Our Iraq Ambassador's Kooky Economics

The long-anticipated joint congressional testimony of Gen. David Petraeus and Ambassador to Iraq Ryan Crocker is now history, and the event's few fireworks have by now been widely documented. Of them, perhaps the most noted was the men's relative dispositions -- one cavalier, the other more so.

The conventional wisdom had been to expect kinder depictions of broad progress from the general than from the ambassador. What we saw instead was precisely the opposite. Both men were optimistic -- more so than Democrats, moderate Republicans, and many other critics thought reasonable. But it was Crocker, not Petraeus, who painted over his mission's most pressing concerns.

Perhaps Crocker's single biggest claim during his two days on Capitol Hill was this: "The IMF estimates that economic growth will exceed 6 percent for 2007." It's a true statement as far as it goes, but the International Monetary Fund's executive board reported the figure with less enthusiasm. "Economic growth has been slower than expected," the IMF fretted, "mainly because the expected expansion of oil production has not materialized."

Indeed, it's typical for a country as damaged as Iraq to see its economy fluctuate wildly, resulting in spurts of growth much more substantial than 6 percent. In fact, Iraq's GDP has varied greatly since the 2003 invasion. It climbed 46.5 percent from 2003 to 2004, after having fallen 41.4 percent between 2002 and 2003, according to the Brookings Institution's Iraq Index. In other words, though 6 percent would constitute significant growth for a developed nation like the United States, it is nearly meaningless for a country that's experienced as much turmoil as Iraq.

And even if the figure had been more impressive -- two or three times its reported value -- it might still be irrelevant to the great majority of Iraqis, who don't benefit from government salaries or oil industry profits.

"The IMF likes to use macroeconomic aggregates, but these are pretty irrelevant for today's Iraq," says Robert E. Looney, a professor of National Security Affairs at the Naval Postgraduate School who has written widely on developing economies. He cautions against putting too much stock in Crocker's numbers. "The figures are all over the place."

"These are just very rough approximations," Looney explains. "I believe the IMF is largely basing their estimates on oil revenues and government salaries. Clearly, for the man in the street these figures have little meaning. Unemployment is around 40 percent by most estimates. I think most experts feel average income levels in the country are about what they were in 1980."

Ambassador Crocker pointed to other metrics as well. He nodded at increased employment in reconstruction zones, capital investment of oil revenues and local business development in some provinces. He also pointed to the Iraqi cellular spectrum. "An auction of cell phone spectrum conducted by PricewaterhouseCoopers netted the government a better than expected sum of $3.75 billion," Crocker boasted.

It's another statement that doesn't convey very much in real terms. The cell phone market in Iraq is indeed growing fast, and it's that market that drove competition for the country's wireless spectrum at last month's auction. But a rapidly growing cellular market is both difficult to quantify and, ironically, can be a sign of economic weakness.

Alex Rossmiller worked in Iraq as an intelligence officer for the Department of Defense. He says "cell-phone use in Iraq is skyrocketing, primarily because the land-line infrastructure is so degraded, both from neglect during Saddam's rule and from our military operations against communications facilities in 2003."

"In the first couple years after the invasion," he adds, "one of the 'good news' stories was always the number of cell towers built and phones sold."

Telephones of any variety are a largely new thing for Iraqis. Cell phones were almost nonexistent in Iraq before the war, and only about 1 million Iraqis had working landlines. Today it's difficult to know how many Iraqis actively use cell phones -- in part because of the frequency with which contracts lapse -- but estimates range from about 7 to 12 million, a large number and sizable range in a poor country of 25 million; certainly greater than the number that use land-based telephones, which is still estimated to be about 1 million.

But Daniel Sudnick, who worked at the Coalition Provisional Authority as Paul Bremmer's senior adviser for communications, described it as an "irony" that part of the reason the cell phone industry has flourished is that resistance fighters don't often attack towers and other cell phone infrastructure, for a simple reason: They depend upon mobile phones, too. Moreover, Sudnick says the unstable monthly contracts are evidence of a broken system. "The economic reality in Iraq hasn't changed fundamentally since I've been there. They don't have a reliable, robust banking system over there. It's still a cash economy. And the only way to retain payment is with a prepaid system."

Crocker granted that the Iraqi economy is anything but healthy. "The Iraqi economy," he conceded, "is performing significantly under potential. Insecurity in many parts of the countryside raises transport costs and especially affects manufacturing and agriculture. Electricity supply has improved in many parts of the country, but it remains woefully inadequate in Baghdad." But he'd have been well served to stop there, because the lipstick he smeared on that pig only made it uglier.

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