The Coalition Provisional Authority's Director Of Economic Development: Building A Modern Economy For Iraq

Monday, March 1, 2004 - 01:00

The Editor interviews George B. Wolfe, Deputy General Counsel of the U.S. Treasury Department.

Editor: Would you provide our readers with something of your background and experience?

Wolfe:
I have been practicing law since 1978 in the private sector and, since July of 2001, as Deputy General Counsel at the United States Treasury Department.

Editor: How did you come to be named the director of economic development for the Coalition Provisional Authority in Iraq?

Wolfe:
At Treasury, I was very much involved in Iraqi economic matters, including the U.S. Government vesting, i.e., taking title to some $1.7 billion of Iraqi assets that had been frozen in the United States during the first Gulf War. Peter McPherson, a former Deputy Treasury Secretary, was selected to go to Iraq as the director of economic development, and he asked me to accompany him as deputy director. That was in May of 2003. When Peter left in September, Ambassador Bremer appointed me to succeed him.

Editor: So you became the government's economic point person for Iraqi reconstruction?

Wolfe:
As with most effective efforts, this effort was about teamwork. Among the other critical players was the director of private sector development, for example, who dealt with foreign investment, and the budget director.

Editor: When you arrived in Iraq in May, what was the state of the economy?

Wolfe:
It was in pretty bad shape. Decades of dictatorship, three unwise wars and years of international sanctions had run the economy into the ground. In 1979 Iraq had some $30 billion in hard currency reserves and no debt; when we arrived it had virtually no reserves and debt exceeding $100 billion.

Editor: Your predecessor, Peter McPherson, described the economy as having stabilized by September, but some distance away from substantial growth at that point. Would you agree?

Wolfe:
I would agree with Peter's statement at the time he made it. But the economy has begun to grow faster. And substantial growth may come quickly once the pieces are in place. Our focus has been to work with the Iraqis to build a platform to support future growth. Some of the important planks are the new currency, the availability of credit on a fair and transparent basis, provision for foreign direct investment and new tax and tariff regimes. We are reasonably optimistic about substantial economic growth in the near future.

Editor: You were recently quoted in the press about the continuing problem of corruption in Iraq. Please tell us about this issue.

Wolfe:
Moving to a free market economy is a challenge for any country emerging from a harsh dictatorial regime. In the past, family and tribal relationships were among the few things people were willing to trust, and those relationships may not succumb to free market principles overnight. The CPA and various Iraqi ministries are working to address the issue of business ethics. Just recently the Central Bank of Iraq issued a request for proposals - which was an exercise in transparency - directed at foreign banks and seeking their participation in the country's economy. I think this reflects the sincere desire of the Iraqis to embrace the transparent, competitive principles of a free market economy.

Editor: Please tell us about the employment situation in Iraq.

Wolfe:
There are recent signs of improvement on this front, although there is certainly room for more improvement. After decades of economic abuse, the goal is sustained economic growth and the jobs - permanent jobs - that derive from such growth. For starters, programs have been put into place to get people into gainful employment - cleaning up the irrigation canals is an example - but the permanent jobs on which the country can build its future are going to come into being over a longer period of time. Foreign direct investment, and the transfer of technology and training that accompanies it, will make a significant contribution to the creation of such jobs.

Editor: What about Iraq as an investment destination? Is money coming into the country? As long-term investment?

Wolfe:
There is intense interest by the international business community in investing in Iraq. This was evident at the October economic conference in Madrid, where a variety of Iraqi ministers addressed companies from around the world. At the moment, there are many foreign enterprises on the ground in Iraq, engaged in due diligence and examining long-term strategies for investment in the country.

Editor: What is the connection between security and investment?

Wolfe:
The more secure the environment, the more attractive investment in that environment is. In May, at the end of hostilities, the criminal elements that Saddam had released from his prisons caused a great deal of concern on the security front. That problem has been largely addressed. There are die-hard supporters of Saddam's regime, of course, but they are being dealt with as well. As the economy improves, and people obtain employment - that is, as they develop a stake in the economy - the security issues should recede. And, of course, that would serve to encourage investment.

Editor: You recently expressed your hope that Iraq might become an economic model for the Middle East. What would it take for that to occur? How long might such a development take to get underway?

Wolfe:
There are a number of things that are necessary for Iraq to become an economic model for the Middle East, including things such as the rule of law, the acknowledgement of property rights and the protection of such rights, the free flow of capital, and a government based upon representative democracy that supports free market principles. All of these things are being addressed by the Iraqis, with support from the CPA. If they get it right - and they are certainly going in the right direction Ñ Iraq will be an economic model for the entire Middle East. They are already taking steps to participate in the global economy - for example, by inviting foreign investment - that make them unique in the region.

Editor: We have been hearing about a great many negative things about Iraq and its economy recently. What are the positive things, the things that provide some hope for the country's future?

Wolfe:
We have seen a great many positive steps taken with respect to the economy. The banks are open. Checks are being cashed. Credit is available. There is a newly independent central bank. The entire country is now using a new, unified currency. From all over the world, experts are helping the Iraqis bring their economy into the modern world. Investors are looking at the country as a destination for long-term investment. All of this represents the good news, and on balance it is the good news that represents the reality of Iraq today. Unfortunately, it is the bad news that gets the attention. But the good news greatly outweighs the bad. There is much reason to be optimistic about Iraq's future.