Prometheus 6

Iraq Banks on Investors in Bid to Privatize
By Edmund Sanders
Times Staff Writer

October 20, 2003

…The newly appointed Iraqi industry minister plans to lease the Baghdad plant and 17 others to investors in hopes of nudging Iraq's quasi-socialist economy toward a free market.

The question now is, does anybody want them?

That's just one of many challenges facing U.S. officials as they move to privatize the Iraqi economy, a process seen as crucial to rebuilding the country. Other obstacles include a budding labor movement, newly unfettered foreign competition, a lack of security and, most recently, an emerging power struggle between U.S. and Iraqi officials over how best to proceed.…Already, the privatization program, which U.S. officials began mapping out before the invasion, is taking longer than many in Washington hoped. Thomas C. Foley, a big fund-raiser for President Bush who heads Iraq's private-sector development, now predicts that the transition may take three to five years. "It's going to take a long time to convert these assets," Foley said.

That timetable is disappointing news for the U.S.-led coalition, which was betting that the private sector would take the lead in reconstructing Iraq. Over the next three years, state-owned business will need at least $1 billion in subsidies just to pay workers and stay afloat, not counting needed repairs or reinvestment, according to the country's 2004 budget. U.S. officials are eager to shift those costs to investors.

…This month, Mohammed Tawfik Raheem, the new minister of industry and minerals, ran a full-page newspaper ad listing 18 state-owned firms that he intends to lease to investors for five to 10 years, a test run for privatization. Bids are due Nov. 11.

But Raheem opposes further steps toward actual sales of companies until a new Iraqi government is elected. "I won't talk about privatization because we don't have a law," he said. "We are not selling the companies."

Asked if one of Foley's mandates is to privatize the state-owned firms, Raheem said, "That's not his job. It's the Iraqis' job. We own the factories. If they are going to be privatized, it will be the decision of the owner, not someone who is an advisor."

Foley, a banker with the former Citicorp who went on to found a leveraged-buyout firm, insists there will be no fire sale and Iraqis ultimately will call the shots. But he suggested that Raheem lacks the authority to launch his leasing program, which took Foley somewhat by surprise when he saw the newspaper ad.

"It's not clear whether he has the power to implement that," Foley said. He also noted that some of the conditions of the program are likely to be unacceptable to investors, such as a ban on laying off workers.

(Foley later clarified by e-mail that other senior coalition advisors had helped develop the leasing program, which he said would not interfere with his efforts.)