iraq. ABT is one the largest research and consulting firms in the world, specializing in privatization, consulting the privatization of Kazakhstan’s pharmaceutical industry and dipping its hands in the former Soviet Union’s health, finance and service delivery markets. They offer client states “technical assistance to facilitate policy reforms in countries moving from command economies to market-oriented economies.” They have a history with USAID-financed market-based reforms in the Global South

Creative Associates International, INC (CAII) was awarded a $1-62 million contract in the education sector, mainly increasing enrollment and quality and providing supplies to Primary and Secondary schools. CAII has been involved in post-U.S. intervention/war spoils in Angola, El Salvador, Guatemala and Nicaragua, to name a few. 90 percent of CAII’s business comes directly from USAID, who also gave them a $6 million contract to produce textbooks in Afghanistan. The CAII contract came over-top of the University of Nebraska at Omaha, who wanted to employ Afghans to produce textbooks as a job-creation plan. When CAII replaces the university, they out-sourced the printing to Indonesia.

Some of the contracts awarded were “no bid” contracts, meaning only one select company was chosen. While the other contracts provided a cheap-display of “competition”, a few politically connected U.S. firms bidding, these were hand-outs. The open-ended “cost plus” contract given to Halliburton subsidiary Kellogg Brown and Root (KBR) to repair petroleum infrastructure, involved no bidding at all and has no cap. So KBR can literally burn money to make more, then government will cover any excess expenses. The contract has already topped $15 billion. It also gives KBR the right to produce and sell oil inside of Iraq.

Dick Cheney was CEO of Halliburton from 1995-2000, during which time the company rose from the 73rd to the 18th largest Pentagon contractors. Years earlier, as Bush Sr.’s Secretary of Defense, Cheney hired Brown and Root to consult the Army around privatizing jobs within the military. Brown and Roots then won a contract providing logistics around the world for the Army Corps of Engineers. Cheney still receives between $100,000 and $1,000,000 a year in “deferred compensation” from the company. 95% of Halliburton’s political donations go to the Republican Party, totaling nearly $700,000 between 1999-2002.

International Resources Group (IRG) also won an no-bid contract for $7.1 million contract (initially a 90-day contract but renewable for 2 years) for “Personnel Support”, providing technical assistance for reconstruction. USAID contacted International Resources Group to discuss the post-war reconstruction contract in January 2003, while U.S. politicians were still pretending they wanted to avoid war, according to the Washington Post. Since 1978, USAID has given IRG over 200 contracts worth hundreds of millions of dollars and roughly a third of IRG’s business is done for USAID. Another large portion of its business comes from the World Bank and the Asian Development Bank. IRG also does extensive energy-related consulting work in the private sector, notably for large oil firms. Its contract to provide personnel services for the reconstruction of Iraq was “sole sourced,” meaning the job was simply handed to IRG. No other bids were solicited.

MISSION ACCOMPLISHED

In early May 2004, just a few days after his infamous “Mission Accomplished” speech, Bush officially proposed the “establishment of a U.S.-Middle East free trade area within a decade”. It was also in early May that he appointed Bremer to replace Jay Garner as head of the occupation forces, who had been on the job for only three weeks.

Just a month-after the September 11th attacks, Bremer had started Crisis Consulting Practice, a security company selling “terrorism risk insurance” to multinationals. Two of his lieutenants on the economic front were Thomas Foley and Michael Fleischer, the heads of “private sector development” for the Coalition Provisional Authority (CPA). Foley, a multimillionaire and a Bush-Cheney campaign “pioneer”, described Iraq as a modern California “gold rush.” Fleischer is the brother of former White House spokesman Ari Fleischer, who mysteriously left his post at the height of the war.

In Iraq, Paul Bremer took the place of Milton Friedman, declaring Iraq “open for business” within 2 weeks of being appointed by George Bush to oversee the occupation. This meant completely unrestricted imports: no tariffs, no duties, no inspections and no taxes, plus the laying off of over 500,000 public-sector employees, mostly soldiers but also teachers, doctors and more.

BREMER’S IRAQ

A month later, after his “open for business” declaration, Bremer announced the complete privatization of almost all of Iraq’s economic sectors, excluding of course oil. The oil would be sold by multinationals with some profits going to the gas companies, the rest to the “Iraqi Government” to be placed in the SAP fund for payment to multinational contractors like Bechtel. This was the largest privatization scheme hatched since the collapse of the Soviet Union.

In September he enacted Order 37, which lowered Iraq’s corporate tax rate from around 40% to 15%; Order 39, which allowed foreign companies to own 100 percent of Iraqi assets outside of the natural-resource sector. Investors could take 100 percent of the profits they made in Iraq out of the country, would not be required to reinvest and would not be taxed; and Order 40 gave foreign banks the same favorable terms. All they left of Saddam Hussein’s economic policies was the law restricting trade unions and collective bargaining!

THE SECOND INVASION

The Bremer laws were the go ahead for groups of multinational corporations and other profiteers who had been waiting for this moment for years. As Senator John McCain said in October 2004, Iraq was “a huge pot of honey that’s attracting a lot of flies.” A few months after the Bremer Laws a series of “rebuilding Iraq” trade shows and conferences were held in Washington, London, Madrid, and Amman.

To meet the call, several new consulting firms emerged, promising to help companies get access to the Iraqi market. On the top of the pile was New Bridge Strategies, started by Joe Allbaugh, former Bush-Cheney campaign manager. “Getting the rights to distribute Procter & Gamble products can be a gold mine,” one of the company’s partners said. “One well-stocked 7-Eleven could knock out thirty Iraqi stores; a Wal-Mart could take over the country.” General Motors was even planning to build an auto-plant in the early days of the occupation.

