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Experts Discuss Iraq's Economy With US Senators

A U.S. Senate panel has finished three days of hearings into conditions in Iraq. In the final panel discussion on Wednesday, experts offered suggestions on improving Iraq's battered economy.

The three experts who appeared before the Senate Foreign Relations Committee all agreed that the while Iraq's economic challenges are steep, the lack of security remains the country's biggest problem. Keith Crane is a senior economist at the RAND Corporation.

"There is a great deal of lawlessness in Iraq and not just with the insurgency," he said. "Until people and business people feel comfortable on the streets, are not afraid of kidnapping or robbery or extortion, the economy is going to have a great deal of problems getting on its feet."

Panel experts acknowledged that the weak economy and the lack of security are related. They said creating jobs and improving basic utilities such as water and electricity service could alleviate some frustration with the central government and foreign troops.

Mr. Crane said Iraq's biggest economic problem is poverty, and the best way to lift incomes is to encourage the growth of small businesses.

"The economic environment is such that it has been very difficult for people to prosper," said Mr. Crane. "So the big focus should not be on creating jobs that in many cases destroy value and saddle the Iraqi government with another very large government subsidy, but rather clear the way as much as possible to make it possible for these small businesses to prosper and grow."

The sale of oil from Iraq's vast reserves is by far the largest source of income for the government. Iraq has the second largest reserves in the world, but because of decades of neglect and its current problems with sabotage and corruption, it struggles to produce just half of the oil it did in 1979.

Experts said reviving the oil industry could unite Iraqis in a common mission and provide critical funds for development. But Frederick Barton of the Center for Strategic and International Studies says Iraqi officials have so far avoided discussing how oil revenues would be divided.

"The heart of this is wealth sharing," said Mr. Barton. "And that wealth sharing argument is going to compound the difficulties of the constitutional process. It has not been resolved, it has not been addressed directly. I would suggest that a good wealth sharing model might be one that gives one third of the revenues to the central government, one third of the revenues to the governors, and one third to the people."

But Fareed Mohamedi, an energy expert with PFC Energy, an international consulting firm, argued that by splitting up the oil revenues, the government risks fracturing the country.

"I disagree with this issue of fracturing oil revenues or partitioning it off between federal and provincial and the people," he said. "Especially if you divide it in an automatic formula between central and provincial, you'll get a Nigeria situation. And in Nigeria the politics has organized itself to capture national rent. And so you've got this constant fracturing that's going on and constant strife."

Although the experts disagreed on specific economic plans, they agreed that so far economic aid programs have fallen short. Frederick Barton says that to improve Iraq's economy, a single principle should be applied to every program.

"The core idea is to put the Iraqi people first," said Mr. Barton. "Every program and every approach, every expenditure needs to ask, 'Are we maximizing the engagement and the ownership of individual Iraqis, are we giving them more opportunities to take charge of their futures?' Few initiatives up to now have made this their central organizing principle."

Mr. Barton says the ongoing insurgency has limited opportunities for economic development. But he says a strategy for improving the economy is also a strategy for weakening the insurgency.