THE IMF STEPS IN

After the occupation began, Former Secretary of State James Baker was sent around the world to promote the cancellation of the debt incurred on Iraq by Saddam Hussein. This debt cancellation would not be unconditional however, as it would be dropped through an IMF Structural Adjustment Program with heavy strings attached.

The Paris Club, a gathering of leaders from wealthy and powerful countries, agreed on November 21, 2004 to drop 80 percent of Iraq’s debt in 3 stages. The first part would be the immediate unconditional cancellation of 30% of the debt. The second stage drops another 30% percent on the condition that Iraq accepts an IMF SAP that requires the privatization of most the economy and the opening of markets to so-called “free trade”. The third stage drops another 20% upon the enactment of the SAP and the fulfillment of IMF demands for privatization.

One of the more prominent conditions of the Iraq SAP is the ending of fuel subsidies. To meet the IMF demands and see through the second 30% debt cancellation, the Iraqi state must eliminate fuel subsidies and allow fuel prices to increase. As a result so far, fuel prices have increased between 400% and 800%. Another condition is the privatization all state-owned enterprises, which is expected to lead to 145,000 layoffs, in a country suffering between 30 and 60% unemployment. Perhaps the most important condition is the elimination of food subsidies, which 60% of Iraq’s population depends on.

Iraq’s debt is roughly 92 billion dollar, though only 39% is owed to Paris Club members. The Paris Club’s “debt relief” plan then leaves Iraq still in 8 billion dollars of debt, statistically very similar to Guatemala, a country long-ridden with IMF and World Bank load-scams. While the debt owed by Iraq to the IMF is only 1% of the total debt, the IMF has almost total control over the conditions of the debt-repayment plans and the strings attached to the cancellation of the total debt.

While the debt-cancellation and the “dropping of sanctions” appears a gesture of humanity to the people of Iraq, it is in reality a political and economic Trojan horse.. With a debt still larger than many countries of it’s size, Iraq is left with a total privatization of resources and industry, creating the conditions the IMF has perfected in the last 40 years, the control of the economy of another country by multinationals and U.S.-led international banks and investors.

IRAQI COUNTERPARTS

The IMF does not act alone in their SAP scams, they are always accompanied by corrupt local officials who sell their people out to multinationals to gain a piece of the pot, or are threatened with Allende’s fate. Iyad Allawi, a former high-level Baathist who fell out with Saddam and started working for the CIA, was a friend of the U.S. CPA who desired a slow assimilation of Iraq into the global economy. Ahmad Chalabi, another friend of the U.S. who’s family’s assets were expropriated during the 1958 revolution, wanted to see Iraq essentially flattened, which he called “de-Baathification.” His vision was an oil-economy feeding into an immediate assimilation into the global economy.

Both these men were allies of the United States who helped move along the process of privatization and the IMF-takeover of the economy.

SELLING IRAQ

Before the Bremer Laws and IMF conditions were set, multinationals and other profiteers were plotting the economic takeover of Iraq. The Iraq Procurement conference was held April 26-28, 2004 in London following the awarding of $18.4 billion in contracts from the US Congress and precluding the hand-over of Iraq from the Coalition Provisional Authority (CPA) to the new Iraqi government.

The conference was based around the Bremer privatization plans, including agriculture, communications, construction and housing, electricity, health, interiors, science and technology, trade, transport and water resources. It’s stated goal was to “procure a host of basic essentials to aid in rebuilding Iraq’s infrastructure; on a humanitarian level the aim is to provide the country with crucial medical supplies (through the involvement of corporations such as Orex, GlaxoSmithKline, Pfizer and Novo Nordisk) and agricultural tools and services (Agco and Dupont).”

The main sponsors of the conference were the Arab-British Chamber of Commerce and the Kuwait Petroleum Corporation, the cosponsors being Shell, Volvo, ChevronTexaco, Pfizer and Kodak, among others. Members of the Iraq’s interim government, Iraqi business leaders, and members of the Coalition Provisional Authority and U.S. Agency for International Development also attended.

The Iraq Mobile Telecommunications Conference was held July 21-22, 2005 in London to bring investment to the newly privatized Iraqi telecommunications sector by opening it up to competition. The conference was organized by the Iraq National Communications & Media Commission (NCMC) and the Iraq Development Program and with the support of the Iraqi Ministry of Communication.

A LONG PROCESS

All of this did not come out of the blue. Iraq follows a long line of countries overthrown or invaded to uphold European and U.S. interests, from the invasion of Cuba, Hawaii, Guam and the Philippines in 1898 to the CIA engineered coup in Iran in 1953, up to the World Bank and IMF SAP-invasions of South and Central America in the 70s and 80s.

Its no surprise then that Paul Wolfowitz went from being Deputy Secretary of Defense to the head of the World Bank, the IMF’s partner in crime. He followed the footsteps of Bob McNamara who did the same thing 3 decades earlier.

The oil fields and the geopolitical positioning of Iraq (it’s proximity to Israel and the looming fear of Chinese competition) made Iraq along-desired victory for the U.S. and its allies. Add to that the “blank slate” dream for the IMF’s economic hitmen and you’ve got a recipe for a corporate-military invasion and another chance for international investors and bankers to experiment with extreme neoliberal economic policies.

Decades of collusion with the Saddam Hussein government, a proxy war with Iran, 30 years of oil-profits, and a heap of arms deals set the stage for a future takeover of Iraq. Like Noriega before him, another former friend of the U.S. met the fate of invasion when he stepped too far outside the desires of U.S. business interests. Just as Chile was 30 years ago, Iraq is the a guinea pig for the IMF and it’s cadre of armies, businesses and international loan sharks to experiment new forms of economic and military control to ensure the profits of corporations and corrupt government officials.

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